Perhaps sanity will prevail August 5, 2006 The stock market rallied early on Friday as weak payroll data confirmed that the economy is slowing down. Job creation was below expectations and the unemployment rate increased from 4.6% to 4.8%. The market reacted positively since a weakening economy will make it more difficult for the Federal Reserve Board to keep raising interest rates. But by the afternoon the Dow Jones Industrial Index had turned red as a realization that weaker economic growth may not necessarily be good for stocks started to sink in. For several weeks bad economic news was seen as positive news for stocks, which is absurd. Perhaps sanity is slowly started to creep back into the stock market and if the economy is heading further south, that should mean lower stock prices ahead. Henry Paulson, the new US Treasury Secretary, made his debut this week and in a flurry of speeches called for a reduction in the budget deficit and for a strong US dollar. I recall not long ago, before he was appointed, that he said he would take a tough stance on China and force them to revalue their currency upward if he became Treasury Secretary. Calling on China to allow their currency to appreciate is the same as calling on China to let the dollar depreciate. I wonder how he thinks he is going to have a strong dollar while he lobbies China to engineer a weaker dollar. The market certainly did not pay any attention to what he said -- the dollar fell while he was giving speeches about the benefits of having a strong dollar. A lower US dollar means higher US dollar prices for things like oil, gold, silver and base metals. But a weaker economy also means less demand for things like oil and base metals. Because gold is money, the gold market will not suffer any reduction in demand from slower economic growth, or even an economic contraction. That is why the gold price should outperform base metals going forward. Paul van Eeden Disclaimer This letter/article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be -- either implied or otherwise -- investment advice. This letter/article reflects the personal views and opinions of Paul van Eeden and that is all it purports to be. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Paul van Eeden, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in this letter/article. The information contained herein is subject to change without notice, may become outdated and will not be updated. Paul van Eeden, entities that he controls, family, friends, employees, associates, and others may have positions in securities mentioned, or discussed, in this letter/article. While every attempt is made to avoid conflicts of interest, such conflicts do arise from time to time. Whenever a conflict of interest arises, every attempt is made to resolve such conflict in the best possible interest of all parties, but you should not assume that your interest would be placed ahead of anyone else’s interest in the event of a conflict of interest. No part of this letter/article may be reproduced, copied, emailed, faxed, or distributed (in any form) without the express written permission of Paul van Eeden. Everything contained herein is subject to international copyright protection. |
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