Thursday, June 17, 2010

Liquidity Provided

Whether it is the Fed directly printing money or leveraged players in the financial community, today was (if memory serves) the second recent day in which prices rose for stocks, Treasuries and gold. The sleuths who actually watch this sort of thing can probably tell us.

In any case, at least one of these asset classes is likely wrong.

Even if the March 2009 stock market bottom holds, analogies to other major bear market bottoms such as December 1974 or August 1982 suggests that a churning phase is appropriate.

Yours truly feels that the economy is so weak and the administration reappointed Gentle Ben with the promise that, just as Volcker did with the Reagan administration, he will play ball, all the talk of a true double dip recession is probably overblown. More relevant is that industrial production is at the absolute level of a decade ago despite a 10% or so larger population, and basic measures such as retail sales remain below 2007 levels without even a per capita adjustment. In other words, it is not clear that in any real sense, the Great Recession (depression) has ended.

Meanwhile, there is real strength in the silver chart, which several weeks ago went to a post-1980 high for the simple 200 day moving average. If the price holds near current levels, perhaps by the end of the month we will see a new 150 day sma high, with the possibility soon enough for a 50 day sma high. None of this has happened, but if so, this would both further "confirm" the gold strength and if it happens quietly re the spot silver price as happened with gold last summer, this could provide an attractive entry into silver-related investments as was the case with gold last year.

In that regard, the funds CEF (gold 60%/silver 40%) and GTU (100% gold) trade at much greater premiums than SVRZF (pink sheets) and SBT_U (Toronto exchange), which is 100% silver and is run by the same Central Fund of Canada (CEF) folks.

I hope it's not a contrary indicator that yours truly has been buying more of the above silver vehicles on both exchanges as well as more GTU given that it is trading at about a 5% premium to NAV and below the $48.90 offer price given the ongoing secondary offering.

People who look for bubbles round every corner are better advised to think Treasuries rather than precious metals. Precious metals are following the NASDAQ 1990s script. They are not even close to important technical or fundamental levels of overvaluation relative to alternative financial choices.

Copyright (C) Long Lake LLC 2010

No comments:

Post a Comment