Monday, May 23, 2005

moving some more funds into precious metals fund

At the start of 2005, I moved some funds over to a precious metals fund at Vanguard (VGMPX). I am going to take this opportunity to add to my position on the strength in the dollar (vs. the euro) over the past several weeks driving gold down to about $417. Investors have likely been selling euro as they fret about what a French "non" on the EU constitution vote means for the future of the EU. I see the recent dollar trend as short-lived and believe the downtrend will resume in the next 6-12 months.

As I've stated before, I believe the Fed is near the end of its tightening cycle. A month or two ago, I predicted that there would be two more 25bp hikes before the fed stops. So I think we are down to the last one. I simply feel that our ultra-leveraged finance-based economy can not hold up under much more than 1 or 2 more tighenings. At that point, when the cracks become too big to ignore, I see the Fed as choosing the easy way out (i.e. keeping the FFR flat or even loosening, choosing inflation in an attempt to stave off a recession) Neither Greenspan nor Ben "helicopter drop" Bernanke can be seen as serious inflation fighters. I don't think the lack of "follow through" on the part of the Fed will work. I see inflation if not stagflation as distinct possibilities in 2006. In such a scenario, gold (prec. metals) will likely hold up much better than equities.


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