Wikinvest Wire

Friday Lite

Friday, March 31, 2006

A few unrelated items to close out the week - and what a week it has been! The precious metals rocket launch has gone largely unnoticed by the American consumer, whose confidence ticked up smartly on Tuesday, after which, the Federal Reserve raised rates another quarter point.

The Fed promised that the anemic 1.7% fourth quarter GDP was just a passing bit of weakness and that growth will once again be robust as work begins tallying the numbers for the quarter ending today.

Oh, and flat screen TV sales are up too.

As the books are closed on trading for the first quarter, many fund managers will be pleased with their results - the major indices are up low-to-mid single digits, while the Russell 2000 gained about 13 percent. Of course the gold fund managers will be especially pleased with their results.

Rocket Launch

You have to wonder where this is all headed. Historically, gold and silver prices rising at a breakneck pace are not good harbingers of future economic well-being, unless of course you own a lot of gold and silver. Then it's an entirely different sort of well-being.

The gold price action of recent months is starting to look more and more like the parabolic rise back when platform shoes were popular and shirt collars were unusually large.
None of the longer term silver charts at Kitco have been updated with recent price data, nor do they have room to draw it in since the vertical scale hasn't reached current levels for more than two decades, so the chart below will have to do for today.
Will the price of silver behave like the gold price did when its ETF was launched in 2004? That was a significant pullback that took months to make back, but initial buyers of the ETF were eventually rewarded handsomely. Just for reference, GLD launched in November of 2004 when gold was priced at about $450. It went back to around $415 and didn't do much for about a year.

That was 2004, however, this is 2006 - big difference. It would be hard to bet against silver at this point given the historically high gold-to-silver ratio and the potential delivery difficulties if the ETF takes off in a big way, which it may well do.

Bill Cara has a good article about the silver ETF at Trader Daily - seeing that J.P. Morgan is responsible for storing the silver should set off some alarm bells with some investors.

Supply-Siders and Their Gold Theories

It has been near impossible to make heads or tails of this commentary by John Tamney at the NRO:

The Federal Reserve announced a quarter-point rise in the federal funds rate on Tuesday and futures markets have priced in another quarter-point hike for May, which would bring the key overnight interest rate to 5 percent. The positive or negative economic impact of continued rate hikes aside, the price of gold is what many Fed-watchers will study to gauge the effect of the rate increases. Yet, perhaps surprisingly, nominal fed funds rate increases have rarely succeeded in bringing down the price of gold.
Many wait with great anticipation for the first set of questions from Rep. Ron Paul to the new Fed Chairman regarding the relevance of gold in the world today. Has Ben Bernanke ever commented on gold? This could be a mistaken impression, but it's a good guess that he's from the Alan Blinder school of "gold is irrelevant", where it's inflexibility when used as part of the monetary system 70 years ago contributed in a big way to the severity of the Great Depression.

As for the John Tamney commentary, somehow, it doesn't seem that the new Fed Chairman or those watching him are all that concerned about the price of gold. Unless you own the stuff, it really is irrelevant - if you own it, relevant doesn't really describe what you have likely felt in recent months.

Maybe uber-relevant would be a better characterization.

Dollar Collapse Talk Heats Up

East of here they are talking about what happens if the U.S. dollar collapses. In the Far East, it looks like they're reconsidering the "too big to fail" status that we've grown accustomed to here on the other side of the Pacific.
With the U.S. trade deficit at a record high and global interest rates rising, East Asian economies need to be prepared for a possible `collapse' of the dollar, the Asian Development Bank warned on Tuesday.

"Any shock hitting the U.S. economy or the global market may change investors' perceptions given the existing global current account imbalance,'' said Masahiro Kawai, ADB's head of regional economic integration. "Our suggestion to Asian countries is: do not take this continuous financing of the U.S. current account deficit as given. If something happens then East Asian economies have to be prepared,'' he told reporters on a trip to Japan.
In the Middle East they're reconsidering the oil-for-dollars arrangement that has worked so well for so long. It seems they've begun looking for something more tangible in return for the very tangible slick black stuff that they keep pumping out of the ground.
The prospect of selling oil for inflated dollars should send Middle Eastern central banks to the logical hedge commodity: gold

There is no doubt that gold is regaining its luster as an asset class. After it has been in a bear market for two decades, with prices plummeting nearly as low as $250 in 2001, its dollar price has more than doubled within four years and stays now well above $500. The women of India and the Middle East, who represent the two most important demand factors in the world gold market, have thus outperformed the sophisticated hedge funds of Wall Street with a very basic "gold, buy and hold" strategy. The performance of gold-mining stocks is even more impressive: The HUI index of gold mining stocks rose from 35 to more than 300 in the same period.
Indian women with their buy and hold gold strategy outperforming Wall Street fund managers. Now that's an interesting concept - just think of the possibilities were they to start accumulating junior mining stocks.

The Baddest Man on the Planet

Donald Trump seems to be exportable, or at least his show The Apprentice appears bound for China. Could this be classified as dark matter, and is this part of some new plan to balance the trade deficit?
A reality show in which would-be Chinese entrepreneurs from around the world compete to become bosses of new businesses is set to debut on China's largest national TV network in May.

Believed to be a spin-off of The Apprentice, the hit American reality show, Win in China launched by CCTV on Wednesday aims to provide a fresh form of entertainment and offer greater opportunities for aspiring businessmen.

According to its producers, participants in the eight-month show will face rigorous tests of their tenacity, business acumen and street savvy.
So, Donald Trump is the Baddest Man on the Planet? No. That would be this fellow here who's also in the news around the other side of the world.

After-dinner speaker, cage-fight referee, pro-wrestler, philanthropist, convicted rapist and sometime boxer, Mike Tyson touched down in Shanghai yesterday morning.

And, as is only fitting for "The Baddest Man on the Planet," controversy was brewing even before the plane carrying the former world heavyweight champion hit the tarmac.

Brought to Shanghai for a three-day visit by the promoters of a new nightclub for its formal inauguration, 39-year-old Tyson was also to tour the city, meet a Buddhist abbot and made an honorary citizen of the city's Luo Dian district.

But the plan was scuttled after local government chiefs decided Tyson who served three years for rape in the early 1990s, has a string of convictions for assault, and famously bit a chunk off Evander Holyfield's ear during a title fight was not quite the model citizen they were after.

"We didn't think it was appropriate to make Tyson an honorary citizen, so we dropped the plan," said Wang Qiquan, vice-head of Luo Dian.
While Mr. Tyson may not be in real life as he is portrayed in the media, there surely are better words than "lovely" to describe the experience of interacting with him in person. Or, at least, so says "Snatch" nightclub owner, Greg Lite, whose business the former boxer is there to open.

Bird-Flu Pandemic Would Likely Start in California

This story is not encouraging for those of us on the left coast. While staying home and avoiding the crowded freeways and shopping malls is not a bad idea, it's not clear how long that may be required. Maybe it's time to investigate upping the cable package from a hundred and fifty channels up to the maximum value, which must be close to 400 by now.
If a bird-flu pandemic does hit the United States, it may well start in California and spread across the country in just two to four weeks.

And the best way to slow its spread would be to have workers stay at home.

That's the scenario drawn from results of a computer model created by researchers at the U.S. National Institutes of Health's Fogarty International Center. And while the results of that computer model should be interpreted with caution, it is based on data from ordinary flu epidemics for the last three decades, said study author Dr. Mark A. Miller, associate director for research at the center.

"The unique feature of this model is that it challenges conventional wisdom, which says that flu is spread by children bringing it back to the household," Miller said. "That may be true at the household level, but regionally it is spread by adults."
Struggling to Keep Pace

Now this is sad. Even modern technology is having difficulty dealing with current and expected future growth in U.S. debt.

So rapid is the rise of the US national debt, that the last four digits of a giant digital signboard counting the moving total near New York's Times Square move in seemingly random increments as they struggle to keep pace.

The national debt clock, as it is known, is a big clock. A spot-check last week showed a readout of 8.3 trillion -- or more precisely 8,310,200,545,702 -- dollars ... and counting.

But it's not big enough.

Sometime in the next two years, the total amount of US government borrowing is going to break through the 10-trillion-dollar mark and, lacking space for the extra digit such a figure would require, the clock is in danger of running itself into obsolescence.

The clock's owner, real estate developer Douglas Durst, knew such a problem could arise but hadn't counted on it so soon.

"We really expected it to be quite some time," Durst told AFP. "But now, with the pace of debt growth only increasing, we're looking at maybe two years and certainly before President (George W.) Bush leaves office in 2009."
The funniest thing about this story is that when they redesigned the clock a few years back, they added a feature to the new clock to allow it to run backwards - this was intended to handle the budget surplus "slight of hand" that was all the rage at the turn of the decade.

In hindsight, they would have been much better off with "extra digit" topping the list of desired new features when embarking on the redesign.


john_law_the_II said...

I remember not to long ago alan blinder said gold was a useless indicator.

Anonymous said...

PM rocket launch = trouble coming soon

Worker 17 said...

If gold is such a solid bet for the future, will you take out a home equity loan to buy shares in HUI?

Anonymous said...


Personal decision. Everyone must decide for themselves how best to hedge their downside risks with PM insurance (is the heloc for insurance or investment?).

Moreover, if you need to ask such a question, I would recommend to you physical bullion first, then lesser positions in paper bullion and stocks.

Anonymous said...

>> If gold is such a solid bet for the future, will you take out a home equity loan to buy shares in HUI?<<

If you have to take out (another) HELOC to buy gold, it probably won't help you all that much. You're too late. You're screwed.

Many of us stopped buying around $450 and are now working on other parts of the insurance policy.

Anonymous said...

Precious metals are a great hedge, especially in our current economic situation, but investing in physical bullion vice an etf is only one step removed from your run-of-the-mill survivalist stocking up on rifle ammunition.

I'm way ahead of you, by the way. Got a few troy oz of gold, a Springfield M1A, two thousand rounds of .308, 20 lbs of beef jerky, a case of liquor and 10 cartons of marlboro reds.

Anonymous said...

We're done stocking up on all of the "essentials" but still putting away bulk tobacco and good old Kentucky bourbon. Something tells me these items are going to be worth their weight in gold...


  © Blogger template Newspaper by 2008

Back to TOP