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Thoughts On The Week Ahead

10 October 2010 One Comment

The US markets have enjoyed a nice run in the last month (nominally speaking of course – since they are in the red if you price them in gold).  The Dow closed above 11,000 last week for the first time since May.  It’s amazing how the market action determines how most people feel about the economy.  Back in August, thing “felt” much worse.  People were convinced we were heading for a double-dip because the market was acting like it.  Now, we get news of QE2, the market goes up, and people are feeling better.  Sort of.  In my opinion, this recent rally has convinced less people of good things in the economy than the last one.  Look for each consecutive QE-induced rally in stocks to convince less and less people.  This is the pathway to a loss of confidence.  A phony market.  Stocks only caring about Fed policy versus business fundamentals.  While stocks rally on the printing of money, the real economy continues to deteriorate.  Eventually, something will have to give.  Either a complete loss of confidence causes the Fed to stop their current direction or the economy actually improves – I’m open for arguments on how the economy will improve, but you’ll have a hard time convincing me short of the discovery of some free, reusable, massive energy source or something.  Gold will continue to be the indicator of how “real” the market rallies are.  Feeling good about stocks? Get a reality check by pricing the S&P in gold.  The truth will set you free.

One Comment »

  • @AndyDjorSI said:

    "While stocks rally on the printing of money, the real economy continues to deteriorate." But is it deteriorating or recovering too slowly?

    Regarding gold, I think it will have its own path besides the reflection of liquidity as emerging markets diversify their reserves with more gold, which sounds reasonable given the current debt levels and yields. That demand would seek gold instead of stock because it is more suitable as monetary reserves. Therefore, it would imply the S&P losing if measured in gold, but it would be arguable to call it a loss in real terms, whatever that means. Just my 2¢.

    Nice posts in general Kevin. I'm glad I added your blog to my reader a few weeks ago.