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February 01, 2007

Post-Fed Notes
by Gary Tanashian

Dr. Bernanke and cronies went the expected route; hands off. They have gained a measure of credibility as inflation hawks -- again, this was necessary as we have hoped all along that they would "get their pound of flesh" from the inflation trade (raging energy, industrial metals & real estate*, and even precious metals bulls). We needed them to get their lever back in hand, at least partially. That lever they currently hold, wobbly though it is, features the commodity & real estate complexes well off their highs and the Dollar unconvincingly (about 5.5%) above long term support @ 80. Interest rates have spiked back up as well, thus reloading that gun with a bit more ammo -- could we get at least a small rebound in bonds (decline in rates) off of yesterday's move as Wall St. and the hopeful and multifaceted bull trade pretends inflation is relatively under control? But the $TNX:$IRX remains in an uptrend. As for the long term picture of bonds, well... various asset markets are laughing in the face of bond holders. When we actually get a real deflation, it will likely be the final deflation owing to the leverage and games built upon games structure that is our financial markets. Unless positive and structural change is built in to the system even as the whole mess manages to hold together indefinitely, deflation cannot be allowed to happen. Or at least, it would be fought tooth and nail by the Fed. But they need ammo.

So in short, all systems are go. Corporate profits are good. Economy? Check. Inflation under control? That's the story line. Gold is spun as merely being another asset appreciating under the "all boats" theory, and that just may be the case. But... we still note its recent out performance vs. many other assets. This is formative though, so we will not read too much into it and will certainly not become a frothing "go gold!" cheering squad. When the day comes that gold rises (or drops less than other assets) for the strongest of reasons, it will not be a good day for the US, nor many other societies. That is because we have screwed the pooch to unimaginable levels up to this point, right off the balance sheets and into sublime territory. At that point, the bears, who are the only ones not feeling good today (if they have active short positions) will finally be right in practice as well as in theory.

But dialing back in to the micro, on the chart we see gold held the 605 noted here as important support. We also see it moving above resistance from the November high. Obviously, some follow through would be huge here. I currently hold all gold & silver miners (and have been adding them all in and around the painful grind of the last few weeks) in my greedy little hands. Some oil was distro'd here, some palladium there, but I am holding every gold & silver miner still. We have had a nice explosion off the bottom (the often noted XAU 131 +/-) and as I always say, a little profit taking never hurt anyone. I am holding (subject to profit taking perhaps down to the "core" one day), but you must do what you must do. The sector looks good, but nothing is a given. One other thought; given all the commodity bearishness not to mention the emails I got imploring me that gold looks bearish, do you think there are many folks taking notice and looking for a stop to get on the bus? I do. They can have my shares one day.

Other odds & ends:

*I talked to a commercial real estate agent yesterday. He said that valuations have not come off their highs and in fact due to the amount of money looking for commercial property assets, buyers are more flexible on terms of purchase. Does this sound like deflation to you? Mr. Greenspan's (and BOJ's, and hedge funds run amok, and.....) legacy may well be huge sums of digital liquidity (FrankenMoney) roaming the earth looking to turn itself into something real, something productive.

Here in the "productive" economy, we do not see anything unusual. While there are hitches and drags, things appear as they have been over the last several years; all systems go. But appearances can be one financial accident away from disappearance. Maybe as a child I was aggressively toilet trained** or something. But I cannot stop looking at that notion. Hence the ever-present risk management regime.

Best of luck and keep your had on straight. There is a lot of information flying around (at about the same velocity as all that FrankenLiquidity). It is a challenge to sort through it all.

** What, toilet training has no place in the serious realm of finance? ;-)

Gary Tanashian
http://www.biiwii.com/

Disclaimer: biiwii.com does not recommend that any trading or investment positions be taken based on views expressed on this site. If you speculate or invest it is suggested that you consult a financial advisor qualified in your area of interest.

Copyright © 2005-2008 Gary Tanashian

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