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Bonds vs Gold

Bonds vs Gold

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Published by TheShortSideOfLong
Treasuries, Gold, 30 Year Bond, 10 Year Note, Interest Rates, Stocks, S&P 500, Sentiment, Fund Flows, Daily Sentiment Index, Parabolic, Safe Havens, United States, Tax Revenues, Financial Markets, Government Spending, Deficits, The Short Side Of Long
Treasuries, Gold, 30 Year Bond, 10 Year Note, Interest Rates, Stocks, S&P 500, Sentiment, Fund Flows, Daily Sentiment Index, Parabolic, Safe Havens, United States, Tax Revenues, Financial Markets, Government Spending, Deficits, The Short Side Of Long

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Published by: TheShortSideOfLong on Aug 22, 2011
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08/22/2011

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I have to admit, I love the
"Safety Crowd." 
They are In case you don't knowwhat that means, it's a term I coined for those who interpret every singleset of news as bearish, regardless of it being inflationary or deflationary.This group of investors is also known as perma-bearish. And since we are inthis perma-bearish environment, thanks to the total economic collapse in2008, the old argument between Bonds vs Stocks is not even alive anymore.It has morphed itself into Bonds vs Gold.You see it goes something like this: if a news report comes out showing thatUS ISM has declined below 50 (contracting) and that the economy isslowing, half of the Safety Crowd will tell you that this is an inflationaryevent because the slower the economy, the more money printing theFederal Reserve will do and the more Gold you shall buy - because Gold is asafe haven, they claim.On the other hand, the other half of the Safety Crowd will argue that this isa deflationary event because the slower economy will tend to collapse onits own two feet and the worst thing you can have in a recession is a highamount of debt (asset deflation occurs while debts remain at the samelevel). Under this scenario, they claim, Treasury Bonds is the ultimate placeto park your money, as they are a safe haven.There is so much fear around since the end of 2007, that the Safety Crowdhas on a consistent basis just recommended to buy Gold or Treasuries overand over and over again. They claim that these asset classes will preserveyour capital and that when 2008 repeats, you are going to benefit from therisk off scenario.
Lets consider both...
 http://theshortsideoflong.blogspot.com/ 1
 
Source: The Short Side Of Long
In my own opinion, buying Gold right now would be extremely foolish andtotally defeating the purpose of wisdom which states to "buy low, sell high".The sentiment for this asset as measured by ETF fund flows for SPDR GLD isnow at the highest ever monthly inflows. Listen to that again.... highestever monthly inflows. That means dumb money is doing exactly that...following the Safety Crowds advice. This trade has become so obvious tothe public, which are scared out of their own minds, that it is obviouslywrong.Furthermore, the Gold bull market hasnow been in progress for over 1000days without even touching the 200day moving average once. I admit mywarnings have been a tad early, as Ihave already posted about this as earlyas late July, but in all honesty that wasonly three weeks ago. I guess majorityof investors today are actually traders,who only use intra day charts, so goneare the days of actually buyingsomething and riding out the trend.Either way, previous warnings can beread here, here and here.
 http://theshortsideoflong.blogspot.com/ 2
Source: Bespoke Investment
 
And while Gold remains in a secular bull market and profoundly has goodfundamentals behind it for several years to come, Treasury Bonds actuallydo not. They are even worse out of the two, because the Safety Crowdforgot to tell you that during recessions, tax revenues decline and thereforedeficits will go through the roof. I do not know how they missed that, but itis similar to the Goldilocks Crowd in 2007, which forgot to tell you thatFinancial Sector was actually not cheap.
So what happens to the United States budget during a recession, whichthe perma-deflation Safety Crowd claims will be good for Treasuries?
You see during negative economic growth, company earnings as well asprofits fall and jobs are cut. That means tax revenues decline. The Treasurywill therefore have to issue new bonds at a very rapid speed to finance thedeficit budget, which was already at over 4 trillion dollars last year(including hidden liabilities). 
Source: Elliot Wave International
http://theshortsideoflong.blogspot.com/ 3

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