First unveiled on July 2nd in Trends in Economic Data Relative to Expectations, I was pleasantly surprised by the positive reception to my chart of how various components of economic activity have been tracking against expectations for 2010. As a result, I expect to periodically update a version of this chart for the blog.
This week’s chart of the week is one such update, selected partly because the last several weeks suggest a possible reversal in the negative trend of economic data relative to expectations for employment and the consumer (Retail Sales, Consumer Confidence, Consumer Sentiment, Personal Income, Personal Spending, etc.)
While there is some evidence that the downtrend in economic data may have been broken, there is at best marginal evidence to support the idea of a bullish uptrend in the data. Starting tomorrow with the retail sales numbers, this week should go a long way toward answering some of the questions about what the data say about the state of economic activity in the United States.
First unveiled on July 2nd in Trends in Economic Data Relative to Expectations, I was pleasantly surprised by the positive reception to my chart of how various components of economic activity have been tracking against expectations for 2010. As a result, I expect to periodically update a version of this chart for the blog.
This week’s chart of the week is one such update, selected partly because the last several weeks suggest a possible reversal in the negative trend of economic data relative to expectations for employment and the consumer (Retail Sales, Consumer Confidence, Consumer Sentiment, Personal Income, Personal Spending, etc.)
While there is some evidence that the downtrend in economic data may have been broken, there is at best marginal evidence to support the idea of a bullish uptrend in the data. Starting tomorrow with the retail sales numbers, this week should go a long way toward answering some of the questions about what the data say about the state of economic activity in the United States.
This past weekend, we observed the ninth year since the awful, cowardly acts on our nation. I was proud to see all the American flags flying on Saturday. I really don’t like talking about 9/11; it brings back all those sick feelings I had that day, and the days following… I will never forget…
Front and center this morning, we have a very nice currency rally going on. Yes, the “risk on†trading is happening, and happening in a big way! What’s driving the risk on assault versus the dollar, yen (JPY) and Swiss franc (CHF)? Ahhh… Grasshopper, you have learned well! Chinese data has opened the floodgates to risk assets, and trading is flowing out of the risk aversion assets, even more US Treasury selling!
But first, let’s see what the Chinese data is that has the risk takers all lathered up this morning…
China reported that their August Industrial Production grew 13.9%, the most in three months, and… That August retail sales increased 18.4%… Sure doesn’t look like their economy is collapsing now, does it? Remember when all those economists and pundits were saying China’s economy was going to collapse, and I kept responding by saying that it would “moderate†not collapse… Yes, you know me well… I’m patting my self on the back right now! HA!
The Aussie dollar (AUD) is trading over 93-cents this morning, which is good, and the euro (EUR) has gained over one cent to 1.28, but the real movers and shakers this morning are the Scandi currencies of Norway (NOK) and Sweden (SEK), which always makes me happy, for I’ve been waving the fundamentals flag of Norway for five years now!
We also had an agreement last night in the Basel Committee on Financial Regulations, which was pushed by Norway and Sweden. A couple of years ago, I wrote an article about the difference between the way Norway and Sweden (the “Scandisâ€) handled their banking meltdown a decade earlier, and how the US was handling their mess… I’ve said it many times, that you never heard one Scandi bank mentioned when banks all over the world were experiencing related problems from the US financial meltdown.
For right now… Gold is seeing some selling, as stocks around the world react to the strong Chinese data, and this has been the pattern now for some time… In the initial turning on of risk, gold gets sold… But as risk ramps up, people begin to see the light, and worry about inflation, etc. So… Here’s your assignment if you choose to accept it… Watch gold, and if it dips by a good margin, then look to buy at cheaper levels… Or not… Whatever floats your boat!
Well… There were some rumors over the weekend that the strong data in China would bring about a rate hike… But seeing none, the race to risk assets was on. Here’s the thing that I’ve talked about for over five years now, and that is… The Chinese know that a strong currency fights inflation just as well as a rate hike, and if the Chinese economy is going to show resilience like it did in the two reports over the weekend, then Chinese officials can breathe easier about allowing the renminbi to gain versus the dollar.
And… So it is that the renminbi reached the highest level versus the dollar since the dropping of the peg in July of 2005, overnight! It’s “ON†in China, folks…
And if it’s “ON†in China, that should benefit the Singapore dollar (SGD)… Just remember, I’ve told you for years now, that the Asian currencies all trade in a range together, so that they can remain in competition for their exports… This is a case of “what’s good for the goose…â€
Back in North America to finish out today… Canada doesn’t really have much in the way of data to move the Canadian dollar/loonie (CAD) this week. We will hear a couple of speakers from the government as the week goes on, and their manufacturing data on Wednesday, but beyond that the loonie will have to look for help from the other commodity currencies, and… Don’t forget the price of oil, which has been rising again lately, eh?
And here in the US, three-out-of-five economists surveyed by The Wall Street Journal expect the US Federal Reserve to resume large-scale purchases of securities in the face of a deteriorating economic outlook – but, by a 3-to-2 margin, most of them also think that would be a mistake.
The survey showed economists continuing to cut their growth forecasts for the rest of this year and into 2011.
Yes… I would throw my hat into that ring too, for I see the Fed Heads panicking, acting like a person who just had the wind knocked out of him, gasping for air, and grabbing on to anything he can… And… Of course, I too say it would be a mistake, but I would also add the word BIG!
Well… That end of the bond rally talk I had with you on Friday is still playing with the yield of the 10-year rising more on Friday to 2.82%… Here’s something for you to chew on… Long-time readers know that I’ve said over and over again that this dance is gonna be a drag… And that is that when foreigners grew tired of bailing out the US and their deficit spending, that they would demand higher yields at auctions for those Treasuries… And that may have been the case at the last auction, where the interest in Treasuries waned… Uh-Oh!
The monthly budget deficit is due to print today, but sometimes it’s delayed… Wink, wink… Yes, sometimes, I think they try to release the data when no one is looking… Anyway, expect the monthly deficit to be near $100 billion… Again!
Tomorrow, we’ll see the August retail sales, which should have been boosted by back-to-school sales… The BHI (Butler Household Index) indicates that to be the case, so look for an “OK†retail sales report… Nothing to get all lathered up about, just “OK 
I read something last week that made so much sense to me, I wondered why the “talking heads†on TV weren’t talking about it… Basically, government officials claim that this economic mess we’re in is a recession that’s (in their minds) over… But, you may recall the past couple of years, me referring to the economic mess as a depression…
Well… This is what I heard that plays well with my call of a depression, and that is the “soup lines†have been replaced by government checks in mailboxes… With over 20% unemployment, and NO – I repeat – NO sign of an improving labor sector, and GDP that consists of nothing but government spending… The government should call it what it is…
But that won’t get them re-elected… I’ve got news for them, they might as well go out swinging, because they’re not getting re-elected any way!
Then there was this… Recall a couple of weeks ago, me telling you that IRA custodians are reporting that people are pulling out their IRA funds early, and taking the penalty… Well, the AP reported this past weekend that people are bailing out of bank CDs and parking their cash in checking and savings accounts that earn little or no interest (except at EverBank!).
And in another sign that liquidity is at the top of most people’s minds these days… $145.3 billion has been pulled out of mutual funds this year… 414 mutual funds have closed or been merged into another fund this year, and most of them were stock funds… Liquidity never seems to be a big deal until there isn’t any, right?
Of course, if they were diversified correctly and didn’t have all their funds in those stock funds, then they wouldn’t need to panic like this…
To recap… Strong Chinese data has opened the floodgates to risk on this morning, and the currencies are taking back ground lost to the dollar, franc and yen. Gold is fluctuating, and The Basel III groundwork has been agreed on…
Chinese Data Lead Risk On Assault originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.
This past weekend, we observed the ninth year since the awful, cowardly acts on our nation. I was proud to see all the American flags flying on Saturday. I really don’t like talking about 9/11; it brings back all those sick feelings I had that day, and the days following… I will never forget…
Front and center this morning, we have a very nice currency rally going on. Yes, the “risk on†trading is happening, and happening in a big way! What’s driving the risk on assault versus the dollar, yen (JPY) and Swiss franc (CHF)? Ahhh… Grasshopper, you have learned well! Chinese data has opened the floodgates to risk assets, and trading is flowing out of the risk aversion assets, even more US Treasury selling!
But first, let’s see what the Chinese data is that has the risk takers all lathered up this morning…
China reported that their August Industrial Production grew 13.9%, the most in three months, and… That August retail sales increased 18.4%… Sure doesn’t look like their economy is collapsing now, does it? Remember when all those economists and pundits were saying China’s economy was going to collapse, and I kept responding by saying that it would “moderate†not collapse… Yes, you know me well… I’m patting my self on the back right now! HA!
The Aussie dollar (AUD) is trading over 93-cents this morning, which is good, and the euro (EUR) has gained over one cent to 1.28, but the real movers and shakers this morning are the Scandi currencies of Norway (NOK) and Sweden (SEK), which always makes me happy, for I’ve been waving the fundamentals flag of Norway for five years now!
We also had an agreement last night in the Basel Committee on Financial Regulations, which was pushed by Norway and Sweden. A couple of years ago, I wrote an article about the difference between the way Norway and Sweden (the “Scandisâ€) handled their banking meltdown a decade earlier, and how the US was handling their mess… I’ve said it many times, that you never heard one Scandi bank mentioned when banks all over the world were experiencing related problems from the US financial meltdown.
For right now… Gold is seeing some selling, as stocks around the world react to the strong Chinese data, and this has been the pattern now for some time… In the initial turning on of risk, gold gets sold… But as risk ramps up, people begin to see the light, and worry about inflation, etc. So… Here’s your assignment if you choose to accept it… Watch gold, and if it dips by a good margin, then look to buy at cheaper levels… Or not… Whatever floats your boat!
Well… There were some rumors over the weekend that the strong data in China would bring about a rate hike… But seeing none, the race to risk assets was on. Here’s the thing that I’ve talked about for over five years now, and that is… The Chinese know that a strong currency fights inflation just as well as a rate hike, and if the Chinese economy is going to show resilience like it did in the two reports over the weekend, then Chinese officials can breathe easier about allowing the renminbi to gain versus the dollar.
And… So it is that the renminbi reached the highest level versus the dollar since the dropping of the peg in July of 2005, overnight! It’s “ON†in China, folks…
And if it’s “ON†in China, that should benefit the Singapore dollar (SGD)… Just remember, I’ve told you for years now, that the Asian currencies all trade in a range together, so that they can remain in competition for their exports… This is a case of “what’s good for the goose…â€
Back in North America to finish out today… Canada doesn’t really have much in the way of data to move the Canadian dollar/loonie (CAD) this week. We will hear a couple of speakers from the government as the week goes on, and their manufacturing data on Wednesday, but beyond that the loonie will have to look for help from the other commodity currencies, and… Don’t forget the price of oil, which has been rising again lately, eh?
And here in the US, three-out-of-five economists surveyed by The Wall Street Journal expect the US Federal Reserve to resume large-scale purchases of securities in the face of a deteriorating economic outlook – but, by a 3-to-2 margin, most of them also think that would be a mistake.
The survey showed economists continuing to cut their growth forecasts for the rest of this year and into 2011.
Yes… I would throw my hat into that ring too, for I see the Fed Heads panicking, acting like a person who just had the wind knocked out of him, gasping for air, and grabbing on to anything he can… And… Of course, I too say it would be a mistake, but I would also add the word BIG!
Well… That end of the bond rally talk I had with you on Friday is still playing with the yield of the 10-year rising more on Friday to 2.82%… Here’s something for you to chew on… Long-time readers know that I’ve said over and over again that this dance is gonna be a drag… And that is that when foreigners grew tired of bailing out the US and their deficit spending, that they would demand higher yields at auctions for those Treasuries… And that may have been the case at the last auction, where the interest in Treasuries waned… Uh-Oh!
The monthly budget deficit is due to print today, but sometimes it’s delayed… Wink, wink… Yes, sometimes, I think they try to release the data when no one is looking… Anyway, expect the monthly deficit to be near $100 billion… Again!
Tomorrow, we’ll see the August retail sales, which should have been boosted by back-to-school sales… The BHI (Butler Household Index) indicates that to be the case, so look for an “OK†retail sales report… Nothing to get all lathered up about, just “OK 
I read something last week that made so much sense to me, I wondered why the “talking heads†on TV weren’t talking about it… Basically, government officials claim that this economic mess we’re in is a recession that’s (in their minds) over… But, you may recall the past couple of years, me referring to the economic mess as a depression…
Well… This is what I heard that plays well with my call of a depression, and that is the “soup lines†have been replaced by government checks in mailboxes… With over 20% unemployment, and NO – I repeat – NO sign of an improving labor sector, and GDP that consists of nothing but government spending… The government should call it what it is…
But that won’t get them re-elected… I’ve got news for them, they might as well go out swinging, because they’re not getting re-elected any way!
Then there was this… Recall a couple of weeks ago, me telling you that IRA custodians are reporting that people are pulling out their IRA funds early, and taking the penalty… Well, the AP reported this past weekend that people are bailing out of bank CDs and parking their cash in checking and savings accounts that earn little or no interest (except at EverBank!).
And in another sign that liquidity is at the top of most people’s minds these days… $145.3 billion has been pulled out of mutual funds this year… 414 mutual funds have closed or been merged into another fund this year, and most of them were stock funds… Liquidity never seems to be a big deal until there isn’t any, right?
Of course, if they were diversified correctly and didn’t have all their funds in those stock funds, then they wouldn’t need to panic like this…
To recap… Strong Chinese data has opened the floodgates to risk on this morning, and the currencies are taking back ground lost to the dollar, franc and yen. Gold is fluctuating, and The Basel III groundwork has been agreed on…
Chinese Data Lead Risk On Assault originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.
In a classic Daily Show episode, Jon Stewart interviews David Walker — former United States Comptroller General, President and CEO of The Peter G. Peterson Foundation, and protagonist of the Addison Wiggin-produced documentary I.O.U.S.A. — who explains how the US has become a “dysfunctional democracy” because career politicians are more worried about their jobs than genuinely serving the public.
Walker also highlights that:
* After 2002, when statutory budget controls expired, Washington became out of touch and went crazy with spending
* The United States hasn’t had an effective budgetary plan, and does not have outcome-based indicators in education, public finance or other key areas that could help provide more practical spending guidance for the nation
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.
In a classic Daily Show episode, Jon Stewart interviews David Walker — former United States Comptroller General, President and CEO of The Peter G. Peterson Foundation, and protagonist of the Addison Wiggin-produced documentary I.O.U.S.A. — who explains how the US has become a “dysfunctional democracy” because career politicians are more worried about their jobs than genuinely serving the public.
Walker also highlights that:
* After 2002, when statutory budget controls expired, Washington became out of touch and went crazy with spending
* The United States hasn’t had an effective budgetary plan, and does not have outcome-based indicators in education, public finance or other key areas that could help provide more practical spending guidance for the nation
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.
Martin is in Japan this week, visiting his son Anthony and checking up on Asian markets firsthand. So he asked me to fill in for him today.
I’m pleased to have this opportunity — especially at this time of the year when markets have an historical tendency of turning in some big surprises.
Plus, this is also the two-year anniversary of the Lehman failure, the landmark event that’s viewed as the start of the Great Financial Crisis.
Despite the years since, the stock market has gone basically nowhere, and the risk of a double-dip recession is now growing. This is why the firm I run, Weiss Capital Management†, is hosting a special free webinar this Wednesday. (Go here now to sign up.)
Plus, it’s why I want to give you — right here — a quick summary of our views on where we stand …
The Forces Behind the Tug-o’-War
The bears point out that the U.S. economy is still sinking fast despite massive government spending, lending and guarantees.
Consumers are still not spending, despite the lowest borrowing costs in generations.
And, perhaps most important, banks are still not lending, even though they’re sitting on piles of cash courtesy of the Fed’s money printing. All of this is true!
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Despite these forces, we don’t expect any new major stimulus package to change these dynamics anytime soon. We’ve seen no improvement in the employment picture, with the jobless rate actually ticking HIGHER last month to 9.6 percent.
And we see the floor falling out of the very same market that helped trigger the Great Financial Crisis in the first place — housing. 1
Meanwhile, however, the bulls argue that corporate balance sheets are stronger and market valuations are more attractive.
This is also true!
But in a weak economy, and especially in a double-dip recession scenario, these factors alone cannot justify investing as usual.
Quite to the contrary, at best, these crosscurrents are battering the markets with extreme UP and DOWN volatility: In the first eight months of 2010, US stocks flip-flopped repeatedly, with markets rallying in four of the months (February, March, April, and July) but also declining in four (January, May, June & August). 2 The jury is still out on September, but it’s historically the worst month for stocks.
In sum, it’s a giant tug-o’-war between the bulls and the bears.
How long can it last? For an answer, consider …
Japan’s Lost Decades!
From 1990 through 2010, Japan experienced a 20-year, zigzag bear market … with no end in sight!
Japanese investors have fared badly. Over and over again, they were lured back into stocks with government programs and promises to make things right. And over and over again, their hopes were dashed; their portfolios, sinking further and further.
Just take one look at the chart above and you’ll clearly see how Japanese investors following a buy-and-hold strategy were severely hurt. And imagine the plight of those that bought after major rallies or sold after major declines!
The good news is that there is a way to not only cope with this volatility but turn it firmly in your favor. Here’s what to do …
First, if you’re still holding vulnerable stocks or equity mutual funds, pare them back.
Second, if you must own stocks, focus on higher quality issues with a long track record of consistent dividends. These are companies that pay as you wait … even if the market is going sideways.
Third, short-term Treasuries are fine for liquidity, but not as a longer-term solution. Even the yield on 2-year Treasuries has now dipped to a record low of less than ONE-HALF of one percent! 3
What’s worse, the Federal Reserve says it intends to KEEP rates near zero indefinitely to attempt to jumpstart the economy.
Fourth, fixed-income funds are another alternative to consider as a way to diversify from stocks and cash, but stick with short- to medium-term maturities and high-quality funds. Right now, for example, some foreign fixed-income funds provide higher cash flows and only modest additional risk if you stick with the higher quality.
Fifth, consider adding a modest hedge component for your portfolio — to help offset downside risk. Inverse mutual funds and inverse ETFs on both stocks and bonds are the vehicles of choice, but use them sparingly and don’t hold them for the long term.
Sixth, if you’ve taken these precautions with the core of your portfolio AND you want to learn how to harness the market’s big up-and-down swings to your advantage, join us at our webinar this Wednesday.
Best wishes,
Sherri Daniels, President
Weiss Capital Management, Inc.
†Weiss Capital Management is an SEC-Registered Investment Adviser. It is a separate but affiliated entity of Weiss Research, the publisher of Money and Markets. Both entities are owned by Weiss Group, LLC.
1 Bond Wave Advisors: Weekly Market Summary, 9/7/10
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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It’s a relatively small gold purchase, amounting to only 0.3 percent of last year’s 4,000 tonnes of demand, but Bangladesh Bank, the nation’s central bank, has stepped up to the yellow-metal plate with a roughly $400 million, 10-tonne purchase of gold from the International Monetary Fund (IMF).
According to the Financial Times:
“The shift in central banks’ attitudes towards gold is important on two fronts: the fresh interest provides psychological support and, more importantly, slower sales reduce sources of supply and help to boost prices. GFMS, the London-based precious metal consultancy, estimates central banks last year sold 41 tonnes of gold, down 82 per cent from 2008 and the lowest level in 20 years.
“The IMF said on Thursday it sold gold to Bangladesh Bank, the country’s central bank, at market prevailing prices on September 7. Gold was quoted on the afternoon fix in London, the market benchmark, at $1,256.75 a troy ounce that day.
“Gold prices hit a nominal all-time high of $1,264.90 an ounce in mid-June. However, in real terms, adjusted for inflation, the precious metal is still well below its record of more than $2,000 set in the early 1980s. In early trading in London on Friday, gold hovered just below $1,250 an ounce.”
This most recent gold purchase is a part of the 403.3 metric tons the IMF began shopping around in September 2009. Previous buyers included the Reserve Bank of India, Bank of Mauritius, and the Central Bank of Sri Lanka, which together scooped up about 212 metric tons. The IMF sold another 83.3 tonnes on-market, which leaves it with roughly 93 tonnes still left to sell. Asian central banks continue to increase their gold holdings, a tangible sign of the growing wealth and influence of the region. You can visit Bloomberg to read more details about how Bangladesh’s central bank has boosted its gold reserves.
Bangladesh Latest Buyer in Central Bank Gold Game originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.
Recently, global regulators pushed through increased world banking regulations which will force financial institutions to increase reserves protecting against unexpected losses, with the effects influencing iShares S&P Global Financials (IXG), SPDR S&P International Financial Sector (IPF), the iShares MSCI ACWI ex US Financials Index (AXFN), the Financial Select Sector SPDR (XLF) and the Vanguard Financials ETF (VFH).
More specifically, the new rules are designed to rein in the kinds of risky activities that aided in bringing down the global financial system. The primary focus of these new rules is the amount of capital that financial institutions are forced to hold.  More specifically, regulators agreed to require banks to hold a specific level of a basic type of capital known as common equity, which is considered the most effective type of capital because it is used to directly absorb losses.  Furthermore, officials agreed large, internationally active banks will have to hold levels of common equity equal to at least 7% of their assets, much higher than the roughly 2% international standard or 4% standard for large U.S. banks.
As for timing of when these increased capital requirements are expected to take place, they will be gradually increased over a period of years. By 2015, banks will have to begin building a 2.5% buffer of capital that must be fully in place by Jan. 1, 2019. If banks fall below this buffer, regulators could force them to hold onto more of their earnings to augment their capital which could eventually lead to decreased profits and an overall reduction in global lending.Â
As mentioned earlier, some ETFs that are likely to be influenced by these new regulations include:
iShares S&P Global Financials (IXG), which boasts HSBC Holdings (HSBA), JP Morgan Chase (JPM) and Berkshire Hathaway (BRK.B) as its top holdings.
SPDR S&P International Financial Sector (IPF), which gives exposure to BNP Paribas and the Royal Bank Of Canada (RY).
iShares MSCI ACWI ex US Financials Index (AXFN), which boasts HSBC Holdings and Banco Santander SA (SAN) as its top holdings.
Financial Select Sector SPDR (XLF), which includes Bank Of America (BAC) and Wells Fargo (WFC) in its top holdings.
Vanguard Financials ETF (VFH), which give exposure to numerous financial institutions including Goldman Sachs (GS), American Express (AXP) and US Bancorp (USB).
To further protect against the inherent risks that are involved with investing in these equities, the use of an exit strategy which identifies specific price points at which downward price pressure is likely to be seen is important. Such a strategy can be found at www.SmartStops.net.
Recently, global regulators pushed through increased world banking regulations which will force financial institutions to increase reserves protecting against unexpected losses, with the effects influencing iShares S&P Global Financials (IXG), SPDR S&P International Financial Sector (IPF), the iShares MSCI ACWI ex US Financials Index (AXFN), the Financial Select Sector SPDR (XLF) and the Vanguard Financials ETF (VFH).
More specifically, the new rules are designed to rein in the kinds of risky activities that aided in bringing down the global financial system. The primary focus of these new rules is the amount of capital that financial institutions are forced to hold.  More specifically, regulators agreed to require banks to hold a specific level of a basic type of capital known as common equity, which is considered the most effective type of capital because it is used to directly absorb losses.  Furthermore, officials agreed large, internationally active banks will have to hold levels of common equity equal to at least 7% of their assets, much higher than the roughly 2% international standard or 4% standard for large U.S. banks.
As for timing of when these increased capital requirements are expected to take place, they will be gradually increased over a period of years. By 2015, banks will have to begin building a 2.5% buffer of capital that must be fully in place by Jan. 1, 2019. If banks fall below this buffer, regulators could force them to hold onto more of their earnings to augment their capital which could eventually lead to decreased profits and an overall reduction in global lending.Â
As mentioned earlier, some ETFs that are likely to be influenced by these new regulations include:
iShares S&P Global Financials (IXG), which boasts HSBC Holdings (HSBA), JP Morgan Chase (JPM) and Berkshire Hathaway (BRK.B) as its top holdings.
SPDR S&P International Financial Sector (IPF), which gives exposure to BNP Paribas and the Royal Bank Of Canada (RY).
iShares MSCI ACWI ex US Financials Index (AXFN), which boasts HSBC Holdings and Banco Santander SA (SAN) as its top holdings.
Financial Select Sector SPDR (XLF), which includes Bank Of America (BAC) and Wells Fargo (WFC) in its top holdings.
Vanguard Financials ETF (VFH), which give exposure to numerous financial institutions including Goldman Sachs (GS), American Express (AXP) and US Bancorp (USB).
To further protect against the inherent risks that are involved with investing in these equities, the use of an exit strategy which identifies specific price points at which downward price pressure is likely to be seen is important. Such a strategy can be found at www.SmartStops.net.
Sunday Sept 12
Precious metals soar as investors flock to gold and silver. But are they looking deep enough to truly understand the current trends at hand?
When reviewing the metals sector I like to look at it from different angles to get a solid understanding of the patterns and trend forming. I follow multiple time frames along with monitoring the gold mining stocks. Gold stocks tend to lead the price of gold bullion and when its out performing the price of gold substantially by 10% or more you should be expecting a pause or pullback in both gold stocks and gold bullion prices temporarily.
Below are a few charts showing the long and short term trends for gold.
Gold Bullion Price – Weekly Trend Chart
Gold continues to be in a strong up trend. The occasional test of support at the major moving averages can provide great long term points for adding to a position. The 50 period average is one which is tested frequently.
Looking at the weekly chart does give me a red flag for the intermediate price of gold. While the trend is clearly up I can’t help but notice the rising wedge which is a bearish pattern. During an uptrend we want to see bull flags and pennants, not a grind higher forming a narrowing range. This grind higher could unfold much similar to the price action of 2005 and 2007 instead of a correction but I am leaning more towards a sharp correction because more people are bullish on gold now then they were during the June top.
For those looking at gold as a long term investment/currency can be patient and wait for a pullback to a major moving average before adding to your position then you would lower your overall risk for this position. You will understand after reviewing the following charts.
GLD – Gold Bullion ETF – Daily Chart
(This fund moves identical to spot gold price so even though I am showing you GLD fund, the spot gold chart is doing the exact same thing.) As you can see below the price of gold is trading at resistance and becoming choppy. Buying gold at resistance does not make much sense to me. There is a very good chance gold will move lower in the coming weeks providing a better price for long term investors to add to their positions. For example, if you waited for the weekly chart to pullback to the 50 period moving average that would be like buying this GLD fund at $113, which is an 8% discount.
Gold continues to hold up within its channel but this week we could see fireworks if the price breaks below the blue support channels.
Gold:Gold Stocks Comparison – Daily Chart
This chart shows the performance of gold vs gold stocks from the Feb 2010 lows. The blue line is the performance of gold stocks while the red line shows gold’s performance. It’s obvious that when everyone is bullish on gold they buy the highly leverages gold investments in order to take full advantage of the upcoming move. This is much like reading the put/call ratio for trading the SP500 and it measures the bullishness of the precious metals sector.
When gold equities are strongly out performing gold bullion you should be thinking about raising your stops, taking partial profits and or hedging your long term position until the sector stabilizes is not trading at a premium.
Precious Metals Sector Trading Conclusion:
In short, Gold is in a strong up trend and will remain in one for a long time. Commodities have higher percentage of going parabolic. That means there’s a small chance that gold continues to move up quicker and quicker surging hundreds of dollars in a very short period of time. That being said, it’s not very likely, and from a technical point of view those buying gold now are paying a premium in my opinion.
Being a patient trader is not easy, but waiting for low risk entry points is very rewarding on many different levels when done correctly.
Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
Sunday Sept 12
Precious metals soar as investors flock to gold and silver. But are they looking deep enough to truly understand the current trends at hand?
When reviewing the metals sector I like to look at it from different angles to get a solid understanding of the patterns and trend forming. I follow multiple time frames along with monitoring the gold mining stocks. Gold stocks tend to lead the price of gold bullion and when its out performing the price of gold substantially by 10% or more you should be expecting a pause or pullback in both gold stocks and gold bullion prices temporarily.
Below are a few charts showing the long and short term trends for gold.
Gold Bullion Price – Weekly Trend Chart
Gold continues to be in a strong up trend. The occasional test of support at the major moving averages can provide great long term points for adding to a position. The 50 period average is one which is tested frequently.
Looking at the weekly chart does give me a red flag for the intermediate price of gold. While the trend is clearly up I can’t help but notice the rising wedge which is a bearish pattern. During an uptrend we want to see bull flags and pennants, not a grind higher forming a narrowing range. This grind higher could unfold much similar to the price action of 2005 and 2007 instead of a correction but I am leaning more towards a sharp correction because more people are bullish on gold now then they were during the June top.
For those looking at gold as a long term investment/currency can be patient and wait for a pullback to a major moving average before adding to your position then you would lower your overall risk for this position. You will understand after reviewing the following charts.
GLD – Gold Bullion ETF – Daily Chart
(This fund moves identical to spot gold price so even though I am showing you GLD fund, the spot gold chart is doing the exact same thing.) As you can see below the price of gold is trading at resistance and becoming choppy. Buying gold at resistance does not make much sense to me. There is a very good chance gold will move lower in the coming weeks providing a better price for long term investors to add to their positions. For example, if you waited for the weekly chart to pullback to the 50 period moving average that would be like buying this GLD fund at $113, which is an 8% discount.
Gold continues to hold up within its channel but this week we could see fireworks if the price breaks below the blue support channels.
Gold:Gold Stocks Comparison – Daily Chart
This chart shows the performance of gold vs gold stocks from the Feb 2010 lows. The blue line is the performance of gold stocks while the red line shows gold’s performance. It’s obvious that when everyone is bullish on gold they buy the highly leverages gold investments in order to take full advantage of the upcoming move. This is much like reading the put/call ratio for trading the SP500 and it measures the bullishness of the precious metals sector.
When gold equities are strongly out performing gold bullion you should be thinking about raising your stops, taking partial profits and or hedging your long term position until the sector stabilizes is not trading at a premium.
Precious Metals Sector Trading Conclusion:
In short, Gold is in a strong up trend and will remain in one for a long time. Commodities have higher percentage of going parabolic. That means there’s a small chance that gold continues to move up quicker and quicker surging hundreds of dollars in a very short period of time. That being said, it’s not very likely, and from a technical point of view those buying gold now are paying a premium in my opinion.
Being a patient trader is not easy, but waiting for low risk entry points is very rewarding on many different levels when done correctly.
Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
ETF Investing holds many obvious benefits over individual stock-picking and several factors make ETFs Better Than Mutual Funds. However, this often lulls retail investors (and even institutional investors and professional money managers) into a false sense of complacency in that they think they’re entering into a particular type of investment or strategy and the results look dramatically different just a few weeks or months later versus expectations. If you’re going to take your investments seriously and focus purely on a) optimized gains per given risk tolerance, b) preservation of capital and/or c) adherence to or exceeding benchmark performance, you need to be keenly aware of the 7 Deadly Sins of ETF Investing:
1. Tracking Error - Tracking error can occur one of two ways. First, if an ETF purports to track say, the S&P500, but it holds a portion of its net holdings in cash, futures and other instruments, the actual performance of the ETF will never match that of the underlying index. Now, there are ample large pools of funds in large index ETFs to bring that tracking error down to what should be an acceptable level, like say, 0.1% over said given period of time. However, for more obscure indices where investor inflows/outflows, liquidity and other factors become more prominent, you may find that your investment does not match your objectives and you may be surprised to find out you didn’t earn what you thought you would. While this is a common complaint for mutual fund investors and somewhat so for ETF investors, it’s nowhere near as nefarious as the surprise you’ll see next…
2. Value Decay – While some might attribute this phenomena to “tracking error”, that is a false assertion. Tracking error is when your investment doesn’t do what it’s supposed to based on a benchmark. Value decay is when your shares lose money over time and you don’t understand why. Now you will. This can happen one of two ways. First off, many commodity ETFs and ETNs vastly underperform their benchmark because they rely on futures contracts which roll each month and value is lost each time. This was highlighted in more detail and by segment in the Worst ETFs of 2010 for ETNs like (VXX) and others.
Even worse is the value decay that occurs over time in leveraged ETFs. Due to the daily reset feature of some of the most popular 2X and 3X ETFs, as an underlying index pops up and down over time, the actual share price of the ETF slowly declines. Don’t believe me? The Financials ETF (XLF) is roughly flat on the year, at +.9% YTD. So, the 3X Financials ETF should be up at least marginally, right? OK, well let’s take off a bit for higher expenses and maybe it’s a wash? No, the 3X Financials ETF (FAS) is down 13% YTD. That’s a big shock to expectations for buy and hold ETF investors. This same phenomena plays itself out in every leveraged ETF – it is a mathematical certainty. The only exception is when a sustained up or down trend never breaks – which never happens (i.e. if an index ONLY moves up, the leveraged ETF will actually outperform its benchmark due to compounding, but when there’s volatility, net value is lost).
3. Trying to Time the Market – For some reasons highlighted earlier, some ETFs are ONLY useful for short periods of time. Anything on the order of weeks or months and you’re losing time value that you may not even be cognizant of. For that reason, you’re stuck as a market time in ETNs like (VXX) and leveraged ETFs. At least with stocks you can either trade OR buy and hold. If the fundamentals change, market conditions change or you want to take profits, you can exit that position. With some ETFs, you should ONLY be in it for a trade which is market timing, subjecting you to high commissions, tax liabilities an trying to beat professionals that have an edge on you in both experience, execution and information.
4. High Fees – Some ETFs and ETNs have surprisingly high expense rations. While actively managed mutual funds used to be faulted for their loads, 12b-1 fees and overall expenses often approaching 2%, there are plenty of ETFs well north of 1% as well. When considering the fact that over long periods of time, equities have returned 8-10% (depending on which study and timeframe), losing an additional 1% of your portfolio means you’re sacrificing over 10% of your total returns each year to expenses – and that’s on top of whatever commissions you’re paying. In some cases, to execute a particular strategy or get exposure to an asset when there’s no other way, you’ve gotta take on that downside. For instance, a niche actively managed ETF PowerShares Active AlphaQ carries an expense ratio of 0.75% but it’s beating (SPY) by over 4% on the year, so the extra expense is well worth it. But when there are perfectly acceptable alternatives or no proven benefit these additional expenses have serious consequences.
5. Trendy/Niche Strategies – Retail investors are drawn to a hot trend like moths to a flame. As the blogs, Cramer and others start to highlight a winning strategy, often times, the smart money is just beginning to sell, the fast traders just started getting in and retail investors are thinking about it. The, boom – a new ETF is launched with much fanfare or even a once obscure ETF starts to attract massive inflows. We may have just seen that with the once “hidden gem” of investing in the new MLP ETF which launched to great fanfare and interest given the incredibly attractive facets of Master Limited Partnerships, yet it has underperformed the broad market indices since launch. Then, there are ETFs, often for commodities, that you would have never even imaged. There’s a lumber ETF that was up 62% last year, but should you be investing in lumber stocks? Maybe, if your small business is hedging against lumber prices or something to that effect. But if I look back a year further at 2008, the lumber ETF greatly underperformed the S&P500 (little appetite for wood when there’s no new houses to be built). Before jumping on the next hot ETF trend, ask yourself if it fits your strategy, why you’re investing and whether this is a bubble. When you hear your co-workers talking about how they’re jumping into bond funds, just like they were talking oil in 2007 and internet stocks in 1999, that may very well signal a bubble.
6. Counterparty/Solvency Risk – Investors often assume ETNs (exchange traded notes) are the same as ETFs, but they’re not. One key difference is that an ETF holds the underlying stocks, futures, commodity (not always, but often) or asset being tracked. ETNs on the other hand use an issuing party to hold the “note” which means if they declare bankruptcy, which many firms either did or were on the brink in 2008-2009, holders of those ETNs such as typical retail investors may be left holding the bag, meaning their investments are either worthless or they’ll get pennies on the dollar, depending on what happens in bankruptcy proceedings. While the threat of insolvency for major financial firms is much lower now than it was during the financial collapse, there’s no telling what’s going to happen a few months out.
7. High Bid/Ask Spread – There are some very thinly traded ETFs and even more-so, in the ETN world, where there are so few shares traded that the buyer takes a haircut, as does the seller due to a very wide bid/ask spread. For instance, if you take a high volume ETF, like (SPY), the S&P500 proxy, there are millions of shares traded daily and the bid/ask at any given time is generally 1 cent or so. As such, you’re pretty much paying the same thing the guy on the other end is selling for. Well, with thinly traded instruments (stocks included), there are so few willing buyers and sellers at a given price, that the bids and the asks are relatively far apart, in some cases being 5-10% apart. If this is the case, and you’re already given up say, 1-2% on commission expenses, do you reasonably expect this investment to outperform your other opportunities by up to 12% for it to even make sense? Surely, there’s either a better opportunity somewhere else or you better intend on holding this thing for years to make up the difference (assuming it beats more conventional options anyway).
Disclosure: Author holds the following positions in aforementioned ETFs: Short FAS, Put position on SPY. For full context and holdings, see latest portfolio update.
ETF Investing holds many obvious benefits over individual stock-picking and several factors make ETFs Better Than Mutual Funds. However, this often lulls retail investors (and even institutional investors and professional money managers) into a false sense of complacency in that they think they’re entering into a particular type of investment or strategy and the results look dramatically different just a few weeks or months later versus expectations. If you’re going to take your investments seriously and focus purely on a) optimized gains per given risk tolerance, b) preservation of capital and/or c) adherence to or exceeding benchmark performance, you need to be keenly aware of the 7 Deadly Sins of ETF Investing:
1. Tracking Error - Tracking error can occur one of two ways. First, if an ETF purports to track say, the S&P500, but it holds a portion of its net holdings in cash, futures and other instruments, the actual performance of the ETF will never match that of the underlying index. Now, there are ample large pools of funds in large index ETFs to bring that tracking error down to what should be an acceptable level, like say, 0.1% over said given period of time. However, for more obscure indices where investor inflows/outflows, liquidity and other factors become more prominent, you may find that your investment does not match your objectives and you may be surprised to find out you didn’t earn what you thought you would. While this is a common complaint for mutual fund investors and somewhat so for ETF investors, it’s nowhere near as nefarious as the surprise you’ll see next…
2. Value Decay – While some might attribute this phenomena to “tracking error”, that is a false assertion. Tracking error is when your investment doesn’t do what it’s supposed to based on a benchmark. Value decay is when your shares lose money over time and you don’t understand why. Now you will. This can happen one of two ways. First off, many commodity ETFs and ETNs vastly underperform their benchmark because they rely on futures contracts which roll each month and value is lost each time. This was highlighted in more detail and by segment in the Worst ETFs of 2010 for ETNs like (VXX) and others.
Even worse is the value decay that occurs over time in leveraged ETFs. Due to the daily reset feature of some of the most popular 2X and 3X ETFs, as an underlying index pops up and down over time, the actual share price of the ETF slowly declines. Don’t believe me? The Financials ETF (XLF) is roughly flat on the year, at +.9% YTD. So, the 3X Financials ETF should be up at least marginally, right? OK, well let’s take off a bit for higher expenses and maybe it’s a wash? No, the 3X Financials ETF (FAS) is down 13% YTD. That’s a big shock to expectations for buy and hold ETF investors. This same phenomena plays itself out in every leveraged ETF – it is a mathematical certainty. The only exception is when a sustained up or down trend never breaks – which never happens (i.e. if an index ONLY moves up, the leveraged ETF will actually outperform its benchmark due to compounding, but when there’s volatility, net value is lost).
3. Trying to Time the Market – For some reasons highlighted earlier, some ETFs are ONLY useful for short periods of time. Anything on the order of weeks or months and you’re losing time value that you may not even be cognizant of. For that reason, you’re stuck as a market time in ETNs like (VXX) and leveraged ETFs. At least with stocks you can either trade OR buy and hold. If the fundamentals change, market conditions change or you want to take profits, you can exit that position. With some ETFs, you should ONLY be in it for a trade which is market timing, subjecting you to high commissions, tax liabilities an trying to beat professionals that have an edge on you in both experience, execution and information.
4. High Fees – Some ETFs and ETNs have surprisingly high expense rations. While actively managed mutual funds used to be faulted for their loads, 12b-1 fees and overall expenses often approaching 2%, there are plenty of ETFs well north of 1% as well. When considering the fact that over long periods of time, equities have returned 8-10% (depending on which study and timeframe), losing an additional 1% of your portfolio means you’re sacrificing over 10% of your total returns each year to expenses – and that’s on top of whatever commissions you’re paying. In some cases, to execute a particular strategy or get exposure to an asset when there’s no other way, you’ve gotta take on that downside. For instance, a niche actively managed ETF PowerShares Active AlphaQ carries an expense ratio of 0.75% but it’s beating (SPY) by over 4% on the year, so the extra expense is well worth it. But when there are perfectly acceptable alternatives or no proven benefit these additional expenses have serious consequences.
5. Trendy/Niche Strategies – Retail investors are drawn to a hot trend like moths to a flame. As the blogs, Cramer and others start to highlight a winning strategy, often times, the smart money is just beginning to sell, the fast traders just started getting in and retail investors are thinking about it. The, boom – a new ETF is launched with much fanfare or even a once obscure ETF starts to attract massive inflows. We may have just seen that with the once “hidden gem” of investing in the new MLP ETF which launched to great fanfare and interest given the incredibly attractive facets of Master Limited Partnerships, yet it has underperformed the broad market indices since launch. Then, there are ETFs, often for commodities, that you would have never even imaged. There’s a lumber ETF that was up 62% last year, but should you be investing in lumber stocks? Maybe, if your small business is hedging against lumber prices or something to that effect. But if I look back a year further at 2008, the lumber ETF greatly underperformed the S&P500 (little appetite for wood when there’s no new houses to be built). Before jumping on the next hot ETF trend, ask yourself if it fits your strategy, why you’re investing and whether this is a bubble. When you hear your co-workers talking about how they’re jumping into bond funds, just like they were talking oil in 2007 and internet stocks in 1999, that may very well signal a bubble.
6. Counterparty/Solvency Risk – Investors often assume ETNs (exchange traded notes) are the same as ETFs, but they’re not. One key difference is that an ETF holds the underlying stocks, futures, commodity (not always, but often) or asset being tracked. ETNs on the other hand use an issuing party to hold the “note” which means if they declare bankruptcy, which many firms either did or were on the brink in 2008-2009, holders of those ETNs such as typical retail investors may be left holding the bag, meaning their investments are either worthless or they’ll get pennies on the dollar, depending on what happens in bankruptcy proceedings. While the threat of insolvency for major financial firms is much lower now than it was during the financial collapse, there’s no telling what’s going to happen a few months out.
7. High Bid/Ask Spread – There are some very thinly traded ETFs and even more-so, in the ETN world, where there are so few shares traded that the buyer takes a haircut, as does the seller due to a very wide bid/ask spread. For instance, if you take a high volume ETF, like (SPY), the S&P500 proxy, there are millions of shares traded daily and the bid/ask at any given time is generally 1 cent or so. As such, you’re pretty much paying the same thing the guy on the other end is selling for. Well, with thinly traded instruments (stocks included), there are so few willing buyers and sellers at a given price, that the bids and the asks are relatively far apart, in some cases being 5-10% apart. If this is the case, and you’re already given up say, 1-2% on commission expenses, do you reasonably expect this investment to outperform your other opportunities by up to 12% for it to even make sense? Surely, there’s either a better opportunity somewhere else or you better intend on holding this thing for years to make up the difference (assuming it beats more conventional options anyway).
Disclosure: Author holds the following positions in aforementioned ETFs: Short FAS, Put position on SPY. For full context and holdings, see latest portfolio update.
Dr. Martin Murenbeeld, chief economist for Dundee Wealth Economics and one of the smartest gold minds around, recently released his latest chart book – hundreds of useful visuals to help him tell the gold and commodity stories.
Dr. Murenbeeld also outlines his nine bullish arguments for gold.
1. Global fiscal and monetary reflation – The world’s major economies have taken on extensive amounts of debt to keep their economies afloat. The struggles of Greece and other nations in Western Europe haven’t gone away. The U.S. has spent hundreds of billions of dollars in stimulus money and is still losing jobs.
2. Global imbalances – The dollar has benefited from the troubles in other countries in its role as a relative safe haven. “Relative†is the key word – roughly $10 trillion is expected to be added to the U.S. federal debt burden through 2019 and the U.S. trade imbalances are huge. These trends stand to weigh on the dollar and support gold’s safe haven status over the longer term.
3. Global foreign exchange reserves are “excessive†– Global foreign exchange reserves have expanded exponentially in just the past few years, reaching $8.17 trillion in April 2010. Meanwhile, the gold reserve ratio has dropped significantly since 1980.
4. Central bank attitudes to gold – Under the current central bank selling agreement, only the International Monetary Fund has been a seller of gold. Latin American countries, who were net sellers of gold up until 2002, are now buying gold again. India purchased 200 metric tons from the IMF in the fourth quarter of 2009, setting a floor under gold just above $1,000. China has increased its gold reserves from 395 metric tons in 2001 to 1,054 metric tons as of the end of the first quarter—a 166 percent increase in less than a decade.
5. Gold is not in a bubble – Gold’s run has been slow and steady. As I mentioned last week, we’re not seeing large price spikes that are typical with bubbles. The chart below illustrates just how different gold’s current bull run has been from previous ones. A key difference today is that we’re seeing greater affluence in the developing world, where people have traditionally turned to gold to store their wealth.
6. Mine supply is flat – World mine production is about 2,500 metric tons—roughly 25 percent higher than it was in 1990—but net mine supply is less than it was 20 years ago. Dehedging, increased scrap supply, lower grade discoveries and higher replacement costs will continue to constrain supply. We’re already seeing this affect the marketplace. During the second quarter of 2010, gold demand rose 36 percent year over year, while supply was up just 17 percent.
7. Investment demand – Investment demand in the second quarter of 2010 more than doubled compared to the same period in 2009, and accounted for more than half of total global demand. Investors bought the most gold since the first quarter of 2009, at the depths of the Great Recession.
8. Commodity price cycle – Commodity price cycles tend to last multiple decades. Going back to 1800, the shortest gold cycle is 10 years and shortest copper cycle is 14 years. The current bull cycle began in 2001.
9. Geopolitical environment – Historically, gold has performed well in times of political and financial turmoil. Gold hit an all-time high (inflation adjusted) in 1980 amid the Iran hostage crisis and the Soviet invasion of Afghanistan. Today’s geopolitical climate is also volatile given the ongoing wars in Iraq and Afghanistan and the pursuit of nuclear arms by Iran and North Korea.
With these nine factors, Dr. Murenbeeld makes a strong bullish case for gold and others seem to agree. A Bloomberg survey of 29 analysts last week reported that they see gold prices averaging $1,500 in 2011—a 20 percent jump from current levels.
P.S. To read more of my insights visit the gold section of my investment blog, Frank Talk.
Nine Bullish Arguments for Gold originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.
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