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Unusual intermarket trends may be reflecting a Fed bailout. The
market value of gold is yet to reflect these changes.
Let’s face it, the
sub prime market is a mess.
We’ve been watch
credit spreads widen since early June. That is, investment bonds have been
moving lower versus safer Treasury bonds. A break below support now looks
likely and foretells of more widening ahead. The credit market has finally
woken up and is beginning to reprice risk.
Investment Grade Bonds are
underperforming Treasuries - Credit Spreads are widening
The major losers out of
all of this will be the small people. Investors who were caught up in the
real estate frenzy and took on mortgages they had little, if any, chance of
ever repaying. Remember, it was the Real Estate boom that ultimately saved us
from a protracted recession in 2002 as the Fed slashed interest rates in
response to the vicious Bear Market.
Now it seems the tables
have turned. Real Estate looks rocky and the stock market is powering ahead. So
forgive me for asking but is another bailout being engineered before our
eyes?
We know the public is
totally out of the stock market right now. The public still have their gaze
fixed on the real estate market. We know that the fundamentals for stocks are
not favorable and there is no rhyme or reason for
overvalued stocks to be in a protracted bull market. Fact is they are!
You’ve got to hand
it to the money masters, they certainly seem to know
their jobs. Ramp up the money supply and create another frenzy to rescue
everyone who invested in bad property deals. An increased money supply causes
the Dollar to drop. But that’s ok as long as you can prevent interest
rates from soaring (monetizing debt) and cap the market value of Gold to
ensure that inflation expectations remain mild. Voila we are now in a Fed
engineered stock market bull which defies normal economic wisdom.
The game will last as long
as 2 important indicators hold:
Industrials break
resistance; Gold moving up to resistance (below); Interest Rates hitting
resistance (blue line - below)
Providing the Gold Price
doesn’t move quickly higher (a gradual rise would be ok) and provided
interest rates don’t rocket above important resistance, the clandestine
money pump will be safe. Sure in time Gold will move higher as will interest
rates but as long as it is gradual and over a long period of time I
don’t think it will cause the market too much bother. In fact it will
give market participants time to adjust themselves accordingly.
The strategy is therefore
to get out of cash and to into anything tangible. Gold (and Gold Mining
Corporations), Oil, Commodities, Art,
Collectibles and yes, perhaps even a little real estate.
More commentary and stock picks follow for
subscribers...
Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com
February 15, 2007
I am an investor
and newsletter writer specializing in Junior Mining and Energy Stocks. Please
visit my website for more free articles and analysis
Click here: http://blog.goldandoilstocks.com
This article is
intended solely for information purposes. The opinions are those of the author only. Please conduct further research and
consult your financial advisor before making any investment/trading decision.
No responsibility can be accepted for losses that may result as a consequence
of trading on the basis of this analysis.
_______________________________________________________________________
This
article is intended solely for information purposes. The opinions are those
of the author only. Please conduct
further research and consult your financial advisor before making any
investment/trading decision. No responsibility can be accepted for losses
that may result as a consequence of trading on the basis of this analysis.
Information contained
herein is obtained from sources believed to be reliable, but its accuracy
cannot be guaranteed. It is not intended to constitute individual investment
advice and is not designed to meet your personal financial situation. The
opinions expressed herein are those of the author
and are subject to change without notice. The information herein may become
outdated and there is no obligation to update any such information. The author, 24hGold, entities in which they have an
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