Using different reasoning, Hussman seems to be buying precious metals now.
It is all a very interesting read, but relevant to the precious metals:
<One of the reasons that real interest rates have been rising (while gold and foreign currencies have been weak) is that investors seem convinced that the U.S. economy is breaking out into a period of robust growth, and if anything, foreign growth is cooling off. Last week, some fuel was thrown on that fire by reports that China was concerned enough about rapid growth to warrant a tightening of monetary policy. The dollar rallied and gold fell on the news, in the belief that slowing foreign growth would only make the U.S. that much stronger by comparison.
In my view, the market has the whole China thesis wrong. Economic growth in China has been extremely rapid, to the point where the Chinese government is quite concerned about “hot money” investments and profligate bank lending. As a result, we can expect China to tighten its grip on monetary policy. The implication for the markets, however, is profoundly different from last week's interpretation.
If China tightens monetary policy (and given its strong central control, it has much more effective tools to do this than the Fed), it must also allow interest rates to rise domestically. Yet that sort of tightening is completely at odds with a policy of holding down the value of the yuan, which is already under heavy pressure to revalue. As a result, we are probably very close to the time when China will finally, and possibly abruptly, allow a revaluation of its currency. The result would not be a strengthening of the U.S. dollar, but a weakening. Nominal yields, not real ones, would be pressured higher in the U.S., because rapid accumulation of Treasury securities has been the mechanism by which the Chinese have suppressed their currency valuations and supported the dollar. Meanwhile, the rapid inflow of capital to the U.S. would be cut short, resulting in much greater weakness in gross domestic investment than the markets seem to envision.
Overall, the implications of a Chinese monetary tightening and a yuan revaluation are stagflationary for the U.S. – an increase in inflation pressures coupled with a substantial shortfall in the foreign financing of U.S. gross domestic investment.......
As I noted before, our particular investment exposures are informed by the particular Market Climates we observe, but I do have discretion as to the securities I select to achieve those exposures. At present, the Strategic Total Return Fund carries a 3.25 year duration (meaning that a 100 basis point move in interest rates would be expected to impact the Fund's value by about 3.25% on the basis of bond price fluctuations). All of this duration is held as Treasury Inflation Protected Securities. In addition, the Fund holds about 10% of its assets in precious metals shares.>
hussmanfunds.com
If I read him correectly he was underwieght in precious metals, but has been apparantly buying the recent weakness.
I believe 10% is quite a heavy allocation for him.
Maybe there is hope.
Let's see China ups its interest rates-this can only serve to make it's currency stronger and ergo the dollar weaker
then whither goeth POG? |
