Tuesday, November 29, 2005


Steve Leisman of CNBC posted an excellent chart this morning. His chart was a comparison of the core inflation rate next to the price of Gold. I believe he pushed the price of Gold 15 months forward. The point is that the two have tracked each other very closely until the last few weeks. The price of Gold is out of sync with the market. The treasury bond market continues to forecast moderate inflation and the reported numbers are moderate. The world wide inflation rate has jumped relative to the US rate. The strength in the US dollar is hitting our trading partners hard.

The European Central Bank will consider raising rates this week. Higher rates will slow the world economy, bring down the price of gold, bring down long-term interest rates and boost the stock market. Short-term, the market is over-bought. It is over-bought by a number of measures. One should avoid focusing too much attention on short-term considerations. The likelihood of a pull-back is high but catching it just right is more luck than skill. If you have new money, you might want to wait for a pull-back to invest. Only aggressive traders should sell current holdings with a hope to buy them back cheaper. If you own a poor performer, you might consider selling it now and waiting for a pull-back to reinvest in a better stock. In any event, stay at least almost fully invested in stocks. We may be near peak earnings but the economy is strong and stocks are likely to out-perform bonds or real estate over the next few years.