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

Risks Continue to Build — Stimulus Bets Increase

Geopolitical risks overseas had a chance to cool off, if even just for a moment, which gave the markets a chance to redirect their attention to current economic issues. On the whole, the numbers were not especially flattering. US retail sales showed absolutely no improvement, registering 0.0% growth for July, which, if you recall, followed a rather bleak June increase of 0.2%. That data point alone sparked a decent week-long rally in U.S. stocks based on the notion that the Fed would soon increase liquidity to the markets and abandon its tapering plans. European stocks marched to the same tune when contracting French and German GDP figures spurred hopes for additional ECB stimulus.

Screen Shot 2014-08-15 at 5.03.15 PMNews of Walmart’s sizeable reduction to forward earnings and Cisco’s laying off of 8.0% of its workforce may have helped reinforce the Fed “put” rally in stocks, but, for the most part, it seems the market was happy to treat these events as isolated incidents. Treasuries and German Bunds also rallied nicely, whether on the prospects of more stimuli or economic weakness isn’t certain at this point. But the Bund yields fell below 1.0% for the first time ever.

It wasn’t long ago that speculators and/or the MSM were boasting about Fed successes such as its tapering and subsequent fantasy about a self-sustained economy. Now all that seems to be unwinding, though it is in the early stages. Denial is still strong among speculators bent on gaming stocks higher, thanks to the overall success that financial engineering has had on earnings, among other things. But as we transition back to some form of reality, distorted as it may be, markets still have the potential to act strangely and/or in volatile fashion.

This may explain why gold fell, for no reason that we could see. It could be said that gold was hanging on the 50-day moving average, which rendered it vulnerable to an upswing in stocks. That may very well turn out to be just noise. Gold dipped below, but then managed to rebound slightly above, the 50-day moving average before the close in Friday’s trade. What’s more, COMEX physical gold inventories spiked higher once again to 9.83 million ounces (up from 9.127 the week before).

Best regards,

David Burgess
VP Investment Management