By Jon Nadler
Markets were down across the board as midweek trading unfolded overnight. Stocks, oil, the dollar, and precious metals all recorded small losses before the start of the New York trading day. What else fell? Well, home values in 80% of US cities, Russia's reserves, Yahoo's Jerry Yang, and Alaska's convicted felon Ted Stevens. At least GM didn't fall -as yet.
CPI and housing starts figures are expected today, and they are likely to land in the 'falling' column as well. More than likely. Otherwise, the newswires are suspiciously bereft of any juicy headlines that might get things moving with more resolve in the markets. Coverage is being given to Burger King cutting the salt in kids' meals and L.D. President Bush clearing the air traffic lanes for Turkey Day travelers.
New York spot bullion prices opened with gold off by $2.50 at $735, silver down 16 cents at $9.43, platinum unchanged at $830, and ditto palladium at $213 per ounce. The US dollar was a hair above 87 on the index, while crude oil fell 30 cents to $54.09 per barrel. Time to pull out the Sudoku page from the newspaper. Alternatively, one could study the third-quarter gold demand statistics. They are equally...puzzling.
Retail investors sharply increased their demand for gold bars and coins in the past few months as they struggled to find a safe place for their money amid the financial crisis, research shows. But institutional investors have kept the upper hand, according to Wednesday's report from the World Gold Council, a gold mining industry association.
Heavy selling by institutions has more than offset retail buying and pushed gold prices to their lowest level in more than a year. Moves by retail investors, including demand for bars and coins, resulted in a net inflow of 232 tons (7.46 million ounces) in the third quarter, compared to 105 tons in the same time frame a year ago.
On the other side of the tussle, some institution investors sharply reduced their gold holdings for much-needed cash in the face of the credit crunch. Institutional investment saw a net outflow of nearly 300 tons in the third quarter, according to the WGC, which more than offset the inflows in the retail sector.
Since we all know how wise conventional wisdom can be, we thought we'd bring you five things you may not have considered as we head into 2008's home stretch. Minyanville's Todd Harrison shines some light on areas that appear very dark these days and finds potential contrarian plays among them. And, yes, gold could be in there too. We think.
"Groucho Marx once said that he didn't care to belong to a club that accepted people like him as members. As the recession's ranks swell and desperation sets in, truer words have never been spoken.
The year 2008 will forever be remembered as the year the perfect storm finally arrived. The toxic combination of financial engineering, debt dependency and immediate gratification commingled like a clap of thunder on an otherwise sunny day.
The script played out precisely as written, although that hardly made it easier to digest.
We've long offered that time and price were the only true medicine for the cumulative imbalances that steadily built through the years. Much like a forest fire, the painful process of price discovery is a necessary precursor for fertile rebirthing and greener pastures.
With a conscious nod that the ultimate market bottom is likely a few years away as debt is destroyed and social moods shift, we wanted to share five vibes that could manifest into the year's end as conventional wisdom catches up with reality.
Reversal of fortune
As the world worried about inflation entering 2008, deflation was a central theme in Minyanville. We were early as the dollar dripped lower and commodities drifted higher into the summer.
Since July, the greenback has appreciated 21% vs. a basket of foreign currencies, and commodities are down an eye-popping 48%. All roads lead to deflation, we know, but the path of maximum frustration is often paved with detours.
Keep close tabs on the dollar, which recently registered several technical exhaustion signals. If it reverses lower, it'll pave the way for commodities to enjoy a spirited counter-trend sprint.
I took the one less traveled by, and that has made all the difference.'— 'The Road Not Taken,' Robert Frost
Retail therapy
We suggested in August that retail therapy -- or, the need for retailers to visit their therapists -- would be necessary as we edged toward the holiday season. Since that time, Sears Holdings Corp. has lost 70%, Target Corp. is off 45%, Amazon.com Inc. is 60% lower and Home Depot Inc. has taken a 30% haircut.
There's no denying that the consumer is on the ropes and spending is on sabbatical. That's front-page news, however, and the market rarely rewards the obvious, if only for a trade.
Seismic readjustment
Equilibrium between asset classes is askew as evidenced by insane volatility in equities, credit, commodities and currencies. Some analysts believe that given the current state of credit, fair value on the S&P 500 Index is close to 600. In a finance-based global economy, further dislocation could conceivably lead to social unrest and geopolitical conflict. Remember, world wars are historically bred from economic hardship.
We may witness a grand scale asset-class readjustment. Potential scenarios include wiping the speculative CDS slate clean (contracts not backed by underlying collateral), massive revaluation (yuan), the introduction of a "convertible currency" or crude being denominated in something other than dollars.
