W. Schmidt, CFA, CEBS Schmidt Management Company
August 26, 2008
Delusional seems to be mental state of investment community as September approaches. Nonsensical talk of U.S. dollar having put in place a secular, or long-term, bottom is widespread. That EU economic growth rate might slow somewhat is interesting, but may be no more than statistical noise. That growth rate of Chinese economy might slow from “11+%” to “9%” is interesting, but is hardly a “dramatic” slowing. Western economies would love to achieve that level of growth over two years. This week's chart shows U.S. economy collapsing into recession. As largely a measure of momentum of a number of real economic activities, it is not distorted by questionable inflation measures. With U.S. financial system near dysfunctional, a further slide into recession is only reasonable expectation.
Momentum chasing traders are pushing U.S. dollar to another long-term top. With Putin, The Terrible flexing his military might, Pakistan moving slowly toward a hard line government in control of nuclear weapons, and Israel facing a “Window of Necessity” on Iran after November U.S. election, many reasons exist to own Gold. Some investors around the world are no doubt looking at this situation and are moving funds out of local institutions into dollar deposits. However, to look at abysmal fundamentals of U.S. economy and then to prognosticate a longer term bullish outlook for U.S. dollar is pure fantasy. $Gold has put in place the 2008 bottom on the current dollar fantasy. Investors, now, need to turn their thinking to potential for a new high in the future. Given all the factors, adding to your Gold holdings at current bargain prices is imperative. Remember, many of the dollar bulls of today were FNM & FRE bulls of yesterday.