2009

February 26, 2009 · Posted in Weekly Posts · Comment

There is a lot swirling in the financial world this week so let’s get to it!

We have published two new Members Only posts covering the recent action in Gold and Bonds. As readers know, the action in these two markets, together with the US dollar, form the crux of our investment thesis for the near future. This weekend we will review again our fundamental thesis as we have a lot of new members.

Gold Update 02/26/2009 and

Bond Update 02/26/2009

Before we get into talking about the markets some administrative words.

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So come on Murdock Global Insight readers - comment!!!!

On to the markets…

While we have stated many times that the US equity markets are fundamentally impaired due to the credit crisis we need to look at the S&P as its trajectory will impact the bond and gold markets as well as the dollar.

SPX 02/26/2009

This is ugly. From a technical standpoint the best you can say is that it is crunched up against the lower Bollinger band and so may stabilize for a few days but frankly this market looks to be headed lower. There are a good many folks out there arguing that this is, again, the buying opportunity of a lifetime. We have heard this multiple time s during this crisis. One day it will be true. We don;t think it is now though. Economic conditions are getting worse globally, not better. Companies like Apple that are sitting on huge cash hoards look attractive to many but keep in mind, they are operating in a very broken economic environment. If they maintain that cash hoard till recovery starts or use it well to acquire great new technologies then they may do well. But what impairments does Apple have or will have? At what point does unemployment get to a level where no one with a job wants to spend any money on a new gadget? We don’t have the answer and neither does Apple.

Something else to think about is an article that came out today in the Financial Times - our favorite newspaper. The article by Peter Bernstein quoted recent data that showed the S&P 500, on a total return basis, has now underperformed treasury bonds for the last 5, 10, and 25 year periods and by a substantial amount (though Peter does not specify the amount). That is what two big bear markets in less than a decade do to you. What this means is that there has been a fundamental shift in the underpinnings of US equities and the theory that long term buy and hold in our market will reward the investor. In reality, that model is now broken. Last century belonged to America. This century is still up for grabs. The market’s under performance should be a wake up call that things have changed in our world.

We mentioned before that the Yen had lost its reserve currency /safe haven status rather abruptly and is now headed for a long slide with respect to the dollar. Japan in fact is now running a trade deficit as their exports have collapsed nearly 50%. looking at FXY below as a proxy we see the precipitous fall recently. The rise in 2008 was the reverse of the Yen carry trade as money lent in Japan and invested overseas was repatriated as part of the global de-leveraging process.

FXY 02/26/2009

FXY Yen Index wrt US Dollar 02/26/2009

But if one also looks at the short US dollar Index UDN, we would expect to see a big drop signalling a flight to quality we see that while the Yen has plummeted nearly 10 % in the last two weeks the US dollar index has remained relatively stable. What gives here? We are unsure but this behavior would be consistent with our thesis that global investors will flee currencies that they believe are damaged and eventually, after sufficient fleeing has occurred, bring their money home and park it in local hard assets or precious metals. The Yen’s fall has not engendered a dollar rise yet. If you buy into the safe haven argument the US would be the natural place for the funds to flow. No, it seems we are seeing something else at work and as we show in our Members Only Bond update, there are concerns rising around the world about the stability of the US dollar and our potential for default of sovereign debt.

US Dollar Index Bearish 02/26/2009

Finally, the first budget of the new administration was released today. Murdock Global Insight is not about partisan politics so we will look at the budget plan with a view to how it impacts our long term, fundamental thesis. We should have this post out sometime next week.

Coming Up:

We will have our weekend wrap-up out sometime Sunday probably and will upadate the bond and gold markets for Members. Our weekend update will include a review of our investment thesis for those who are new to the site.

We recently published two additional Members Only posts.

The first is “Gold In Depth” where we look at the health of gold’s bull run and examine in detail the risks gold investors need to be aware of

The second post is an “Update on China” as a lot has happened in the past two weeks.

We have recently published two additional Members Only Posts China: Part 1 dealing with how to time the entry point into the Chinese equity market and China: Part 2 dealing with the interaction between China and the US in the areas of bonds, the dollar and inflation.

We recommend the following posts as especially relevant at the moment:

China: Part 2 - Bonds, Dollars, and Inflation”.

“The Fed and The Bond Market - Will Intervention be Effective?”

“The Coming Bond Debacle”

Fundamental Trends

“How a Reserve Currency Collapses”.

“Gold - Reluctantly”

“Why is the Dollar Going Up (and When Will it Stop)”

To view previous Members Only posts simply follow the instructions under the “Become a Member” tab and select the “One Month Free Membership” when you get to the Products page. You must complete the checkout process in order for the Membership to complete. Registration is not sufficient. You are under no obligation to continue beyond the One Month Free Trial and your e-mail and address will not be shared with third parties.

We are entering a critical period of time in the bond and dollar markets staying plugged into what is happening and the likely ramifications is especially important now - stay informed with Murdock Global Insight.

We hold the following positions as of 02/26/2009.
Short Treasury Bonds through PST and TBT*, **

Long gold and silver bullion through CEF

Double Long Gold ETF DGP
Long gold mining stocks through TGLDX
Short US dollar through UDN**
Long Australian dollar through FXA**

*ProShares leveraged short ETF. Investors need to understand thoroughly the risks associated with these leveraged products in light of their personal investment needs and risk tolerance. They may not be suitable for all investors.

** Position is currently in loss but we are sticking with it as we believe the fundamentals are in our favor.

+ Reduced today due to weakness. Fundamentals remain intact.

++ Added 02/18/2009