Pending picking at the entrails of the jobs data today from BLS, revisions over the next couple of months and the like, the markets are probably overreacting by further selling off Treasuries today.
The best thing for a supply-demand curve is to limit supply. The way supply of Treasuries is limited is for all the money-printing to taper off and reverse, as will happen if finally an up-cycle in the economy brings in more revenues and diminishes counter-cyclical expenditures.
In the meantime, traditionally inflation drops in the early stages of a recovery. Goldman Sachs is forecasting a period of zero core inflation. 3.5% Treasury yields not only look fine in that scenario, but are restrictive and impede economic growth.
Normally, a drop in the gold price as is happening in a major way today correlates with increased demand for Treasuries. It would appear that the stock sell-off today is an epiphenomenon. Whether the alleged rationale for the sell-off is that a stronger economy means less Fed easing or whether anyone is bothering concocting such an explanation hardly matters.
Per Jeremy Grantham, stocks are fundamentally overvalued by his and many other valuation measures, but he believes that "high quality" stocks are undervalued. I agree over the long term.
Diversification and skepticism about any prevailing theme will continue to serve investors well.
One way or the other, asset prices need to come into a fairer equilibrium with labor rates except those for CEOs of important companies and people in similar positions. Until that happens, various schemes have to persist to extend and pretend that these asset prices are realistic.
Safety first.
Just over the past few days, yours truly noted that GTU surged to 7-8% over NAV, and sold almost all of it. Even today, GTU has gone down less than GLD, which is now felt to be the better buy. If and when GLD slips to less than 20% above its 200 day moving average and GTU owners become anxious sellers and push its premium to NAV to 5% or less (it was as low as 2.4% recently), yours truly will consider increasing his current rock-bottom less than 3% of assets allocated to precious metals back toward its recent high of about 10%.
Just because gold got in the hands of speculators does not change its historical role as a safe haven.
I agree with Louise Yamada, Bill Fleckenstein, Jesse and many others that gold has much more upside, just as in another crisis, the perceived safety of Treasuries becomes priceless.
Many true investment experts such as Doug Kass missed the move in gold even though it has been based on the fundamental excess creation of credit and continue to call for it to come back to earth; see his piece Goodbye, Yellow Brick Road? for conventional thinking from a truly smart investor. Looking at other recent sharp upswings in gold this decade suggests that it has a good chance of finding support at $1100 plus/minus 2-3%, based on 30-60 day moving averages that have held support off a prolonged base as I interpret as having been formed between winter 2008 and summer 2009. Let's see if that plays out concomitant with a decline in GTU's premium to NAV.
We are in the part of the economic cycle and financial markets where any asset can be a good asset if indeed there is an underlying stability and raison d'etre to it. You don't have to sell an asset on price weakness, but stay away if there is fundamental weakness.
Copyright (C) Long Lake LLC 2009
No comments:
Post a Comment