Could it be? Has the power of reason brought political grandstanding crashing to the floor? Are the folks in Washington now stepping boldly into a deal on the fiscal cliff issue, a deal that neither side will completely like, but, nevertheless, a deal that will satisfy the market enough to release a convincing rally? As always, we will see, but just in case they do, do you have your trades ready?
This morning, gold, once again, is failing to hold the $1700 level. It appears investors are not too sure about its immediate future. I understand why, but my mind works simply. I tend to see most market analysis as noise, but, despite my basic brain, there is an industry out there that survives and thrives on creating complexity. Given that, here is a take on gold I find interesting and so might you folks out there who like to play with gold.
- It’s known as a counter-intuitive flight to safety, and it happens when investors, illogically, seek safety in the very asset that they are worried about. A recent example of this upside-down instinct is when investors flocked to Treasuries two summers ago amidst a broader market panic that was occurring when U.S. debt had just lost the AAA credit rating. Another more timely example is the dollar trade, which has investors seeking the safety of the U.S. currency as they try to shield themselves from the risk of fiscal mismanagement by the U.S. government. This demand-for-dollars scenario is one reason why investors in commodities, particularly precious metals, are in a funk over what to do about the future.
Do you see what I am saying? That is much more complex than the way I would describe the current funk in gold investing. Gold is not going anywhere because if the politicos solve this fiscal cliff issue in a reasonable way, it will release the uncertainty in the business community, fostering a wave of investment. That release of money will spur solid economic growth, which will push the market higher, which will then draw money from the “safe haven” assets (gold, T-bonds, and the US dollar) to riskier assets, such as equities. Simple enough, but hey, what do I know?
- Flush with huge amounts of cash, companies repurchased $274B more shares than they issued in the first nine months of the year.
This could mean several things. To me, though, it is a reflection of the uncertainty in the business community referenced a moment ago. It also represents the explosive potential of money held back from the uncertainty. The money used to buy back stocks did not go into capital expenditures or hiring. Again, if the US politicos come to a reasonable deal, what will companies do with the huge amount of capital on the books? There is only so much stock to repurchase. As well, doing that does little for growth and growth is the direction for all business.
Speaking of growth, how about those consumers maybe spending lots more money?
- Gas prices have slid to the lowest prices of the year as an estimated 84 million Americans prepare to take a road trip by car this holiday season.
Trade in the day; Invest in your life …
