Quick Note

With the markets consolidating for the most part today, there's not a lot I can add tonight.  The only item of note, in my opinion, was the continued resiliency of gold yet again today.  As someone who is currently holding a short gold position, the market's unwillingness to correct by anything more than a couple of percent is discouraging.  To be sure, this is a testament to the concerns many investors harbor against the major fiat currencies, the U.S Dollar in particular.  To an extent this concern is valid as sovereign debt levels and monetary bases across the globe continue to expand, thereby eating away investor wealth via currency debasements.  Naturally this makes a tangible store of wealth much more attractive to those needing/wanting to hedge their currency exposure.  And while I understand and agree with the premise that owning at least some gold in one's portfolio at this juncture, as a hedge against a deflating greenback, is a prudent move, the fact is that the recent run up in gold prices is nothing short of parabolic.  This makes it overbought, highly data dependent, and more risky than normal; hence my reason for remaining in the bear camp.  But as I mentioned in this morning's comments, I just hope I can stay in this short position long enough to actually profit from the eventual decline.

Looking to tomorrow, the economic calendar is pretty bare, so the markets will be trading mostly on sentiment and news out of Europe and Asia.  It appears that the markets are in a quandary on which way they want to move given the cross currents of Fed stimulus and rising sovereign debt concerns.  I continue to believe that the risk is shaded to the downside in the equity markets, especially given the recent resiliency in the U.S. Dollar.  This strength, as you might expect, is yet another reason why I can't get on board with the gold story at this stage of the game.  If the greenback was, in fact, being materially debased, it would stand to reason that these concerns would be manifested in the currency markets, not just the gold pits.  And given the size of the foreign exchange markets relative to that of gold, I'm more inclined to believe that the signals from the FX markets.  Also, looking at the pre-market futures this evening, it looks like Cisco's earnings report will provide a bit of a negative overhang for equities tomorrow given their tighter margins and relatively sanguine outlook for Q4.  To be fair, the numbers Cisco reported are pretty good, though still sharply lower than the pre-crisis levels seen in late 2007.  However, I think this yet another instance of the equity market's recent unwillingness to rally on good earnings news.  That's not the sort of thing that makes an equity bull sleep well at night.  So with that in mind, tomorrow shapes up to be an interesting day that will bring us all one step closer to the final verdict on QE2 and its potential effects on the domestic and global economies.

Until tomorrow.....