Wednesday, May 22, 2013

Dash from Cash to Trash a Mistake?

Gold shorts smell blood per BBG:

When this occurs with the long-term chart of an asset breaking down but still up more than 5 times from its low, this is not a contrarian signal.  The shorts have been burned on the Japanese yen more than once in the past years, but recently they have been long and strong in their short position, and absolutely correct.  What's really going on with gold, IMHO, is that real interest rates have turned positive again, and gold leverages that trend in either direction.

Numerous price-deflationary and recessionary trends are now besetting the US.  The imploding Japanese yen means that there is less global competition for raw materials, such as oil.  That's a deflationary trend.  The lower price of imported oil is good, but the more effective competition from Japan Inc. may offset that.  Commodities indices such as DBC and GCC (stocks) are in clear downtrends.  Traders are suspicious that numerous Chinese pig farmers are going to soon disgorge zillions of pounds of copper.

Close to home, lumber has rapidly entered a bear market.  This too is deflationary.  Bond prices have dropped, raising costs for businesses and individuals alike.

The greatest peacetime deficit spender in US history, President Obama, is a lame duck and is on the defensive with the House and the media.  This is going to hurt his ability to resist the Tea Party's push for a balanced budget.  As old-fashioned fiscal prudence reasserts itself, the Fed will have no ability to engage in QE, with which it has been quasi-monetizing the deficit. 

As all the above occurs, nominal GDP has risen about 3.4% yoy.  Meanwhile the Fed is injecting 6% of GDP into the economy.  Quick and dirty calculation suggests that the underlying economy, net of fiscal and monetary stimulus, is contracting at about a 2-3% annual rate.

The dash from cash into trash may soon prove misplaced.  Sooner rather than later, all hail the long bond and King Dollar?

Thursday, May 16, 2013

Back to Blogger: Momo Stock Players May Be Reprising Recent Prior Ill-Fated Highs of Other Asset Classes

There's been a hiatus in posting due to a combo of travel and problems with accessing Blogger, as well as my interest in becoming more active on Seeking Alpha.  Plus, I haven't been at all sure what to say.  The financial sphere has become a bit confusing.

More and more it is looking to me as though the rise in share prices is unsupported by accelerating economic activity, which would be a great reason.  After all, stocks are very sensitive, at least much of the time, to changes in the economy, and their trend deserves respect. OTOH, it just may be that the dash from cash has led to a self-fulfilling prophecy that stocks are the best asset class-- but that once again they are destined to disappoint, at least to allow those with cash to enter the stock market at much better prices.

Simultaneously, almost all measures of price inflation I can see show declining trends.  This suggests that cash and bonds are now better buys than they recently were.

Thus it may be that, individual equity choices notwithstanding, stocks may be in a similar position to gold/silver in 2011 and AAPL in 2012:  momentum plays the fundamentals of which are eroding even as prices spike to records.