Dow Casts a “No Confidence” Vote – Nov 9, 2012

Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

Dow Casts a “No Confidence” Vote

Obama’s victory, and all that is assumed to accompany it, did not come as welcome news for many. The “fiscal cliff,” Obamacare, the Frank-Dodd Act, and the already impending recession (believed to be at least somewhat avoidable with a Romney victory) weighed heavily on the marketplace – despite the usual cries for more QE. Stocks fell sharply across the board, while Treasuries, the dollar, and the metals rose (See box scores).

As for the metals, we’d like to have seen higher upside volume before declaring a long-awaited breakdown in their correlation with stocks. Nonetheless, watching the broad view of metals change from “risk on” to the much more appropriate “safe haven” was the most encouraging event witnessed this week.

That said, it’s pretty clear that America has tipped in favor of socialism, where the few provide for the many, and growth and incentives to succeed are greatly diminished. The tragic reality of socialism is that the poor get poorer even as they are fed the lie that they will be made richer by taxing the “wealthy.”

Regardless, this is what America has chosen – at least until financial, social, and economic cycles have run their course. With that caveat, we are implying that a silver lining may exist: Drawing from the thoughts of Margaret Thatcher, the US government may already have run out of other people’s money – hence the “fiscal cliff” talk by the MSM and the nervous action in the market this week.

Away from the US, European and Asian markets traded in sympathy with ours. Greece approved a $13.5 billion austerity package to qualify for EU bailout funds. Riots ensued. Germany is finally feeling the pinch of its fallen neighbors as factory orders plummeted 4.7% YoY, while the UK reentered recession one month after it declared itself out of the woods.

Meanwhile, China may not be purchasing as many US dollars in the next five years. The new leadership under Xi Jingping vowed to steer China away from export-dependent industry and toward internally driven consumption – a goal that it may achieve, if only for a short while. Regardless, the effort itself may have a negative impact on US interest rates in years to come.

One final observation for would-be gold investors who are still on the fence: The metals saw a decent bounce in the face of dollar strength this week. This isn’t the first time this has happened, and we suspect it won’t be the last. With both European and US officials eager to inflate, gold should continue to appreciate relative to both of their currencies. To put that in perspective, the dollar index currently trades at 81 and change. It traded at that same level in January of 2011 – but gold at that time was 300 points lower.

Food for thought.

Best regards,

David Burgess
VP Investment Management
MWM LLLP

2014-10-02T18:24:03+00:00