fw: The Economist article 2011-Oct-01 on financial asset prices

[cabronjames]

fw: The Economist article from 2011-Oct-01 on financial asset prices. "Buttonwood.  Mood Swings. Finanical Markets are displaying a split personality". http://www.economist.com/node/21530999

The article talks on recent (between say 1 month to at most YTD) price changes in stocks, bonds, currencies, gold/silver, industrial commodities like copper; in context of recent macroeconomic events like Euro Sovereign Bond crisis, world economic growth forecast lowered, etc.  The article labels (perhaps simplistically imho) different assets as "risk on" or "risk off"

The article is somewhat interesting, but reminds me of craigr/other PPers advice to "ignore this type of article, stay with the PP".  Of course it's also like what MediumTex noted that while holding the PP allocation, 1 is free to observe this type of article as a spectator of a sports game, not panicked about having to "bet"/"guess" on 1 asset type vs another with one's dear nest egg money.

I was particularly interested in the article's take on gold.  The author was confused why gold, which it terms "risk off", would fall from ~$1900 to $1600 during a "risk off" period.  The author's rationale seemed like generic guesstimates, not informed by an economic theory like the PP.  The author completely missed any notion of Deflation, which would seem to be obvious, at least in the Eurozone.  Presumbaly the Euro money supply might decrease some (Deflation) should there be a Soverign Debt default/restructuring.

from a PP perspective, the PP-esque notion that Deflation is likely the current dominant economic condition, and 30 yr bonds will perform best in this environment, would've made more sense to me.  Especially since 30 yr T-Bonds were also the best performer the ~2008Q4 Financial Crisis.

I also wonder about if institutional port mgrs and superrich individuals actually change their port allocation frequently given this "risk on"/"risk off" flavor of the month trend.  It seems like the extra capital gains taxes would make it very hard for that approach to even match the after-tax PP returns.  Exceptions would be tax-exempt orgs like University Endowment.  Or the HFT (high frequency trading) institutional accounts since the "rigged market" nature of HFT would be profitable enough to pay the extra capital gain taxes.  Perhaps a Tobin aka Financial Transactions Tax would make HFT unprofitable?