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Market value of gold does not reflect
coming Fed bailout
Unusual intermarket trends may
be reflecting a Fed bailout. The market value of gold is yet to reflect
these changes.
Let’s face it, the sub prime market is a mess.
We’ve been watch credit spreads widen since early June.
That is, investment bonds have been moving lower versus safer Treasury
bonds. A break below support now looks likely and foretells of more
widening ahead. The credit market has finally woken up and is beginning to
reprice risk.
Investment Grade Bonds are
underperforming Treasuries - Credit Spreads are widening
The major losers out of all of this will be the small
people. Investors who were caught up in the real estate frenzy and took on
mortgages they had little, if any, chance of ever repaying. Remember, it
was the Real Estate boom that ultimately saved us from a protracted
recession in 2002 as the Fed slashed interest rates in response to the
vicious Bear Market.
Now it seems the tables have turned. Real Estate looks
rocky and the stock market is powering ahead. So forgive me for asking but
is another bailout being engineered before our eyes?
We know the public is totally out of the stock market
right now. The public still have their gaze fixed on the real estate
market. We know that the fundamentals for stocks are not favorable and
there is no rhyme or reason for overvalued stocks to be in a protracted
bull market. Fact is they are!
You’ve got to hand it to the money masters, they
certainly seem to know their jobs. Ramp up the money supply and create
another frenzy to rescue everyone who invested in bad property deals. An
increased money supply causes the Dollar to drop. But that’s ok as long as
you can prevent interest rates from soaring (monetizing debt) and cap the
market value of Gold to ensure that inflation expectations remain mild.
Voila we are now in a Fed engineered stock market bull which defies normal
economic wisdom.
The game will last as long as 2 important indicators
hold:
Industrials break resistance; Gold
moving up to resistance (below); Interest Rates hitting resistance (blue
line - below)
Providing the Gold Price doesn’t move quickly higher (a
gradual rise would be ok) and provided interest rates don’t rocket above
important resistance, the clandestine money pump will be safe. Sure in
time Gold will move higher as will interest rates but as long as it is
gradual and over a long period of time I don’t think it will cause the
market too much bother. In fact it will give market participants time to
adjust themselves accordingly.
The strategy is therefore to get out of cash and to
into anything tangible. Gold (and
Gold Mining Corporations), Oil, Commodities, Art, Collectibles and
yes, perhaps even a little real estate. |
