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Friday, April 19, 2024

Testy Tuesday – Faber Says US Treasuries Are Junk

"If the US were a corporation, it would have bonds that are junk rated." 


That's the word from Marc Faber but, then again, his column is called the "Gloom, Boom, Doom Report" so he is very much talking his book.  Faber makes the case that our unfunded liabilities make the US a toxic investment, much the way GM health and pension obligations.  The US ended up bailing out GM but who can bail out the US?   Faber argues that additional debt growth no longer has the ability to add to GDP growth, meaning we have passed a tipping point where we have no choice but to pay off existing debt (most likely through inflation) or default

Pragmatic Capitalist has a great article discussing total debt to GDP and, yes, we all need to be very concerned but our debt to GDP is up at levels we hit in the Great Depression – that was 80 years ago and the US is still standing!  While I don't advocate dismissing these issues, I do want to point out that these issues are always with us and the MSM has gone from completely ignoring them (our Meatball Market of January) to focusing on nothing but.  Suddenly Faber, Roubini and various bond pimps have center stage and the gold bugs are trying to pull the last group of suckers into that tent with scary stories about the imminent collapse of the USA, as if having a share of an ETF that says it holds some gold somewhere is going to do you any good when your broker goes dark in the predicted economic catastrophe. 

The reason gold has been a valuable alternative to currency throughout human history is that it has a high value to weight ratio – Try loading up the SUV with a pound of gold ($17,088) or 235, 42-gallon barrels of oil and you'll see what I mean.  Gold's value as a currency hedge is that it's readily exchangeable anywhere in the world for cash.  While it may make some sense for the bomb-shelter crowd to store some bullion along with the beans – what edge do you think you're getting with a certificate that says you own a share of an ETF that stores some gold somewhere? 

If the US economy implodes and the market collapses – where exactly will you be going to claim your gold?  In 2008, when the economy WAS collapsing, gold fell from $936 on October 8th to $681 on the 24th.  Gold doesn't work when money is tight, gold only works if the US can keep borrowing and people keep accepting our inflated dollars as our economy hums along.  Just a friendly reminder to all the gold bugs out there who may have gone a bit crazy with their hoarding

Speaking of crazy commodity hoarders – China's Shanghai Composite is testing critical support along the 200 dma and they did hold the line today with a 0.47% move up.  The Hang Seng had failed to hold their 200 dma at 2,200 but bounced 239 points this morning (1.22%) to get back to 19,790 so we'll be watching them closely to see if they are recovering.  The Nikkei's 200 dma is 9,942 and they fell 18 points this morning to 9,932 so let's just summarize and say that Asia is testing their 200 dma support and that includes India at 16,042.  So Asia is not dead yet and we'll be looking for them to turn it around this week (we went bullish on FXI on Friday). 

Europe is drifing along ahead of the US open.  They were very upset that the US indexes didn't follow them up 1.5% yesterday and generally, the EU markets don't look like they want to do anything until they see us trade.  It's still all about Greece in Europe but now it's driven by rumors of when or if they will be bailed out.  Trichet left a conference early in Australia and the rumors were he was racing over to write Greece a check – that's the level of silliness driving the EU markets at the moment (Greece is up 4% this morning). 

Our futures are up nicely and according to plan.  At 12:25 yesterday, with the Dow at 9,996 and the S&P at 1,068 I said to Members: "Best case scenario for today is we retest 9,920 on the Dow and 1,055 on the S&P without failing them.   Those were our kind of support levels on Friday, before the snap down so a test there that holds would be a good entry point for some bullish pokes."  We didn't hit my targets until the close but the Dow finished at 9,908 (-12) and the S&P finished at 1,056 (+1) and that did keep us cautiously bullish into the close – which is working out nicely now!

Earnings continue to come in generally positive and misses like KO and TAP this morning are being forgiven so let's keep our eyes open for changes in sentiment as people begin to tire of the media gloom festival and start doing some bargain hunting but we are not going to be impressed until we see our levels retaken, especially NYSE 6,793 and Russell 596, which were our problem failures from yesterday.  



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