These are some excerpts from SI on another forum in response to some questions. As always, these show some interesting insight and share his expert perspective on the market. I copied these without his permission, but hope he doesn't mind as I think folks here would find them interesting.
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which do you think is more out of line...the high price of equities right now or commodities? The rise in commodities seems to follow basic logic. The dollar is slipping on the index, more bank failures, FDIC running out of liquidity, dollar reserve drama, potential hyper inflation, job loss, etc. Where as stocks were falling pretty hard until Sachs randomly decided they like banks, then BOOM the market went through the roof. It does not seem to make any sense since people keep losing jobs and thus would be investing LESS. Could it not just be all this stimulus money injected into banks that they arnt loaning out but rather investing causing a false spike?
To me it just seems the spike in commodities is more natural because I can point to simple logic to explain it. The spike in equities is almost some freak phenomenon that is happening right now. What is your take?
I think they are both out of line, to be honest. Gold is obviously moving up on dollar weakness. The CRB index of commodities are also moving up since March. I think everything plays into that and is a debate all by itself. Gold and Treasury notes are a safe haven play as opposed to the CRB construction. However they have all moved up. The equities are moving up on increased optimism that the global economy is recovering.
I think it started out with a lot of speculation and day trading, it kept growing to the point some funds could not stand around and just watch. They had to invest based on their customer base. When the market substantially goes up, the funds need to show they are paying attention and that customers and clients are getting their piece of the pie. The problem is that it is still mostly hot money playing these markets. There is certainly enough money floating around for some like Goldman Sachs and Day traders to make a bundle. It gets more complicated when you throw High Frequency trading into the mix, and the shorter the cable the faster the information and trade. If I had to chose between the two, I would go with the markets making a big correction before the dollar takes off again.
The Conundrum to me is that gold and the stocks are moving together on dollar weakness. The question being if the dollar reverses, will both go down the tubes. Now that is the rock and the hard spot. If you have noticed at times the dollar will get a kick from bad news out of Europe or the Far East. Especially the Euro. When it goes down, both gold and equities drop. Even a good rumor can have harmonics that last for days. Thank you Robert Fisk.
Australia moving the key rate up was a big deal and is something that needs to be observed. They are the first central bank, I think, to move their key rate up in some time now. It also gave strength to the global recovery expectation.
As for gold and silver, I do not even worry about it. Intrinsic value is a safe place to be regardless. Unless we have to go all "Into the Wild", in which case all bets are off..and good luck.
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I think the question is, if the American stock market crashes again some time soon, what effect does this have on global stock markets and economies? The present boom in commodities is part inflation hedging (which I think we all agree will continue into the indefinite future) and part demand. Where's the demand? Not in the U.S. My point is that the demand-side of commodities may NOT follow the DOW into another crash, or maybe only for a very short time. I think we might see the real demand side (foreign) of silver hold strong while the dollar continues to weaken and the DOW takes another plunge...rather than a repeat of last year.
Incidentally, Max Keiser thinks the former scenario (DOW and dollar fall, silver/gold continue to rise) is likely, while Marc Faber thinks we're going to see a repeat of last year (DOW falls, dollar rallies, silver/gold fall).
Well, my opinion is different I will say. But gold is normally inverse to the dollar. The Stock market is not normal at the moment as it is moving inverse to the dollar and in lock step with gold or visa vera. Stocks and the dollar more or less followed each other until 2003 where the flip occurred. Ever since they have been in the inverse. Whether it was an over reaction by the Fed in response to 911 I am not sure. I do know that Alan Greenspan did us no favors during that period. CDOs did not help us either, and in the end became the demise of our economy. This was due to legislation by the government and the lack of an SEC. Now this whole thing has amassed to a break point. The 2003 to present is a period of it's own, and there is a huge story within the time frame.
I think I know what Bernanke has in mind, but I am the furthest thing from an economist as you can get. I can take care of our (family) budget and being in good shape I consider that an accomplishment, with 2% debt.
I do not blame Bernanke for the present mess. I also think, with his knowledge and temperament he is probably the right guy for the job. His problem is the separation of politics and monetary policy. Along with Hank Paulson, I think he was a bit weak. There is no inflation at the moment. In August the deflation we are in became a bit less, and this is where our logic lies at present, thing are "less worse" than they were. That and changes in the global economic data shows that there has been some pull back from the abyss, being pulled out by the ankles.
Once there is inflation in the picture, and that time is not now. Bernanke will move to raise the rates, hopefully the equities market and the dollar will flip once again. The dollar's bottom is around 72, if the dollar forms a higher low, watch how fast gold retreats as will equities for a time. That is the conundrum, in my mind. At that point Imports will become cheap again (however, the emerging markets are going to have to deal with their own employment and wages) and we will have to see if we make the same mistake again with regard to our trade policies. We do not have to indulge in protectionism, but we must protect our Intellectual property (IP). Which we have not done in the passed. I do not trust the Chicomms further than I could throw the country. They let us know on 10 November 2007 and showed their hand in a brilliant way.
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