Ad Hoc Commentary – listen to the bears

There is a time for everything under the sun. Now is the time to listen to the bears. Our favorite barometer of risk, the Dow Jones Industrial is at the top of the range. We risk selling off on a likely disappointment by Uncle Ben at Jackson Hole on Aug 31. Labor Day on Sep 3 would perhaps mark the transition between day and night.

Google up on QE3 and you can read up on all the conflicting remarks. For us, it is simple. Average Joe is suffering stagflation – he ain’t getting a pay rise (due to high unemployment); while his expenses are going up on food (weather-driven), energy (geopolitics-driven), and tax (sovereign debt-driven). To introduce more stagflation by debasing the denominator using QE3 is just going to make living more painful for average Joe. As usual, the blame for the misery would be heaped on the incumbent president – fairly or unfairly. And since Uncle Ben’s employment depends on Obama being in the job, Uncle Ben would likely think hard before printing. Best to wait for Obama to be reelected first.

The days for gold seems numbered if Uncle Ben indeed disappoints like we expect him to. Unless we see massive increase in geopolitical uncertainty in Middle East involving perhaps Saudi Arabia, then the likelihood of gold selling off is high. The gold bugs will once again bury their head in the sand and come out of their hole after the US presidential elections. You can count on Uncle Ben printing then. In the meantime, cash is king.

Good luck in the markets.