Friday, August 12, 2011

Market vs. public sentiment

The consumer confidence numbers just came out this morning. A low reading for August. Is it any wonder that the public would have low confidence. They have just watched congress shame the nation, and then last weeks plunge in the stock markets has certainly come to the attention of everyone. My expectation is that besides a small blip down, this consumer confidence number will not move the markets down in any sustained fashion. We are overdue for a rise, at least for awhile, as the attention will shift from deflation to inflation. Look at the price of silver. The prospect of a catastrophic world banking crisis caused only a small move down. Silver is a safe harbor of course, but is mainly still an industrial metal. It is the industrial component of silver that should have caused a hard down move if the world was on the brink of deflation.

And the head of the Federal Reserve, Mr. Bernanke, has pledged to keep interest rates at this level for two years. TWO YEARS.
In other words, he is going to be sure to get inflation before he raises rates. This decision will certainly constrain the Fed from raising rates, even if inflation or the economy picks up. It seems to me that the risk is to the upside.
I will still trade, ie, change positions on a short term basis, but at least for now my bias will be to the long side on stocks, and natural resources.

As always, limit your risk and the upside will take care of itself.

And the link to the book that made the light go on in my head many years ago. I highly recommend it to anyone interested in investing or trading macro.

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