A Short Supply of Confidence

Chris Poindexter
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Posted: Jun 27, 2011 12:01 AM

I don’t think last week is going on any investor’s highlight reel.  It was one of those strange convergences where the news was bad from almost every quarter all at once.  The stock market had a terrible week and even usually reliable precious metals went south as European investors fled to the relative safety of the dollar. 

Investors fleeing the turbulent debt situation in Europe provided unexpected strength to the dollar, which put pressure on commodities across the board.  Gold, silver and crude oil all hit the skids, recovering a bit toward the end of the week. 

Sad testimony on the state of the global economy when the only reason investors flee to the U.S. is because we don’t look as bad as other countries.  Not exactly inspiring.   

In this moment when global confidence was poised to shift our way, when we could have stood out from the crowd and shown leadership on the global economic stage, Eric Cantor and Senator Jon Kyl picked that moment to walk out of bi-partisan budget negotiations. 

Not getting into the question of who was right or wrong, the timing could not have been worse.  The ongoing budget stalemate threatens to undermine the full faith and credit of the United States of America.  Demonstrating to the world that we confront that potential with the determination and maturity of a kindergarten class is not helping inspire confidence.  Indeed, the damage may already be done, even if Congress limps to a budget deal in time. 

All this sets up an ongoing fog of uncertainty going into next week.  Instead of confidence and clarity we have uncertainty and fear in the driver’s seat.  Expect any up side movement to be chased by profit taking and any good news to spark movement to higher valuations.  For the rest of summer we’ll likely be living the old investment adage “Buy the rumor, sell on the news.”

There will be a host of economic reports out in advance of the long 4th of July weekend next week, the most significant of which is the ISM Manufacturing Index for June.  Analysts expect the index to fall from May.  Formerly a consistent bright spot in the economy, extreme weather and flooding in the Midwest have disrupted supply chains and interrupted deliveries of raw materials.

The S&P/Chase-Stiller Home price index for April will be released Tuesday, which is likely to show homes continued to lose value in April.  No real surprise, but no relief for weary homeowners watching the value of their biggest investment continue to slide.  Pending home sale data for May is due on Wednesday. 

The Conference Board’s Consumer Confidence Index will be released Tuesday and the Reuters/University of Michigan Sentiment Index is due Friday, along with figures from car makers on June sales in North America. 

The only hope for consumer sentiment next week may hinge on falling prices for gasoline.  Personally, I’m not confident that $0.10 at the gas pump is going to have anyone dancing in the streets.  Confidence seems to be a commodity in short supply right now. 

Chris Poindexter, senior writer, National Gold Group, Inc


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