 Gold Loves Trouble
Todd Stein & Steven McIntyre
The Texas Hedge Report
October 14, 2005
Snippet Courtesy of www.texashedge.com
One would think that an average
P/E of 20 on properly accounted for earnings (including stock
options and pension adjustments) would weigh on the market. Likewise,
the combination of higher gasoline prices, soaring heating and
electricity bills, and rapidly rising rates on the short end
of the curve should dampen consumer spending as we now know that
Americans saved no money last month (the worst showing since
after the Great Depression) and are the most behind on credit
card payments (4.81% 30+ days delinquent) in the 32 or so years
that they have been keeping data. It seems that Americans' "spend
and then spend some more" lifestyle that has become customary
may (hopefully) be finally coming to a head as it has reached
such extremes that the market will eventually force individuals
to repair their balance sheets. The marginal U.S. consumer is,
in our opinion, in deep trouble.
Anecdotal signs such as the
sudden slowdown in Manhattan apartment prices, which posted a
13% decline sequentially from Q2 to Q3, are the worst showing
since 1989's 24% drop that kicked off a six year slide in the
Big Apple's real estate market. Despite the sequential Q3 drop,
Manhattan apartment prices are still up year-over-year. The number
of apartments in Manhattan on the market rose 16% to 5,764 and
it took an average of 133 days to sell a unit versus 102 days
in the second quarter. Nationally, rising home inventories seem
to be setting us up for the housing accident that we have all
been waiting for, especially on both coasts. Is it any wonder
that housing stocks have acted like death lately? The auto sector
is again in total disarray as September car sales were down 20%
year-over-year for Ford and 24% for GM. Keep in mind that "employee
pricing" was still in effect in September, so the slowdown
in October as employee pricing ends may be all the more breathtaking.
You would figure with all this
bad news, the public would have discovered the one asset that
has held up in the face of the storm - gold. But alas, we are
still in the early stages of the gold bull market, as 99% of
the general public has no idea what has been happening with the
yellow metal. Perhaps a push through $500/oz will attract some
small amount of attention, but we expect this stealth bull market
to continue for quite a while. Oil & natural gas have been
attracting the attention of the masses, which makes sense as
these two commodities impact our day-to-day lives more than any
other natural resource. But once the economy breaks, attention
will shift to the viability of the financial system - and gold
bullion is the ultimate safe haven for any systemic shocks the
economy may suffer.
October 14, 2005
Todd Stein & Steven McIntyre
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Todd Stein
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email: admin@texashedge.com
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