Monday, January 24, 2011


Curious action today.

From my perch, it looks manufactured (i.e., program driven).

Maybe Mr. Market has a mission (i.e., DJIA 12,000), but there is conspicuous weakness in the financials and selected commodity plays.

The Specter of Profit Margin Pressures in 2011

Corporate profit margins are among the most mean-reverting economic series extant.

Both MCD and HAL are trading lower on concerns about fourth-quarter profit-margin pressure (reported this morning).

Despite the expected growth in U.S. capacity utilization this year, disappointing margins (inability to pass on higher input costs) remain a possible 2011 feature.

Run, don't walk, to read '12 Reasons Meredith Whitney Is Wrong About the Muni Crisis' on Business Insider.

It is my view that a classic buying opportunity might be emerging in the municipal bond market.

Eurozone PMI Beats Expectations

The eurozone's January flash purchasing managers index comfortably beat expectations, rising to 56.3 against expectations and December's reading of 55.5.

Not surprisingly, Germany provided a boost as stronger service sector activity supported the gains.

I suspect that the austerity measures imposed by the weak links of the eurozone will be felt in the purchasing managers index in the months ahead.

Gold bulls are clinging to the tired thesis that the world's central bankers are in an inflation/money-printing action that should support higher gold prices. Unfortunately, for those bulls, many non-U.S. central banks are hiking interest rates and restricting credit. Moreover, our Fed seems likely to be on the last leg of quantitative easing, which is not likely to be advanced further than QE2 beyond midyear.

I continue to view the price of gold as exhibiting wild volatility (particularly against its steady price appreciation over the past decade) and ending the year about $150 per ounce lower than it is today.

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