Financial Sense Blog

All that seems to be missing from last week’s market was a bottle of champagne to christen the beginning voyage of QE II. Given the success of the first go round of quantitative easing (QE I), expectations are beginning to grow that this could be “the one” to finally get the moribund economy growing. What has the markets frozen in their tracks is reconciling the economic data (a bit better than expected, but nothing to write home about) and the Fed outlook (less than desired growth and inflation).

New York is in poor shape as well and does not have many options to raise revenues (tax receipts) since their tax burden is the highest in the country on a per capita basis. States continued rampant spending has created massive short-falls and has caused them to become more and more leveraged by issuing debt. Believe it or not, Muni debt has doubled since 2000, an absolutely staggering figure. Ouch!

Every week roughly 1 million people are born in or migrate to cities in emerging markets all over the world. By 2030, the global urban population is expected to grow by 1.6 billion people and account for 60 percent of all people on Earth, according to the United Nations.

In August the general dread was of imminent deflationary collapse. Now that the price action in markets has disproven that thesis, the pathology of fear has swung wildly to the diametrical opposite--hyperinflation. From April through July we freaked out about Deflation. Now it appears that from September through November we're freaking out about Inflation.

As we all know the market has a way of making sure the majority of traders miss major turning points. The saying is, “If the market doesn’t shake you out, it will wear you out” and it seems we are getting the later…

Proclaiming a gold bubble has been the mainstream financial media's Pavlovian response to every incremental increase made by the yellow metal since it emerged from a two decade low in 2001. Appreciating an astounding 400%+ in USD's from its bottom, gold has handily outperformed all major asset classes over the past 10 years.

This article aims to counter claims that gold is overvalued by summarizing the views of those who believe gold is going much higher. By looking at history, supply, and demand, this article points out why the gold market is unique, and why it will- someday- become the ultimate, or "last," bubble. This article also seeks to remind people about one of the more understudied lessons in investing: that of learning to hang on tighter and tighter as price moves higher and higher. Because as the cliche goes, "there ain't no fever like gold fever."

As always, we must look to economic fundamentals to handicap the markets next technical moves. This last week we had a minor drop in the ISM manufacturing index and the leveling off of the ECR I Weekly Leading Index. Meanwhile, consumer sentiment offered a similarly uncertain picture. Based on what we continue to see from the economic data, this is a "watch and wait" period in which short-term traders can try to take advantage of the upward trend an buy-and-hold investors should remain mostly in cash on the sidelines.

Last week, on “black Thursday” the Irish government in essence finally nationalized Allied Irish Bank. In response to the horrific national financial picture painted by Mr. Brian Lenihan, Ireland’s finance minister, Peter Sutherland, former Irish attorney general, hit the media road. Mr. Sutherland’s mantra was similar to that previously presented by his acolyte Mr. Honohan (head of the Irish Central Bank). This mantra stated that though the figures were lamentable they were “manageable.”

According to the Investment Company Institute Annual Mutual Fund Shareholder Tracking Survey, shareholders' willingness to take "substantial or above average risk" has not recovered since the beginning of the financial crisis started in 2008. (Click here to read the entire article.) The chart below shows that there has been marginal recovery in two age groups, but overall risk tolerance is unchanged from last year, which was down from 2008.