The Hungarian Central Bank purchased a Titian painting last week for $15.8 million. The move is unusual, even for a central bank that has been on an odd buying spree. Earlier in the year, the bank purchased an old Hungarian silver treasure for $20.6 million and a castle-hotel last year. (The bank says it will be used to help employees with fringe benefits and welfare benefits.)
Central banks print money. So, when they take excess cash to buy hard assets, it is something of a yellow flag. Why should we be worried? Deflation has been a serious issue around the world and despite the American-moat theory, low (official) inflation readings seem to bug the Fed more than the punk recovery and wage-less jobs market.
Hungary says it wants to recover lost treasures from its country and countrymen… Titian was Italian.
Alone, the story would be a curiosity. However, coupled with the fact that China has increased its gold hoarding by 57% since 2009, it brings back those same questions- why so much gold?
As much as we braced for and even celebrated the fall of the Chinese stock market, which included the implosion of that nation, they are moving full steam ahead. Programs that speak beyond a stock crash, to stepping up on the world’s economic stage. The new Silk Road, the alternative to the International Monetary Fund (IMF), major energy and security deals with Russia, and even propping up its stock market. However, that gold speaks to the notion that all its dollars and Euros are going to go through a painful period of devaluation.
Furthermore, not only have we seen a glimpse via the Greece drama of how tenuous the Euro has become, but we also know central banks have been loathing the idea of reversing their course despite claims of victory over the economic implosion.
Personally, I think it is too early to panic, but at some point, we will have to make moves similar to the Hungarian Central Bank and buy silver, real estate, and even old masters if you can afford it. Actually, it could be years from now before we would have to take such actions, but it is good to know the game plan. If you are looking for a buy signal, other than central banks, just watch gold, which failed to pop in the throes of Greece/China.
Last week, gold collapsed.
Maybe I will consider buying above $1,220…but there is no sense of urgency.
In the meantime, China wants its currency to be the world’s reserve, so it is unlikely they will allow anything beyond a run-of-the-mill economic correction to happen anytime soon.
A Message from the Market
While the NASDAQ was breaking out to new all-time highs, I was impressed with earnings news from General Electric (GE) and Honeywell (HON). However, I am not ready to buy the former and I might have missed on the latter, but we are zeroing in on industrials this week. They are not as sexy as older tech names, living up to two decades of hype, but the industrials have had more than ten decades of ups and downs that suggest they could be worth overweighting through the next up-cycle.
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