A tediously dull gold market appeared yesterday to shrug off the extremely inflationary implications of the Fed's latest rescue plan for the banking system. The central bank sent shares soaring on Wall Street with the announcement that it will set aside $200 billion of Treasurys to lend to banks and securities dealers. The unsubtle subtext was that the central bank would accept as collateral for such loans any worthless or nearly worthless scraps of paper the borrowers might have lying around. That would represent a radical and unprecedented augmentation of the Fed's role as lender of last resort, especially since no one believes that the initial, $200 billion will prove to be much more than the ante in this global-stakes game. Considering the news, gold's yawning reaction was most puzzling. Is it possible that bullion finally agrees with the theory, broached here with increasing urgency in recent months, that deflationary forces emerging in the financial sector have grown too powerful to be countered by loose monetary policy, no matter how profligate? Nose-Deep in Garbage The plan will effectively shift the risks in the banking system onto the Fed's own balance sheet, so that instead of holding mainly Treasury securities, the central bank will soon be nose-deep in loans and mortgage-backed securities of dubious value. For individual investors looking for a way to respond to the news, the correct course of action would seem to be: keep buying gold and silver. Of course, this has been more or less true since the Federal Reserve was created in 1913, empowering the government to create money out of thin air. But given the inability of gold to achieve new highs yesterday, and because of its equally stolid reaction to last Friday's alarming unemployment report, we would suggest that gold bugs ratchet up their
Wednesday, March 12, 2008
Too Many Bears To Be Bearish…
– Posted in: Current ToutsWe don't want to be the orange blossom in the punch bowl, but it's time to acknowledge that sentiment figures look too bearish at the moment for the stock market to collapse. Bearish gurus have outnumbered bullish gurus for twelve straight weeks in the Investors Intelligence survey, and the figures have been growing steadily more extreme with each passing week. The latest survey had 43.6% of advisors bearish and 31% bullish. The last time we saw numbers like that was in 1998, at the beginning of the tech-stock boom. Couple that with the fact that it's an election year, and you have two good reasons not to bet the ranch right now that the stock market is about to fall apart. (Click on photo to enlarge) Not that a 3000-point swan dive by the Dow wouldn't feel right as rain as far as we're concerned, especially since the Fed has just unconvincingly extended moral hazard to blanket the earth. We wish them all possible success, but the idea of swapping the Treasurys in the Fed's portfolio for a mountain of subprime garbage presently held by the biggies of the banking world smacks of desperation. Toss in a real estate collapse and the rapidly steepening recession, and who wouldn't think stocks are headed for disaster. But paradoxically, the lopsided bearish consensus is the most bullish thing the stock market has going for it right now. And although our fellow gurus are not necessarily wrong most of the time, when too many of us line up on the same side of the market, as is presently the case, the record shows that we become a reliable contrary indicator at major turning points. Ganging Up on Gold Rick's Picks is probably more bearish than most, since it is not mere recession that we have
