In the midst of any long-term trend, like the secular bull market for metals we’re in now, there will be trends within the trends. You could think of them as being like eddies, whorls, and side-channels in a great torrent. We see one such developing that could benefit junior gold stock investors in the near- to mid-term.
Over the past few weeks I have been warning about a decline is bonds and a rise in interest rates. Bernanke has decided to leave rates unchanged and remains committed to the plan to buy $600 billion dollars of long term debt. Congress and President Obama are working together to extend the Bush tax cuts for two years at a cost of $858 billion.
It is a popular view – at least professionally - that commodity prices rise during periods of negative real short-term interest rates (RSTIR), and that is somewhat true. However, in the first two charts below you can see that even when RSTIR turned positive in late 2005, commodity prices continued to rise for three more years – with the continuing uptrend in RSTIR. They also started rising almost a year before RSTIR turned negative in mid 2002.
In the 1990s, cellular telephones were known as the best form of wireless technology. In addition to the cell phone, consumers began to network their homes using wireless technology to avoid line installation. Since then, consumers have relied more and more on wireless technology. Wireless technology companies were the darlings on Wall Street in the late 90s of which many portfolios courted.
Recently, I read up on how Iceland is doing—surprisingly well, actually. Unemployment is down, the Krona is going back up. Good balance of trade, good fiscal balance sheet. Quite the turnaround, after its troubles over the last couple of years—
Based upon history and the known hubris of most CEOs, there will ultimately be thousands of vacant rotting rat infested big box eyesores dotting the landscape over the next ten years. Maybe they can be converted to shelters for homeless delusional Boomers who forgot to save for their retirement.
Bonds have been on a roll delivering double-digit returns for many investors as interest rates kept falling. With the Federal Reserve's quantitative easing II program and another government stimulus program in the works, bond investors might finally believe that fall in interest rates is nearing an end.
