Posts Tagged ‘gold’

Bailouts, Bailouts Everywhere

Gold has officially broken through $1,200.

All it took was the hope of a bailout of the world’s most extravagant real estate bust – Dubai. Well, not entirely.

Japan also promised it would inject another $114 billion into its economy by offering banks cheap short-term loans. It’s also expanding the type of collateral it receives.

Bailouts are happening all around the world. It’s the new “in” thing to do. Think about it: Nearly every major credit catastrophe has been delayed by a big bailout. Only Iceland and Lehman slipped through the cracks. And now the talking heads use those two stories to convince everybody that a bailout is the best option.

So moving forward I don’t see an end to the bailout bonanza.

You also shouldn’t forget about what money printing means for Japan. It could begin another Yen carry trade. A Yen carry trade plus a Dollar carry trade would allow for a massive bubble to blow. The ending wouldn’t be pretty.

But who knows, maybe the Feds will figure out another way to keep the Ponzi scheme going…

With cheap money pouring into the economy by means of the Yen and Dollar, it’s hard to envision the uptrend breaking. But I still feel that by early next year we could see prices 10-20% lower than they are today.

In the short-term, a break above 10,500 in the Dow Jones would signal more gains ahead. As of right now, though, the Dow isn’t able to settle above that level, which will keep me away from getting into any short-term long positions.

As for gold, I’m not a buyer at these levels. I tend to stay away from any asset that’s gone parabolic (like gold). I loved gold at $1,050. But over $1,200 is hard to swallow, especially with no other significant corrections.

Richard Russell’s Now a BULL

After staying most of the day in the red yesteday, all three indexes advanced to close the day in slightly positive territory. The Dow Transports even rose past its October high.

Overnight, oil pushed higher on news that crude inventories dropped 4.37 million barrels last week. Gold fell a little off its highs of $1,144 an ounce and the dollar strengthened a little bit.

Even Richard Russell, the editor of the Dow Theory Letters, has become bullish on this market. To him and other followers of the theory, the fact that the Dow Transports broke above its October high while the Dow Jones is making new 52-week highs signals a bull market.

Other Dow Theorists of course believe that the market isn’t in a bull run. You see, one of the prerequisites for having a genuine bull run is that a rally must overcome a “significant” correction. And so, the drop from September 2008 until March of 2009 was simply too short to be considered “significant”.

What I can pull from this is that there is still a lot of debate as to whether this rally is real or not, even among the traders of one investing theory.

At this point, economic data will matter more than ever in persuading traders to buy or sell. A big report comes next week when we see a revision of 3rd quarter GDP. Most analysts expect it to drop, as the preliminary GDP figures didn’t account so well for the pain small businesses are in.

If we see a big drop, we’re likely to see the catalyst for a nicely sized correction.

But my money is still on the rally continuing into next year. In the end, the dollar carry trade is fueling this reliquidation. And it will take deliberate monetary policy to stop that.

Yesterdays Shocking Retail Sales Report

The three major US indexes hit fresh 52-week highs on the back of comments Bernanke made yesterday to the Economic Club of New York.

Why the celebration? Shockingly enough, car sales pushed retail sales higher. And this time, there was no cash for clunkers to explain the pickup. We attribute this to pent up demand and better access to credit at the dealerships.

So traders bought. It appears the market was pricing in a slower fourth and first quarter.

Overnight, the dollar strengthened slightly and gold came off its record highs to rest at $1,126 an ounce. Silver and oil both dropped as well.

The weakness worked into today’s market as all three indexes struggled to reach the green.

From this point forward, economic data will matter more than ever. Today, we saw traders looking for an indication that the fourth and first quarter will do better than expected. And so any other economic data that shows this outcome (especially the leading economic indicator report) will likely push the market higher.

I’ve always been suspect about how far this rally could go on government support. And to be fair, we’re likely to keep seeing the economy do a little better than expected due to the massive stimulus Congress passed early last year (We’ll continue to feel the effects of that splurge well into late next year and 2011.).

But there are a few things which would end this rally.

1) The Fed tightening too fast, too soon
2) An end to the dollar carry trade
3) Higher taxes
4) Rising protectionism

If you haven’t bought yet, you probably shouldn’t start. Wait for the market to come back 3-5% and then go ‘balls in’ and buy some strong stocks (I prefer commodity stocks at the moment)