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December 12, 2005

Is gold just a stalking horse?, Mon., Dec. 12, 2005, 12:18 PM

I'll throw out for discussion something a serious-minded reader has posed to me directly. This individual could be navel gazing or he's a heck of a chess player. Tell me what you think.

"What if this current move in gold and other commodities - even if gold hits $600 - is only a stalking horse - with the real move still a couple of years away?

There are several reasons why the industrialized countries may want a recession sooner rather than later:

(1) to slow China's inexorable ascent;
(2) to delay and defer for awhile the realization that oil quite possibly - as North American gas certainly - is about to peak;
(3) to stop the fall of the greenback relative to hard assets (metals);
(4) to allow the Fed simultaneously to monetize US debt (against massive future liabilities) by 'coming to the rescue of the little guy' as they re-inflate in the midst of deep recessions (does this sound cynical?);
(5) a further transference of wealth from the middle class to the wealthy 'rentier' - depressions do that: they produce a 'fire-sale' of assets;
(6) better now (the thinking of those in power goes) than in '08 (the Republicans are confident, with the number and breakdown of competitive districts, that they can hold the House (at least) in almost any environment - so long as it's not TOO bad).
(7) I'm sure others can think of more.

Bottom line: Bernanke will surprise everyone and raise rates UNTIL something gives."

My view is that:

(1) the Administration is less concerned about the fortune of other countries than its own. Unchecked inflation would raise rates and likely cause a housing collapse before Election Day 2008, which would destroy their chances of re-election, which is their primary objective; and
(2) a recession would put people out of work, reducing tax receipts and causing bigger deficits, which would hurt, but not destroy, their chances of re-election.

What I think is needed is an attitude adjustment. :-)


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Thank you James for having me switch from gif to jpeg images when I do photos. Gif's are ok for simple charts etc, but not for photos taken with a 5 megapixel camera when the sunlight is bouncing off the landscape. Maybe this works.

BTW, the Dow 30 just turned negative, so the equity rally is over for now, probably gaining some strength for a grand spin sometime oh about 2:15 tomorrow.

Posted by Posted by Bill Cara on December 12, 2005 12:18:08 PM | Category: Economics

Discourse

Hello Bill,Thank you for your site and the time you invest in it.I am a carpenter on Long Island New York.I was lucky too discover your site in Barrons.When you recomended Placer Dome fortunatly I bought some, Thank You. I want to learn how to analyze stocks.I searched your web site ,but found no reccomended books,could you reccomend those you admire,especially on the subject of determining RSI.Presently I am reading the new edition of The Inteligent Investor with a foreword by John Bogle. Thank you for all your efforts.Bob Bohen .

Posted by: BOB B [TypeKey Profile Page] at December 12, 2005 7:28 PM [link]

Bob B-
For starters, anything by Pring or John Murphy is to be recommended, but let me get back to you with some suggestions a little bit later if Bill hasn't. Bill sometimes relies on me to direct readers around his site and to resources.

Posted by: MarkM [TypeKey Profile Page] at December 12, 2005 7:42 PM [link]

Bob B-
Okay, found it! look under Bill's index "Trend and Cycle Phases". Read those articles but begin with the first (bottom) which mentions Pring's book, then proceed forward through time. Happy reading.

The book you mention by Graham is the Bible for value investors. That is a subset of fundamental analysis. Bill also has a short section in the top banner on that appraoch. Bill combines fundamental, technical and quantitative analysis (along with Crystal Ball gazing ) to arrive at his selections/opinions. You can see his approach in his Week In Review. If you want to look at a classic one, read the one from the first quarter under "The Big Picture". It happens to coincide with a market bottom so is really instructive.

Posted by: MarkM [TypeKey Profile Page] at December 12, 2005 8:56 PM [link]

Bob B-
One last thing. You can go to Investopedia.com for a short course in Technical analysis also. Just enter RSI in the search box and it will take you to that aspect of TA.

Posted by: MarkM [TypeKey Profile Page] at December 12, 2005 8:58 PM [link]