As Good As Paper?

Our turnaround yesterday inspired strength in world equity markets, especially in Europe, which had gained about 3%. That buoyancy helped fuel a rally of about 1.5% in the first hour here, but the next hour saw those gains nearly evaporate. Another rally was attempted. It fizzled, and with an hour to go the market was just fractionally higher for the session. The last hour saw lots of selling and the indices lost 0.75% or so, closing on the lows.

If . . .
Today's action was pathetic, as the market just couldn't hold a bid. So, while yesterday's reversal looked okay, it meant little. Now we'll need to see if those lows from yesterday get taken out. If they do, it's gonna get pretty ugly pretty fast.
If not, and the market lows have been seen for now (which could still be the case), then the next order of business is to find out how far the rally can carry and what it looks like. My expectation is that the rally will fail (below the April highs) at some point down the road and there may be an attractive opportunity to set up shorts, but I don't want to get too far ahead of myself.
Away from stocks: The dollar was mixed, with the euro the worst major currency on the planet as it sank against essentially everything. Piggys were lower, oil gained about 3%, and silver added 2% to gold's 1%.
On the subject of gold, I would like to make a few points. It's really interesting to me that there is so much angst concerning gold, given that it has been the longest-surviving monetary asset by a factor of almost 100, versus the short lifespan of the average paper-currency regime.
It is also interesting that the lexicon is riddled with references to gold as being a very desirable asset to possess. People talk about such-and-such being "as good as gold" (never "as good as colored paper"); or they'll describe some great business as "a gold mine"; or, they'll talk about "the golden rule" as though it's an ironclad law. Yet, most people continue to treat gold like dirt, or worse.

Gold has been an asset that's helped protect and deliver gains vs. paper money for the last 10 years running, yet the popular press heaps nothing but scorn on it. Even people who own gold seem to suffer angst regularly, based on the questions I continually receive in Ask Fleck. Meanwhile, Bubblevision and other media outlets persist in telling you how great stocks are, although this asset class has cost people money for a decade.

The current level of skepticism is nicely illustrated by the recent short-interest surge in the GLD exchange-traded fund. It's now doubled, standing at about 30 million shares (around 3 million ounces). Meanwhile, when the gold market recently fell out of bed, ETF holders at the margin liquidated no ounces; and in the last couple days, they added a whopping 50 tons (a phenomenon occurring in other places around the planet as well). Thus, as a wise commodity-trading friend said many years ago, you can be with the trend and still contrary.
While I don't believe that gold is a totally contrary concept, it is contrary from the standpoint of there being so few avid believers though the list of high-quality investors who now hold gold has become quite impressive.
I keep waiting for the day when folks realize that if you invest in the shares of a goldmining company, you basically own a piece of "the money-creation machine." It's sort of like owning a central bank that isn't staffed by losers. In any case, at some point I expect to see the masses rabidly bullish about gold and goldmining companies, though obviously we're a long ways from there.
Index Close % Change
Dow 9974.45 -0.69
S&P 500 1067.95 -0.57
Nasdaq 2195.88 -0.68
Nasdaq 100 1796.47 -1.06
Russell 2000 642.62 +0.41
Sox Index 343.78 -0.21
Bank Index 49.13 -0.2
Dow Transports 4247.28 +1.14
Dow Utilities 354.59 -0.39
Nikkei 225 9522.66 +0.66
Gold - Front Month 1213.6 +1.15
Silver - Front Month 18.08 +1.68
Crude Oil 70.69 +2.82
Dollar Index 87.22 +1.01
Euro Spot 1.22 -1.4
Long Bond 20-year 124.78 -0.37
FOTM - Yen Spot 89.93 +0.33
5/26/2010 4:15 PM