Financial Sense Blog

By my analysis, we are not yet on the final path to recovery, and there are one or more financial 'breaks' coming in the future. Underlying structural weaknesses have not been resolved, and the kick-the-can-down-the-road plan is going to encounter a hard wall in the not-too-distant future. When the next moment of discontinuity finally arrives, events will unfold much more rapidly than most people expect.

Today, Oct. 1, 2010, brings to a close a story of grand presumption appropriately dubbed “This is just the beginning” by the tax-dependent American congregation, and its ideological brethren abroad, that worships at the altar of transfer-payments. We have followed this saga from the beginning, and our readers will recall that it started with the Union Bank of Switzerland (UBS) scandal.

Last week, the Merrill Lynch economics team wrote a good paper about liquidity flowing into Asia. Here is a summary of their conclusions: Liquidity will flow into the Asian region raising consumer spending, stock prices and currency values. We agree with their conclusions, and here are a few of our own.

As you may remember, when the Fed stopped its last official QE effort, our comment at the time was that there was absolutely no way this was the grand finale of money printing for the current cycle. Not a chance. Our thoughts were that QE would resume either later this year or early next at the very latest due specifically to continued lack of meaningful money growth. At the time, we did not have a whole lot of company with this line of thinking as very few other folks were calling for this, especially in the mainstream. As of now, it has become consensus thinking as we survey the landscape.

It has now been some 19 months since the March 2009 low. Because of the duration of this rally, many are beginning to wonder how I can continue to say that it’s a bear market rally and not a new bull market. The answer to this question lies with the historical bull/bear market relationships, Dow theory phasing and values.

The National Bureau of Economic Research (NBER) told us the recession ended June 2009, when economic activity stopped going down and turned up. The problem is most people are still worried about their jobs, if they have one and the lackluster performance of the recovery so far. With unemployment fluctuating between 9.4 and 10.1%, and the underemployment rate near 17%, it is no wonder the news from the NBER received such skepticism. What is an investor to do?

Oil is heading to US$200 per barrel. This isn’t speculation but hard fact. But forewarned is forearmed, and with this price expected within the next five years, investors have plenty of time to position themselves.

The S&P 500 is now only 6.2% below its April top. Will seasonality - sell in May and go away - pay off this year?

USPS incurs a $6 billion loss, manufacturing index decreases, SEC releases final 'Flash Crash' report, and other market events.

All told today – and seeing the world's fastest-growing economies continue to buy and hold ever more gold as their wealth increases – maybe US and European savers are only just getting back to the future. Either way, that "bubble in gold" doesn't exist. Not by a long way just yet.