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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (26344)	5/20/1999 3:50:00 AM
From: IQBAL LATIF	Read Replies (2) \| Respond to of 50167

I would assume that Gold and Oil prices fall should lead to a rally in bonds, although the fact remains that oil and gold are apparently not reacting to any economic news or recessionary news. The prices are under pressure for reasons I have highlighted many a times on this thread, the luster of gold is lost and cartelisation is dead in water, it did not work before it will not work under new paradigm of economy. Free market economy has succeeded as it features competition and incentive, this cartelisation of OPEC embodies 'seeds of destruction and mercantilism', Saudis and Iran will unable to devise policies that may take oil higher, this is anti-thesis to the concepts of free market, if OPEC wants to have higher revenues I would say 'make your nations work hard and don't let them sit on revenues from ground, improve your other sectors of your stagnant economies. With advent of convergence criterion with in OECD countries i.e restricting of deficits within 3% of GDP, total indebtedness below 60% of GDP and long term money rates falling below 5% the traditional pit falls of economy have practically disappeared like fiscal gaps and yawning budgetary deficits add to it the new 'financial transparency' followed by Global OECD and G-7 countries the new paradigm of economic order does not penalize anyone holding hard currencies with exception of Yen every hard currency has a positive real rate of return. This was not possible in an environment of fiscal deficits and double digit inflationary periods. Surpluses have led to lower interest rates, lower cost of funds for corporate sector add on productivity gains we have a period where non-inflationary growth with full employment looks possible. Europe structural problems of high unemployment are the biggest concern for the global experts, but I would assume that Europe would have to bite the bullet and adopt slowly the virtues of Anglo-Saxon economic model, they would have to consider that low inflation and price stability alone is not the cure it has to be robust demand too, for that cradle to grave 'social security' and reducing the huge size of government with long term structural retooling is the answer, falling commodity prices are forward indicator of this changed milieu. Gold has been always been a hedge against inflation, now we see dumping of gold now we see it rplaced by IOU's of Euro's and $'s or Yen i.e. it is being replaced by hard currencies. The fact is that it is 'death of inflation' which has led to fall in gold prices, basic models are changing, it may be one time decision of BOE to sell her reserves but with IMF and Swiss soon deciding to sell we would see that best hedge against inflation is the long term bonds, if the basic convergence model is strictly followed and 'tax and spend' policies are banished like we have seen in recent past, the best barometer is the longer end of the yield curve. Not that I am breaking here a new ground or it is rocket science but 'financial paper replacing Gold a scarce commodity' that is a sea change of attitude it takes new importance when I see it in light of recent CPI numbers. For trader in me is slightly bent to define my trades in light of what I see, I am the opportunistic trader hence, when I longed OSX at 47 no one wanted to touch it I shorted it around the top and would like to see if the concepts I 'theorize' are tradable or not. My today's post is about break down of basic relationships, in these breakdowns I try to find a trade. The contradictions I search and highlight are if long term money is scared to death and have taken the yields to 5.95% percent recently why should commodity prices like Oil and gold start falling, higher demand should lead to higher prices this basic relationship like 'Phillip curve' break down which I highlighted nearly 18 months back on this thread are new frontiers of global economy.., if long term money is 'specialist or smart money unlike 'dumb money in stocks' why the smartest of all money i.e the BOE (Bank of England )and central banks dumping Gold? The reason this change is possible is the result of long term macro-economic austerity, like uncontrolled spending leads to vicious cycle of high inflation similarly cutting the role of government and taking the government off the back of people will lead to pressure on Gold, this may lead to rally in bonds, falling 'Gold' price will lead to rallies in financial instruments and that will help eventually the markets, as I have highlighted since last few days getting out of commodities and cyclical and entering into tech may be the best bet.. I am seeing that coming..