The Guessing Game

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The first day of the new quarter brought more of the same to the world's financial scene; anxiety, uncertainty, and disoriented trading patterns. Gold prices traded in a narrow channel overnight, showing fatigue after yesterday afternoon's post-futures closing huge drop. Most of the gains from the $869.50 overnight low dissipated before the NY opening and the metal was marking time near $871 as the dollar turned positive once again early Wednesday.

Today marks the session during which US lawmakers will likely vote on the most important issue that has faced them in recent memory. We thought so the other day as well, but the thumbs down prevailed. Now, the pressure is really on. They are no longer voting on the bailout of Wall Street, or on the future health of Main Street. They are seen as voting on the immediate fate of Global Street - as in Every Street. Such a momentous overtone is not some figment of this writer's imagination. No, the words came from Mr. Trichet this morning, when he said about the upcoming vote that "It has to go, for the sake of the U.S. and for the sake of global finance." Enough said.

Wednesday morning's stock index futures pointed to slipping investor confidence once again, despite the major bounce seen in yesterday's Dow values. Some believe they have just seen a bounce by the world's largest deceased feline. Others see a bottom larger than that of a circus clown's pants. Any wonder then, that the September charts for many an asset look like the teeth on an Oregon logger's saw? Looks like today's viewership of the C-Span channel might hit some levels not seen since...ever. Wrapped in the $700 B package is a 'small' measure designed to raise the FDIC deposit insurance to $250,000 per account. A simple inflation-adjusted computation would bring the current $100K coverage to $220K by now, anyway. About time.

New York gold opened on a decidedly nervous tone, as participants awaited manufacturing index data and saw stock traders anticipating a contraction to be shown in those numbers. Bullion spot prices were ahead by $2.30 on the open, quoted at $872.30 per ounce. The dollar was still on the plus side, showing a 0.20 gain at 79.41 on the index, while crude oil gained $1.10 to $101.75 per barrel. Silver added 6 cents to $12.12 and even platinum and palladium showed signs of life after so many days of declining, with the former rising $15 to $1013 and the latter advancing $5 to the double-century mark.

Where we go from here, is anyone's guess at this point. A chain of events needs to unfold first. A vote, a reaction to same, an analysis of the immediate outcomes -all have to occur first- and then the money flows will start...flowing in the direction deemed most safe and hopefully profitable by the trading crowd. To go out and ask them where that compass now points to, is to get blank stares (if not worse). Thus, we wait. In the interim, we see an ADP report that shows only 8,000 jobs lost in September. The dollar took off on the news, but stock futures did not. Gold advanced a few more dollars. Come back after another latte.

There are immense opportunities for punditry at this juncture. This is the moment where new market gurus are made and born on the same day. Soon, they will attract thousands of followers. Others, whose predictions do not come to pass, will be quickly forgotten and their faithful flock will flee. Thus, we get analyses from names few have heard from in the past, if ever. Let's see what two of them have to say about what the future may hold. Posting an article on Marketwatch this morning, is Thomas Kee, Founder of Investment Rate. Here are excerpts from his contribution:

" The recent downturn in our economy is rooted much deeper than the credit crisis. The mortgage-related mistakes were a near crippling by-product of the greed allowed to compound during the past administration, but they do not provide insight into the future demand for investments. In fact, most people believe, once this credit crisis is behind us, buyers will rush back into the market again and the economy will restore itself. This might cause some people to try to get ahead of this anticipated curve."

"At the end of 2007 the upward sloping cycle which began in 1981 came to an end. A new era began at the end of 2007, an era representing diminishing demand for investments going forward. The Investment Rate identified this in 2002, when it was first offered to the public.

Incidentally, progressive declines in the slope of the Investment Rate, which represent declining demand annually over extended durations, have only occurred twice before in history. The first was the Great Depression. The second was the Stagflation period of the 1970s.

The declines that began at the end of 2007 relate directly to the Great Depression and the Stagflation period of the 1970s because, in all three instances, overall demand for investments on a consumer level was shrinking. The average duration of a major down cycle is 11 years.