Thomas Friedman - on a Theory of Everything (sort of)

A precise article by Thomas Friedman about the current state of unemployment, credit and strained government finances.

A Theory of Everything (Sort Of) - NYTimes.com

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THE ONGOING RECOVERY - NOT!

As the US Government is negotiating to raise the US Debt Ceiling, Central Bank Governors around the world are struggling to keep the fragile economic recovery intact while tackling inflation concerns at the same time.

Below are some magazine covers, that you would not expect to see at this stage of a economic recovery!

DJIA - THE RALLY GOES ON

As the rally in the US equity market continues, even the most ardent ''bear'' is probably just about ready to throw in the towel.

Can this rally be explained in light of deteriorating fundamental news such as rising unemployment and government debt levels ?

Perhaps now is the time for the prudent investor to re-assess his risk reward matrix.
Does waiting for a possible upside from current levels justify the risk at this stage?
Some analysts are saying that the current rally since 2009 has started to form a bearish ascending wedge formation on the charts, and that it's time to book profits.

The Bullish Bear Blog's view:

• The risk reward ratio is clearly not in favour of the long only investor.



• After a monster rally from the lows back in March 2009, potential downside risk clearly outweighs any possible upside.



• The mega rally has exhausted a large percentage of short positions in the market. This in turn means that the market has much less support on the downside if a correction ensues.



• Meanwhile the market continues to ignore serious issues like the Club med debt crisis, unemployment issues in the US & steadily rising government debt levels in the developed world.

EURO RALLY - SUSTAINABLE....NOT

A positive rate outlook for the Euro and the continuing downtrend in the USD has resulted in quite a sustained uptrend in the EUR USD exchange rate. As the Club Med nations come to the table asking for handouts, the ECB has gone ahead with the first of many proposed rate hikes. Rising inflationary pressures as a result of booming commodity prices led by Crude Oil could have forced the ECB's hand at this point.

But is this rally in the EURO justified?

Is the USD in much worse shape than the Euro?

Here's my analysis:

• The Euro has considerable exposure to Club Med and is by no means out of the woods.
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• The USD too has many structural weaknesses - rapidly expanding Federal debt levels, terrible finances at the state and municipal government level, a slumping housing market and uncomfortably high unemployment.
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• But the fact remains that the USD is oversold at the moment.
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• The CBOE VIX is currently trading well under 20, at 18 currently. A warning sign for perma bulls.
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• Equity markets are far too complacent at the moment, totally ignoring the headwinds of $113 Crude Oil and all the negative geo -political newsflow. The risk reward ratio is clearly against the prudent investor. .


• Just like 2008, an equity market sell off will once again be accompanied by risk aversion and a rebound in the USD as investors shun other risky asset classes ( emerging market equities and hot commodities) for the relative safety of the USD and the US Bond Market. The USD always benefits from the flight to safety during market panics.

Sadly,most fiat currencies are seriously flawed as governments continue to ignore structural problems of their economies, preferring to ''kick the can further down the road''.

This is reflected in the fact that Gold and Silver continue to rally in most currencies.

Commodity currencies like the CAD, Swedish Krona & the Australian Dollar remain vulnerable to a sell off in the commodity markets. The Swiss Franc and the Japanese Yen have also shown sustained strength vs the USD.

To conclude, I expect the USD to recover when the stock market starts to sell off & I expect further negative newsflow from Club Med in coming months to weaken the ''overbought'' EURO.

US HOUSING MARKET & the 30 YEAR FIXED RATE MORTGAGE

Home prices in the U.S. will continue to face headwinds as the 30 year fixed rate mortgage rate continues to climb despite the FED's best efforts in QE2.

A combination of declining home prices, rising food and energy prices and persistantly high levels of unemployment will continue to weigh down on the economic recovery.

UPDATE : 30 YEAR US TREASURY BOND

The recent sell off in US Treasuries comes at a time when the FED continues onward with its QE2 programme.

The USD too has weakened somewhat over the last few months, even against the troubled EURO.

Could this Bond market sell off further complicate the attempts of the FED to revive the ''global'' economy? Falling Bond prices means that yields will rise, a fact that will not go down well in a market where credit growth is actually contracting. If mortgage rates start to rise, the US housing market will face further headwinds.

WATCH THIS SPACE!

BANANA REPUBLICS ...FINANCIAL CRISES & MEGA BAILOUT PACKAGES

Sorry for the infrequent posting of late.
The USD seems to be trying to stabilise, even as gold prices cool off after striking new highs.

Here is a fantastic article that addresses the topic of Banana Republics!
Currency wars / manipulation continue and as bailout packages are announced, many are still asking questions as to who the final beneficiaries of these handouts will be ??

Here's an excerpt from the NY Times article of Nicholas Kristof -

The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976. As Timothy Noah of Slate noted in an excellent series on inequality, the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.

C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent.

That’s the backdrop for one of the first big postelection fights in Washington — how far to extend the Bush tax cuts to the most affluent 2 percent of Americans. Both parties agree on extending tax cuts on the first $250,000 of incomes, even for billionaires. Republicans would also cut taxes above that.

The richest 0.1 percent of taxpayers would get a tax cut of $61,000 from President Obama. They would get $370,000 from Republicans, according to the nonpartisan Tax Policy Center. And that provides only a modest economic stimulus, because the rich are less likely to spend their tax savings.

At a time of 9.6 percent unemployment, wouldn’t it make more sense to finance a jobs program? For example, the money could be used to avoid laying off teachers and undermining American schools.

Likewise, an obvious priority in the worst economic downturn in 70 years should be to extend unemployment insurance benefits, some of which will be curtailed soon unless Congress renews them. Or there’s the Trade Adjustment Assistance program, which helps train and support workers who have lost their jobs because of foreign trade. It will no longer apply to service workers after Jan. 1, unless Congress intervenes.

So we face a choice. Is our economic priority the jobless, or is it zillionaires?

PERMALINK:
http://www.nytimes.com/2010/11/07/opinion/07kristof.html

Where are we headed to now ?

Well it's been a while since my last post.

Markets have been bullish across asset classes. Equities, Bonds and precious metals, all rallying at the same time!!
U.S. unemployment numbers as well as the continuing slump in the US housing market continue to be worrying reminders that all may not be well with the global economy.

David Rosenberg recently reminded us that the U.S economic recovery has been largely dependent on government support (think mega bank bailouts, cash for clunkers, food stamps, infrastructure funding packages etc). By this stage of the game and given the extraordinary stimulus packages of the last two years, the economy should have been growing strongly.

Instead it looks like the U.S. economy is unable to survive on its own, given its slumping home prices, high unemployment numbers and high consumer debt levels.
Even Ben Bernanke is looking to cut growth forecasts while remaining silent about the eventual withdrawal of 'fed support' for the economy.

The FED & GSE's continue to support the housing market, even as home prices continue to remain weak.
No government in the western world can risk withdrawing its support for the ongoing ''fragile'' economic recovery. In fact, many are contemplating another round of stimulus packages to head off a slowdown in the second half of 2010.

Here's a quick roundup -

• Gold and Silver are on a surge yet again, after trading confidently throughout this summer. They appear to be overbought in the near term, especially silver which has had an almost vertical rise over the last fortnight.

• US Equity funds continue to see outflows, while US debt funds continue to see further inflows.

• US Equities have been rangebound in the 1030-1130 range on the S&P 500.There have been multiple corrections and rallies and despite regular tremors about the Club Med economies, the Euro and the state of finances of the states like California in the U.S.A --markets have chosen to ignore any worrying news.

• Emerging market equities are rallying again and decoupling theorists are back to claiming that the BRIC economies can thrive and grow despite global headwinds.

• The Indian equity market has been an outperformer in 2010 YTD. The rally is spreading to the mid caps and small caps. Overall the markets appear to be factoring in growth rates that may prove to be a tad unrealistic, especially if we see any turmoil in the ever slowing western economies

Overall, I continue to be wary of the ongoing rally in equity markets that seem to refuse to acknowledge poor economic data as well as the total lack of confidence on main street (especially in the developed world).

Are equity markets adequately factoring in a possible slow down in the second half of 2010? - I think not

Remember, it's better to be realistic that hopelessly optimistic.

I am still bullish on precious metals. We are also entering a 'seasonally strong' period for precious metals. Caveat Emptor - A sell off in equity markets will trigger a sell off in precious metals.

Expect upcoming posts on Gold, Silver and Indian Equities in coming weeks.

US MEDIAN DURATION OF UNEMPLOYMENT

As the market eagerly awaits some FED news flow, here is a chart that deserves a closer look.

While the unemployment rate has continued to remain under 10%, the chart below shows that this is still one '''tough''' job market.

If the recovery is to be led by consumer consumption, then this chart must begin trending downwards!

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Continuing stress in the housing and job market coupled with an increase in the savings rate and lacklustre credit offtake further reinforces David Rosenberg's stand that ''frugality is here to stay''

U.S. HOME PRICES – THE LONG, LONG TERM VIEW

Here's David Rosenberg again, this time with a chart from Prof. Robert Shiller's data.

Mean reversion is one sticky concept, that a debt addicted economy is going to have to come to terms with.

As the inventory of unsold homes and the shadow inventory of foreclosed homes continues to build, the downward pressure on home prices in the U.S.A. looks all set to continue.

Lastly, here is a link from Main Street that the guys on Wall Street should take a look at.

Food-stamp tally nears 40 million, sets record Reuters

""""""""Food stamps are the primary federal anti-hunger program, helping poor people buy food. Enrollment is highest during times of economic distress. The jobless rate was 9.9 percent, the government said on Friday.

The Agriculture Department said 39.68 million people, or 1 in 8 Americans, were enrolled for food stamps during February, an increase of 260,000 from January. USDA updated its figures on Wednesday.""""""""""""

David Rosenberg - More downside to U.S. Home prices ?

The recovery in the U.S. housing market is taking longer than expected.

The crash in home prices has really eroded the networth of homeowners and rattled the U.S.consumer.

David Rosenberg recently highlighted the differences between Investor expectations and Consumer expectations (Wall St. vs Main St.).

In the chart below he raises a valid point of 'mean reversion' as the the shadow inventory of foreclosed homes and continuing foreclosures, continues to stress out the US Residential property market.

DAVID ROSENBERG : On the FED's non traditional programs and exit strategy!

David Rosenberg explains why the FED's exit strategy is going to be quite complicated!

Just take a closer look at the FED's asset purchases highlighted below.

After all that, things aren't back to normal!!!

Makes Dubai's $85 billion debt troubles look like a drop in the ocean!

THE FED OWNS $1 TRILLION OF HOUSING LOANS

Just another sign that all is well with the global economy.

Bailout the weak nations of Europe, support the US housing market, maybe even support weaker states within the US.......................miles to go before we sleep.


This is a ginormous figure!

Below is David Rosenberg's chart of the Fed's Holding of MBS!!

So are we witnessing a market driven recovery in the US housing market or simply one that has been supported by the US FED buying $1 Trillion worth of MBS ?

Are they AAA rated MBS ? ? ?

Wonder how the finances of Freddie Mac and Fannie Mae are doing ??

RON PAUL AGAIN !

CALIFORNIA - BUDGET CRISIS & BAILOUTS?

The current dire straits of the budget crisis & the finances of the State of California is well known.

Here are some interesting links I came across -

Governor warns of deep fiscal crisis as he unveils California budget plan

What Happens When California Defaults? Newgeography.com

California Housing Forecast for 2010: 5 Reasons why you Shouldn’t Buy a Home in California in 2010. 22 Percent unemployment and underemployment, home owned’ership, California Budget, Option ARMs, and Consumer Psychology.

California Budget Crisis Diaries: Redeem your IOUs, folks

ECB Says Greece Debt Crisis is Tiny Compared to California for the US

INVESTMENT OUTLOOK 2010

At a time when many analysts and experts are advising clients and investors to increase ‘market exposure’ and take more risks I advise you to do the exact opposite.

Now is the time to step out of risky investments and look to minimize portfolio volatility.

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Here’s how you can sum up the true state of the world economy

= Uncertain & Unstable & Volatile.

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Here’s my 2010 check list

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Hope springs eternal: Now that equities have staged massive rallies off their panic lows in March 2009, the performance chasing analysts continue to push more ‘buy’ recommendations to investors, even when the current risk reward ratio is clearly not in their favour.

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Government Support: has enabled the world economy to survive a deflationary spiral that would have triggered another great depression…….or so they tell us. What we now have instead, is a global economy that is addicted to government stimulus packages, bailout packages and ever increasing government debt levels and deficits.

How costly will continuing stimulus packages be for emerging markets in 2010, as export driven Asian economies struggle with slowing consumption in the developed world?

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Stimulus Packages: continue to strain government finances. The fragile global economic recovery is now becoming dependent on these stimulus packages that are artificially preponing demand and artificially propping up consumption. This is leading to a misallocation of resources and resulting in rising commodity prices and a buildup of excess manufacturing capacity.

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Fed exit strategy: I do not think that the FED will be increasing rates anytime soon.

Firstly, the appetite for US Treasury Bonds remains strong. Why raise rates if the market doesn’t force you to!

Secondly, given the large amount of debt issuance lined up for 2010, why would the Fed raise rates now?

Lastly, can the Fed and the Treasury stop supporting the US mortgage market now?

As a student of the Great Depression, Bernanke knows that any further fall in home prices would deal a lethal blow to the 'nascent recovery'. So expect Freddie Mac and Fannie Mae to get unlimited amounts of support.

Stemming foreclosures and reducing the inventory of unsold homes is key to building confidence levels of the US consumer.

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Banking: The only sector that is growing profitably again! But wait…......weren’t these guys the largest beneficiaries of the bailouts in 2008-09!

Then they rushed to reapy TARP money, so that they could start issuing bonuses again!

As for sound lending or sound accounting practices or sound banking practices, don’t expect anything to change anytime soon.

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Employment and Capital Investment: These are two factors that have failed to recover and support this ongoing recovery and bullish sentiment. Continuing uncertainty and a total lack of confidence has resulted in businesses postponing fresh hiring and many capex plans have been shelved for now.

As for government statistics; well you must take them with a pinch of salt. Unemployment statistics, conveniently exclude individuals from the labour force, because they ‘may not be actively searching for a job’. These are people who are actually struggling to find a job in a terrible job market……..and yes they are UNEMPLOYED!

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Expert Views:

David Rosenberg – says we are witnessing a secular shift in consumer behaviour and spending patterns in the US. According to him, ‘frugality’ is here to stay. This will ensure that the deleveraging of US consumer debt will continue unabated, despite the reflation efforts of the FED & US Treasury!

Continued inflows to fixed income investments and continued outflows by retail investors from US equity funds are also signs of a changing investor mentality.

He also labels the government’s efforts to pre pone consumption via the cash for clunkers plan and housing tax credits as ‘’bribes’’ to force consumers to start spending again.

He advises investors to take a more cautious view and favours a conservative income generation investment policy to minimize portfolio volatility and risk.

Government stimulus and inventory restocking have been key drivers of growth in the US economy and David Rosenberg believes that earnings estimates for FY 2010-11 are far too optimistic!

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Ruchir Sharma (head of emerging markets at Morgan Stanley Investment Management) – says that ‘we are all entitled to our own opinions, but not to our own facts’, and advises investors to be wary of the herd. The world economy suffers from excess leverage in the financial system, excess manufacturing capacity and excess leverage on consumer balance sheets. ‘A growth relapse is the true contrarian view to engage in 2010.’ Risks include disappointing announcements from China or a double dip in the US! He says the most money is indeed made or saved by staying away from the herd.

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Chris Laird: the editor of The Prudent Squirrel Newsletter is also cautious. He advises everyone to avoid being swept away by the information overload in the financial media, and avoid fresh risk taking. His track record over the past few years has been impressive!

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US Recovery: The current rebound will go down as the weakest recovery on record going by the Recovery to loss ratio = Gain in the first year or recovery in real GDP / peak to trough loss during the recession. Q4 GDP will be boosted by inventory restocking and a low year on year base effect. How will the economy cope when government support is withdrawn…..if it can be withdrawn?

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US domestic finances and the November 2010 elections – A number of US states continue to struggle with falling government revenues and ever increasing expenses. California is a prime example.

The world’s 8^th largest economy has suffered a massive real estate collapse, record debt levels and is in need of a bailout from Washington.

Thing is, they are not the only guys queuing up! And with elections coming up later this year, can these states resort to cutting government spending?

Politicians are the same everywhere – expect election politics to kick in soon enough.

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Government Debt: A friend of mine recently asked me if there is actually some limit on the amount of debt that a government can issue before it becomes excessive, bringing the whole system down?

Here are two quotes that answer the question:

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as the final and total catastrophe of the currency system involved.”

- Ludwig von Mises, Human Action (1949).

“You have only to find a way to multiply your creditors by the cube and pay them by the square, out of their own money. The fatal weakness of the scheme is that you cannot stop. When new creditors fail to present themselves faster than the old creditors demand to be paid off, the bubble bursts.”
--Garet Garrett

Dubai, Greece, Ireland and Spain are already under severe strain as they struggle to get back on their feet. The ‘world reserve currency’ country -the U.S.A. continues to add on to its debt, as investors continue to lap up US Treasury bond issues.

No one knows what the limit is or when we will get to it – but all these governments are pushing their luck!

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GOLD: An environment of uncertainty, instability & volatility created a perfect storm for Gold in 2009. These are bigger drivers for gold than the ‘inflation’ argument as of now.

While I think that the massive wealth destruction of the last few years will delay an eventual return of inflation, massive government intervention has created a ‘feel good…back to normal’ environment once again.

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Question is – what normal are we talking about?

Expanding consumer leverage & consumption, permanently rising house prices and exploding mortgage derivative markets were never ‘normal’

Falling personal income, increased working hours with less pay, and continued weakness in the US real estate market are the new reality.

Gold prices have now stabilized in the $1080 - $1150 range. The year end USD rally has stalled for now. I will wait for a buying opportunity in gold, which appears likely in the event of a stock market crash, which would trigger a flight back to the USD!

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Strategy for 2010

A genuine recovery vs. a recovery on life support – Understanding this difference is key!

Continue to book profits in equities as the current margin of safety is just not adequate.

Beware of sectors that have been the biggest beneficiaries of stimulus packages, example the auto sector.

Hold on to positions in Gold, and wait for a buying opportunity. Don’t forget that Gold was the top performing asset class of the last decade!

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The US Dollar: I’m a long term dollar bear. In 2010, I expect to see a pullback in the USD when the equity markets correct. There are far too many USD bears out there and one can expect the usual flight to USD safety when markets correct. A rebound in the USD would also enable US Treasury Bond issues to sail through smoothly.

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Complacency and overconfidence will be key factors that punish the unprepared investor this year. The VIX (Volatility index) is at record lows. Expect volatility to make a comeback soon, once investors realise that we aren’t out of the woods as yet!

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The Eurozone – will face quite an eventful 2010. Weaker economies like Greece, Ireland, Spain, and yes even the UK are struggling to reduce deficits and support their local economies. Stronger economies like Germany will be forced to lead bailouts or support packages for their weaker neighbours if things take a turn for the worse.

The EURO could have a volatile time in 2010 if sparring members refuse or delay support packages for weaker members.

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Commercial Real Estate: will continue to haunt banks that are overexposed to the sector. Office Rents continue to decline, and rising vacancies will continue to stress out balance sheets of companies in the sector.

US Home Prices: I still believe that we will see lower prices next year. The resetting of Adjustable Rate Mortgages ( more on this in subsequent posts) and more foreclosures in 2010 will delay any recovery in this sector.

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Emerging Markets (including Indian Equities): The ‘decoupling’ theory is resurrected again, after the correlations were crushed in the crash of 2008 -09.

Export driven economies in Asia are still dependent on customers in the western world. Their stock markets are still dependent on foreign institutional investors (FIIs). These are the same guys who stormed out in panic during the crash in the first quarter of 2009.

Conclusion: It’s time to book profits or at least take some chips off the table.

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Indian Equities have risen along with other emerging markets. Valuations leave no room for error. Capital Investment has started to increase gradually, but companies are still cautious on the sustainability of the current recovery. Sectors like FMCG and Autos are at lifetime highs. Lock in some profits now!

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On the buy side, one sector that I’m looking into is the Telecom Industry. Valuations have been slashed after the price war of 2009. Uncertainty over the upcoming 3G rollout, continuing capital expenditure and shrinking margins has frightened investors. As a disclosure, I must say that I have recently become a shareholder of Bharti Airtel. Of the listed telecom companies, Bharti Airtel has the best balance sheet and the first mover advantage! For anyone thinking of buying in right now, I must warn you that the stock is a high risk high return proposition. We will undoubtedly see at least a year of very poor profitability until the price war stabilizes. We are heading towards a forced consolidation so it’s going to get tough.

All in all, I think Bharti Airtel is the best company if an investor must take any exposure to the Telecom space in India.

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To conclude, I think that investors should look for sustainability over returns in 2010.

• Gold bugs should be patient and wait for a pull back before buying in agin.
• Don’t get caught unawares by a massive equity market selloff when it comes along!
• Know your investment risk profile, and the volatility that you are able to cope with.
• As David Rosenberg says, look to minimize portfolio volatility.
• No one knows when the market will finally turn. Just like 2007-08 it will do so without any warning. The global economy faces strong headwinds in 2010, so be prepared for volatile times, even though the VIX is currently sinking to new lows.
• It’s not a time to be buying now. It is a time to sell and book profits.

WELCOME TO 2010 !

Well i'm back again!

Before I begin posting new stuff for 2010, let's just take a quick look back at investment returns of the last decade!

Here's a chart from Jesse's Café Américain. Even as Gold and Silver have been star outperformers, its just amazing how little coverage they get on CNBC!

Chart of the day covers a multi decade DJIA return chart.

Clearly the 1980's and 1990'S were years of blockbuster returns in US equities.

Expert stock pickers like Warren Buffett generated market beating returns over this period.

Looking at returns over the 1960's and 1970's is almost frightening! Can the current ipod-blackberry-google search generation cope with it!

It's happened before, but can we cope with marginal returns while servicing a massive debt overhang this time round?

The Indian equity markets had a fantastic last decade.

Just a few years prior to 2000, India's manufacturing sector was in bad shape. Over the last decade, these same manufacturers have bounced back - cutting costs, improving efficiency and product quality.

Companies in the IT services space have also survived the 2000 IT/ dotcom meltdown, and have become globally recognised franchises.

The current decade will need record investments in infrastructure development if India is to emerge as a ''superpower'' by 2025!!

Reducing income disparity and improving the standard of living of people in rural India are also crucial to India's future development.

Lastly, I'd like to draw your attention to the CBOE VIX volatility Index.

Jesse's Café Américain has a good chart on the VIX.

We are not out of the woods yet! The world economy is getting ''addicted'' financial stimulus packages and ever expanding government debt and deficits.

Those looking for jobs and those trying to hang onto jobs they ''despise'' are clearly not as optimistic as equity market analysts are.

I will be putting up a post on ''what to look forward to'' and ''what to look out for'' in 2010. I'm working on it now, but it should be up in a couple of days.

Total Bank Credit continues to contract

Well ---- bank lending continues to contract!

Creditworthy customers are hard to find and in an uncertain job market, US Commercial banks aren't taking any chances.

According to David Rosenberg, ''In the third quarter, it contracted at a record $1trillion at an annual rate (over 9% decline - also a record).''

Here's a link from the New York Times

Link: Poll Reveals Trauma of Joblessness in US
It's obvious why banks are just refusing to go all out issuing loans again - they don't want any more non performing loans. This downturn is far from over, and the banks know it.

Over the last couple of weeks, large U.S. Financials have been raising more capital via fresh equity issues.Yes, yes repaying the TARP! They want to get their 'equity dilution' done while the going is good.!

And yes, while they may be going slow on the lending front, they are 'confident enough' of the uncertain business environment ---- to go ahead with bonuses to bankers this Christmas.

But there again, if you had the U.S. Treasury and the FED to backstop your losses and bail you out of crazy leveraged transactions - you would be confident too!!

RECESSION NOW BEHIND US!! ---maybe not!

Bob Englehart's Cartoon from mid-September this year

S&P500 vs GOLD

The equity markets have staged a remarkable recovery from their March 2009 lows.

Markets may be running ahead of themselves.
This looks more like a technical bounce from oversold levels, rather than the base formation of a longer term recovery supported by fundamentals.

I continue to maintain a view that we could be in for a relapse sometime in the next 6-9 months.
Festering issues like unemployment and wage deflation continue to threaten any sustainable recovery in a 'consumer' driven US economy.

Gold has been relatively stable. It's been a hedge against market instability and currency volatility so far, and will eventually be a hedge against inflation when it finally shows up.