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Posted by Thomas on May 21, 2007, 10:28 am
from today's gartman newsletter, an interesting observation that may affect
bonds for
personal financial planning
We turn then to a price indicator that we think of somewhat
greater value than the US government's figures. We turn
then to the JOC-ECI Industrial Price Index compiled by the
Journal of Commerce and predicated upon work done by
Prof. Geoffey Moore over the past several decades at the
Economic Research Institute. We note then that the
JoC-ECRI Price Index one year ago was 129 and at
mid-month it stands now at 139. That is 7.8% higher than it
was a year ago, and we think that is much, much closer to
the level of inflation we are seeing in day-to-day costs of
living. If true, then bonds are very expensive; interest rates
at the long end are very low; the Fed's propensity shall be
to tighten not ease and share prices can either rise or fall,
depending upon one's belief that stocks are bad investment
during periods of inflation (the US in the early 70's comes
swiftly to mind) or that stocks merely another hedge against
inflation and can rise even more swiftly than inflationary
pressures (Zimbabwe this year, for example). All we know
for certain is that the inflation we are experiencing is far
different from that which the Departments of Labor and
Commerce are; of that we are absolutely certain.
It has taken the long end of the US bond market a year of consolidation to find
its
way, but its way looks rather decisively lower given that the reasonably long
uptrend
line extending back into April of '06 has been broken. This has happened even as
the
even longer term downtrendline extending back into the mid-summer of '05 has
triumphed. Strength then is to be sold, not weakness bought... for the long term
and
for the short.
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