By normal standards the US equity markets are getting closer to a price high in the next week or so. I say this in the context of a bear market rally. However, in 2005 the market entered into a long term rally with consistently exuberant sentiment into the 2007 top. So we can't dismiss the bull scenario despite all the wretched news and fundamentals. The reason why is all that money creation throughout the world for the past 18 months. In the US much of it is sitting at the FED as free reserves of the banks. Trillions of cash that could be levered up 3-8 fold if the banks get more confident. Also don't forget that there are $2-$3 trillion in US money market funds similarly resting on the side of the playing field.
Given recent signs that Obama will emulate FDR and pack the Supreme Court and FED with personal loyalists, and given the prayers of all insiders that banks will finally do something with all that money, we could easily have a new bubble or three for no other reason than the fact that all that money is there. "Use it or lose it" could well become the mantra, or reality, of Obama and the FED.
"Using it" would be the inflationary breakout which many thoughtful people anticipate, and if some start diving in, they all will do so since cash is almost literally trash at close to zero percent. I've read some comparisons this weekend to the 1921-23 German hyperinflationary breakout. In 1921 one could buy a decent house for 500,000 Marks. In 1923 the same 500,00o marks would buy a loaf of bread....until it didn't. This isn't a prediction but a reminder that events can develop much more rapidly than we suspect. Most American observers are saying that we won't have significant inflation starting for several years, but sovereign debt fears can develop and play out quicker.
I am planning gold additions on a monthly or perhaps even a weekly dollar cost averge basis. Ideally one is lucky enough to do this into price declines, but I think it could be risky to wait for major pullbacks to buy more gold.
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