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News and Notes: 2010 the Year of Volatility, David Rosenberg:Bearish Equity Bullish Gold


Those of you who are subscribers of the Rosenthal Capital ‘Market Moving Chart of the Day’ will recognize the Graph above (courtesy of ZeroHedge). (Those who wish to subscribe may do so by entering their email address in the box provided at the top right of this page.) I’ve reprinted the Graph here because it bears, no pun intended, close scrutiny.  As the graph illustrates, 2010 is the year of volatility. The month to month swings from highs to lows and back again are at the least capricious. At the worst, these swings may be coordinated and in fact vicious with the intent to injure the unsuspecting. Read the following story and decide for yourself…  

Pimco Sells Black Swan Protection as Wall Street Markets Fear

Wall Street’s hottest new product is fear.

Almost two years after Lehman Brothers Holdings Inc.’s failure caused world markets to seize up, Pacific Investment Management Co. is planning a fund that will offer protection to investors against market declines of more than 15 percent. Morgan Stanley strategists estimate demand for hedges against such cataclysms helped drive as much as a fivefold increase last quarter in trading of credit derivatives that speculate on market volatility.

The efforts to protect against another disaster, which helped drive up the relative costs of the most bearish credit derivatives to the highest in two years, show that investors’ psyches still haven’t recovered from the Lehman bankruptcy on Sept. 15, 2008, which erased $20.3 trillion in stock market value worldwide and caused credit markets to freeze.

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The always insightful David Rosenberg weighs in on the Bearish outlook and the value of Gold in this environment….

Q&A With David Rosenberg: The Bearish Outlook

…Gold is also a hedge against financial instability and when the world is awash with over $200 trillion of household, corporate and government liabilities, deflation works against debt servicing capabilities and calls into question the integrity of the global financial system. This is why gold has so much allure today. It is a reflection of investor concern over the monetary stability, and Ben Bernanke and other central bankers only have to step on the printing presses whereas gold miners have to drill over two miles into the ground (gold production is lower today than it was a decade ago; hardly the same can be said for fiat currency).

Moreover, gold makes up a mere 0.05% share of global household net worth, so small incremental allocations into bullion or gold-type investments can exert a dramatic impact. Gold cannot be printed by central banks and is a monetary metal that is no government’s liability. It is malleable and its supply curve is inelastic over the intermediate term. And central banks, who were selling during the higher interest rate times of the 1980s and 1990s, are now reallocating their FX reserves towards gold, especially in Asia.

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Disclosure: Long: Gold assets