Saturday, April 10, 2010

To Invest Or Not To Invest

That's the question.  Although the market briefly broke the 11,000 mark yesterday, analysts are confused and concerned.

The bulls are edgy:

"It worries a lot of us," says Wellington Shields' Frank Gretz, a technical analyst who specializes in pinpointing market levels at which stocks might suddenly rise or fall. He wonders whether the volume signals that the rally could soon peter out, like the big surges that preceded steep declines in the 1930s in the U.S. and in Japan more recently. 

Louise Yamada, a 29-year veteran of technical analysis who heads an eponymous firm in New York, says she's not just concerned but confused. 
"Why is the market going up?" she asks. "You usually don't see advances without volume."
The widely cited Dow index, which tracks stocks of 30 companies, is up 70 percent from its lows of more than a year ago. The climb has been one of the strongest in history, and it may herald a strong recovery. But it's been propelled by relatively few trades.


  1. IIRC what I've heard is that most of the activity (something around 80%) is confined to 3 stocks that are being heavily and deliberately manipulated, which in turns shows up as activity.
    Don't know, since my feeling is still "buy gold/paladium/platinum, dump everything else".

  2. I'd be a lot more confident if the market upswing was accompanied by a high trading volume. The low number of trades scares the crap out of me.

    I lost my under-roos the last crash.

    I think I'll keep what I have left in my local bank. For now, anyway.

  3. I have some money in gold, and I want to put more into gold. That is not something I would normally do, but I think that is what to do when there is an anti-American ideologue in the White House.

    The reason I usually gave for not investing in gold was because I remembered when it hit $832 an ounce -- in 1980. The stock market has certainly done much better than that over the past 30 years. Now, however, I realize that gold hit $832 an ounce in 1980 because Jimmy the C was in the White House. Now we have The Messiah. Need I say more?

  4. Here's a frightening thought: everything turns out just fine.

    In 1982, Democrats scoffed at a surging stock market and thought a severe recession would last for a very long time. They were confident that the economy would doom Ronald Reagan’s re-election campaign in 1984. All they had to do was make clear they offered a stark alternative to the failing policies of the incumbent.

    Change a few words (Reagan to Obama, Democrats to Republicans, 1984 to 2012) and you have an accurate description of the current political climate. Could the Republicans be as wrong now as the Democrats were then?

    I have some good reasons to believe that 2010 is not 1982 redux, but it's an interesting parallel to draw.

  5. Nothing would make me happier than for the economy to rebound. I want small businesses to thrive, taxes to be low, and good folks back to be back to work.

  6. Back to be back? Heavens. It's unbelievable how blogger screws up my comments...

  7. Matt - Jimmy Carter's ideology (sadly) didn't much figure into the gold equation (imho). It was inflation.

    When Volker raised rates enough to make people prefer bank account balances and bonds (which paid whomping fat coupons) over shiny metal (which paid nothing), then all the speculative money ran away from gold. And stayed away.

    This situation is different - there is no wage inflation or pricing power for manufactured goods. Interest rates are at the zero bound and will likely remain there.

    Developed nation (i.e. debtor nation) central bank credibility is in question (but not yet repudiated) - gold represents a kind of "call option on monetary Armageddon" for the central banks of developing nations.

    So basically, there is a bid under gold from the likes of India and China. Gold is a store of wealth because the folks with the wealth have decided that it is.

    Could this change? Yes. But absent attractive (and credible) debt yields (pick one - I don't think both will be on offer anywhere) and super attractive global stock valuations (stocks are at best fairly valued, if not over valued), I don't see where the money which is now in gold will flow to.

  8. Let me clarify that last point with an example - imagine there is another debt crisis scare (say Greece's troubles cause some banks to fail, which causes some other banks to fail, which causes all banks to stop lending to each other, which causes operating credit for viable businesses to dry up... dominoes fall...)

    In that case, stocks will fall precipitously (again).

    And so I would expect the gold price to go down (again - as it did in the fall of 2008).

    The leveraged long gold positions will be shaken out with margin calls, and some folks holding gold will also sell to take advantage of the low low stock prices.

    (This is a bet that the subsequent debt bailout will "work", as the last one did. Many people will bet in that direction. One of these days it won't "work", and the people and banks who buried gold will be in proven correct.)