Juggling Dynamite

On October 16 my partner and Technical Analyst Cory Venable sent me the following long-term chart of the US dollar index suggesting key support at $75.

Yesterday the U$ Index did hold $75 and is bouncing today. The importance of the dollar trade since March cannot be over-stated. As the U$ dollar has fallen the past 8 months, most other assets have soared into bubble Dom. Who knows what staying power this dollar bounce may have, but while it holds, a long-overdue correction in other risk assets (including gold) is likely to follow.
The supply demand picture for gold continues to be bearish: increasing supply from producers spurred by soaring prices is overwhelming weak consumption demand. The World Gold Council today announced that Q3 2009 saw a 30% year over year drop in jewellery demand. Investment demand which includes gold ETFs, bars and coins was down 46% from Q3 2008, and even retail investment demand for bars and coins remains 31% below the third quarter of 2008. We note that despite the weakness in demand numbers, the World Council entitled their report “Gold demand remains robust.” On the other hand, they do admit that “World Council’s mission is to stimulate and sustain the demand for gold and to create enduring value for its stakeholders.” At least they openly admit their bias!
Meanwhile gold mania has gone mainstream see ABC video: Gold Fever. I received a media call Tuesday asking if I could be “the gold bear” on Fox Business. You know bulls are raging, when Fox has trouble finding a gold bear in all of North America!
I admit that a gold rush does strike me as a very crazy trend.( Maybe it's all the black and white film clips of the Klondike Gold Rush I watched at Mother's Pizzeria as a kid) But crazy trends can go crazy for long periods, and I am not brave or insane enough to insist that gold prices must collapse any time soon. That said to surive as an investor one must keep our eye on objective markers and to this end we note two important points for Canadians:
-since gold is priced in US dollars and the Canadian dollar has gained strongly against the U dollar since March 2009, Canadian investors have so far made negative gains in gold bullion over the past 9 months and are up less than 13% year to date- a lot less than bullion prices may suggest.
-Despite all the sound and fury, the Canadian gold mining Index (XGD) has so far failed to break through its March 2008 high north of $23. Canadian based investors in the gold mining sector have not made positive gains in this very volatile area for more than 20 months.
None of this is to say that gold is not going higher, or that gold company shares won’t actually break out one of these days. But rather than fall passionately in love with a bull or a bear case, I suggest we focus on net results as the basis for a rational investment thesis.

I am bored rigid with the ongoing debate about whether humans have any role in the warming of the planet. The way I see it, arguing this topic is a bit like arguing your views on whether or not there is a God: you either believe or you don't; best to move on to productive discussion.
That said whether you believe it necessary or not, the quest for sustainable energy gives innovative companies incredible inspiration. And this new area offers truly exciting solutions for consumers, producers and governments who can stop fighting and start embracing the inevitable wave of change.
In the four short years since GM was collecting and crushing its EV1 prototypes (idiots), plug-in cars have raced miles ahead.
A recent example (of many) is Shelby’s new Electric Super Car. Zero emission? That's the least of this story:
-zero to 60 in 2.5 seconds
-200 miles on a charge
-recharge fully on 10 min plug in
-little maintenance, much less wear and tear
-can run it in your garage without poisoning yourself
What thinking consumer wouldn't want this technology?

See: Shelby Super Cars

Artificially low interest rates born of government stimulus have juiced prices across all risk assets the past 8 months. From housing, to stocks, to commodities to high yield debt few sectors have been left behind. Growing distrust of paper currencies which are increasingly levered has spurred bubbling speculation in gold and precious metals. As the US carry trade builds, those borrowing U$ at near zero rates sell the U$ loan proceeds and buy all manner of everything else. So far this widespread speculation has become the self-fulfilling and relentless cycle of US dollar down, other currencies and risk assets up.
These are not the days of wine and roses that soaring markets might suggest. Posing as an economic recovery, global speculation has now driven capital markets once again to a dangerous precipice: what if their galloping appreciation fails to translate into a lasting economic recovery? An excellent article in The UK Independent yesterday offers insight:
“Sometimes, however, economies end up in a different place, based on the physics of bungee jumping. The economy falls off a cliff. Activity drops a long way. Then there's a rebound. For a while, the rebound looks very good and it's easy enough for economists to stick to their straight-line thinking. But the economy never returns to normal; instead it is left dangling by a thread. The straight line simply doesn't apply…
In a world of bungee economics, it's just as likely that the current hopes of a “Great Recovery” will prove overly-optimistic. Rising asset prices may say something about the success of unconventional policies, but they could just as easily be part of the regular volatility of financial markets and, in fact, say hardly anything about longer-term growth prospects.
Throughout the 1990s, economists following Japan had to cope with similar problems. Every so often, the economic data would show modest signs of improvement. In their haste to declare recovery, investors would pile into Japanese equities, triggering a stock-market rally. The rally gave economists the confidence to revise up their forecasts for future economic growth. These upward revisions led to an even bigger rally. Then came the shocking discovery. The Japanese economy wasn't really recovering at all: it was the ultimate bungee economy, with occasional signs of rebound followed, as night follows day, by yet another setback. The mistake was to assume that financial markets provided an accurate forecast of future economic developments. As it turned out, the best they could do was to offer an occasional bout of wishful thinking…”
Good stuff, I think the bungee economy is a perfect analogy right now. Read the whole piece by Stephen King here :