Well that was a short dollar rally. December gold futures hit $1,174 in intraday trading before settling down $1,164.80. That was still up nearly two percent. And gold is now up almost 32% on the year. Copper, silver, and oil were up as well.
But then everything is up this year, at least since the markets started buzzing in March. The S&P 500 is up over 64% from its March 6th low. That’s an exceptional bounce even by dead cat standards. With negative real interest rates in the States, owning cash is losing money. Hence the rise in stocks.
Yes, rising U.S. stock prices could have something to do with a fictitious recovery. But with labour markets weak and housing getting worse (rising foreclosures) we’re not counting on it. So we’ll stick with the credit-fuelled stock rally.
It’s gotten so surreal on markets that yields on some three-month Treasury bills briefly dipped below zero in trading action. As it is, the yields on Treasury bills are hovering just above zero. Bloomberg reports that, “For the first time in seven decades, Treasury bills are paying no interest while stocks continue to appreciate.”
Why would investors lend their money to the American government for nothing? And why would they continue buying stocks at the same time? Ponder….and discuss.
We think the answer is that the Fed’s policy has forced global investor into an either/or situation. You either get out of cash and into equities to beat inflation. Or, you are so terrified of buying equities divorced from normal valuations that you prefer capital preservation in the form of Treasuries, even if you’re losing out to inflation there as well. At least you get your money back at a non-inflation adjusted par value three months later.
Or, you could buy assets like gold, oil, silver, and copper.
Why the sudden move in markets yesterday? It could be that Federal Reserve of St. Louis President James Bullard told markets the Fed should keep buying mortgage-backed securities after its self-imposed March deadline for exiting the market expires.
The Fed’s plan to purchase $1.25 trillion mortgage debt and agency securities has effectively kept U.S. interest rates from creeping up. It’s also kept the housing market afloat, although even at these levels you are not exactly seeing refinancing boom. But it’s the prospect of more quantitative easing by the Fed that must have markets spooked about inflation.
Bullard said, that, “If the economy came in very weak, let’s say, in 2010, weaker than expected, we would have the option of doing further quantitative easing.” The Fed would do this through additional asset purchases, presumably with more, uh, “money” it created.
Bullard also said that, “If the economy came in stronger than expected and inflation expectations started to ratchet up a little bit we could maybe sell off some of these assets and remove some of the accommodation from our quantitative easing program.”
The market must not have heard that second part. Or maybe it didn’t believe it. Maybe it concluded that the Fed loading itself up with mortgage-backed securities is not a healthy expansion of the central bank’s balance sheet. Maybe that’s why the dollar fell and gold rose.
Hey it turns out that we were wrong and man-made global warming is real after all. A bunch of scientists have colluded to invent it by suppressing evidence that the earth is actually cooling. It turns out that empirical data do not support the agenda to expand government power and control over nearly aspect of our everyday lives.
You won’t find the story of the leaked IPCC e-mails in too many main-stream press outlets. Most of the media is in collusion with governments to cram some sort of climate change carbon law down our throats. Publishing evidence that suggests there is still real scientific debate doesn’t suit that agenda.
Before you send us e-mails condemning us to hell for hating the earth and clean air, let us make a small point. Of course the climate is changing. But – as these leaked e-mails show – the scientific community is not nearly as unanimous in its “interpretation” of what the climate data are showing as the political community would like you to believe.
Be sceptical. It works with investing. It works with politics. Any time a group of people tries to shout you down and make major changes to the law, you should be very concerned. The debate about how we inhabit our ecosystem is an important one. But it’s obvious the science has been politicised.
And please don’t write in saying that doing nothing is not an option. Doing nothing IS doing something. It means NOT doing something stupid until you have a fuller picture of what’s going on. And there are still many in the scientific community who are modest enough to admit that the earth’s climate is too complex a system to determine whether releasing carbon dioxide into the atmosphere is actually causing temperatures to rise today.
If you were even more sceptical, you might conclude that promoting global warming (or climate change) has become a lucrative industry for both scientists and failed U.S. presidential candidates with massive carbon foot prints. Both have a strong desire to tell other people how to live.
In any event, climate science is not our beat here. But the behaviour of hysterical crowds and how to survive it IS our beat. So have a look at the ClimateGate story in your spare time and let us know what you think. And in the mean time, keep an eye on your wallet and your mind on guard.
for The Daily Reckoning Australia