Extreme Wild Cards
Stocks were up over 100 points today on the home sales news.
Bonds, oil and gasoline went sideways.
The Dollar fell over one cent against the Euro – but basically the Dollar is in a sideways trend within a two cent trench.
Gold jumped again today significantly. It started going up late Sunday night, and kept going up until New York opened, and then started a down trend. The NEW HIGH for the inter-day was $1174 – WOW!!!! No one can predict this market as it is in new territory – never before plowed. The news (don’t believe the news – or at least heavily question the news) says that Gold went up because the Dollar went down. Phewie!!!! The Dollar has been going no where for the last 2 weeks as Gold has gone straight up.
In the news today……
Home Sales – rose 10% in October over September. This is great news in that knocking down the housing inventory is what it’s all about. Don’t forget the other side of the coin – the government is interfering with this market by having its $8000 incentive program for first time buyers. Also, don’t forget the overhang of delinquencies out there today as more people are losing their job. All in all – this is good news.
Credit Card Delinquencies – fell in the 3rd Quarter. This is also great news, and probably being caused by the increased savings rate in the US. People are more aware of being ripped off by credit card companies, and are paying off their debts (in general), rather than buying more stuff. Why am I reporting on this? If the credit card default were rising, it would be another shoe to drop in the future. First the housing debacle, next the commercial real estate meltdown, and then credit card company defaults – that could cause our economy to come to another halt. Let’s not hope for that. However, it is worth keeping your eye on this statistic in the future.
Bank Credit Ratings – are not solid as the amount of capital required for each of the major bank’s holdings don’t meet requirements as per the credit rating companies. Most banks don’t meet the standards – and this is what I have been warning over the past year. While banks are not in trouble in today’s environment, they are vulnerable to any economic turndown. Worst US bank = Citibank. Best US bank = Goldman Sachs. No surprises there.
Gasoline – prices are rising, or maybe they are leveling off right now across the US. What’s really happening with prices? Did you know that we have a glut of gasoline in storage tanks in the US? Did you know it’s at a record level? Do you think that supply is high, and demand is down (less people with the money to fill their car so frequently)? Would you think that prices should be falling? You would be correct to think so. But, instead, prices have been rising? Why? Because the gasoline market, just like the oil market, is run by speculators. Isn’t the government supposed to protect the consumer for speculators being able to “control” a market? I thought so. But, the facts speak for themselves.
Tonight’s Dinner Conversation….
Wild Cards – these are events that we generally don’t acknowledge in our investing decisions. But should we? That is the question for tonight. Here is a good article on the subject.
15 extreme risks are ranked in order.
They were economic depression, hyperinflation, excessive leverage, a currency crisis, a banking crisis, sovereign default, climate change, political crisis, insurance crisis, protectionism, disunity in Europe, the end of capitalism, the end of fiat money, war and a killer pandemic.
Of its top risk, economic depression, the firm said that while the immediate threat appeared to have been reduced by government action, there was now little governments could do if demand dropped again.
The risk from climate change, meanwhile, was anything from flooding to reduced agricultural output and countries in conflict over diminishing resources.
As for disunity in Europe, that the potential for the break up of the euro zone, a major threat to foreign lenders.
WHERE TO INVEST
But all would not be totally lost for investors if some of these extreme risks did come to pass, according to the study, with Watson Wyatt offering potential hedge positions.
Economic depression, for example, could be offset to some extent with globally-diversified long-dated sovereign nominal bonds. (My opinion is that bonds are a a good hedge against depression, but our current future appears to be more inflationary than deflationary – so I would not recommend bonds as I expect interest rates to increase in the mid-term.)
Gold, which is currently at nominal record highs, was a hedge for a range of threats, including hyperinflation and a currency crisis, while going long pharmaceuticals/short airlines was seen as combating investment losses from a pandemic.
Not everything was hedgeable, however, including climate change and political crises that led to the rise of extremism.
As for the end of capitalism, Watson Wyatt said gold was the best holding, but admitted that in such circumstance “investors should probably worry more about the return “of’ their investments than the return ‘on’ their investments.”
Here are the last numbers for today:
Dow Jones 30 Industrial – 10,451 (up 133 points)
10 Year Treasury Bond – 3.36% (up 0.01%)
Euro – $1.4964
Gold – $1164 (up $18)
Oil – $77.69 (up $0.22)
Gasoline – $1.98 (no change)
