How Big Can the Gold Bubble Get?

All this talk about quantitative easing and last gasp bubbles is seemingly starting to spread. Just when we thought it was a stateside phenomenon, the Bank of Japan engaged in a "comprehensive monetary easing" by edging its benchmark interest rate to "virtually zero" (all the way from 0.1%) while expanding its balance sheet to buy government bonds and other assets. The pledge? To eradicate deflation.

The upshot, as market historians will tell you, is that they've been battling the Phantom of Deflation since the Nikkei topped at 40,000 nearly 20 years ago. Twenty years! How long ago was that? Let's see, I was barely legal, Buster Douglas knocked out Mike Tyson, Drexel Burnham Lambert filed for bankruptcy, Microsoft (MSFT) released Windows 3.0, and the World Health Organization removed homosexuality from its list of diseases.

Yikes.

Vibing on the Nikkei got me thinking about all sorts of bubbles and busts, a dynamic we've seen all too often this past decade. As we've monitored this progression for a few years in the 'Ville, I wanted to circle back to our trusty bubble comparison chart, which included the yellow metal commonly referred to as gold.

To be sure, past percolation is no guarantee of future elasticity but for purposes of perspective, this adds some historical context to where we've been and where we are.


Click to enlarge

Some Random Thoughts
 

• White light CPH.
  
  
• S&P 1115-1120 is the level on the downside while S&P 1150 remains overhead after Boo played whack-a-mole last week. We're getting there now.
  
  
• As discussed, the NDX (+16% in September) was the more compelling risk/reward with a stop on the other side of the Spring highs (NDX 2060). That level remains in play.
  
  
• Corporate credit continues to be a feather in the bovine cap. It's one piece of an intricate puzzle, mind you, but it's something that should remain on our radar.
  
  
• And then, of course, there are the putrid state of the States.
  
  
• Breadth is 5:1 positive, the dollar is lower, and beta is well bid. That's enough to quell my desire to fade (short) S&P 1150 but I'm keeping a close eye on the banks (Goldman (GS), in particular) as they don't seem to be buying into this up, up, and away fray just yet.
  
  
• Red beans in the green sea include American Express (AXP), Hewlett-Packard (HPQ), Altera (ALTR), Home Depot (HD), and Ultra Petroleum (UPL). Should the tide turn lower, expect these issues to have bigger... issues.
  
  
• Are we there already? Festivus 2010 is coming up quick so if you would like to lock your spot -- or a sponsorship, if you believe in the “being a reflection of the company you keep” thang -- please visit the Ruby Peck Foundation website or email Jilly on the spot. Thanks, as we do our part to give back to the kids!
  
  
• The Chiefs? Really?
  
  
• Good luck today Minyans. Be the ball!

R.P.

Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.