The Ignorant Investor

NEW YORK - Consumers shrugged off higher gasoline prices in April and sent a widely watched barometer of consumer confidence to its highest level in almost four years, a private research group said Tuesday.

But the New York-based Conference Board warned that if fuel prices continue to rise, it would cast a pall on consumer spending, which accounts for two-thirds of all U.S. economic activity.

All people are talking about is rising gas prices, Bush's approval numbers are in the toilet, and polls asking about the economy show people think it's going downhill and that the housing market is about to crash. Yet somehow, the index shows the highest confidence level in four years.

Any sane statistician will constantly compare an index against other evidence to see if it matches reality. But the Conference Board is currently our national economic cheerleading unit, so they're restrained by a reality of their own.

SAN FRANCISCO (AP) -- Google Inc.'s first-quarter profit rose 60 percent, soaring past analyst estimates as the company's Internet-leading search engine solidified its position as the Web's most popular advertising vehicle.

Okay, I admit it. I don't understand this phenomena. I don't know how Google keeps raking money in. I don't know why they haven't started hitting the uppers limits of the growth in search advertising. I know, I know. That's a lot of "I don't knows."

So call me confused. And check those boys at Google to see if they're cooking hte books. Or laundering Colombian drug money. Or running some kind of numbers racket. Cause I'm flabbergasted here.

Via today's Wall Street Journal:

As investors pour cash into mutual funds that focus on small companies, money managers are facing an unexpected headache: They don't know what to do with all the money in their funds because there aren't enough promising small companies.

The result is a growth spurt in a relatively new class of funds -- "smid" funds, so named because they invest in small and midsize companies. They number only a few dozen so far, but half were launched in the past five years and more are expected, industry watchers say.

Worth noting: One of the traditional signs of soon-to-fall market sector is the rush to create new mutual funds targeting the successful sector.

WASHINGTON (AP) -- The United States will use upcoming meetings of the world's economic powers to keep up the pressure on China to revamp its currency policy, which critics contend is contributing to America's massive trade deficits.

China is ''moving far too cautiously in making its currency regime more flexible,'' Tim Adams, the Treasury Department's under secretary for international affairs, said Wednesday as he talked about Friday's meeting of the world's richest countries and weekend meetings of the International Monetary Fund and the World Bank.

I've been watching the debate over how far we should push the Chinese on their currency policies. The Money Folk, also known as The People Who Really Run the American Government, seem dead set against pushing the Chinese government towards a floating exchange rate. This should seem odd to any disinterested observer, since for years the The Money Folk have been snidely explaining to us ignorant regular folk (aka "The Shrinking Middle Class and Displaced Workers Club") that free market solutions are the cure to all economic and social ills:

Burdened by low economic growth? "Cut taxes and open markets." Social security going bust? "Privatize it and let the markets work their magic." Reduce government spending? "Private contractors can do the job cheaper and faster."

Yet what do they say when it comes to the Chinese government's continued manipulation of its currency?: "The Chinese need to set the exchange rate to prevent capital outflow."

To me, this is talking out of both sides of their faces. If you think free trade is such a good idea, what is wrong with the free movement of capital? Especially when the rest of the world can't impose the same limits. So, free marketeers- what's really behind this sudden love of the hand of government manipulating the Chinese currency?

Checking in on my list of sector ETFs, I see that most of the same sectors that led in 2005 are back in the lead this year. Gold and precious metals, oil, REITs, and small caps.

The explanations on the net are endless- but there's no consensus. Bears continue to wait for the other paw to drop. The retail investors continue to scoff at pessimism and follow the leaders. Institutional investors scratch their heads and then shrug as they climb aboard the gravy train.

I missed the boat on precious metals and REITs, and I locked in profits on a sizable chunk of equities recently. Some of the profits got plowed back into the S&P 500, but a large chunk of it went into a money market. So if you want to experience the feeling of being me, all you have to do is walk over to the nearest wall and repeatedly pound your head against it.

This is the difficult part of going against the herd. There's always going to be a period when you just don't know whether you are right and all the jovial people who are making a killing are wrong. So easy to give into frustration and despair.

So I'm sticking with my view: asset prices are currently irrational, so keep a big position in cash as I wait for prices to fall.

After reading yet another celebration of gold on another blog, I asked a question that seemed very obvious to me: if the future is so bleak, if the expected financial meltdown so obvious, shouldn't all one's assets be in gold? Shouldn't a person be borrowing thousands or dollars at 6% to put into gold when hyperinflation is just around the corner? Because if what the gold bugs say is true and the "fiat money" of the U.S. is currently worthless in reality, then trading debt in paper for solid metal is a no brainer. Rationality dictates only one course: go gold. All gold. Not taking out loans to buy gold would be like refusing to trade toilet paper for Blackbeard's treasure.

Yet nobody who responded to my comment seemed interested in taking on more debt to buy gold. You can't ask for a clearer signal that they don't really believe in their own bullshit. They don't really think the currency is worthless or that higher inflation is imminent. But they want everyone else to think so, so the shares of gold they already own will increase in value. It's just another variation of pump and dump.