The Dow keeps on hitting new highs on a nominal basis, but its rise is subdued, to say the least. This week, the index rose just over 100 points or a bit less than 1.0 percent. Of course, this doesn't bother the Wall Street "analysts". The new high is the thing. What they are NOT factoring into their calculations is the deterioration of the US Dollar since then. When the Dow hit its bull market high of 11723 on January 14, 2000, the $US index (USDX) stood at 101.45. It now stands at 86.87, a fall of 14.4 percent. To compensate for the deterioration of the USDX since January 2000, the Dow today would have to be at about 13420. That's just one example, there are many others posted all over the internet, but Wall Street and, sad to say, most investors don't pay any attention to them.
What HAS changed this week is the direction of US Treasury bond yields. After having fallen inexorably since late August, bond yields have turned up. As recently as October 4, for example, a two-year Treasury was yielding 4.58 percent. On October 13, the yield had jumped to 4.86 percent. The thing that hasn't changed is the slope of the yield curve. On a two-year - ten-year comparison basis, it is inverted, as it has been for the past two months.
This week, to great fanfare, Mr Bush announced that the official budget deficit for fiscal 2006 (which ended on September 30) was $US 260 Billion. As we reported on this page last week: "According to the Treasury's official statement, their debt "to the penny" in fiscal 2006 increased by $US 574.27 Billion." Thus, the official increase in Treasury debt in 2006 is precisely 120.87 percent higher than the official budget deficit over the same period. That's right, well over DOUBLE. That is a new record in (financial) mendacity even for the Bush Administration.
And of course, there was the September US trade deficit which came in at $US 69.9 Billion ($US 838.8 Billion annualised). This was the second all time record deficit in a row.
Yet the US stock market, at least as measured by the Dow, stands at all time highs in nominal terms. Bond yields have only begun to rise a bit this week, and all maturities from three-month to thirty-year remain well below the Fed's offical funds rate of 5.25 percent. The yield curve has remained inverted for the last two months. In fact, it has spent most of 2006 in that ominous position. And the US Dollar actually rose this week.
Meanwhile, the US polls point directly to the loss of the House of Representatives and potentially the Senate too by the Republicans if the election were to be held "today". Sadly, as more than a few knowledgeable political analysts have reported in recent weeks, the Democrats are going to need a landslide at the ballot box to eke out a narrow win when the votes are counted.
Gold has had a good week this week, gaining $US 16.00 in spite of a higher US Dollar and a great deal of pumped up ballyhoo about the Dow's new "highs". On top of that, we now have a solid support point established in the low $US 560s. That was the low which Gold reached in mid June at the end of the precipitous fall from the $US 720 plus highs set a mere month earlier. Gold reached that level again late last week, only to rebound this week most of the way back to the $US 600 level.
In technical terms, it is very tempting to say that the "bottom" for Gold is in. However, the elections are still three weeks away and quite literally "anything" could happen, especially if the polls foreseeing a landslide for the Democrats hold as the time winds down towards November 7.