With both the Fed and the government continuously putting out false data reports to support the political establishment, it is sometimes difficult to find out the true state of the economy and the myriad of indicators that drive the markets. For example, last Friday the August jobs reports came in much lower than expected, and manufacturing declined to its lowest levels in six months, but an analyst from Goldman Sachs went on CNBC and stated their bank had raised the odds of a rate hike from 40% to 55%.
So quite often the best way to gauge the true condition of markets and the economy is to watch what the rich are doing, especially if they engage in a trend that is counter to what they have done previously for months or years at a time. ie... when several hedge funds and billionaire investors went long into gold starting back in February as a counter to negative interest rates in the bond markets.
And on Sept. 9, a former Chief Investment Strategist for Merrill Lynch, and long-time hater of gold as an investment did a 180 and is now advocating his clients to purchase gold primarily out of expectations that higher inflation is right around the corner.
Rising inflation expectations have attracted an unlikely investor to gold.
Richard Bernstein, who has spent more than 35 years on Wall Street, is buying gold for his clients' portfolios for the first time.
"My firm and I are not gold bugs," said Bernstein, a former chief investment strategist for Merrill Lynch who started his eponymous firm in 2009, at the Morningstar ETF conference on Thursday. "Most of the people who tell you stories about gold are people trying to sell you gold funds and gold ETFs, and those stories are not based on reality at all."
But when Bernstein quizzed conference attendees on the right time to buy real assets, like metals, he revealed the reasoning behind a gold buy for a guy who thinks it's 'wampum.'
The answer: "You buy real assets when inflation expectations are starting to go up," he said.
"For a long time, gold was really not a diversifier," Bernstein said. When gold prices hit new highs earlier this decade, gold had a positive correlation to stocks, meaning when stocks rose, so did gold prices.
Gold has become slightly negatively correlated to the stock market, Bernstein said, and so gold adds extra ballast in a portfolio to hedge against volatility. "It's a change in the way we look at the world," Bernstein said. - CNBC