Financial Sense Blog

For the time being, Wall Street has taken some solace from a stabilizing Euro currency and appears to be headed towards resistance, 1130-1150 SPX. At those price levels, technicians will notice a head and shoulders top.

There is good reason to think that gold’s best days might still lie ahead. Gold is undervalued based on the historic rate of inflation. The World Gold Council’s Jill Leyland in her update of Ray Jastram’s study, The Golden Constant, concluded that “gold and consumer prices have broadly kept pace with one another in the USA from 1800 to the present.” If that is the case, gold looks like it has plenty of gas left in the tank.

Before the open on Friday, the markets remained in a mixed state, with neither the bears nor the bulls having a distinct advantage. From a psychological perspective, the bears have a leg up with recent declines having ignited high levels of fear. The bears also have legitimate concerns about the European debt markets.

Here is an excerpt from NFTRH89 centering on inflation/deflation dynamics currently in play. You know, humans being intelligent but herding animals, tend to flock toward one easily understood or rationalized pole or the other when it comes to the inflation/deflation debate. But folks, unfortunately this is not a one size fits all situation. There is inflation by policy and there is deflation by nature, and there are assets to own and others to avoid.

Without a doubt, the oil spill in the Gulf of Mexico is an environmental disaster. Unfortunately, as far as the global economy is concerned, Mr. Obama’s six-month moratorium on new offshore drilling is an even bigger disaster. Remember, the supply of crude oil is already struggling and in order to offset the ongoing depletion, the world desperately needs to find new oil-fields. Thus, by stopping new exploratory drilling in the Gulf of Mexico, the US establishment is wasting precious time.

There’s a great deal of chatter in the press and online about the tremendous US$1-trillion-dollar mineral “discovery” in Afghanistan headlined by The New York Times recently. Most of the discussion seems to centre on whether or not this is really news and whether or not the NYT was played by the powers that be for purposes of their own. Few, if any, people seem to be questioning the value of the so-called discovery itself. The US$1-trillion-dollar figure, at best, cannot be anything more than the wildest of hopeful guesses.

It's starting to look like Chinese labor has had enough. Led by workers at the Honda Motors plant in Zhangshan, and perhaps spurred by the suicides of ten workers this year at Foxconn Technology (a supplier to high technology companies such as Apple, Dell, and Hewlett-Packard), Chinese factory workers and other laborers across the country are going on strike.

Listening to the hearings today regarding the Gulf spill, I heard Rep Stupak asking the leaders of the largest oil companies in the United States if they could handle a spill the size of the “worst case scenarios” in their disaster plans. I think Rex Tillerson of ExxonMobil said it best, “We need to prevent these spills at the well head”.

Market leadership has been shown in the emerging markets (EMS) over the last decade. Their near-term action is likely to be a key ingredient to most world market's future. A long-term technical chart of the emerging markets ETF suggests that the jury is still out on whether the long-term picture is going to remain bullish or if a key long-term reversal is in play.

We discuss implications of cultural and structural differences between the U.S. and the rest of the world in how the evolving credit crisis is addressed. The U.S. approach may come at a cost to the U.S. dollar.