Utility Stocks, Treasuries and Mining Stocks Sell Off On Inflation Report

Evidence suggests the utility sector and bond market is acting adversely to the Wednesday economic report that inflation is rising.

1. The ongoing Google Finance chart of the dividend paying stocks, of VPU, DES, DLN and DOO shows that concerns over inflation have hit the utility stocks hard; they fell 4% on Wednesday the 16th, and Thursday the 17th, while the other dividend stocks as a group have risen 4% while the overall stock market, VTI, rose 2.5%.
2. The ongoing Google Finance chart of of interest rate sensitive sectors, VPU, TLT and DOO, shows that the utility stocks fell 4% on Wednesday the 16th, and Thursday the 17th, and Treasury Bonds, TLT, fell 2%.
3. The chart of the Intermediate US Government Bond ETF, TLT daily, as of July 17th, 2008 shows two fractal breaks lower with RSI falling below 50 and a bearish MACD crossover.
4. The chart of the interest rate on the 30 Year US Treasury Bond, $TYX daily, shows that the bond market place called interest rates higher on Wednesday July 16, 2008 and Thursday July, 17, 2008, in response to the Wednesday economic report that inflation is rising as well as the Federal Reserve's proposed guaranteeing and/or recapitalizing of Freddie Mac (FRE) and Fannie Mae (FNM); note the breakout of RSI of 50 and the MACD bullish crossover.

The Philadelphia Manufacturing Philly shows contracting orders and employment.

Jesse reports Philly Fed Report Reveals an Unmistakable and Serious Stagflation

It's the end of the investment age in investing in the HUI Indexed precious metal mining shares.

The yen carry traders in addition to selling their positions in oil, USO, sold their positions in the metal manufacturing stocks, XME, and the gold mining stocks, GDX; the former off 6% and the latter off 2%.

 

Friday was an epic day in natural resource investing: gold stayed up; the gold mining stocks did not. Gold stocks have once again strongly disconnected from the price of gold as seen in the chart of gold stocks, GDX, relative to gold, GLD, GDX:GLD weekly.

It seems that when debt, $USB, makes a major turn down, the HUI, $HUI, does as well -- three days of down in the the former, pushed three days of down in the latter.

The HUI indexed metal mining stocks will now more and more be turning down with the stock market.

I have continually warned investors in this blog, and also as can be seen by my article archive on Financial Sense.com about the dangers of investing in the gold mining stocks now that they are disconnecting from the price of gold. One of the reasons, I have done this is that the leverage that had existed in gold stocks over gold, has always been appealing to the investor.

There is a continual flow of articles on the "wealth management sites" inducing -- tempting people unto their destruction; here is one such article: The XAU Index is on the Verge of a Multi-year Breakout. Here is the ongoing chart of the XAU courtesy of Stockcharts.com

Comments

[GMiki1:]

Funny you post at Financial Sense since what you say is completely at odds with what Jim Puplava (whose site it is) says. He says that the gold stocks got hit at the end of the options quarter by those who didn't want to pay up, but wanted to buy back the stocks they shorted, make money, and then go long. Jim also believes strongly in the juniors.

2008 Jul 20 08:10 PM

[Grammarian:]

The author needs to learn to write--"have rosen" is a turn off, especially in the first paragraph. If the author cannot write then there is no reason to rely on the comments.

2008 Jul 21 08:51 AM

[Clavis:]

GLD etc expensive, junior gold miners, armed with NI 43-101, gold in the ground at minimum $70 an ounce are in general trading at 25% to their value. People do not do their homework!

2008 Jul 21 08:51 AM

[Calvin C.:]

I hate grammar police type people that talk with a British accent. FCUK!

2008 Jul 21 09:31 PM