Dow 9,000 update

Dow 12,082.31, gold $880.50/oz, so the Dow is now worth 13.72 ounces of gold as against Robert McHugh's prediction of 13.51.

Nearly there, and the new announcement of a $145 billion reflation may push gold that extra yard.

Stocks may follow bond yields down

Bob Bronson gives us a striking graph of the apparent correlation (since 2000) between the stockmarket and the yield on 10-year Treasury bonds. There is now a very wide gap between the two and seemingly the implication is that stocks are overdue for a large correction.

Here we go

Two from Karl Denninger in the last two days:

Monday, he reasserted his belief in DE-flation; but as I've been saying for some time, maybe the real issue is the divide between haves and have-nots, and he deals with that, too. No point being rich if you daren't go out.

Yesterday, he sounded the bells for a possible crash today. Maybe this is when Robert McHugh's prediction is fulfilled.

Time to buy into Northern Rock?

Two hedge funds have punted heavily on the British lender that the government has supported with £55 billion.

The share price has slumped from over £12 last February to 69 pence, assisted by the gleefully gloomy 20/20 hindsight of the news media. We had voxpops today from small "windfall share" demutualisation shareholders ruefully reckoning their notional losses and admitting they can't find the (now-near worthless - ha!) certificates.

One of Sir John Templeton's maxims is "The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell."

Let me offer two of mine: "Never buy what the fund managers try to sell you at financial adviser seminars", and "Remember the journalists who had their pensions in Equitable Life with-profits, because EL didn't (ugh!) pay commissions".

If I had the spare, I might speculate on NR. Hedge funds may be able to afford losing money, but they certainly don't go out of their way to do it. I wonder what will happen?

Oil to crack the dollar?

Nathan Lewis reminds us how, when President Nixon cut the dollar's link to gold in 1971, OPEC protected the real value of its oil with price rises (thus earning a reputation for having caused our inflation).

Now that the gold dinar has been introduced in Malaysia, Lewis wonders whether the dirham should link to gold, too, so oil exporters can avoid being robbed by a falling dollar.

Brownouts and lines at the gas station again, perhaps.

USA / UK Sovereign Wealth Funds?

Shares are supposed to be the best long-term investment, better than bonds or cash. The usual concern is the time horizon of the investor. Who lives longer than a state like America or Britain?

Foreign governments with trade surpluses (based on artificially low currency exchange rates and stupid overspending by the West) are building up trillions in reserves and eyeing our companies and real estate. If our own leaders aren't willing to rebalance the world economy, the least they can do is get a piece of the action.

Why not?

Dow 9,000 update

Last year, Robert McHugh predicted that the Dow would drop to 9,000, if not in nominal terms then in relation to gold. The Dow was then 13,238.73 and gold $666.30/oz, which means that it took 19.87 ounces of gold to buy the Dow. McHugh's prediction implies the Dow dropping to 13.51 gold ounces (a fall of 6.36 ounces).

The Dow is now 12,606.30 and gold $894.90, so the Dow is now worth 14.09 gold ounces. It has fallen by 5.78 ounces out of the predicted 6.36, so the prediction is 90.9% fulfilled so far.

McHugh will be fully correct if, for example, the Dow remains unchanged and gold rises to $933/oz; or if gold stalls, the Dow will need to fall to 12,090.