Tuesday, November 29, 2005


The economic numbers today showed a heck of a lot of strength. Durable goods orders were strong and the housing numbers were supper strong. Housing is gaining a reputation as the new Energizer Bunny. Yesterdays drop in sales of existing homes gave the market pause but new home sales just keep on keeping on.

The stock market and inflation sensitive metals markets remain strong and bonds are getting thumped. The uncertainty created by the retirement of Greenspan continues to weigh on the market. The part that is not often mentioned by the talking heads is that the FOMC must make its moves more gradually now-a-days because the entire world is in sync like never before.

The correlation coefficients of world markets have moved to higher and higher levels since world trade has been expanded. The latest numbers are up around 70% for much of the world. The America's are now leading the way but even Japan is now on board.

Additional moves by the FOMC will force other countries to increase rates or see even higher inflation rates. Exporting countries do not want to be the first to act but the pressure to at least follow at a distance will grow.

I project that the FOMC will not stop raising rates until the Gold spiral is broken. The good news is that the distance is not great. There is now a divergence between the price of Gold and the US inflation rate. The break in Gold will be accompanied by a long bond rally. The European Central Bank meets on December 2 and the FOMC meets of December 13, stay tuned for the exciting conclusion to the Greenspan era!