The Dow Jones Industrial Average added 111.32 points (+1.09%, 10,296.85) with 28 of 30 companies finishing with gains while the S&P 500 rose 14.13 points (+1.30% ,1103.32).  The Nasdaq 100 lagged behind, gaining only 16.20 points or 0.92% (1,776.92)

Treasury Secretary Timothy Geithner defended the largest budget ever proposed in the history of the world, as Senators grilled him on President Obama’s new $3.8 trillion budget, fully loaded with a $1.56 trillion deficit.  At the same time, Paul Volcker was defending legislation to limit proprietary trading by banks.  Somehow, someone got the idea that proprietary trading caused the credit crisis.  Back when professional proprietary equity trading was taking off (prop day-trading), it seemed every evil deed within 50 miles of Wall Street was blamed on ‘proprietary trading’, ‘fast money trading’ and ‘day traders.’  I was a prop trader for six years and from what I remember, the people that knew the least about trading always blamed trading, even when it had absolutely nothing to do with trading.  “Deja vu all over again.” (Yogi Berra 1960)

New York spot gold added another $8.30 an ounce (+0.75%, $1,113.90, 4:32 p.m.) after popping up $25 yesterday as the PowerShares DB US Dollar ETF (NYSE: UUP) looks like its recent rally is over.  The UUP lost 0.34% today as it closed below its 200 day exponential moving average and also broke below the uptrend line that has been in effect since January 14th.  Nothing moves straight up or down in the financial markets so, while the UUP’s medium term trend is still up, the short term picture is down.  The UUP closed at $23.27 and the 200 day EMA is at $23.31.  The relevant support levels below are $23.16 (top support) and $22.90 (50 day EMA).

Oil is on fire, literally and figuratively, as a cold winter in the United States has propped prices up and Nymex crude gained $2.64 a barrel (+3.55%, $77.07, 4:32 p.m.) for a second straight very strong day.  Strength was seen in most commodities and the record $1.56 trillion proposed budget deficit cannot be ignored here.  If we start running the dollar printing presses like that budget says, while holding interest rates low to create jobs, some very nasty inflation will not be far behind.

PNC Financial Services Group (NYSE: PNC) is going to offer $3 billion of common stock in order to redeem $7.6 billion of preferred shares it gave the U.S Treasury for a TARP loan.  One by one the private firms are paying the TARP back with interest and click here for a great web page that tracks where all the money went.  From what I can see Fannie Mae, Freddie Mac, General Motors, Chrysler and AIG have all our tax money.  I hope Volcker makes sure the auto companies, government sponsored entities (Fannie and Freddie) and insurance companies are not engaged in proprietary trading to protect us from more economic calamities.

We have MBA Purchase Applications reporting at 7 a.m. tomorrow, the Challenger Job-Cut Report at 7:30 a.m., ADP Unemployment at 8:15 a.m., the ISM Non-Manufacturing Index at 10 a.m. (51.0 expected) and the EIA Petroleum Status Report at 10:30 a.m.  Watch the oil market around that EIA report as the 6% gain in crude in the last 2 days will set oil up for a plunge if the numbers do not come in bullish.

Selected earnings estimates for Wednesday, February 3, 2010:

AFFX -0.10 after the close, AKAM 0.43, AMP 0.75 atc, ARW 0.61, AIZ 1.01 atc, BDK 0.77, BRCM 0.44 atc, CSCO 0.35 atc, CMCSA 0.27 before market open, DBD bmo, FNF 0.22 atc, HNT 0.67 bmo, HMC bmo, IP 0.23 bmo, ITT 0.93 bmo, WFR 0.00, MWW -0.01 atc, NOV 0.77 bmo, ONNN 0.14 atc, PFE 0.50, RL 1.01 bmo, RVSN 0.17, R 0.47, SLAB 0.62, SPF 0.02 atc, TMX 0.40 atc, TMO 0.88 bmo, TWX bmo, V 0.91 atc, WWW 0.45 bmo, YUM 0.48 atc.

The market was very slow today with the biggest action coming at 10 a.m. when the New Home Sales number was released.  That number came out below expectations and the market sold off immediately with the Dow Jones Industrial Average dropping 30 points within the next 24 minutes.    The DJIA has dropped faster and farther many times so even this action, though it was the quickest move today, was not much.  The DJIA finished up 1.51 points (+0.01%, 10,466.44) on a day that probably drove day traders crazy and cost them money.  The S&P 500 added 2.89 points (+0.25%, 1,120.76) and the still outperforming Nasdaq 100 gained a decent 12.48 points (+0.67%, 1,851.99).

The New York Spot price for gold gained $3.80 an ounce ($1,087) after being up more than $12 during the day.  The SPDR Gold Trust (NYSE: GLD) was strong most the day, trading as high as $107.45 before gradually declining into the close at $106.55.  There was a sale of about a half-million shares in the last minute of trading that dropped the stock almost 30 cents.

Nymex crude jumped $2.20 a barrel (+2.96%, $76.60, 4:11 p.m.) on inventory supply data and dollar weakness.  The dollar opened lower today lending to the strength in gold and oil.  The dollar-euro relationship has traded to within 25 cents of its 200 day moving average and some say this may mark the end of the recent dollar rally.

Tomorrow we get Durable Goods Orders (0.5% expected) and Jobless Claims (470,000) at 8:30 a.m. and Natural Gas inventory levels at 10:30 a.m.

Friday the markets are closed for Christmas.

After The Fed announcement at 2:15 p.m., the Dow Jones Industrial Average dropped about 30 points net into the close to finish down 10.88 points (-0.10%, 10,441.12) while the S&P 500 dropped about 5 points on the announcement and finished up 1.25 points (+0.11%, 1109.18).  The Nasdaq 100 rose 2.61 points (+0.14%, 1,800.82).

The dollar traded up on the announcement and basically closed unchanged on the day.  Earlier in the day the usual relationships were acting as expected with the dollar down and stocks and commodities up.  Interestingly, the dollar rallied into the end of the day and erased its losses while gold and oil also closed near their highs on the day.  New York Spot Gold added $13.60 an ounce (+1.21%, $1,136.60, 4:14 p.m.) and the SPDR Gold Shares (NYSE: GLD) bounced off support and broke higher by $1.36 (+1.25%, $111.59).  The GLD’s chart looks very nice for more upside movement as the latest gold pullback may have seen its lows.  Paulson, Einhorn and most every other gold bull was saying they would be buying on dips and I wonder just how much they were able to add to their positions over the past 3 or 4 days.

Nymex crude added $2.03 a barrel (+2.87%, $72.72, 4:09 p.m.) as it seems the pullback in oil may be over with too.  We were below $70 a barrel on Monday but a nice run over the last two days has changed all that.  Copper, steel, coal and agricultural commodities were all up as well.

Another federal agency was in the news today as the Federal Trade Commission filed a lawsuit against Intel Corp. (NSDQ: INTC) for anti-competitive behavior.  I think the legal community founded Intel and they didn’t do it for semiconductor chips as this company generates lawsuits about every other day.  The lawsuit cites bundling practices and even a secretly redesigned compiler software that makes their competitors chips run a little slower.  Intel finished lower by 42 cents (-2.12%, $19.38).

Nvidia Corp. (NSDQ: NVDA) jumped higher as they are one of the firms that Intel is supposedly squeezing out of the chip market as the graphics chip company added $1.26 (+8.05%, $16.91).

Housing companies were strong today as Housing Starts were up 46k over last month and Permits were up 32k.  Beezer Homes USA Inc. (NYSE: BZH) gained 13.36% (+$0.60, $5.09), Pulte Homes Inc. (NYSE: PHM) gained 5.06% (+$0.45, $9.34), D. R. Horton (NYSE: DHI) gained 4.89% (+$0.48, $10.29) and Lennar Corp. (NYSE: LEN) was up 4.73% (+$0.57, $12.62).

The big economic news of the week was the FOMC meeting and with that out of the way we have Jobless Claims tomorrow at 8:30 a.m. with the expectations being 465k with a range from 460 to 470.  Friday is a quaruple witching day in the options market.

Tiger Woods name was only mentioned 232,000 times on CNBC today as something really important to all of our lives probably did not happen or have anything at all to do with Tiger Woods but CNBC was there to cover it.

The Nasdaq 100 dropped 8.80 points (-0.49%, 1,764.39) and was the weakest of the three major indexes.  The Dow Jones Industrial Average lost 14.28 points and was in positive territory fifteen minutes before the closing bell, but slid into the weekend.  The S&P 500 lost 3.52 points (-0.32%, 1,091.38).

The strongest news of the week probably came from Microsoft (NSDQ: MSFT) as they reported ‘Windows 7′ sales are very strong.  Mr. Softy went out at $29.62 this week and this stock has not seen these levels since June 2008.  I recall some of the talking heads on TV recommending buying Dell a month ago or so, on the premise that the whole computer upgrade cycle sparked by ‘7′ would benefit the computer maker.  We got the answer to that thesis today.  Try again.

D.R. Horton Inc. (NYSE: DHI) released earnings today and lost $0.73 a share which was much better than a loss of $2.53 a year ago.  Analysts expected a loss of $0.30 and this miss brought a fresh wave of selling into the home builders.  Yesterday home builders were hit on a Mortgage Bankers Association report saying that 14.4% of all homes with a mortgage were at least one month delinquent on their payment or in foreclosure.  D.R. Horton got hit for 15.34% today (-$1.88, $10.37) with most the other home builders losing about 3 to 3.5%.

The SPDR Gold Trust (NYSE: GLD) went into the weekend with an all time high close.  Gold has been strong all week, with the GLD closing on its high for the day at $112.94, just 15 cents below its highest trade from Wednesday at $113.09.  New York Spot Gold was up $5.10 an ounce at $1,149.70 (+0.45%, 4:51 p.m.).  Everyday the financial media devotes much attention to gold, and while there are a few gold bears out there such as Nouriel Roubini, the majority of the pundits and financial professionals are very bullish on gold.  There are many arguments to be made about why you should be a bull on gold, ranging from inflation to deflation, declining gold production, the weak dollar, etc… but the only one I need to know is that central banks have flipped from being net sellers of gold to being net buyers.

Nymex crude dropped 74 cents a barrel today and finished the week at $76.72, after trading above $80 a barrel briefly Wednesday.  As oil peaked at just over $80 at about noon on Wednesday, the dollar was trading its low of the week.  The dollar traded higher both Thursday and today and all the carry trade cowboys that are short must be getting nervous.  We could see a spike higher in the dollar if some event triggers a short squeeze as this carry trade is very, very crowded.  The longer term direction for the dollar is most likely lower, but these squeezes can be brutal to sit tight through if you get caught short.

We have a short trading week next week as Thanksgiving Thursday gives the U.S. markets the day off.  Usually Friday is marked by light volume as many traders take the four-day weekend.  We get a GDP report on Tuesday but the week is light on other economic reports, which might be a good thing.  I don’t know how many more housing numbers the market can take like the ones we got yesterday.  It’s Friday and lets worry about that next week.

Have a great weekend!

Goldman Sachs Group Inc. (NYSE: GS) raised their price target on gold to $1,200, citing continued low interest rates and central bank buying.  The interesting shift over the past year or so has been that central banks are now net buyers of gold, where in the past they were sellers.  “Gold conspiracy” allegations exist, due in part to central bankers being such traditional sellers of gold.  The “conspiracy” is that the world’s central banks are suppressing the price of gold to hide the true rate of inflation.  Goldman has noticed that central banks are now deciding that even if their government needs money, and the gold they have had on hand for decades now has a very large profit built in, the perception is that a) it is going higher, and b) that it is a good way to diversify from paper currency, most importantly the dollar.  Governments from India to China to Chile are now net buyers of gold.

China reported that their industrial production was up 16% showing that somewhere on the planet an economy is doing well.  Next week Obama travels to China and he has stated he will ask them to appreciate their unit of currency, the yuan.  China has seen decent internal economic growth but a large share of their jobs still rely on the export business.  Appreciating the yuan will make U.S. goods cheaper relative to Chinese goods, and thus hopefully create more jobs here at home.  Sounds good right?  Appreciating the yuan also depreciates the dollar even more, and that means the trillion dollars plus the Chinese are holding will be worth less.  The Chinese may agree to appreciate the yuan even though they lose jobs and dollars, as they would like to see the U.S. consumer back on their economic feet and buying Chinese goods like locusts as we did in the good old days.

The reason I am so bullish on gold, and pretty much every other commodity, is that if this economic recovery remains tepid and jobs are hard to find worldwide, we could end up with a spiral race to the basement among the world’s currencies.  Each government will be trying to steal jobs from the others by devaluing their currency to make their products cheaper worldwide.  As the currencies are devalued, relatively, commodities increase in value.  It is not easy to run a printing press and have a gold bar pop out the other end.

The Dow Jones Industrial Index was up 44.29 points today (+0.43%, 10,291.26) with the S&P 500 gaining 5.5 points (+0.50%, 1,098.51) and the Nasdaq 100 put in the strongest performance rising 9.78 points (+0.55%, 1,782.95)

New York Spot Gold is up $11.90 an ounce (+1.08%, $1,117.70, 4:54 p.m.) and traded an all time high of $1,119.60 this morning.  Something VERY unusual happened today as both the Dow and gold rose AND the dollar was UP!  For quite some time now the Dow and gold would go exactly opposite the dollar.  I can see the Goldman stamp of approval on gold hyping up some buyers but the Dow rising too?  This is very strong relative performance for gold, and my chart of the iShares Gold ETF (NYSE: GLD) shows me that gold has now broken out to the topside of the ‘return’ or ‘reaction’ line of its trend channel.  This is very bullish as this means there is NO MORE resistance to the upside.

Nymex crude was up 23 cents to $79.20 a barrel today.  Hurricane Ida turned into tropical storm Ida and is no longer threatening oil production in the gulf.

The home-builders were on fire today with Toll Brothers (NYSE: TOL) saying business jumped a greater than expected 42% year over year.  This had all the home-builders up over 5%.  TOL +16.42%, BZH +12.35%, PHM +8.13%, DHI +5.73% and LEN +5.73%.

Tomorrow we get Jobless Claims.  Let’s look at this positively, Thursdays are always an adventure now.

Click here to read the full FOMC Statement

The Dow Jones Industrial Average, which had been up all day and traded its highest level a half hour after the announcement at 9928, got sold off into the close dropping 113 points within the last hour of trading.  The Dow 30 closed up 30.23 points at 9,802.14 (+0.30%) with the S&P holding onto gain of 1.09 points (+0.10%, 1,046.50).  The Nasdaq 100 also barely managed to finish positive 1.47 points (+0.08%, 1,680.67).

With the low interest rates and the dollar getting hit left and right, the commodity space has been red hot.  Looking at various commodities and the dollar exchange traded fund, the vehicles the common investor can use to most easily invest in, we find the following returns for 2009 thus far;

• Market Vectors Coal ETF (NYSE: KOL) +114.5%
• iPath DJ AIG Copper ETN (NYSE: JJC) + 109.6%
• United States Gasoline (NYSE: UGA) +88.8%
• Market Vectors Steel ETF (NYSE: SLX) +79.6%
• SPDR Gold ETF (NYSE: GLD) + 23.8%
• United States Oil Fund (NYSE: USO) +22.8%
• Dow Jones Industrial Average +11.7%
• PowerShares DB MS Agriculture ETF (NYSE: DBA) +0.2%
• PowerShares DB USD Dollar ETF (NYSE: UUP) -8.83%
• Unites States Natural Gas (NYSE: UNG) -57.8%

The Dow Jones Industrial Average is included here as lately it has traded much like a commodity.  With the current U.S. interest rates so low, the dollar is being used to fund the carry trade and is shorted to provide funds to invest in other ‘risky’ assets (for more on this see my Wraps from 11/1, 10/31, 10/30).  This use of the dollar in the carry trade has established an inverse relationship between the dollar and the stock market, much like commodities.

Looking at these returns we can see that the good news is food is not seeing much inflation and if you heat your home with natural gas this may be a cheap winter.  The bad news is gasoline has almost doubled so you will have to stay home and eat in.

Much speculation has been running around the financial community about whether or not a commodity bubble is forming.  Just looking at absolute returns does not give enough information to define a bubble, as these different commodities are influenced not only by a diving dollar, but by things such as economic activity (coal, copper, steel, oil), inflation expectations and currency diversification needs (gold), consumer income and purchasing patterns (gasoline, food) and the simple supply of the commodity (natural gas).

I do not think we are into a commodity bubble as there have been a series of positive economic numbers out of China (remembering commodities are a global situation) which directly influences the demand for, and price of oil, copper, coal and steel.  The United States economy has also improved as evidenced by the 3.5% GDP report from last week.  Judging from the Fed’s statement today, interest rates will be kept very low for awhile in order to juice job creation and this will keep the dollar weak and the commodity run up will continue.  Also, the overall market; commodities, stocks and bonds, all dropped for a ways before the start of 2009 so rising from a lower starting point makes the run up percentage numbers look larger.  With the specter of a trillion dollar health care reform and cap and trade costs looming in the United States political future, along with the current budget deficit, I do not see the dollar strengthening appreciably anytime soon.  There longer term outlook for commodities remains positive.

Nymex crude rose 80 cents today (+1.01%, $80.18, 4:50 p.m.) regaining the $80 level.  Gold has been the market darling lately trading an all time high of $1,099 an ounce today and was last seen at $1,091.80 (+0.69%, 5:00 p.m.).  Yesterday’s move by the Reserve Bank of India of buying 200 tonnes of gold from the IMF shows the argument why gold may be nowhere near a top.  The inflation/deflation arguments about gold will mean nothing if the offshore assets denominated in dollars start to diversify into gold.  Of all the major currencies of the world gold has the smallest market by far.  Were Russia, China, Japan, India and the Middle East dollars to all diversify to just 5% of foreign reserves into gold, the price could top $2,000 easily.

The home builders picked a good day to report lousy earnings as this mornings Pending Home Sales Index came in very strong up 3.6% at 94.9 with the prior months being up 0.1% at 90.7 (revised to 91.3).  The home-builders lined up after that number to report how much they lost this time and they lost a lot of money but ‘lost less’.  D.R. Horton (NYSE: DHI) dropped $142.3 million and 45 cents a share but that’s better than losing $400 million right?  Centex actually posted a profit of $85 million but needed a tax refund of over $400 million to get there. Ironically Centex is reporting this large tax refund on Obama’s birthday.  You would figure these tax dollars would be headed towards the birthday boy as it seems every other dollar going anywhere near a government employee gets sent directly to jail, does not pass GO and does not collect $200.  DHI +$0.57, CTX +$0.01.

Staying on real estate the REIT’s were on fire today and clearly the strongest sector.  Traders seem to have lost their fear of the supposed looming commercial real estate problems as the Simon Property Group Inc. (NYSE: SPG), Vornado Realty Trust (NYSE: VNO) and Macerich Company (NYSE: MAC) added 6.85%, 4.12% and 7.03% respectively.

Gold trading showed signs of life as at 10:30 a rally started that made a run at breaking towards $1,000 and traded as high as $971.20/ounce before being reeled back in trading at $965.50/ounce (+$9) at 4:15 p.m. est.  Oil pretty much finished flat as did the dollar.

The Dow closed up marginally +33.63 points (+0.36%, 9320.19) as the S&P 500 added 3.02 points (+0.30%, 1005.65) and the Nasdaq 100 added a sliver of a point up 0.37 (+.02%, 1628.49).

Finance was strong today (REIT’s are contained within the larger finance sector) clocking in up 1.7% while energy lost 0.39% and was the lagging sector of the day.

CNBC keeps holding their on-air debates about the Cash-for-Clunkers program and I think they are holding auditions to eventually find the world’s two dumbest people to talk this one out.  I am not sure how many more times I need to hear the pro-clunker tell me that free money is very popular these days while acting surprised that everyone else does not see the wisdom of their position.  The con-clunker argues that this is wasted money and nothing but a continuance of the auto sector bailout and then the pro-clunker says, again, ‘But it’s a hit!’  ‘It works!’  It is like nothing else has worked for the current Administration and they are planting the flag on this one like it is a stroke of genius as those of us that are not buying a car sit here in amazement as we watch our tax money fly out the window in all new and creative ways.  What will those crazy Democrats think of next?  This could be the world’s most entertaining reality TV show if it were not so REAL and so EXPENSIVE.  It is unbelievable that pair after pair of these talking heads completely miss each others point and everyone calls this program ’stimulus’ but isn’t this exactly what we used to criticize Bernanke with when we called him Helicopter Ben?  They are just throwing the money out the window here and surprise!  A lot of it is ending up supporting sales for a very heavily unionized industry.  Obama’s buddies – the Unions over at Government Motors and throughout the auto parts industry.

While the Democrats in Washington crow about their favorite new free money program and run around finding a few billion dollars more for it the overall tax revenues for the federal government have dropped off a cliff faster than you can say ‘I got laid of today’.  Methinks this is all going to end badly and by that I mean what Geithner and Summers would not rule out this past weekend.  Can you say across the board tax hike?