Archive for November, 2009

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Gold And XLF

Tuesday, November 17th, 2009

One of the charts that I follow is the ratio of Gold to XLF.  As XLF is a prominent ETF of the financial stocks, it can serve as a proxy to “paper assets.”

While I think it is difficult to make concrete conclusions based upon the Gold:XLF chart, I think it does provide a “feel” for some aspects of Gold’s performance.

Here is the daily chart from 2007:

EconomicGreenfield Gold XLF 11-16-09

Chart Courtesy of StockCharts.com

In the above chart, Gold:XLF is plotted highest, with Gold and XLF plotted separately below.  I find it interesting that while Gold’s price has been performing strongly recently, the peak in the Gold:XLF ratio actually came in March.  This seems to cast doubt upon the idea that Gold’s recent strong performance is being driven by its “safe haven” qualities.  As I commented in my November 10 post on Gold:

“In effect, could the current strong performance of Gold somehow be a precursor of (more) economic problems?  The answer … can certainly be “yes.”  However, if so, it would be odd to have Gold rising strongly at the same time low quality paper assets have been rising strongly as well.  From a long-term historical perspective, usually Gold’s “safe haven” qualities are most highly valued when “paper” assets are suffering.”

Many people have traditionally viewed Gold as an “alternative” asset – one that should hold its value if other asset values fell.  Given Gold’s performance over the last few years, a Gold investor should assess if such an inverse relationship still exists, or if Gold has somehow transmogrified into just another asset that is (highly) correlated with all other assets.

 

SPX at 1107.02 as this post is written

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The Latest Wall Street Journal Economic Forecast Survey

Monday, November 16th, 2009

Here is a link to the latest (November) WSJ Economic Forecast Survey:

http://online.wsj.com/article/SB125797275784744057.html

There doesn’t appear to be any major changes in expectations among the surveyed economists.  As the survey states, “The economists expect gross domestic product to expand around 3% at a seasonally adjusted annual rate through 2010, slightly slower than the 3.5% recorded in the third quarter.”

Also:

“More than half of the respondents see a U-shaped recovery with some slowness followed by solid growth, and 31% forecast a stronger, V-shaped recovery. Just 11% of economists expect an L-shaped rebound where economic activity stabilizes at a low level, and only 7% see a double-dip recession—another drop in gross domestic product after a short rebound—as the most likely scenario.”

I find the 7% figure that see a double-dip scenario as being somewhat surprising.  However, what I really found amazing was found in the detail section of the survey.  The question was presented:

“What is the most likely potential asset bubble?”

Commodities 41%
Emerging-market equities 27%
Emerging-market real estate 22%
Treasurys 6%
High-yield bonds 4%
U.S. equities 0%

I found the responses to the last five categories (Emerging Market Equities to U.S. Equities) to be very low, and the 0% response to U.S. equities is amazing.

One other miscellaneous comment attached to the above “asset bubble” question was notable as well: “Rebounds in markets after widespread depression worries is not the making of a bubble.”

_____

Regular readers of this blog know that I am not in agreement with the consensus displayed by economists with regard to the present and future economic condition… 

As an FYI, I put together a recap of various economic forecasts and predictions made from mid-2007 through March 2009.  They can be found on this page under “Predictions”, the second article listed:

http://www.economicgreenfield.com/prosperitybypencom-directory/

Economic forecasts since mid-March 2009 can be found under the “Economic Forecasts” Category on the right-hand side of this home page.

 

SPX at 1111.05 as this post is written

 

 
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Singapore’s Healthcare System

Monday, November 16th, 2009

I ran across this piece, titled “What Singapore Can Teach the White House,” in the Wall Street Journal from October 20.  I found it very interesting, as it discussed the healthcare system for Singapore.

SPX at 1110.73 as this post is written
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A Note On Healthcare Legislation

Friday, November 13th, 2009

There is so much that can be said about our healthcare system and the reform efforts underway.  Here is my previous post on the topic from August 19:

http://www.economicgreenfield.com/2009/08/19/healthcare-a-few-thoughts/

There is one special aspect of the current legislation that I would like to comment upon.  This aspect is that no member of Congress or the President would participate in the proposed healthcare program.  

I find this highly notable, and I am very disappointed by it. 

It is a responsibility and obligation of leadership for them to be included in such a proposal.  As well, their enrollment in the plan would signal confidence in the quality and benefits of the legislation.

If they have acted in a forthright and dignified fashion, and have fulfilled their fiduciary responsibilities as well as moral obligations in creating this legislation, they would ostensibly have no objection in including themselves in such a plan. 

 

SPX at 1087.24 as this post is written

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misc. note

Friday, November 13th, 2009

Just a quick administrative note…

For those unaware, I maintain a separate site that mirrors all of the blog posts found on this site.   This second site can be accessed should there be problems accessing this site.  As well, this second site is easy to do keyword searches on.  Here is the link to this second site:

http://economicgreenfield.blogspot.com/

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Ron Paul – “Be Prepared for the Worst”

Thursday, November 12th, 2009

I would like to comment on a commentary by Ron Paul in the November 16 edition of Forbes.  It is titled “Be Prepared for the Worst” and subtitled “The large-scale government intervention in the economy is going to end badly.”

The commentary can be found at this link:

http://www.forbes.com/forbes/2009/1116/opinions-great-depression-economy-on-my-mind_print.html

While I don’t agree with everything that Ron Paul says, I did find this commentary to be very interesting and well worth reading.  Here are some excerpts that I found particularly noteworthy: 

“A false recovery is under way.”

also:

“This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble’s collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been.”

also:

“What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years.”

 

SPX at 1095.85 as this post is written

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Food Bank Article

Wednesday, November 11th, 2009

On October 30 The Chicago Tribune had an article titled “Trying to keep up with hunger.”  The article was about food assistance provided by the Northern Illinois Food Bank, of which Dennis Smith is executive director and CEO.

There are some interesting (and disturbing) passages in the article.  Here are a few:

“‘The number of people visiting the 525 food pantries, soup kitchens and youth locations across the region has gone up 35 percent from a year ago,’ Smith said.”

“‘Hunger is exploding in northern Illinois and the small agencies are being hit harder than ever before,’ Smith said.”

“‘A lot of the people we’re seeing today have never been to a food pantry before,’ he [Smith] said during the Oct. 22 tour.”

_____

The last quote shown above further reinforces a trend that I commented upon in a July 15 post.  I called this trend the “first time of adversity” effect, a very important concept.  Here is that July 15 post:

http://www.economicgreenfield.com/2009/07/15/first-time-of-adversity-effect/

 

SPX at 1104.90 as this post is written

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A Few Comments About Gold

Tuesday, November 10th, 2009

Gold’s recent price performance has been very strong.

There are, however, quite a few indicators that, from a historical perspective, seem to disconfirm Gold’s current price, which as I write this is $1101 for the December futures contract.

One of the factors that seems to be speaking against Gold is the lagging performance of the HUI Index.  As I wrote in the June 16 blog post:

“One measure that I follow is the ratio of HUI (an index of gold stocks) to that of the physical metal itself.  One theory, perhaps the predominant one, is that the gold stocks should move, or at least verify, the price movements of the physical gold itself.   Looking at the weekly chart (seen below) over the last 10 years seems to indicate that although gold has been relatively buoyant over the last year, the gold stocks, as seen by the HUI Index, have lagged since early 2008.  One interpretation of this is that the gold stocks are not confirming the move in gold, meaning that gold may soon head down…”

Although Gold has continued to head up, as one can see in the chart below, the HUI:Gold ratio continues to lag and is at subdued (relative to the last ten years’) levels:

EconomicGreenfield Gold v HUI-GOLD 11-10-09

Chart Courtesy of StockCharts.com

 

I find the lagging performance of the Gold stocks, as seen by the HUI Index, to be very conspicuous.  This is especially so given the current investment environment where investors have shown they are even willing to aggressively bid up prices for securities that possess the most dubious of fundamental value.  

In my opinion, predicting Gold’s price has always been difficult.  There are a variety of reasons for this, including the fact that the markets for both physical Gold and Gold stocks are relatively small.  It doesn’t take large investment inflows, or outflows, to move the price significantly.

Of course, Gold can be viewed as the ultimate “safe haven” security.  Placing a value on this “safe haven” aspect is very difficult.  Could Gold’s current price be reflecting a significant ”safe haven” premium?  In effect, could the current strong performance of Gold somehow be a precursor of (more) economic problems?  The answer to both of these questions can certainly be “yes.”  However, if so, it would be odd to have Gold rising strongly at the same time low quality paper assets have been rising strongly as well.  From a long-term historical perspective, usually Gold’s “safe haven” qualities are most highly valued when “paper” assets are suffering.  

Gold’s price action should be interesting going forward…

 

SPX at 1093.69 as this post is written 

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Two Unemployment Charts

Monday, November 9th, 2009

The following chart is from the CalculatedRISK blog of November 8 http://www.calculatedriskblog.com/2009/11/summary-and-look-ahead.html

I like this chart as it presents a relative depiction of Post WWII recession job losses.  As one can see, our current period of economic weakness’s job losses are outsized both in duration and severity:

CR Employment during Recessions 11-6-09

Here is a long-term view of the official stated Unemployment Rate.  This chart is from the St. Louis Federal Reserve site.  I find this chart interesting for many reasons.  As one can see, our current official Unemployment Rate (U3) is second only to that of the early 80′s.  Also, one can see that although large spikes up in the Unemployment Rate are relatively common, in prior periods the spikes up were (relatively) quickly followed by a quick retreat:

UNRATE_11-6-09

I have written frequently about the Unemployment situation.  These blog posts can be found under the “Unemployment” Category.  For those interested, here are a couple of the latest posts:

http://www.economicgreenfield.com/2009/10/30/another-note-on-unemployment-statistics/

http://www.economicgreenfield.com/2009/10/06/a-note-about-unemployment-statistics/

Furthermore, I wrote a blog series titled “Why Aren’t Companies Hiring?” that can be found listed on the Blog Series page here:

http://www.economicgreenfield.com/blog-series/

SPX at 1079.79 as this post is written

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Danger In The Markets? Part V

Friday, November 6th, 2009

This is the last blog post (Part V of V) in this “Danger In The Markets?” blog series.

I would like to end this blog series with another look at the daily 1-year S&P500 chart.  This chart depicts a Rising Wedge from the March lows.  As well, I have indicated a potential H&S (Head and Shoulders) pattern in red.   For those unaware, both of these patterns are bearish.  I believe more in the Rising Wedge than the H&S, as it is more established.  Additionally, the VIX can be found along the bottom of the chart:

 EconomicGreenfield SPX Daily Rising Wedge 11-5-09

Chart Courtesy of StockCharts.com 

 

One will note that in yesterday’s post (Part IV) there was a daily S&P500 chart that showed a Rising Wedge pattern as well.  The difference in appearance between that chart and the one above is that the bottom trendline is drawn differently – the chart above incorporates the early October low.  Regardless, should this Rising Wedge pattern be validated through future price action, conventional Technical Analysis methods would ”measure” a resulting price far below the March low of 666.

As I have mentioned repeatedly on the blog (and these commentaries can be found under the “Stock Market” and “Investor” categories) I strongly believe the rally from the March low of 666 is a Bear Market Rally.  The implications of this belief, should it prove accurate, are profound both from a financial markets perspective as well as an economic one. 

As I have stated previously, I do hope that my analysis and conclusions as to where the markets and economy are heading are incorrect, and that we are on the path to true Sustainable Prosperity.  However, I am firmly convinced from both an economic and markets perspective that we face an array of difficult problems in our economic future and resolving them will likely prove most vexing.

It should be noted that, as mentioned repeatedly on this blog, my views are very contrarian in nature.  As such, they are quite at odds with those held by the vast majority of economic and financial professionals who are firmly convinced that we are currently experiencing a recovery with little or no risk of further economic damage…

 

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SPX at 1066.63 as this post is written

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