David Fry's Daily Market Outlook

The global liquidity binge has been begging the question, "What is the value of money today?"

I read today that Equity Office Properties may be purchased for $38 billion; Tom Blixseth is building a house in Bozeman, Mt. that he will offer for $155 million; Roman Abramovich is building a new yacht for $400 million; and if you're a baseball fan you know the Boston Red Sox spent $51 million just to be able to sign a pitcher for an additional $50 million or so. The world is swimming in money and there's only one thing of any real value beyond all this paper money--gold. [And my World Series Ring!]

Don't get me wrong, I'm no gold bug. They annoyed me all thru the 1970s and 80s with their tales of gloom and doom. But, gold is breaking out this week and doing so in the face today of the IMF's proposal to dump 400 tons of the stuff. You really shouldn't like the message gold is sending. Gold is the ultimate disciplinarian of out of control printing machines of Central Banks.

We posted Bernanke's photo yesterday as the headlines shouted, "Give that man a hand!" Perhaps it should have read, "Can anyone stop this man!"

The printing presses of all these banks continue apace. In Japan they're lending money to all comers at less than 1%. Who wouldn't take that and just buy 2-year Treasury Notes at nearly 5%?

The other big news today was the impending[?] new high in the Transportation Index which, should it occur, may drag some famous Dow Theorists kicking and screaming to buy the market.

Now let me pre-empt the obvious question: If paper money is being debased, won't that cause havoc with financial assets like stocks? We can only go back to the late 1970s when the last bull market occurred. At the time some stocks did very well: natural resources and tech sectors. The former is obvious, but the latter did well for two reasons. First, technology was rapidly evolving in those days. There was excitement, and investors fearing inflation were keen on owning stocks whose earnings growth was outpacing high inflation rates. That doesn't seem to be the situation now, since with so much liquidity floating about looking for a home, stock prices are being inflated as are corporate earnings.

Therefore stocks can continue to rally and seemingly will do so until central banks start to clean up their mess by vacuuming excess liquidity. When that happens gold and stocks will plummet. Until then enjoy or not what may prove a pretty wild ride.

We're not accustomed to pounding the table at the ETF Digest about any macroeconomic theories or punditry for that matter; but, the evidence is overwhelming for all to see.

I believe the G-7 starts its meetings next week and you can expect a lot of "talk" to jawbone the yen higher, keep the dollar from falling out of bed and hammer gold.

It's a big world and more money continues to be made overseas than in the U.S.. It's all the same to me frankly.

I'm not prone to making predictions since we're just trend-followers and not trend-setters, so you might take my opening rant with a load of salt. It's the way I feel though, and I am just speaking my mind. We only follow what the charts tell us to do. Period.

Friday ends an interesting week as we begin February. Tomorrow is Groundhog Day, and I'll celebrate by watching the moving for the umpteenth time. That's only appropriate, eh? We could discuss the Super Bowl indicator...but, nevermind.

Go Bears!

Have a great weekend!

Disclaimer: Among other issues, the ETF Digest maintains positions in: streetTRACKS Gold Trust ETF (GLD), PowerShares DB Precious Metals Fund (DBP), S&P 500 Index (SPY), MidCap SPDRs ETF (MDY), NASDAQ 100 Trust Shares ETF (QQQQ), iShares Russell 2000 Index ETF (IWM), First Trust DJ Internet Index ETF (FDN), PowerShares Zacks Microcap Index (PZI), PowerShares Aerospace & Defense (PPA), PowerShares Water Resources ETF (PHO), iShares S&P Latin America 40 Index Fund (ILF), iShares MSCI Emerging Markets ETF (EEM), iShares S&P Europe 350 (IEV), iShares MSCI France (EWQ), iShares MSCI Mexico Index ETF (EWW), iShares MSCI Japan Index ETF (EWJ), iShares MSCI Australia Index Fund (EWA), iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), iPath MSCI India ETN (INP) and iShares MSCI Malaysia (EWM).