more on the "fear trade" than any fundamental reason, most importantly the US dollar was rising as gold was rising, and this is not what you would expect to see.  Many traders are short of the US dollar expecting it to decline further, that is a crowded trade right now.  If the view is that the US dollar will continue to weaken, become a
"doomed currency" as Marc Faber mentioned, then gold could be a decent hedge.  I know gold is perceived as an inflation hedge, but it is not a good inflation hedge despite what you may hear. Inflation is still the dragon that will kill most savers (not investors) looking for "safety" in GICs (or CDs for our American friends), but inflation does not appear to be raising its head just yet.  That gold started to move rather quickly over a day or two was likely a momentum trade as speculators try to jump on a rising trade.  I suspect that it is likely more of a 'September fear trade' that drives hedge funds to short equities and go long gold.  That gold was up about 2-3% and the gold equities were up 9% further fuels my thinking.  Of course, the "sell in May and go away" trade would have been a horrible move this year, so be wary of "seasonality" in investing.  Those who say "it works" are very quick to ignore years when it does not.

Mr. Jorgen Elmeskov of the OECD recently said “our estimates suggest that in the second quarter China may have grown at 14 per cent annualized rate,” Mr. Elmeskov said. “Similarly, the growth rates of other non-OECD East Asia and Southeast Asian countries may on average have been around 10 per cent on an annualized rate.”  He said governments and central banks' drastic fiscal and monetary steps to stimulate the economy, their response to the worst crisis since the Great Depression now looked increasingly like a “success story”.   The think-tank reckons the German economy will grow more quickly than its peers in the third quarter. Germany has been my preferred way to try to benefit from the growth in Asia as it provides much of the industrial strength that Asia needs to grow.  Another plus, it is not as volatile and we can (better) trust the accounting.

Bond markets are showing signs that bonds are not cheap.  There is still a great deal of money on the sidelines, and the "safe haven" trade of buying or holding government bonds is starting to weaken.  The credit spreads that we have mentioned (notice nobody is talking about LIBOR anymore) have come in quite dramatically.  The bond markets that gave strong signals of the troubles in the market, credit markets are great indicators but often ignored or misunderstood. 

The job numbers in Canada were better than expected, while the US job numbers were down again.  The jobless rate in the US is about 9.7% (keeping in mind this does not consider discouraged workers) and it will likely top 10% at some point in the next few months.  I repeat myself that we will continue to see job losses even as the recession ends. While there has been some good news, such as the US non-manufacturing ISM expanded and is closer now to indicating expansion of the economy.  This "made-in-the-USA" recession (although European bankers are not that innocent either) is passing more and more each day as the credit markets are healthier and fear is subsiding.  There is still a vast amount of money on the sidelines, but Bill Gross commented on the "New Normal" that is pointing towards less-than-vibrant growth.  But then again, he is a bondie. I will post his article on our website under the Investments 101 page towards the bottom, called Bill Gross Sept 09.

Natural gas has been weak, and the traders who went long natgas and short crude are crying the blues! They were trying to trade a historical ratio that doesn't hold when the shale formations are producing more gas than they can store (almost).  I had mentioned that nat gas could see $2 per mmbtu or even go to zero if storage becomes full.  This, however, is unlikely.  Yesterday BP, the largest producer of oil and gas in the US Gulf of Mexico announced a giant oil discovery at its Tiber Prospect in the deepwater US Gulf of Mexico. The well is in over 4,000 feet of water and was drilled to a total depth of approximately 35,000 feet, making it one of the deepest wells ever drilled by the oil and gas industry. The size of the discovery is still to be determined but keep in mind that the well is essentially 10 kilometres down.  While we are seeing current oil inventories similar to that of 1998 when oil was under $20 per barrel, it is unlikely that we will see these prices again however.  

I have been watching copper and it almost crossed $3 per pound but has dipped to about $2.84.  I have called copper the Ph.D in economics, but with the rapid move it has had I would not be surprised to see it pause.  The "pause that refreshes" is a phrase that I think may apply to many things going forward in the near term. 

I would like to give a very simple peak into the "crystal ball" of investing that you may find interesting (or not!).  Monte Carlo simulation is not a new casino game but is a critical step in the investment process. When one is considering the vast amounts of information and inputs that go into an investment decision, most of the inputs are not static inputs, they are moving targets.  For instance, how much is Company X expected to grow or earn this year? or next year? You can ask ten different analysts and get ten different answers.  (This is why we get as many estimates as we can.)  Estimates, inevitably, reduce the precision of an investment decision.  And there are many, many factors that are influencing a company.  So if we select several different variables including earnings, profit margins, volumes, expenses, and cost of capital, we need to vary the magnitude of each variable to arrive at a potential range of variables each with probability applied.  This is why the investment process is a continually evolving process, but the discipline of the process is key. There is no such thing as perfect knowledge or information.  The science of probablilities is necessary to determine which factors have the greatest influence on firms and what the potential results of those influences will be. 

The tea leaves...
Technically the S&P500 rallied off of a support level at 991 that may allow an attempt of a top area that appears to be forming in the 1014/27 range.  There is a risk here of weakness, a slide below 991 can see a rapid slide below 977/6, but a rally is expected at this level.  Above 1030 is needed to confirm the bullish reversal, with a clear break above 1038 needed to look for 1067/77 and eventually 1104/26.  The bullish pattern seems to still be in place.