Date: Wed Dec 01 2004 14:54
trotsky (P. Yorkie, 13:25) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i've heard about this theory ( namely that a falling trade deficit would lead to rising rates since it would crimp foreign CB demand for USG debt ) and it's certainly worth considering. but otoh, a reduction in the trade deficit will require a pretty hefty consumer recession, which should support bonds.
foreign CB demand for USG debt is certainly a big factor in the market today, but i expect that domestic demand for income could eventually swamp these considerations. this would be especially true if/when the asset bubbles that currently support consumption end.
nevertheless, something one should keep an eye on.
here's what happened in Japan: stock mutual funds lost over 90% of their assets in the Nikkei's bear market. the money fled into fixed income relentlessly. the biggest pile of money market fund assets in history contentedly watching a stock market collapse came into being. all 'flow of funds' arguments that are repeatedly trotted out by WS to justify the stock market's overvaluation were shown to be false.
we'll see where rates are in a year or two year's time...i'd be very surprised if they're not lower than today. of course i'm prepared to recant if new evidence comes to light, or simply if market action dictates it.
Date: Wed Dec 01 2004 14:19
trotsky (Sherlock, 12:11) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
it is likely that those that say tax loss selling is a factor in holding back the juniors have a point - it probably is. but otherwise, there's always only one sensible explanation for gold stock underperformance, namely that the market doesn't believe the rally in gold will hold. it is always possible that this assessment turns out not to be correct ( it happened e.g. in '78-'79 ) , but the bulk of the evidence says the market seldom errs in this.
we have additional evidence in the form of gold and currency CoTs, all of which show extremely stretched, and thus vulnerable, speculative positions. Friday's jobs report could be the trigger that does them in...and i suspect fear of that report is the proximate cause for this week's show of weakness in the sector.
Date: Wed Dec 01 2004 14:09
trotsky (nabob@rumor) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i keep hearing this, but can't quite believe it.
imo GLD and the gold stocks cater to different types of investors. that said, it's possible that some of the gold mutual funds are actually engaging in some switching. and they haven't had much by way of inflows this year, so they'd have to sell some stocks if they want to buy GLD.
who said it was an advantge that this sector is so small?
Date: Wed Dec 01 2004 13:19
trotsky (Aurum, 10:56) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
it's true the Yen initially went up in the 90's, but it fell precipitously ( by about 50% vs. the dollar ) from '95 to '98. in that time, consumer price deflation in Japan actually accelerated.
so apparently the connection between the external value of a currency and deflation is at best tenuous.
the US bond market not only looks exactly like the JGB market in the 90's ( i.e. the charts are virtually identical ) , they share another important feature: both have been incessantly proclaimed dead all the way up....
Date: Wed Dec 01 2004 12:48
trotsky (interest rates) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
it's not even noon - and i have already read 4 articles advocating bearish views on bonds.
bullish views: zero, just as on any other day. now this wouldn't be surprising if bonds actually were in a discernible bear market - but they are not.
and yet, money flows into Rydex Juno ( which shorts bonds ) have increased yet again, driving total assets of the fund close to a new record high - while the value of one fund unit is barely off a record low.
as long as the bond market bears are so stubborn i don't think my prediction of new all time lows in yields to come is in any way endangered.
in fact, markets that do what they 'shouldn't do' are usually the best trades, since their trends are underpinned by a lot of skepticism.
of course i'm in the camp that believes that inflating the private sector debt mountain in the US away is impossible - since even a relatively small rise in interest rates in the course of a correction would likely trip up this overleveraged economy and kick off a deflationary spiral.
well, we'll see, won't we? so far the bears have been all talk with little to show for it, that much is certain.
PS: Don Luskin is a well known walking and talking contrary indicator...the fact that he advocates shorting bonds should be a big red flag for bond bears.
Date: Wed Dec 01 2004 11:56
trotsky (pm stocks) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
this looks like the mother of non-confirmations right now. the only thing that keeps me in wait-and-see mode is the fact that money flows are still neutral, by and large.
that keeps the possibility alive that the pm stocks will act similar to the oil stocks in '03 ( i.e. the 'catch up' scenario ) . it's a slim chance , but it can't be discounted completely.
otoh, the last CoT report wasn't exactly encouraging...the previous 3 reports at least registered some gross buying by commercials, while this time they dumped about 15% of their gross longs. the net position doesn't seem worth commenting on anymore...it's a given that it lurches from one extreme to the next the higher price goes.
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