Recap 11-21-11

Main Items:

  • The US fiscal ‘super committee’ faces a deadline of Wednesday, November 23, but its rules require that any agreement be made available to committee members two days before, making the effective deadline for agreement today. If the Committee fails to reach agreement, the USD1.2 trillion in cuts take effect from January 2013.
  • Chicago Fed National Activity Index improved to -0.13 in Oct vs +0.19 exp and -0.22 prev

Overseas:

  • Spanish Center-right party Partido Popular won 186 of 350 seats in the Spanish parliament, as broadly expected. The party now controls both national and regional governments.

Commentary:

This article from the NYFed highlights that wage distribution has widened continuously over the past 30 years, as employment in high and low skill occupations have increased much more than the middle skill tier. Arguably, this widening wage dispersion has a negative impact on NAIRU, as the low skill employees face increasing competition from globalization and technological innovation.

Separately, since being recommended here, Gold has been on a rollercoaster ride, rallying $150/oz in 2 weeks before giving almost all of it back. While all the fundamental reasons to be long remains intact, it appears that deleveraging, especially by CTA types, has driven the price lower. However, short term oscillators now suggest that gold is ready for a bounce. Over the past few years, a 5 day RSI reading below 20 has historically coincided with short term lows. And with strong long term support at the 150 day moving average at 1650, this looks like a reasonable spot to take a stab at going long.

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