GREENSPAN SPEECH PUSHES DOLLAR TO FOUR-YEAR LOW AGAINST THE YEN -- THAT'S BOOSTING GOLD AND GOLD STOCKS -- JUMP IN OIL AND BOND YIELDS CAUSE PROFIT-TAKING IN STOCKS

DOLLAR PLUNGES AGAINST THE YEN ... In a speech today, Mr. Greenspan expressed concern that foreign investors might tire of financing the big U.S. trade deficit unless they were rewarded with higher interest rates. He also showed no enthusiasm for stopping the dollar slide which is accelerating to the downside. Those comments have also led to selling of bonds and stocks. At the same time, the plunging dollar is boosting gold and oil prices. A $1.78 jump in crude is also causing stock selling. The most dramatic currency move today is in the Japanese yen, which has risen to the highest level in four years against the dollar. The monthly bars in Chart 1 show the yen moving up to challenge the peak high in early 2000. Earlier in the week, I discussed the potential negative side-effects of rising Asian currencies November 16, 2004. In that piece (which talked mainly about the negative impact of higher PPI inflation and a falling dollar), I suggested that rising Asian currencies (mainly the yen and the yuan) could result in higher bond yields, since Asian central banks would no longer need to buy US Treasuries to keep the dollar from falling. I suggested that would be bad for the dollar, bonds, and "eventually" for stocks. [In other words, rising rates would hurt bonds first and stocks later -- probably after the new year]. I also suggested that gold would be the big winner in all of this. So far, I've seen nothing to change any of those views. What is most disturbing is that Mr. Greenspan seems to have been in denial about the threat created by the huge deficits and a collapsing dollar. I can't help but wonder why he waited until after the election to acknowledge his concerns.

Chart 1

BOND YIELDS JUMP ... Bond prices are falling today and yields are jumping. Chart 2 shows the 10-year T Note yield bouncing off its 50-day moving average. As I suggested earlier in the week, the real key is whether or not the TNX will break through the recent high near 4.25% and its 200-day moving average. I think it's heading in that direction. That also explains why financial stocks are among today's biggest losers.

Chart 2

XAU AND NEM TESTING PEAKS -- BARRICK BREAKS OUT... With gold trading higher again goday (+$4.50), gold stocks are climbing. The Gold & Silver (XAU) Index is nearing a test of its early 2004 peak at 113.41. At the same time, Newmont Mining (the biggest stock in the XAU) is challenging its early 2004 peak at 50.28. The weekly bars in Chart 5 show that Barrick Gold has already broken out to a new 52-week high.

Chart 3

Chart 4

Chart 5

ENERGY ETF TURNS UP ... The Energy Select SPDR is breaking through initial chart resistance at 36. That turns its short-term trend back up again. Natural gas and oil service stocks are strong as well. Crude oil is jumping more than a dollar today. That's not too surprising since energy stocks often lead the commodity. That's also causing some nervous profit-taking in stocks today. I don't think today's events are enough to stop the fourth quarter rally in stocks. But it may be enough to cause a short-term correction or consolidation. MORE ON THAT LATER.

Chart 6