Wednesday, November 4, 2009

Discover(R)-ing More Bad News, and Gold Buyers Don't Care

The monthly Rasmussen-conducted survey for the Discover(R) card people is out today. Click HERE to access it. This young survey does cover all of the current (or, recently-ended) economic downturn. This is no evidence that the economic banana/recession/depression is over in the world of real, living people rather than of corporations. A record low 44% have money left over after paying monthly bills. Fewer people plan to save or invest in November than planned to save or invest in October in the prior month's survey. Holiday spending plans are poor.

There is little to no good news in this survey.

This finding is corroborated by similarly gloomy, highly recessionary readings in's poll published daily.

There is no price inflation anywhere except that created by government money-printing. "They" are inflating before any real deflation.

The financial markets are divorced from the real world precisely because times are so bad. Cheap money is being used for speculation. This never ends well, but it makes predictions impossible. If you met me, you would probably not mistake me for a broken record, but once again, gold outperformed stocks in trading today. This was despite gold having massively outperformed stocks yesterday and spending most of the day finally lagging a strong advance in stocks. By the closing bell, however, stocks had faded but gold had not.

The trend is your friend, until it is not. A former CEO of Goldman Sachs lost his re-election bid for N. J. Governor last night, and GS (the stock) set a new 3-week low today for the first time since March.

Short-term, the rally in commodities has the look of money chasing performance. That usually does not mean that it's time for investors to sell, but it does mean that new money is "too late" to come in, and that sharp corrections can occur at any time even if the intermediate- or long-term trend is one of outperformance.

Sophisticated and patient money could, for example, sell naked puts on gold here, or buy and sell covered calls. At times of economic stress, it is important to take the long view. Economic activity goes up and down, and while gold endures, its relative value versus other assets is unpredictable. As a long-term store of wealth, gold is looking 'OK' but at a certain point could become solely a trading vehicle.

Copyright (C) Long Lake LLC 2009

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