Latest Letter : Our World
Randolph Buss, © copyright 2005
This introduction has been worming its way into my head these last few days as I continue to read a lot of the newspapers and magazines and sites and I find a world of make believe and pussy footing and double talk. Should this surprise me? Maybe not, but what I find is a world where telling the truth becomes a slap in the face and telling lies or half-truths becomes grandiose and near respected by all. A world where A Strong Dollar Policy is nothing but a joke as deficits are created on top of other deficits and where job creation and manufacturing are at best kept at status quo but usually falling, a world where economic reforms is something to be frightened of even as people want change in a changing world and marketplace, a world where Housing Equity is considered wealth where in fact no wealth whatsoever was ever created, a world where stripping people of rights and degrading them is considered "winning the war" on terrorism, a world where grabbing land for one's own selfish purposes is considered righteous and beneficial in the land of eminent domain, and a world where avoiding conservation and energy cutbacks is considered good for corporate profits, yet one cannot eat paper dollars, even if sautéed in butter and lightly salted.
Is this our world ? Does a bear do his business in the woods ?
A world where some say the USA or Germany budget deficits is just a "big number" and that it, in reality, has no lasting meaning or importance. A world where "we must fight illegal immigration" and the immigrants are allowed to work legally in our legal system, a world where food is manipulated at the gene level and we are told this is "new and better food" just as we eat our Sodium Glutamate laced, flavour enhanced Dorito Chips, a world where saving is near impossible, and a world where we are told that paper money is intrinsic wealth and it is to be believed, for they say it is so.
Seemingly, in an interconnected financial and economic world, the need for leadership and moral character has never been greater than now. In a world controlled by bottom line corporate thinking, ego consumption, and extreme gratification one must truly and legitimately ask whether such behaviour and ingrained thinking patterns can be an answer to our common destiny and prosperity.
I have pointed out before that I believe the current financial and employment environment of the world cannot be maintained, as we have known it in the past, in an era whereby wealth is "managed and created", overdue and inherently obvious reforms are not addressed, where deficits are allowed to simply accumulate without redress and where demographic extremes are occurring across the world and where military strength is not the answer. The solutions of these issues are inherently tied to human nature : fear of the unknown, fear of change, hope and laziness.
The resultant outcome(s) is/are sure to play havoc with our investments, our work, our family lives and our outlook. The world is changing rapidly and we must be willing to change along with it. The Chinese proverb of "Danger bringing Profit" has somehow never been more true than now, but danger can also bring loss and destruction. Just 15 years ago this world look completely different in terms of geography and borders, IT, Telecommunications, debt, jobs, investments, travel - everything. I foresee even greater changes in the next 15 years. Even if Thomas Friedman's book, the World is Flat, is true, that still does not help you. How do you navigate in a "flat world"? I hope to address many of these global business and investment issues in upcoming Letters and Perspectives.
I may be wrong of course, but with this backdrop facing the world economies, I believe we shall see a fearful "flight to safety" and quality occur. As I have stated before, I believe this will be towards the monetary metals.
It is, to my mind, not so much a question of disregarding other investment vehicles, but rather a human psychological triggering and contempt for the manipulations of man-made created wealth. This does not happen overnight, it happens slowly and steadily as trust in "the system" is not restored by those in political and leadership roles, but rather the continued entanglements are exacerbated by further tinkering with the symptoms but not the root causes.
Those are my macro outlook ramblings which have been forming over this recent Summer break.
Even as gold did very well last week, I continue to remain guarded as to whether we can or will see sustainable upside action through the HUI 220 level. As of right now I'm slightly bullish in the short-term but with a good portion of caution thrown in. Bullion was strong last week only to see it falter a bit today. This may be mere profit taking or it's profit taking just before the Commercials get ready to sell it lower as done in past episodes. We have not yet arrived at the FEAR frenzy for gold, not by a long shot, we are still in the accumulation phase. Keyword here being "accumulate" - i.e. if you don't have it, you better start think about getting some, although I think we may have better buying opportunities in the midterm rather than now after this latest run up.
This chart below still remains in force to my mind. Yesterday the HUI closed down a bit and we still have the looming 220 overhead resistance. Above 220 we have a reverse Head/Shoulders but there is likely to be considerable resistance at that level in spite of seasonal strength. The one thing I point out about gold here is it's history of reaction. Right now the Western macro outlook is still under the veil of "control" and even though oil may be rising, the powers that be still are still signalling all is well. The housing markets are bubbly yet many think it will continue. With increases in the US interest rates, the Fed is signalling it will try and take away the accommodative stance and reign in housing froth. To my mind, this misunderstanding of the mostly Western public as to the macro outlook of the world economies and how quickly Asia might rise, will only be then understood when the façade starts to crumble and the flight to quality begins. I think we may now be in a position where smarter money has been and continues moving into the monetary metals complex at good risk/reward ratios just as the average consumer, being forever late in the game, moves into wood & bricks.
The XAU has now broken to the upside from its downtrend line off the November 04 high. The obvious next resistance being the March 05 high of 104.
The housing bubble is not over yet and it will continue until the Fed likely overshoots the rate increases and the US may go into even more recessionary tendencies with housing falling and possibly the consumer starting to save on said higher rates. In observing the charts below, I do not believe these charts are coincidental but rather have a strong correlation as housing leads the consumer over the last 2-3 years. The puzzle piece still to be contemplated is how long the Fed will keep the rates high with consumption being a large part of the GDP and the inherent need to sell US Treasuries to (still) friendly exporting nations within Asia. The Asian leverage here, if withdrawn, may plunge the US Dollar downwards very quickly. As I have said many times over, although the macro backdrop may be horrific, the micro outlook of the consumer has not yet caved in - the perception that things are generally OK with the economy is still VERY MUCH intact despite the queasiness amongst a minority who are starting to sound the horn of danger.
I have noticed even Stephen Roach at Morgan Stanley has been on holiday and the overall amount of market commentary has been, as it should be, lower in the Summer as we enjoy the weather and spend more time with family and enjoy picnics, the beach, or simply just relax. If not mistaken, I believe the Summer in Germany was about 8 weeks in total - we are now into Autumn weather - grey, rainy & often windy. We all need to take a break and stand back and look at the issues and macro environment and even our own investment goals. I will soon start to ramp up more commentary and portfolio recommendations and look forward to your continued feedback.
Another point, a recent German article in the FAZ showed this graphic on hedge funds. In 5 years from 1999 to 2005 , the number of funds has risen from 6000 to near 9000 with capital under management from 450 billion to now over 900 billion. Hedge funds are now reaching mania levels as well - all in the search for profit and NEEDING to beat the market.
timestamp : 05:31 CET / Berlin, Germany
Randolph Buss
editor@dinl.net
www.dinl.net
The Der Invest Informant www.dinl.net is a free newsletter. It deals with international issues of The Markets o Economic Outlook o Finance o TA & Charts o Politics o Life, Culture & Technology o Geopolitics o Security o Freedom.
If you would like to be on our MAILING LIST, please send an email to diiportal@dinl.net.
Place "free newsletter" in the Subject Line of your mail. Thank you.
Any remarks or comments - All feedback is gladly accepted (good, bad, indifferent). editor@dinl.net.
Disclosure and Disclaimer Statement: This document is intended for informational purposes only. DINL is not a registered financial advisor in the USA. Not advice or intended as advice. The author has not received any payment or reimbursement of any nature for writing this article. The author's objective in writing this article is to raise awareness within the reader and to further their understanding of international and/or monetary issues and to encourage their own further due diligence / research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell any stock, currency or commodity. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions.
Further dissemination and publication of this document is legal but must contain the full title, date, editor's name and full email address. Otherwise please contact the editor for express written consent.
Printer Friendly Version
Email this Article