Author: Peter Kurata
Covestor model: CANSLIM
Disclosure: No position in GLD or SLV
Federal Reserve Chairman Ben Bernanke uses the rising stock market as his barometer for the success of quantitive easing. He also doesn’t think inflation is a problem, but the charts show otherwise. The S&P GSCI Agricultural Index has jumped 70% from 9/16/09 to 2/24/11, while other S&P indices tracking energy, livestock, and precious metals are also up 30%-40% during this period (see chart; data: StockCharts.com). It is widely known that the government does not include food and energy in its official inflation figures, but in real life most of us are experiencing “pain at the pump” and “pain at the supermarket.”
Inflation is one thing, but the double whammy that is really hitting our pocketbooks is devaulation of the U.S. dollar. This can be difficult to see, unless you’re traveling abroad and experience just how little the dollar buys these days. China, France, and the International Monetary Fund have noticed, and have all commented on replacing the greenback as the world’s reserve currency. President Obama’s budget announcement on Valentine’s Day almost ensures further devaluation with an all time record of $3.8 trillion in projected spending for FY2011, with just $2.2 trillion projected revenue for this period. This could potentially double the national debt in the next five years and triple it in the next ten.
It’s interesting how stocks and ETFs seem to forecast the news, as GLD (SPDR GOLD Trust) was near a buy point and SLV (iShares Silver Trust) was breaking out of a cup formation around President Obama’s budget announcement. GLD now appears buyable on the technicals. SLV, the ETF which tracks the price of silver, broke out of a cup formation around mid-February and now appears an attractive buy as it pulled back to its breakout price, down to the 20-day SMA. (see chart; data: StockCharts.com)
The overall investment environment remains volatile and difficult. The current rally started in November and is showing signs of tiring. Many light volume days up combined with dramatic down days have been characteristic, so we’re remaining patient and careful.
Sources:
S&P indexes and GLD/SLV pricing: StockCharts.com
“A Cheat Sheet for Obama’s Budget” Damian Palleta. Wall Street Journal, 2/11/11. https://blogs.wsj.com/washwire/2011/02/11/a-cheat-sheet-for-obamas-budget/
