The Irrational Market

 

Fed governors were out in force yesterday, expressing dovish comments on rates. Dallas Fed President Richard Fisher said economic growth and inflation may both be weak into 2011. San Francisco Fed President Janet Yellen started talking about a “jobless recovery” like the one we had back in 2002-2003, and Atlanta Fed President Dennis Lockhart sees a “relatively subdued pace of growth” this quarter and beyond.
All this means one thing – interest rates aren’t going anywhere soon.
And right on cue, gold hit another new high at $1,118 an ounce. I know not many investors think of the move in gold as a bubble, but that’s really what’s going on. There’s no inflation in sight. But low rates are so deeply associated with inflation it’s practically a given in investors collective consciousness that hyper-inflation is right around the corner…

Front-Running the Fed

 

The Fed is playing an interesting game. One the one hand, rates must remain low to fight deflation, encourage borrowing and keep the economy moving slowly forward. On the other hand, rates must eventually rise, but the Fed is also terrified about a steep sell-off in the stock market. Not only would a sell-off undermine consumer confidence, lower stock prices might leave banks in a precarious position due to toxic assets still on their balance sheets.  
We’ve talked in the past about how confidence is critical for economic growth. Fed Chief Bernanke and the current administration are both well aware of this. And they are doing their level best to keep confidence high…

 

Continuing to Find Opportunity in China

We’ve landed in Xi’an, one of China’s biggest cities.  Not long after touching down, we connected with my brother who flew in from Chengdu.  He’s been living there for over a year now.

Xi’an appears to be undergoing continuous growth. No matter where you look, you see cranes in almost constant operation. Old buildings are being taken down and replaced with new ones. Much of the new construction is designed to look like the old, both inside the walled city center and outside of "downtown" near our hotel. Even the strip malls are built to look as though they are 1,000 years old.

High Savings Rate in China Actually Hurts the Chinese




I hope you’ve enjoyed my running commentary on China over the past few issues. These "travel pieces" provide the opportunity to step back from the daily action in the market. It is always important to take a moment to consider the macro-trends that are playing out around the globe.

I find the cultural differences between the U.S. and China fascinating. And I also believe that by gaining an understanding of the Chinese culture, and the perspective of its people, we will become better investors in Chinese companies.

Collision Course With Dow 10,500 Won’t Be a Straight Line

Intel (Nasdaq:INTC) reported excellent earnings last night, as I expected. The chip-maker beat on revenues and earnings per share. The stock is up close to 3% in the early going. That’s because Intel’s results weren’t exactly a surprise. During its mid-quarter update, Intel said the quarter was looking good. And the stock ran from $19 to $20.50 over the last few days. And as of press time it’s at $21.00.

Intel’s earnings are especially important because the company beat revenue expectations. As we know, investors want to see revenue growth. Costs have been cut, and if the economy is truly turning around, sales should grow.

US Mint Suspends Gold Coin Production

U.S. Mint Suspends Gold Coin Production
I could hardly believe the headline when I read it, but it’s true.
After a little checking around I found the official release from the U.S. Mint:"…Because of unprecedented demand for American Eagle Gold and Silver Bullion Coins, the United States Mint suspended production of 2009 proof and uncirculated version of these coins…"

Dollar Index and the Rally

There should be no doubt that the Cash for Clunker Stock Rally is directly related to the relative value of the U.S. dollar. Please note the strong support at 76. Also note that the dollar rallied hard from 76 starting in September 2008. That was when Lehman collapsed and money rushed for the safe haven of Treasuries.