-->The Daily Reckoning
Weekend Edition
03 January 2004
Paris, France
By Addison Wiggin and Eric Fry

THIS WEEK IN THE MARKETS: GOLD BUGS AND DOM PERIGNON

Investors returned to their quote screens yesterday, hoping to watch the stock market enter the New Year as triumphantly as it exited the old one. But"Day One" of the 2004 campaign bore little resemblance to the victorious campaign of 2003.

The Dow stumbled 44 points to 10,410, while the Nasdaq eked out a slim 3-point advance to 2,007. According to the Stock Trader's Almanac, the Dow has posted gains in nine of the last 12 years on the
first trading day of January. But yesterday would be one of the rare exceptions.

Despite the Dow's auspicious start, investors needn't panic just yet.
January is a very kind month for stocks. Over the past 33 years, the Dow has advanced an average of 2.3% during the month of January, while the Nasdaq has surged an average of 4% during the year's opening month.

However, this particular January may deliver a less-than-average bounty because December delivered a bit more bounty than usual.

The Dow Jones industrials began the month of December at 9,782 and ended at 10,454 - a gain of more than 6%. Maybe December"borrowed" a
bit from January... just like 2003 may have borrowed a bit from 2004... Come to think of it, the entire decade of the 1990s may have borrowed from the 2000s. A stock market selling for 30 times trailing
earnings must have borrowed its gains from somewhere.

Friday's splendid report on U.S. manufacturing activity from the Institute of Supply Management provided only a fleeting boost to share prices and a VERY brief fillip to the dollar, while knocking the legs out from under the bond market. The ISM's reading on manufacturing activity for the month of December surged to 66.2% from
62.8% in November.

Stocks jumped immediately after the ISM report, but dropped shortly thereafter. The dollar also bounced slightly after the report, but then returned to its losing ways. The pathetic greenback picked up the New Year right where it left off... sliding into the dustbin of monetary history. The dollar fell one third of a percent to $1.2585 per euro. (The gold market registered no reaction whatsoever to the dollar's slide... because it was closed for the day).

The surprisingly strong data from the ISM sparked"fears" of a recovering economy among bond traders. Treasury prices tumbled, pushing the yield on the 10-year Treasury note up to 4.37% from 4.26%
on the final day of 2003.

The bond market will be an interesting story throughout 2004. How hard will the Treasury department strain to sell its bonds? How strenuously will foreign investors avoid them?... In other words, how
high will rates climb? The key to it all will be the U.S. dollar. It will be remain the pivotal investment story of 2004, with gold remaining the most interesting sub-plot. For two straight years the dollar has tumbled about 20% per year. And for two straight years, the gold price has jumped more than 20%.

Will these trends accelerate in 2004, or will the dollar finally catch its footing?

If forced to chose, we would vote for the former. The dollar may regain its footing temporarily, but we would expect it to continue sliding throughout 2004.

In late December of 2002, your New York editor suggested,"If you're looking to sip some elegant champagne this New Year's - perhaps some Dom Perignon or Crystal - you might try to wangle an invite to a New Year's Eve party thrown by a gold-bug."

A couple days later, your editor found himself in precisely that happy situation. He attended a New Year's Eve party thrown by his good friend, Michael Martin, a stockbroker who specializes in gold stocks. From the moment the party started, the pricey champagne started flowing. Michael treated the guests to a dazzling array of superb champagnes, including several vintages of Dom Perignon...

The day after the party your editor remarked in this column that gold
would likely continue rallying into 2003 and therefore, that"Michael
Martin will be serving Dom Perignon again next New Year's Eve." Both expectations came to pass.

Michael graciously invited me over to his house again this New Year's, but your editor was unable to attend... unfortunately.

Michael tells me that the"Dom" was flowing almost as freely as it was last year."Well, we served some Dom Perignon," Michael said yesterday,"but not as much as last year... We didn't want to overdue
it. I'm saving some vintage 'DP' for the day gold crosses $500 an ounce... and I don't think I'll be waiting 12 months to pop open those bottles."

My glass is ready...

Eric Fry,
The Daily Reckoning