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Créateur du MalheurDer Invest
Informant Ok Buss, what's going on? The logical engineer inside of me wants to believe in the rational and moral handling of the US deficits, the US trade and current accounts, the US zero savings, the US governmental spending, the US pork programs, the US unwillingness to institute meaningful and painful reforms in social transfer systems like Medicare, Social Security, the US unwillingness to institute taxation reform - everything which is still on the plate. It hasn't happened and certainly does not look like it's going to happen anytime soon especially with the Democrats unable to come up with any meaningful counter attacks which might swing the majority to their side. The result being a sort of dithering status quo on the major reform fronts. But this is nothing new. I have stated in previous Letters that my outlook was for a continued tightening by the Fed over Q4 of this year and that with this increased Fed rate we could might expect the equity / stock markets start to "feel the pain" and capitulate, or at least make a significant turn southwards, in conjunction with the Fed stated goal of wanting to reign in asset prices, something they've been harping on now for a while. In my last Letter I made, and still stick to my call, that the Fed will raise interest rates at the next FOMC on 20 September - in one week - as the aftermath of Katrina might not be nearly as bad psychologically as the media initially reported. It's bad yes, but the degree of "bad" could have been worse both in lives lost and disruption to vital oil and shipping capacities. The real challenge still lies ahead both politically and financially in the aftermath clean-up and evaluation. Only time will tell. The reason I have now become rather hesitant on the outlook for the Fed, and hence it's probity in joining hands with the administration to tackle the above budgets, pork and reformation, is straightforward - numbers. Mind you, I haven't given up on the Fed to act, but let's wait and see. Since Katrina hitting, the US administration has now cranked up the presses and allotted somewhere near $65 billion - that was tranche #1. More may follow. But hey, it's only money - created out of paper & ink. In fact, the M3 money supply figure has gone berserk in the last weeks, jumping nearly $155 billion - hey, it's just money. Now let that figure settle into your brain - 155 BILLION in about 7-8 weeks. Depression, recession? "Juwannah bet buddy? Fuh-ged it" says the New Yorker. If the Fed is serious about fighting inflation at the spectre of such increases in money supply, which they waived right on through, then I want to see some serious rate rises coming up over the next months - if it doesn't happen or we get the ridiculous 25 bp, then how will that stand up against massive inflationary injections of money? Quite simply, I don't think it will. It's a good smoke & mirrors tactic - but we're doing our best, they whinge - but it will not address the issue - Mr. Greenspan is heading out on a high and certainly such creative financing should keep both the markets and housing on a high into next year, easily. Unless of course another unexpected terrorist/ecological/nuclear/military event(s) should shake the already loose foundations of the world's precarious economy. Does gold smell inflation? Now we've got energy prices exploding and money supply increasing - which smells of inflation. I keep thinking ... the 1970s - gold corrected heavily and then skyrocketed. Although, the bonds certainly don't smell inflationyet - just creeping a bit higher these last days. Gold certainly has been doing better on the back of Katrina but on the other hand did not seem to do nearly as well as a "currency of last resort" in times of crisis and global uncertainty. Today the price got knocked down the last time I looked, about $5 off down to $444 and has not penetrated the $450 level...yet. Now being at the top of its channel, it may need to consolidate further. The stealth gold bull is looking on track but still I remain resolutely suspicious of more USD strength. Granted, as J. Crooks pointed out today, gold and USD have been rising in parallel these last weeks - 5 weeks does not an axiom make. I want to see more evidence of continued USD strength and gold breaking $450 before I re-adjust my viewpoint. If the Fed raises 25 bp this time next week, that will again support the USD, make the rate spread attractive for foreign investors and might knock gold down a bit - let's wait and see an engineer who does not adjust outlook based on evidence is a poor engineer - I still await a bit more concrete facts before abandoning this mindset.    I'm sorry Alan, I have read your FOMC statements, I have read a lot of media drivel and I have read tonnes of other material - I am now simply looking at the raw figures to tell the story. Until you raise 50 bp or stop the USD presses, or better both, I don't believe you. Mea culpa. More on this in upcoming issues
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