Stocks ended the day lower by 12 points on light volume overcoming an early selloff to close at 16,014. The Dow continues to trade at the 16,000 support level which is about 11% off the 18,000 mark it hit back at the beginning of December. While oil has been the primary concern for investors the latest item to pressure stocks has been a precipitous fall in the value of bank stocks in Europe. Up until January the gurus were saying that Europe’s economy was undervalued and poised for a rebound but since then it has been simply “under” and the bank selloff is renewing talk of rising financial stress in the Euro Zone.
Things in the oil patch continue to resemble 20 miles of bad road! Yesterday Diamond Offshore suspended its dividend and today Anadarko Petroleum cut its dividend by 81%. Meanwhile Iran has increased oil production by 80,000 barrels per day in January and Iraq’s production has increased by 50,000 BPD. The IEA said that current overproduction is near 2 million bpd and with no sign of production cuts out of the Middle East where an all-out price war between global energy exporters is taking place. It’s a race to the bottom of the barrel! We might soon see a “buy one get one free” special on Russian oil as they try to compete. At the close today WTI crude fell 4.1% to $28.47 a barrel.
Gold and U.S. treasuries usually trade in opposite directions but in today’s world they are positively correlated. Gold continued to trade near an 11 month high dropping $8 an ounce to day to close at $1,189. The boys over at BTS Capital noted in a research report that US Treasury bonds are receiving a strong bid from foreign private investors because of moves by the Japanese gubment to assume a negative interest rate policy. They figure that under current conditions the yield on the 10 year Treasury could fall to 1.5% from its current level of 1.73%. Gold and treasuries doing well is like chickens and bird dogs playing together in the back yard. Tis a rare sight indeed!