Market Pulse

Inflationary effects from the second round of bailouts pumped up equities and commodities as well, but the effects have already begun to wane. The reality is that QE2 has failed to address any of the underlying faults associated with the decline, including forecloses, unemployment, and the currency volatility now effecting commodity prices.

 

The bank bail outs are veritably propping up the problem and rational solutions haven’t been put on the table by heads of states. Ahead of the G20 meetings, World Bank head Robert Zoellick wrote, “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”3 Metals have a long way to go if governments are just now starting to publicly address the dysfunctional state of the US dollar as the reserve currency. Meanwhile, the measures currently being applied by central banks will effectively enable the continuation of the underlying problem—the era of moral hazard.

Our recommendation is to buy silver and gold during any dips similar to the 5.5% loss on Friday. Outside of clueless bankers, the investment climate is leery at best. And the safe haven or rational alternative continues to be in emerging markets and commodities. Moreover, any central bank easing will also continue to find its way into these sectors.

Any bad press or damages from the suits on JP Morgan could facilitate more windows for shorting its stock.  Keep an eye out for any media coverage of the trial or hearings, as these should provide the green light to short JPM. We’ll keep you posted on the upcoming SHORT LIST.

Sources & Links:

1. http://www.prnewswire.com/news-releases/silver-short-position-could-cost-jp-morgan-billions-in-losses-says-nia-106058478.html

2. http://www.marketwatch.com/story/hagens-berman-announces-jp-morgan-and-hsbc-face-rico-charges-in-silver-futures-class-action-lawsuit-2010-11-03

3. http://www.ft.com/cms/s/0/5bb39488-ea99-11df-b28d-00144feab49a.html#axzz157oH62X2

4. http://www.foxbusiness.com/markets/2010/10/27/jp-morgan-hsbc-accused-silver-manipulation/

Stock

1 GLD 119.26
+1.02 (0.86%)    
2 INX CA$0.45
0.000 (0.00%)    

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