Date: Wed Jul 28 2004 12:52
trotsky (pre-empting NBER....) ID#377387:
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i'm contending that the second secular deflationary bear market era recession in the US, this time a 'consumer recession' , has very likely already begun. of course the fundamental economic data confirming this suspicion will only appear at a point in time when the information has already become useless for investors - those ignoring the charts that is.
the starting point of recessions often coincides roughly with intermediate term lows in the gold price. the reason is that he market begins to discount the likelihood of a relaxation in monetary policy and the resulting steepening of the yield curve. in a nutshell, the PoG begins to discount FUTURE reflation efforts by the Fed and the government, both of whom can be firmly counted upon to implement socialist, Keynesian 'stimulus' measures in order to prevent the ailing patient ( i.e., the economy ) from healing on account of the short term pain such a healing process entails.
price rallies in this discounting period are usually halting, choppy affairs, because there remains a large contingent of market participants that is unaware of the shift taking place and still believes the trends espoused by most mainstream market comentators remain in force ( i.e., 'sustainable economic growth' as proposed by Greenspan, and flowing from that, higher rates, rising dollar exchange rate, and so on ) . this contingent judges the market moves that are part of the discounting process to be aberrations, and tries to act counter to the new trends, which produces the choppiness.
however, the gold sector is unique insofar as the gold stocks will ignore choppiness of a gold rally in this scenario, and begin to outperform the PoG over intermediate time frames ( i.e., weeks and months ) . in essence, the late '00 to mid '02 rally in the sector was such a 'discounting of future reflation' rally, while the March - Dec. '03 rally was the 'recognition' wave, i.e. the 'reflation has become a reality' rally. the major difference between these two types of moves in the sector is that in case A ( discounting ) it will run counter to the broader stock market, while in case B ( recognition ) they will move up together. |
