MARKET COMMENT
October 30, 2006
“Believe nothing, no matter where you read it, or who said it, no
matter if I have said it, unless it agrees with your own reason and your own
common sense.”
Buddha
Let’s take a moment to ponder the contradictions that seem so
ubiquitous. They (authorities,
politicians, Wall Street product pushers and the financial media) tell us that
inflation is “tame”. This is achieved
thru the laughable re-jiggering of indexes (CPI, PPI and PCE) and their
components to have the desired “tame” result. Yet we live in the real world, spending real
money everyday on goods and services that our own reason and common sense
scream anything but “tame” inflation.
For example, do you pay property taxes? If yes, you know that these costs have
increased, especially in some areas, exponentially. Yet, they’re not a part of our beloved CPI
which uses instead, the peculiar “owner’s equivalent rent” calculation to
measure housing costs. Did you buy a
cool new flat screen TV this year? Even
though those prices are declining, you spent a lot more for this than a
conventional model. Again, the way the
government calculates things you actually paid less since you gained more TV
set for your money. And, so it goes. It gets downright silly doesn’t it?
So, we’re not drinking the Kool
Aid they’re selling but we’re not fighting the tape either. The data gets published and markets suck it up
and we go along for the ride.
Today the PCE (Core Personal-Consumption-Expenditure Price
Index) data was released which showed inflation high by the Fed’s standards but
“tame” for Wall Street who were quick to quip that a future growth slowdown
will “relieve” inflation pressure.
Gold prices rose above $600 as some expected stronger
jewelry demand for Christmas. Since the
dollar was flat today and crude oil prices declined substantially this seasonal
demand makes some sense. But, at the
same time, many gold bulls believe that the dollar will be a casualty as the
Fed’s printing presses run overtime making gold more attractive.
Maybe this kind of information, reconstructed M-3 data courtesy
Shadow Government Statistics, is what gold investors are focusing on—more dollars
in circulation, the less dear they become.
And, perhaps gold investors are focusing on the US Treasury liquidity
injections ($7B added today below the Fed Funds rate) to keep the good times
rolling for Megabanks (dba,
WS Trading Desks).
Energy prices fell sharply owing to warmer weather and a
belief that terrorist threats against oil facilities aren’t valid.
In other markets that seem to matter this was the look
today.
Now you know I’ve been pushing FDN (First Trust’s DJ
Internet Index ETF) since it includes GOOG while traditional HHH (Internet
Holders) as a trust doesn’t. But the
latter with heavy positions in YHOO, EBAY and AMZN can benefit if bullish news
hits those stocks.
Tomorrow is the last day of October and window dressing that
has occurred repeatedly in 2006, may still be the trend. Today’s volume was light so the decorators don’t
need much help.
Have a pleasant evening!
Disclaimer: The ETF
Digest maintains positions in: IEF, HHH, FDN and IYR.