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GOLD
THOUGHTS:
On Tuesday equity markets began a
demonstration of long known fact, even a dead cat bounces when thrown into
the air. Market corrections can certainly include days of temporary
relief. A possible end to the correction is being called by some. More
likely it is a bear market trap. Such commentators, having failed to
anticipate end of liquidity driven rally, now have ability to identify
bottoms. Real ability or expectational biases? Even Mark Hulbert, with his
dubious analysis of newsletters, has suddenly been able to find statistics
suggesting end of equity correction may be near. Common characteristic of
these gurus is that they have something to sell you, something that failed
to suggest extracting your money from paper equity markets before the
slide.
With
economic momentum model now in negative territory, U.S. economy is
entering a recession. Collapsing factory orders are simply further
confirmation of inherent weakness in U.S. economy. And, the implosion of
mortgage mountain is only in early stages. For some time the fantasy
forecasters have contended that no one will be hurt by housing slide. Well
folks, someone owns the $23+ billion debt of New Century Financial(NEW),
and someone is going to pay a price for that ownership. NEW rose by more
than 25% at one point on Tuesday. Is that a rational response or a dead
cast bounce?
With
Japan in economic recovery and U.S. sliding into recession, a small bounce
in the yen must be viewed as a transitory event.
That giant elephant, the yen carry trade loans, has not suddenly
disappeared one Tuesday morning never to be seen again. For 2007 to date,
yen carry trade loans invested in U.S. equities have had a negative
return. That kind of return does not pay the partners' salaries. Given the
size of this elephant, the yen is going a lot higher over time. The real
investment stories for the year will be the massive losses of hedge funds
in mortgage debt and yen-to-equity trades. A good office pool might be on
how many hedge funds disappear before year end as return attrition takes
hold. Perhaps a good investment idea out of all this is to short or buy
puts on WB.
Market
volatility always provides investment opportunities for those looking
forward. In the past week, short-term buy signals have been triggered for
US$Gold, CN$Gold, ЄGold, ŁGold and the GDM. Latter is the index
used to create the GDX, a Gold stock ETF trading on the Amex. If Hillary
Clinton, not a practicing economist as far as we know, can understand the
risk facing the U.S. dollar, the rest of us should be able to do so.
Gold's sympathetic slide is an opportunity to invest in Gold before the
super cycle pushes it to ultimately more than US$1,400.
© 2007 Ned W. Schmidt
Editorial
Archives
GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. To receive a trial subscription send a note to
Ned.
Please
remember that no method is perfect nor is the one running the model.
All estimated returns are for the model portfolio and do not reflect those
earned on actual portfolios.
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