Friday, September 11, 2009

Multiple Views of the Economic Situation Continue to Lead to Gold and Treasuries

Courtesy of Zero Hedge:

Interview with Zhu Min, Bank of China Vice President:
Q. Is overconfidence the biggest risk to the recovery?
A. It's not only overconfidence, it's overmyopic: Wall Street feels the crisis never happened. It seems to me the financial crisis is not over yet, but it has stabilized from a cliff drop. That's one thing. The real economic crisis is just starting.


Contrast that comment with ECRI's news release (Reuters) today:

A weekly gauge of future U.S. economic growth hit a year-high in the latest week, sending its yearly growth rate to an all-time high that points to a more vigorous recovery than consensus has shown.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 125.4 in the week to Sept. 4 from a revised 124.6 the prior week, which was originally reported at 124.7.

It was the highest WLI reading since Sept. 5, 2008, when it stood at 126.0.

The "growth rate" of the index is probably less important over the long run than the actual level of the index (and the "coincident index", which measures how matters actually are rather than trying to predict the future), and those readings are well off their all-time highs.

And compare the above two with Ed Harrison's measured comments on Credit Writedowns today:

The problem I have with the recent history of growth in the United States, the United Kingdom, Spain and Ireland in particular is that the growth was underpinned by high debt accumulation and low savings. As debt is a mechanism through which we pull demand forward, the debt and consumption has meant we have been growing today at the expense of future growth.

Low quality growth can go on for a long time.

And here are some market-oriented comments from Jesse; others such as Art Cashin and market timers such as Bob Prechter and Paul J. Lamont tend to concur:

There is a strong correlation between this US equity rally and the Fed monetization of debt, which indicates a 'hot money' flow into US stocks but with thin volumes from a significant market bottom. This points to 'technical price trading' by the financial sector, also known was price manipulation, or trading stocks like commodities.

Continued heavy insider selling from those with the best forward view of the real economy is a clear sign of a top.

As regular EBR readers know, this blog has emphasized bottom-fishing in Treasuries, which had a strong week, with both trading and maintaining a core holding in Treasuries and Ginnie Maes suggested for many people; and gold. Gold as tracked by the GLD exchange-traded fund has now gone to an all-time high in its 50-day moving average.

Physical gold had a morning price fix on March 17, 2008 slightly above $1020/ounce. By this measure, it has not hit a new high. However, so far as I'm concerned, it's broken out. As with the Internet boom, every bull needs its new, higher bar to justify bringing (sucking?) in people who didn't buy in earlier. Right now, China is the story: it banned gold ownership until recently, and now is promoting physical gold ownership to its populace. The China gold story is reminiscent of the old, old saw promoted by U. S. shoe manufacturers: just think if every Chinese bought one pair of American shoes . . .

Gold and Treasury bonds: those are the 2 major structural bull markets that can be found. Perhaps oil. (I prefer gold.) An odd couple; but these are odd times.

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