Joseph A. LaVorgna, the Chief US Economist of Deutsche Bank, asks the question: "Can Inflation Go Up but the Fed Stay Measured?" He answers “yes,” because the inflation measure that Greenspan favors is focused on the core PCE deflator.
Core CPI Runs Ahead of Core PCE
Source: DB Global Markets Research
LaVorgna argues the core PCE is an implicit index — its weights change based on changes in consumer buying patterns. When prices rise, consumers tend to find lower priced substitutes and these substitutions help keep inflation down.
This is quite revealing of economists in general. Somehow, he omits to mention what one substitutes for gasoline, heating oil, milk, college or health care.
Quote of the Day
"There are many groups in contemporary society who find it in their interest to promote fears. A free society, a free press, has a lot of good features, but giving you an accurate view of the world is not one."
Once again, guest poster Rob Fraim delivers some market related humor:
Back in the 19th century when I started in this business I had to go to the company home office for several weeks of training. On one of the final days all of the rookie brokers were required to make a presentation to the class – a speech regarding the business, goals, aspirations, motivation, blah, blah.
“Since so much of the new-guy training back at the firm where I started in the business was about sales stuff (rather than teaching us anything about investing) I wrote a song. I had my guitar with me and so instead of giving a yada-yada speech I sang my song.”
Cold Caller Blues lyrics:
This may have gotten overlooked last week — if you follow currency, sentiment, or precious metals, its an interview worth reading.
Let me once again mention that the Online WSJ is well worth $40 a year — and it also includes access to Barron’s.
Here’s an excerpt of the interview:
Gold prices have surged 50% since early 2002 to more than $450 an ounce, and some market watchers are brazenly slapping a $1,000 price target on the metal for the near future.
That crystal-ball forecast seems heady. But John Bridges, a senior gold analyst at J.P. Morgan Chase & Co. since 1995 and author of "The Golden Goose" newsletter, says gold has already hit that level — even passed it — when adjusted for inflation. But he still has "problems with gold as an investment."
And it’s not all about the flailing dollar. Other factors, some real (supply-and-demand) and some eccentric (Indian thoughts of the afterlife) are playing a role, says Joseph Foster, portfolio manager of the $290 million Van Eck International Investors Gold fund, the first of its kind in the U.S. that dates back to 1956. He calls gold "the ultimate form of currency."
Can gold keep shining? Is $1,000 an ounce a realistic target? And how does inflation factor in? Messrs. Bridges and Foster answer our questions.
* * *
The Wall Street Journal Online: Gold is up 14% since late 2003, but the Amex Gold Bug index (a basket of gold stocks) is down 11% from a year ago. Why hasn’t the price of gold filtered into the price of many gold-oriented stocks?
Mr. Bridges: We’re positive on gold as hedge against the weaker dollar. Even if the dollar does recover, the strain on the world’s economic system by these swings in currencies suggests having gold as insurance isn’t such a bad idea.
Gold producers are suffering quite significantly from higher energy prices. Diesel has become quite a big part of some mining operating costs — as much as 20%. Then you also have the strength of the resource currencies — the Australian and Canadian dollars and the South African rand. Even the Peruvian sol is appreciating against the dollar. A lot of these big diversified miners have operations in these countries, and that’s affecting their operations.
Mr. Foster: We went through a severe correction back in
April and May, for both gold and gold shares. They were down
substantially. If you look at the performance since then through the
end of November, the Philadelphia Gold and Silver index (XAU) is up
37%. Gold prices are up 20%. So you look over that longer time frame,
and the shares have done fairly well. They’ve significantly
Since this not anywhere else on line, and because Daniel did such a nice job with it, here’s a taste of his perspective — for your reading and investing pleasure:
1. Don’t swing for the fences; Never put it all on red.
Never, ever, let one trade determine your profit and loss for the year, or if it goes wrong, put your capital at risk. I did it once and the memory of that experience burns me almost daily. In most cases, margin should be avoided and "doubling down" a bad trade is a sucker’s bet. Most times it just pays to take the loss and move on. The good thing about being a trader is that every day there are new opportunities to make money. Just make sure you can stay in the game.
2. When the market is bad, its time to be more cautious.
Sounds obvious, but when the market is below key moving averages, unless that trade looks really enticing, it is probably better to sit on your hands. We did a lot of hand-sitting during the bear market and we survived better than most.