Intermarket Review  |  DEC 2004

Intermarket Review by David Penn

Stocks & Commodities V. 22:12 (66-67): Intermarket Review by David Penn How do you spell “inflation”? O-I-L? How about long-term interest rates, such as those attached to the 10-year US Treasury note? If you are a supply-side economist of the Jude Wanniski school, then maybe you will refuse to shout “inflation” until you see the color of the eyes of the “POG,” more familiarly known as the price of gold. Then again, if you believe that an inflating dollar has to have another currency against which to depreciate in value, how about the Swiss franc, that stalwart European currency of the inflationary 1970s? With the Federal Reserve Board’s stance on the economy somewhat mixed (here’s a hint: “soft patch” means “resurgent fears of deflation”), investors and traders need more help than ever in determining just what an inflationary environment — or rather, the first stages of an inflationary environment — might look like. To that end, Intermarket Review profiles the top four compasses of market-oriented inflationary expectation: the price of gold, the yield on the 10-year T-note, crude oil, and the Swiss franc. GOLD What can be said about gold? “The only real money …”? “Barbaric relic …”? Federal Reserve Board chairman Alan Greenspan, arguably the greatest financial asset inflationist in American history, once wrote of gold: “This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights …” Cryptologists need not apply, there was no modern-day Fed-speak there. It is worth adding that in addition to gold’s role as a monetary indicator (rising gold prices reflect inflationary fears, falling gold prices reflect deflationary or disinflationary fears), gold has a number of uses in both technology and industry, as well as, of course, in jewelry.

by David Penn