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.
It’s not. Not while the broadest measure of unemployment is at 17% of the US workforce.
Even the US dollar relationship with gold is tenuous. The US Dollar Index was up slightly today, along with gold. And you might have notice that the dollar’s plunge over the last few days didn’t ramp oil prices significantly, too. And why isn’t silver running?
Gold prices are rising because gold prices are rising. It’s a self-fulfilling prophecy. And that, ladies and gents, is the very definition of a bubble. Cheap money is going into assets. Stocks, oil, gold – the flavor of the day might change, but the direction won’t change soon.
*****Buying into a gold bubble might seem like a bad move. But it could be argued that every significant move for gold over the last 30 years was a bubble-type move.
The reality of a bubble is that they often push prices ridiculously high. It happened to Internet stocks, it happened to oil stocks, it happened to Chinese stocks, it happened to commodity stocks, it happened to home prices – I could go on.
And the thing is, fundamental investors see bubble-like moves and think a bust is imminent. A bust will indeed come, but it’s not always imminent. In the immortal words of John Maynard Keynes – “a market can remain irrational longer than you can remain solvent.”
Gold’s got a great chance to put in some irrational highs. You can get my top 3 gold mining stocks HERE. One of these is up 28% in the Top Stock Insights portfolio and is headed higher.
*****Shipping stocks are moving strongly higher today after strong earnings from Genco Shipping (NYSE:GNK). Some of my subscribers had the opportunity to make 65% on Genco earlier this year.
Also helping shipping companies is the recent sharp move higher for the Baltic Dry Index (BDI). If you’re not familiar with this index, it’s a measure of shipping rates for dry bulk shippers. The BDI is a great leading indicator for global growth, because as demand for goods increases, so does the demand for raw materials. And that means shippers can charge higher rates to deliver raw materials like iron ore or copper.
Just a week ago, I added a liquefied natural gas shipping stock to the Top Stock Insights portfolio. Members are already up 5% in a few days, and it looks like more gains are coming as shipping stocks rally. Gold, shippers — Top Stock Insights is hitting on all cylinders right now. For more, click HERE.
*****Finally, we’re also seeing a surprising move in homebuilders today. Toll Brother (NYSE:TOL) said orders rose an amazing 42% in its fiscal fourth quarter. The stock is up 17% today.
This is really unexpected news and I won’t be surprised to see more gains in the builders. Daily Profit readers made some money buying Hovnanian Enterprises (NYSE:HOV) at $1.90 back in the spring. The stock has been consolidating around $4 since August and it looks like it’s just starting a breakout move higher. It could hit $5.50-$6 a share in the near future.