Gold: Bursting Bubble?

Following an impressive 20% gain in just 2 months, gold has dropped $100/oz in the past two weeks. I've seen a number of pundits come out recently stating that gold prices are much too high, gold is a bubble, and/or a significant decline is coming. Some of these comments are coming from the very individuals who've tried calling the top in gold a number of times over the last 5 years, during which time gold has appreciated 200%. Compare that return to the stock or bond markets.



Looking below at the 10-year chart of gold you see price action typical of a long-term secular bull market. Sharp climbs are followed by some retracement and consolidation. This 9-year (so far) bull market has experienced a number of year-long periods of stagnation or decline. The fact that we're experiencing some profit taking after the recent run shouldn't surprise anyone. This is normal and healthy.



So is the current decline a temporary shake-out of weak hands, the beginning of a more significant decline, or the beginning of a period of extended consolidation? Only time will tell, but it's unlikely that the secular bull market in gold has just seen its peak. We've been using the current pullback as an opportunity to once again boost our exposure.

Until the trend of global monetary and political mismanagement is convincingly reversed, there is little reason to sell our precious metals position. Annual gold production has been in decline this decade, central banks will soon be net buyers, the opportunity cost to owning gold is nil, gold is terribly under-owned, the metal is very cheap relative to the monetary base, and the public is just beginning to wake up to the merits of owning gold.

I find gold as attractive today as I did in 2003, although the investment case has changed somewhat. My contrarian nature struggles somewhat with the tremendous performance gold and gold stocks have already posted and the fact that gold is no longer hated and undiscovered. Nevertheless, the investment case remains strong, and there is a very decent chance that a mania phase still lies ahead. I suspect the time to sell will be when virtually everyone can quote you the price of gold.





link to video

---

The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Unemployment Insurance Follow-Up

Here's the latest example of the insight one can gain from watching CNBC. The relevant part of the video begins about 2:30 into the clip. Note that Steve Liesman is CNBC's Senior Economics Reporter. Remember that. Senior. Economics. Reporter.

link to video


CNBC's Senior Economics Reporter is completely unaware of the existence of the Emergency Unemployment Compensation (EUC) program. I can understand not being able to rattle off the latest EUC figures from memory, but he doesn't even know the program exists. Perhaps Obama's jobs program could include fact checkers for CNBC.

Here is the link to the latest weekly report. Look at the last row of the table. Granted, the number isn't emphasized in the report, but it is mentioned near the bottom of the text and in the table. I suppose it's unreasonable to expect a Senior Economics Reporter to read beyond the first paragraph.

---

The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Unemployment Claims

Despite the improving trend of initial unemployment claims (still at very high levels), little attention has been paid to the escalating number of people who are exhausting their benefit and falling into the Emergency Compensation category. Although the government is likely to indefinitely extend these Emergency benefits, recipients aren't likely to be buying plasma TVs, new homes, cars, iPhones (just kidding - they'll still buy their iPhone), name-brand canned goods, teeth whitener, etc.


From ZeroHedge:

The number you won't hear mentioned anywhere in the Mainstream Media: 327,729. That is how many people shifted to Emergency Unemployment Compensation programs in the last week alone, hitting an all time record high of 4.2 million! So as everyone is focused on the benign picture of initial claims in the last week which was "only" 474,000, the number of people rolling off continuing benefits has exploded and is now a stunning 592,579 only in the last two week.

link to full post

---

The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: David Stockton

I found today's QOTD in the latest copy of my undergraduate alumni magazine. The magazine ran an article on alumnus David Stockton who is the director of the Federal Reserve's Division of Research and Statistics. Before getting to the key quote, let's look at the article's description of David's responsibilities.

..Stockton oversees one of the world's largest economic research teams -- approximately 290 economists, financial analysts, computer scientists, research assistants and other personnel. Stockton and his staff sort through and interpret information streaming from the country's financial markets each day. One of Stockton's primary responsibilities is presenting periodic economic forecasts to the Federal Open Market Committee (FOMC) on job losses, housing wealth and business spending.

You won't find many people with greater access to economic and financial data than Stockton. The article quotes Bernanke as saying that "David's wise counsel, keen insight and deep knowledge of the economy have proved invaluable to me and the other members of the FOMC through the years, but most especially during the recent time of financial turmoil."

Now to the QOTD from Mr. Stockton:

What economists don't know about how the economy operates dwarfs what we do know. Our research program is intended to chip away at the margins of our ignorance.

I had a mixed reaction when I read this. On the one hand, it's very refreshing to have one of our leading economists so clearly state how little the Fed really knows about how the economy works. On the other hand, it's very disturbing to have one of our leading economists essentially admit that the Fed has no sound basis for its monetary policy.

If economists and the Fed don't really understand how the economy operates, how can they possible presume to know where short-term interest rates should be set?

The Fed's track record this past decade is abysmal. Artificially low rates helped fuel the internet bubble and the housing/credit bubble. Now, the Fed is again keeping rates absurdly low and is again fueling the next crisis. All of this is being done within "the margins of our ignorance."

---

The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.