From their flagship Up and Down Wall Street column:
Commodities send a deflationary signal that's being corroborated by TIPS -- the Treasury Inflation-Protected Securities.
Keep calm and carry on. Once again, the British byword from World War II would be invoked in a week following the unspeakable acts in Boston that cast a pall on the entire nation's consciousness. It is almost unseemly to write of markets and mammon in the wake of yet another tragedy caused by evil. But not to keep calm and carry on is worse, as it gives succor to the evildoers.
That the Dow Jones Industrial Average suffered its worst daily loss of the year, a 266-point plunge on Monday, could be only partially traced to the bomb blasts at the finish line of the Boston Marathon as news of the act of terror pushed an already sliding market down about another 90 points. But that was followed by one of the year's best gains for the Dow, a 158-point pop. That would prove the high point for the week, however, as the blue chips slid, ending their worst week of 2013 so far, with a loss of 2%.
But equities' slide was but a part of the global deflationary wave that swept through the commodities and bond markets, featuring the sharpest plunge in gold in over three decades. The drop in a range of commodities, notably economically sensitive goods such as metals and petroleum, came as the International Monetary Fund lowered its projections for global growth and more lackluster data was released for the U.S. economy.
It was the rout in gold -- a 15% two-day crash that culminated with a 9% plunge on Monday -- that got the most attention and elicited an outpouring of opprobrium from various enlightened sources that was captured pithily in a cartoon in the current issue of Grant's Interest Rate Observer. Pictured is a mock front page of the New York Times bearing the headline, "Gold Sucks. And Silver Is Worse."
None of which excuses the call in this space a week ago ("Bitcoin for Your Thoughts? Buy Gold," April 15), just in time for the bottom to fall out on Monday. Still, the stories about why nobody should ever own gold -- that it's useless, has no intrinsic value, that only haters would have it -- were oddly absent in the decade-plus-long rise from under $300 an ounce in the late 1990s to a peak of $1,900 in September 2011.
True, while gold has moved mostly sideways after correcting that spike, it wasn't the only asset to get ahead of itself. Over the past 12 months, the SPDR Gold Shares exchange-traded fund (ticker: GLD) is down 15%. During the same span, Apple's shares (AAPL) are down twice as much, breaking below $400, more than $300 below its peak of last September.The "catches on" line is in reference to a quick search at FT Alphaville, keyword "Deflation":
The debate over gold has become something of a theological argument, and of course one doesn't discuss religion or politics with friends. On less contentious subjects, the deflationary direction is less controversial. Copper entered bear-market territory on Friday as a further 1.7% decline put the metal more than 20% below its February 2012 peak. Crude oil also extended its recent slide, with the U.S. benchmark well under $90 a barrel and Brent breaking under $100.
The signal from commodities is corroborated by what's happening in the world's biggest, most liquid market -- U.S. Treasuries. Not so much in the trading of the regular notes and bonds, which gets quoted everywhere, but in the market for TIPS, or Treasury Inflation-Protected Securities. TIPS are adjusted for the consumer-price index, so they pay a "real" yield plus the CPI. Recently, that real yield has been negative for shorter TIPS since regular Treasuries yield less than the expected rise in the CPI; think of that negative yield as an "inflation insurance" policy. Demand for that inflation insurance collapsed last week as an auction of five-year TIPS drew the weakest bidding since the crisis of 2008, when investors wanted nothing but regular Treasuries....MORE
909 hits.
