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Reply #37: Bonds or gold - which market is wrong? [View All]

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54anickel Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-20-04 01:06 PM
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37. Bonds or gold - which market is wrong?


Lets start with the bond market. Virtually everyone at the beginning of the year believed that long-term interest rates had nowhere to go but up from their lowest levels in half a century. The economy and corporate earnings were strong, and it appeared inevitable that the Federal Reserve would finally have to respond at least somewhat to the extraordinary inflationary pressures it has fostered in the recent past by taking some of them away via, at last, raising short-term interest rates. Topping off an environment which was already pointing to higher rates and lower bond prices has been the inexorable rise in the price of crude oil to fresh all-time nominal highs. No matter how the Bureau of Labor Statistics tries to gloss over its implications, higher oil prices stillFed Chairman Greenspans new economy notwithstandinghave inflationary implications. In fact, through 2004s first half, even the substantially understated numbers from the BLS showed U.S. consumer prices rising by a 5% annualized rate during the first half.

After topping out twice around the 4.9% area, though, the yield on the governments current bellwether 10-year note has plunged lately; it now stand at around 4.25%. Ignoring much of the above, bond traders seemingly are voting now that a weakening economy and the apparent peak in corporate earnings growth demonstrate that interest rates cant go up much more. They ignore the inflationary pressures of rising oil prices to instead reinforce their belief that this additional tax on the economy means that the Fed will neither have the ability or the nerve to raise rates much farther. Combined, this suggests to them that we have already seen what rise were going to in long-term market rates; and that, before much longer, well be fretting over recession/deflation anew.

Longer-term, that is certainly where were heading to some extent (though whether everything goes down in price or, in the alternative, at least some items such as commodities buck the coming unwinding is yet to be determined.) For the time being, however, gold is begging to differ with some of this hypothesis. Gold traders also see soaring energy costs; they realize to some extent, however, that such an event has always meant higher eventual inflation.

In addition, those tiptoeing back into the yellow metal with increasing conviction seem to recognize something stock traders and the cheerleaders on financial television incredibly continue to dismiss; and that isterrorist premium or nothigh (and rising) energy costs are here to stay. Now, theres no question that at least some of the rise in oils price (and today was a good example, as a barrel of black gold closed at $48.75, up $1.48 on the day) does indeed owe itself to speculators. And Ill even concede here that, if peace suddenly broke out in the world, oils price would likely plunge, as some speculators exit their recent bets.

However, listening to the shills for Greenspan and the Bush Administration, youd think that under this scenario oil would go back to $25 per barrel and stay there. This is nothing but fantasy. There is nothing transitory, to use one of Greenspans favorite words, about countries like China and India having embarked on major growth trends not unlike that of the United States at the beginning of our own Industrial Revolution. If and when oil does settle down for a while, it will later be looked back on as nothing but an interlude in what is otherwise a long trend to substantially higher U.S. dollar prices for crude.

I stress U.S. dollar prices because thats another thing seemingly understood by those re-entering gold that is utterly lost on those again willing to loan money to Uncle Sam for 10 years at 4.22%, as of todays close....

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  -STOCK MARKET WATCH, Friday 20 August ozymandius  Aug-20-04 07:07 AM   #0 
  - WrapUp by Martin Goldberg  ozymandius   Aug-20-04 07:16 AM   #1 
  - 'Oil Shock' Has Some Economists Worried  54anickel   Aug-20-04 07:20 AM   #2 
  - When adjusted, oil is now $8 less per barrel than '91  NewYorkerfromMass   Aug-20-04 07:25 AM   #4 
  - what inflation?  UpInArms   Aug-20-04 07:29 AM   #7 
  - It's become another great tool to pull out to prove a point.  54anickel   Aug-20-04 07:57 AM   #12 
  - "For years" yes, but not for 25 years.  Frodo   Aug-20-04 07:58 AM   #13 
  - Well there HAS been inflation  RivetJoint   Aug-20-04 08:36 AM   #23 
  - Yes, I notice they make similar claims in nearly every article regarding  54anickel   Aug-20-04 07:47 AM   #10 
  - Oil Tops $49 On Renewed Iraq Violence  UpInArms   Aug-20-04 07:55 AM   #11 
     - Too much money to blame for rising price of oil, economists claim  54anickel   Aug-20-04 08:11 AM   #16 
        - A painfully refreshing bit of honesty here -  ozymandius   Aug-20-04 08:22 AM   #17 
  - When combined with the rising costs for health care, produce,....  Media_Lies_Daily   Aug-20-04 08:34 AM   #20 
  - Thanks MLD, that's what I was attempting to get across. You've  54anickel   Aug-20-04 08:43 AM   #25 
  - Cost of living index  NewYorkerfromMass   Aug-20-04 09:23 AM   #29 
  - Anyone have a graph to show the long-term oil price?  english guy   Aug-20-04 10:39 AM   #31 
     - here's a link to a chart for you  UpInArms   Aug-20-04 10:53 AM   #32 
  - Words to beware.  ozymandius   Aug-20-04 07:29 AM   #8 
  - CAFE standards? Heck no!!! The answer is in the *residents stinkin'  54anickel   Aug-20-04 08:04 AM   #15 
  - Global: Oil-Shock Assessment (Roach's cited article)  54anickel   Aug-20-04 08:34 AM   #21 
  - US economic barometer fell in July  ozymandius   Aug-20-04 07:23 AM   #3 
  - daily dollar watch  UpInArms   Aug-20-04 07:27 AM   #5 
  - Heh, lookie at gold! Heading up right along side the ol' buckaroo.  54anickel   Aug-20-04 07:58 AM   #14 
  - Trade gap darkens U.S. picture  54anickel   Aug-20-04 07:28 AM   #6 
  - Fleet layoffs call merger into question  UpInArms   Aug-20-04 07:36 AM   #9 
  - Bank of America almost destroyed me last December  progrocker69   Aug-20-04 08:34 AM   #22 
  - I wish I had a nickel for all the times Bank of America has done this  loudsue   Aug-20-04 11:35 AM   #33 
  - All mergers eliminate duplicated responsibilities, something which....  Media_Lies_Daily   Aug-20-04 08:38 AM   #24 
  - 20 billion in repurchase agreements yesterday! That's the most in a  54anickel   Aug-20-04 08:29 AM   #18 
  - What does that mean, 54anickel??  loudsue   Aug-20-04 11:37 AM   #34 
     - Didn't mean to leave you hanging there Loudsue  54anickel   Aug-20-04 12:43 PM   #35 
  - pre-opening blather  UpInArms   Aug-20-04 08:30 AM   #19 
  - 9:45 and they're off (and so am I for a few hours)  54anickel   Aug-20-04 08:47 AM   #26 
  - 9:56 and back in the black  Maeve   Aug-20-04 08:59 AM   #27 
  - must run for the day  ozymandius   Aug-20-04 09:21 AM   #28 
  - 10:44 EST numbers and blather  UpInArms   Aug-20-04 09:47 AM   #30 
  - 1:44 post lunch check-in, and all is well  54anickel   Aug-20-04 12:47 PM   #36 
  - ## PLEASE DONATE TO DEMOCRATIC UNDERGROUND! ##  DU GrovelBot   Aug-20-04 01:06 PM   # 
  - Bonds or gold - which market is wrong?  54anickel   Aug-20-04 01:06 PM   #37 
  - Contrary Bet on Oil Is Costly to Year-Old Hedge Funds  54anickel   Aug-20-04 01:15 PM   #38 
  - BOGUS PHONE MESSAGE USED TO PUMP UP STOCKS  54anickel   Aug-20-04 01:23 PM   #39 
  - 2:24 EST numbers and blather (calls must be working!)  UpInArms   Aug-20-04 01:28 PM   #40 
     - Care to place a wager on whether or not they pull some chips off the  54anickel   Aug-20-04 01:37 PM   #42 
        - I'm keeping an eye on it today.  Why   Aug-20-04 01:45 PM   #44 
        - I'd wager that they're going to let the  UpInArms   Aug-20-04 02:02 PM   #45 
           - Thinking you're probably right on that one. Forgot about the no news  54anickel   Aug-20-04 02:21 PM   #50 
  - Gold/Oil Ratio Extremes  54anickel   Aug-20-04 01:34 PM   #41 
  - New oil highs spark gold rush  54anickel   Aug-20-04 01:41 PM   #43 
  - 3:03 EST numbers and blather (all is well)  UpInArms   Aug-20-04 02:05 PM   #46 
  - Stocks Edge Higher As Oil Prices Fall  54anickel   Aug-20-04 02:11 PM   #48 
  - U.S. stocks push higher as oil prices pull back sharply  54anickel   Aug-20-04 02:31 PM   #51 
  - The Wanna-Be State (linked at 321gold, again)  54anickel   Aug-20-04 02:06 PM   #47 
  - Gene therapy turns slobs into workaholics (I NEED THIS!!!!)  54anickel   Aug-20-04 02:17 PM   #49 
  - Big finish  54anickel   Aug-20-04 04:11 PM   #52 

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