The problems abroad is causing foreign capital to seek safety in U.S. Treasuries - this is contributing to the unusual strength of the U.S. dollar. All post-war economic recoveries have been accompanied by a weakening dollar and this time I do not expect the situation to be any different. A strong dollar is not what the U.S. economy needs right now. An economic recovery would clearly benefit both equities and gold.
It's been said that "Gold does well in periods of extreme inflation and extreme deflation." Well, the inflation rate is falling and falling fast. Perhaps the U.S. economy will eventually see a period of extreme deflation. But it is not here yet. This is what I do see:
The Asian Markets have been extremely weak. The difficulties there are due to a slowing of the U.S. information technology market and a renewal of economic deterioration in Japan. With the U.S now experiencing a genuine slowdown, the engine driving the Asian markets has been set in reverse. Exports in Asia have massively collapsed with year-to-year export comparisons down over ten percent in Taiwan, Philippines, Singapore & Korea. Europe is not faring much better and Germany is on the verge of entering a recession.
The chances IMHO of Asians or Europeans exchanging U.S. Dollars for Gold are extremely slim. Actually, CB's around the World are continuing to sell Gold and buying U.S. Treasuries with the proceeds. To get this process to reverse would require the growth rate of the U.S. economy to fall well below that of its European and Asian counterparts. The global economic system has been set up in such a way where unless a money fund default or derivative blow up emerges in the U.S., this will probably not occur.
All in all, the economic data is fairly inconclusive.
On the negative side, information technology bookings have been plunging and capital goods orders remain weak. More disturbing are lower U.S. exports. Tech inventory levels also remain relatively high.
The most positive piece of data is that the PMI rose in June back to its December level and the forward-looking orders component of the PMI index is now back at the level it was historically at in October of 2000. This indicates that manufacturing orders may have ended their long-slide. Additionally, inventory to sales ratios have decreased indicating that inventory build-up amongst non-tech firms may not be the problem it once was. Residential home sales remain strong as evidenced by macro-economic data and recent strength in the homebuilding stock I do follow, RYL, which BTW hit a new all time high yesterday:
biz.yahoo.com
For my own accounts, I'm looking to buy aggressively in October for some kind of eventual recovery in 2002.
To be successful as an investor and trader, it is essential that one think and analyze the economic data for oneself and shield oneself from all the noise that comes from the media and financial threads on the Web.
I'd like to wish everyone a great weekend from the Jersey Shore, in Belmar.
Praise Human Creativity and Independent Human Thinking.
There is nothing higher nor more beautiful in the Universe than a Human Being. |
