smart-money-report.com Blog

Dr. Steenbarger lists seven themes he’s tracking.

From Breitbart:

The Fed lowered its federal funds rate to 4.50 percent, as the markets widely anticipated. Lower interest rates tend to undermine the dollar and raise the allure of precious metals as an investment alternative. The dollar stumbled to another low against the euro ahead of the Fed’s decision on Wednesday, helping drive gold higher.

Although the regular trading sessions of most commodities markets were closed before the Fed released its decision, gold prices continued to climb in aftermarket trading. An ounce of gold gained settled at $795.30 an ounce on the New York Mercantile Exchange, then rose to a high of $800.80 ounce in later electronic activity.

Gold last topped $800 an ounce in 1980, when prices reached as high as $875 an ounce in January. Adjusted for inflation, an $800 ounce of gold in 1980 would be worth more than $2,000 today.

As expected, the Fed cut key interest rates by 1/4%.

This is interesting. Gold mining giant, Newmont Mining (NEM), reported much better than expected third quarter profits. It’s interesting because I’ve been reading all weak that analysts were afraid that the numbers would be disappointing.

Newmont has been a laggard for a long time, but no more:

The stock is up over 8% for the day and the point and figure chart shows a triple top breakout with a target price of 69.

From Hudson & Marshall:

“A souring housing market brimming over with foreclosures and falling home prices translates into sweet news for buyers in search of deals. As property values continue their spiral downward, more owner occupant buyers are turning to foreclosed property auctions to find even greater price reductions. America’s largest foreclosed real estate auction firm, Hudson & Marshall will auction nearly 600 foreclosed homes located throughout Los Angeles and the San Bernardino Valley area on November 6-11.”

Plus 400 more from the REDC.

Update: Speaking of houses, something I’ve noticed for a long time is how much bigger homes are today than what they used to be. Drive by the house you grew up in and you’ll probably see what I mean. Now we have statistics:

In America, the National Association of Home Builders reports that the average home size was 983 square feet in 1950, 1,500 square feet in 1970, and 2,349 square feet in 2004. This trend appears to be continuing: house sizes in 2005 (the latest year for which figures are available) averaged 2,434 square feet.

Of course, when people lived in smaller houses they were actually saving money. I know  that sounds strange today but there used to be a positive savings rate.

David Merkel makes the point that the Fed — in some ways — is overrated in terms of both power and wisdom. Milton Friedman used to say that the Fed should be replaced with a computer.

From Resource Investor:

“I think you’re seeing a little slide today in gold based off of the money coming out of crude, which have both been highly correlated markets as of late,” said Zachary Oxman, a senior trader at Wisdom Financial.

“I’d expect the trade in gold to resume its movement towards $800 within the next few days, especially after the Fed,” he said. “I believe you’ll see a listless trading today and tomorrow ahead of the Fed report as traders decide where to position themselves.

Yep. That sounds about right.

And…

“If the Fed doesn’t cut rates, then there will be a sharp correction in gold.”

That’s true as well. If the Fed doesn’t cut rates the gold market won’t like it.  But there’s what? About a 98% chance that the Fed will cut.

Roger Nusbaum on how to trade commodities like legend Jim Rogers.

David Fry has some interesting charts and comments about what is going on in the markets:

Today reminds me very much of 1979-80 when gold, energy, farm land, natural resources and tech stocks were the inflation shelter investors sought.

The difference is the bond market. In the 1979-80 era the bond market was falling apart as long-term interest rates surged to double digits. Today the bond market, so far, has been strong. Fry offers an explanation:

I’m old enough to have experienced these previous markets and have a “deja vu / all over again” feeling about it. The riddle remains why bonds would rally against this fundamental backdrop. I can only think it has to do with supply/demand forces, where bonds are a necessary investment component for pension plans and insurance companies for example. But, bonds have also been heavily purchased in the past with surpluses U.S. trading partners from Asia to the Middle East. Should the latter slow down their purchases then yields would increase, perhaps dramatically.

In Pacific Investment Management Co. [PIMCO]’s November newsletter, bond guru Bill Gross forecasts:

“An increasingly recessionary looking U.S. economy will likely require 1% real short rates and 3 1/2% fed funds in order to stabilize a potential growth contraction in lending not witnessed since the early 1970s,” he writes. A few weeks ago, Gross said he expects the Fed to cut rates to 3.75% over the next 6-9 months. Bloomberg notes that futures traded on the Chicago Board of Trade put the odds of the Fed’s lowering rates to 4.5% at its October 30-31 meeting at 98%. The odds of a rate cut to 4.25% at the Dec. 11 meeting are 69%.