Economy

Here’s an excellent question from WedgeHead that encapsulates the interest of quite a few members.

WedgeHead asked:

Chris,

I assume your position re: selling stocks pertains primarily to the US market.  What about foreign stocks held in foreign currencies (a la, Peter Schiff’s strategy)?  Of course, I realize you don’t want to be giving specific investment advice — just looking for general thoughts re: interplay of fiat currencies.

This is something that I have not been able to clarify in my mind: all current currencies in the world are fiat currencies, so, what happens to them when the dollar hits its crisis.  Do they all go into crisis?  At the same time?  I am not so much thinking the English pound or the Euro, as they appear to be as mismanaged as the dollar, but more along the lines of the Canadian, Australian and Asian currencies.

I’d like to be somewhat diversified beyond physical gold and silver, and have not found land that makes sense for me at this point.  It seems like foreign currency denominated oil, mining, etc stocks seems the most rational. 

Thanks as always for your excellent analysis.

It’s easy to find articles that bash gold as an investment. For some reason, there’s real antipathy towards the yellow dawg out there in the establishment investing community.

I know all the reasons; it doesn’t produce a return, it just sits there, you can’t eat it (but who eats stocks & bonds?), and so forth.

One thing that’s become as reliable as clockwork is for stocks to weaken and for Treasuries to firm up right before a big auction.  Today is no exception.  The reason, such as it is, being given by the media for today’s move is this:

There have been a lot of rumors floating around that JPM and other large banks are deeply underwater on their precious metals trades.  For example, JPM may be short up to twice the total known available stockpiles of tradable silver, meaning that if the people they had sold all their paper promises to demanded delivery, there would be no possible way to deliver.  So JPM would enter into default on the contracts, which would be a bad thing.  In truth, the CFTC would step in and change the rules to protect JPM, but it would be a bad moment for all the big players.

Thursday, December 3, 2009

Here’s a quick pair of articles that nicely illustrates the level of spin that we have to endure on a daily basis.  As we are all aware, consumer spending is the largest driver of the US economy.  By far.

Eyeballs everywhere are glued to this year’s holiday retail numbers, because if they are bad…well, then the stock market rally might be hard to sustain or explain.

It turns out that the November sales numbers came in far worse than expected: 

I’ve been asked quite a few times to share what I keep a close eye on in the markets.  In my framework, everything hinges on the dollar.  The thing I am most concerned about is an abrupt fall in the dollar.

So I keep a close eye on three things each day:  the dollar, interest rates, and gold.  By tracking these three things, I feel I am adequately prepared to know if a major event is occurring.  Should I see a pronounced break in all three of these items in concert, I will send out one of my very rare alerts.

For those new to the site, I will only send out an alert if I receive information that would personally cause me to take a specific action.  Those actions might be “retrieve my gold from the bank,” or “take out more cash,” or “go home” (if traveling), or “fuel up the cars,” and so forth.  Suffice it to say that there are a number of events that would cause me to shift from relative complacency to more vigorous action.

I consider these events to be rather unlikely, even improbable, but I cannot dismiss these concerns entirely.  So my approach is to develop a plan of action and keep a close eye on a few sentinel charts that reflect the views of millions of separate eyeballs.

I am truly amazed at what I am seeing out there in the markets these days.  I also understand and share the frustration of the many analysts who know what “should” be happening but is not.

What should be happening is massive, self-reinforcing deflation caused by debt destruction and resulting from the housing bust and retreat of consumer borrowing.

These are harrowing figures: