November 6th,, 2009
THESE MARKETS
REQUIRE A LEAP OF FAITH. QUESTION: HOW BIG A LEAP ARE YOU WILLING TO
TAKE?
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Yesterday, Friday, November 6th, the
US unemployment rate came in at 10.2%
which put the US jobless rate at the highest
since 1983, a 26 year record - more than a
quarter of a century. Total jobs lost since the
there recession began amount to 7.3 million.
We understand that the jobless figure
is a lagging indicator; but, for those who do
not have a job, it is not so "lagging."
As we have commented for a number
of months now the rate of the economic
decline has been slowing and has actually
been improving in some areas. The economic
numbers for the third quarter showed
relative improvement, but a large portion of
the improvement was as a result of
government stimulus such as "Cash for
Clunkers" which pulled a significant number
of future car sales into the third quarter.
The outlook for the economy
continues to be most difficult if not impossible
to assess. That is why the Federal Reserve
Bank is keeping interest rates at virtually
zero. This last week it implied that the rates
will be kept at these levels for as far as the eye
can see.
People are hoping that the economy
has bottomed out and are looking for
improvement. There again, however, the
question is whether a recovery would look
like a V, a U or an L. It could look like an L…
or a W. Presently the market at current levels
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is pricing in a
major V type of recovery. If the
recovery is mild and extended, we do not
believe the present levels of stocks will be
sustained although the stock markets’ recent
gains have been most impressive and are
most welcome.
Later on the morning of the record
10.2% jobless rate (officially unemployed
Americans amounted to 15.7 million) gold
reached a record high of $1,101.90 largely, as
we have said on many occasions, due to the
continuing weakness in the US dollar.
The following is a quote on November
6th from the Bloomberg financial service:
Gold Jumps to Record Above $1,100 on U.S.
Interest-Rate Outlook
2009-11-06 15:23:15.990 GMT
By Pham-Duy you Nguyen
Nov. 6 (Bloomberg) -- Gold futures jumped
to a record, topping $1,100 an ounce, on
mounting speculation that low U.S .borrowing
costs will drive the dollar lower, boosting the
appeal of the precious metal as an alternative
investment.
The metal reached $1,101.90, heading for a
ninth straight annual gain. The dollar is down
7.1 percent this year against a basket of six
major currencies as the Federal Reserve keeps
its benchmark interest rate at zero to 0.25
percent to revive economic growth.
“Until Washington stops exploding the
deficit, the dollar will continue to weaken, and
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gold is going higher,” said Tom Pawlicki, an
analyst at MF Global Ltd. in Chicago.
Gold futures for December delivery rose $8,
or 0.7 percent, to $1,097.30 at 10:20 a.m. on
the Comex division of the New York Mercantile Exchange, climbing
for the fifth straight day. Before today, the price gained 23
percent this year.
Richard Russell in his Dow Theory
newsletter wrote in part:
Our creditors are not stupid; they see
that US liabilities are rising into the trillions of
dollars. We can't address our liabilities with
higher taxes, we can't renege on our debts, and
we can't put them off to another decade. The
only solution is to devalue the dollar. It's the
tried and trusted "US way." Our creditors "get
it," and they are moving to rid themselves of
dollars. Spend them on something of value
such as assets in the ground, buy real estate in
a favored area, or swap dollars for gold. But
there's another long-term solution out of the
current mess, come up with another currency,
or a basket of currencies. Sad, but it turns out
that the US dollar as the world's reserve
currency was a bad idea.
Gold no longer moves opposite to the
dollar. Today the dollar was higher and gold
was also higher. Gold is now acting as an antifiat
currency. Gold is now serving as an
alternative currency, and it's moving up
against almost all central bank-created fiat
currencies (which is why the central banks
hate and fear gold). In rising, gold is giving the
"middle finger" to all central banks, and of
course, their business is fiat currency, money
which is backed by nothing except the word of
politicians.
On November 3rd it was announced
that the International Monetary Fund had
sold 200 tons of gold to the Reserve Bank of
India for $6.7 billion. “Central banks in India
and China will be happy to accumulate gold at
these levels. I will not be surprised to see even
some Southeast Asian banks buying gold,"
Aaron Smith, head of the $1.65 billion
technical trading find Superfund, told Reuters.
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Connect the dots. As long as the
economy is weak, unemployment will remain
high. As long as employment is high the
government will attempt to stimulate the
economy by spending more money. As long as
more money is spent the Federal Reserve will
supply it (paper money) at extraordinarily
low rates. As long as rates are extraordinarily
low, the dollar will weaken versus other
currencies, tangible assets, commodities and
gold. A weak dollar looks good to some in the
short term as America's exports become more
competitive at lower dollar prices. But it
cannot be sustained. There comes a point
when others won't accept a devalued
currency which is only paper (fiat money)
that represents the promise to pay the bearer
the face amount of the note. As Russell said:
"Our creditors are not stupid." They have
been and are right now swapping their
dollars for tangible assets such as oil, copper
and gold and stocks of companies owning
those assets. The same is happening in the
case of the euro, the pound and the yen.
We hope these comments shed a bit of
light on the dynamics affecting the stock,
bond and currency markets. The value of our
currency affects our lives in innumerable
ways. Always has, always will.
John W. Hamilton
November 6th, 2009
John W. Hamilton
jwh@hamiltonadvisors.com
Deborah J. Hamilton
djh@hamiltonadvisors.com
J. Brock Hamilton
jbh@hamiltonadvisors.com
WEB SITE
www.hamiltonadvisors.com |
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PRIVATE WEALTH MANAGEMENT SINCE 1980 |
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This article contains the current opinions
of Hamilton Advisors and does not represent a recommendation of any
particular security, strategy or investment product. Such opinions are
subject to change without notice. Information contained herein has been
obtained from sources believed to be reliable, but is not guaranteed.
This article is distributed for educational purposes and should not be
considered as investment advice or an offer of any security for sale. ©
2009 Hamilton Advisors, Inc. All rights reserved. Tel: 203 629 1112.
Fax: 203 629 1469
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