The Quiet before the Storm

By: Ed Bugos | Thu, Apr 26, 2001
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The US Treasury (Bond) market is ready to submit to the inflation argument, the gold price is about to reveal a physical shortage of gold as well as a crumbling global monetary order, the strong dollar policy is about to have the rug pulled out from underneath it, the blue chip end of the stock market is now precariously close to the precipice, and commodity prices appear to be revved up for another good leg. That is the point we've arrived at… but it's really quite quiet out there.

The Buying Climax
Forget about the managed slowdown hypothesis, or a return of the goldilocks theme, or a resumption of the new economy. Let's consider the now discredited "V" shaped recovery.

Why wouldn't last week's Fed inspired Dow Industrials reversal, for instance, foretell a reversal in fortune for the US economy? Well, first, the rally itself is not likely a reversal. It was a clear-cut buying panic in a bear market. A buying panic in a bull market is one thing - it is usually motivated by the fear of missing out on a good thing. But that isn't what seemed to occur here, last week.

For one, since it is a bear market the panic buyers were probably the professional shorts, hedge funds, and fund managers either locking in profits, preventing an erosion of capital, or liquidating their risk insurance, respectively. The point being that they were motivated by the fear of capital loss, not of not making enough of it. Nonetheless, a panic is a panic, and it is more often followed by reversal than continuity. Besides, since when does a government intervention, alter the primary market trend?

Still, what if the market is beginning to discount changing underlying fundamentals that are already turning bullish for the US economy? Indeed, what if the economy is picking up momentum now? But where would it come from? The consumer is showing signs of fatigue, the business sector appears to be over invested in the wrong places, which might account for the rapid slow down in capital expenditures that the FOMC refers to in its last policy statement, and lastly, there must be a drag on the US economy through trade - due to a strong (expensive) dollar, by this point.

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Ed Bugos

Author: Ed Bugos

Edmond J. Bugos
GoldenBar.com

Ed Bugos is a former stockbroker, founder of GoldenBar.com, one of the original contributing editors to SafeHaven.com and former editor of the Gold & Options Trader. He continues to publish commentary on market and economic trends; and provides gold, economic and mining research to private clients worldwide.

The editor is not a registered advisory and does not give investment advice. Our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While we believe our statements to be true, they always depend on the reliability of our own credible sources. We recommend that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

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