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Ode to the Stimulus

Our congress has blessed a stimulus To give some help to the rest of us But house is gone, jobs been lost, Global warming’s screwing the frost

Brokers crowing, hedge funds afloat, Bankers’ whores are first in the boat, But the boat’s unready, yet, for sailing the think-tanks aren’t through bailing

Sinking in red ink right up to waists We debate the nature of fiscal haste, Hungry babes wailing in bassinets As pols flunk vetting for the cabinet

Barbed’s back across the aisles, Tearless crocodiles still have smiles

                               Copyright 2009, Bill Woodruff

FX Trading – Gold and the dollar moving together–a story to fit the facts
The great thing about investing is that you can always find a good story to fit the facts and often your own opinion.  And when you add the gift of hindsight you can really weave a good one.  Of course these stories are what lead to over- and under-shoot in asset markets; we all know that personally now. But a pattern that continues to perplex us (among many) is the gold-dollar relationship at late—they are moving in lock-step up together. 

This has been going on since the beginning of 2009, after gold bottomed near $780.  It’s as if someone flipped a switch.  Well, maybe someone with deep pockets did just that.

When your narrow down those that still have relatively deep pockets in this world, the Middle East has to be near the top of the list despite the hits to their sovereign wealth funds after buying all those “blue chip” franchises among US financials.  Anyway, below is an overlay chart that fits a story we have been thinking about. 

US$ Index vs. Oil vs. Gold 240-min time frame going back to Dec 3rd 2008: 

Here comes the story: What if Middle-East players are reallocating that stuff they used to send to the euro, now that the euro is fading, to gold instead?  This doesn’t change the money flow game into the dollar—but does boost gold. 

Upshot: If the Eurozone banking system is as exposed as we believe to the ravages of overextending to eastern and central Europe, one might expect more withdraws by the deep pocket players from both euro and British pound, and just maybe those withdraws are deposited into gold.   

Shazam!  That could be a tidy story to suggest gold and Mr. Greenie continue to move higher together keep the crowd perplexed. 

A bit too cute we realize.  But for now, we can think of nothing better.