Wednesday, June 30, 2010

Cross-Currents in the Markets; Over-Pessimism Extant?

As was stated here after the rebound after the early May flash crash, it has been time to sell the rallies. Stock charts look horrible, many superb fundamentalists believe stocks are 20-50% overvalued, and worries over a new recession abound.

Yet the deflationists appear to me to have overstated their case. Which reader is actually seeing price declines in what they pay for? Gasoline on trend, week to week fluctuations notwithstanding? Government fees and taxes? Food?

When one can only get a total of $29.50 or so in aggregate interest over 10 years by loaning $100 to the Feds, one has to wonder if it's worth it.

More to the point for traders, rates have plummeted recently. The 5-year Treasury note is below current CPI; the economy is currently expanding; the smoothed (3-month average) Chicago Fed National Activity Index is at a level associated with durable expansions after both mild and major recessions, and pessimism is high.

With a superb technical analyst, Carter Worth of Oppenheimer, who turned very bearish in the spring on 2008 and again near the reaction high this spring, calling for a bottom to this down move around S&P 980, it may be well to be ready to scale into high quality stocks and other assets that move opposite to Treasury prices. Amongst these may be silver.

As a long-term holder and trader of silver ETFs, I was pleased to see its relative strength today when the general stock market took a late-day hit. Silver is breaking to an all-time high in its 150 day moving average, having done so for the 40 week (200 day) sma already. While silver has not gone through its 2008 high (unlike gold), both are up a similar amount from their early decade lows.

Gold is a core holding. Watch silver.

Copyright (C) Long Lake LLC 2010

1 comment:

  1. What about a person's largest expense? The cost of a roof over their head? Plummeting! Or debt servicing costs. Likewise.

    Don't be lulled into complacency by confusing everyday expenditures (gas, food, etc) with most prominent expenditures.

    Good posts lately. Keep it up! And many thanks!