Financial Sense Blog

[Journal Preface] The last month was one of those classic speculative runs that makes everyone who trades resource stocks feel pretty smart. We’re feeling kind of clever ourselves but we have been through enough markets to view self-congratulatory impulses with great suspicion. Mr Market loves hubris.

Although the current market dialogue between Bulls and Bears is focused on the Inflation vs. Deflation dichotomy, it's possible that a dynamic between Risk vs. Safety is the better framework for analysis.

In recent months, worshippers at the altar of Keynes have been hyperventilating over the possibility Congress will run a deficit of “only” $1.5 trillion in 2010. They have issued dire proclamations about a replay of the 1937-1938 Depression within the Great Depression.

It was only about a month back that I penned a piece for these pages entitled “The Tale Of Two Economies”. That discussion looked at the glaring disparity, especially relative to historical experience, of large company CFO and CEO confidence survey optimism versus what we see at the small business level.

Not content on waiting to reveal to the markets after the conclusion of the November 3rd Federal Reserve meeting, the St. Louis Fed just published an article in the latest Monetary Trends entitled 'Is More QE in Sight?'

The success of current efforts to introduce electric vehicles into the market will largely be determined by the ability of vehicle manufacturers to convince consumers that these vehicles represent a viable and competitive alternative to the traditional automobile. To investigate concerns and the factors that must be addressed by vehicle manufacturers as they seek to bring these products to market, KWR International speaks with Robert Hill, Principal of Deloitte Consulting who recently completed a study on this topic.

After recently trying to go vertical, gold took a week off for a correction. As you can see on the chart below, the correction has been minor, but it has been sufficient to turn one measure of sentiment slightly bearish.

QE2 is coming, and it isn’t stocks the Fed buys in large quantities with its quantitative easing. It buys treasury bonds, in an effort to drive long-term interest rates down, which should drive the price of bonds up. But the bond market hasn’t been as excited about the idea of all that buying as the stock market has been. In fact, just the opposite. Treasury bonds have been tumbling since late August. For instance, 30-year bonds have lost roughly 3.4% of their value in less than two months. That’s a noticeable hit to an income asset that yields roughly 3.9% a year.

SITUATION: Defense planning efforts in East Asia have been markedly influenced by China's bellicose response to the detention of a Chinese fisherman for ramming a Japanese naval boat in disputed waters.

From a Dow Theory point of view this is the situation as I see it. The market is giving very strong signals particularly on the Transports side. My key break point is 5265 to give the first indication that the new Bull Run has commenced. We are currently at 4735. Near but not quite there. My key break point on the Dow Industrials is 13566. WE are currently at 11146 some 2420 points away.