Third quarter earnings season was a good one, unfortunately we may not be able to say the same about the fourth quarter. While it is still too early to draw any firm conclusions, only 70 firms (14.0%) have reported, the median surprise is 1.80% and the surprise ratio is just 1.86.
I’d like to focus on one important idea: the direct relationship between the rising price of gold and the rising levels of government debt that result in currency debasement. Since we measure investment performance in currencies a clear understanding of the outlook for currencies is critical.
The market rally on Wednesday was driven in part by a surge in housing stocks, which was triggered by a favorable housing report. Since the fundamentals of the housing market are not too thrilling, regardless of short-term gains, my curiosity was piqued and I pulled up some charts.
With real interest rates remaining negative and near their 52-week lows, global central banks expanding their balance sheets, and with the global economy on the mend (which should bring money out of safe havens like the USD), the fundamentals for owning gold remain strong and a technical breakdown in the USD Index may be all the spark gold needs to continue its advance. Given gold still remains in one of the most oversold conditions in a decade, investors may well be rewarded in the months ahead if the USD Index breaks down and gold rallies.
Every week someone sends me an idea on how to fix various housing problems. Many want home prices to stop falling and many others want to bail out homeowners because banks were bailed out (as if two wrongs make a right). Others want to stop foreclosures even though the very best thing for most of the people in trouble would be to shed the albatross by walking away.
Any perusal around the world these days features Southern Europe crippled, preparing for the inevitable Greek Govt Bond default. It features a crippled US housing market, a mockery of statistical accounting in the US Gross Domestic Product, the plight of the COMEX with established veterans clearing out desks (not trading), the extreme physical demand reported by the London Trader, and the indictment of the SLV iTrust Silver Fund tool used by the cartel. The survey does not look favorable toward stability.
As most of our readers are probably aware, the ongoing FBI investigations into insider trading at prominent hedge and mutual funds has just yielded another batch of arrests and indictments. This seems to be still the same investigation that ensnared the founder of Galleon, Raj Rajaratnam, a little while ago. Apparently the investigation has been going on for four years running.
Grocery baskets may have been fuller in 2011 than in 2010, but how long will that last? Food inflation is moderating slightly in China, India, and most other Asian nations, in part due to larger food crops in Asia--but this moderation is nothing huge, and we do not expect it is permanent.
The character of the market is improving. Volume on Friday's buying was the strongest of the year with upside volume being 85% of total upside plus downside volume. The negative spread between Lowry's downside and upside volume contracted from 190 last Friday to 169 yesterday, a huge improvement.
The “recovery” that we have experienced has been wholly on the backs of business and government without the help of the once powerful consumer, who no longer has the ability to expand their balance sheets via credit. While the jobs picture has improved, the likely changes in the make-up of the labor force has created a situation where overall income growth remains extremely low by historical recovery levels, keeping the consumer further from “fixing” their debt levels to something more manageable.