Prepared for an Exceptional Correction

by Bill Bonner.

The price of gold fell $15 yesterday, to close below $1,100. We expected a correction in the gold market. But we thought it would come along with a correction in the stock market. Stocks rose 85 points on the Dow yesterday.

We take this as a warning: something is going on that we don’t understand. That said, there’s a lot going on that we don’t understand.

But the broad patterns generally make sense. Boom was followed by bust. As dear readers know, the force of a correction is equal and opposite to the deception that preceded it. The deception of the Bubble Era being exceptional, the correction would be exceptional too – even under the best of circumstances.

But these are not the best of circumstances. Because several other things are happening…things that need to be reckoned with, too.

  • The US is losing its privileged place in the world. Americans now compete with many other people in many other places for the world’s resources – including its savings.
  • The international monetary system, an experimental system built of paper dollars, may be falling apart.
  • The days of cheap and bountiful energy are over.
  • Governments are going broke. State governments. National governments. In Europe. In the Middle East. And in America.
  • The engine of economic growth – Americans’ willingness to go into debt in order to consume more and more of the world’s output – has gone into reverse.
  • And, governments are meddling on an unprecedented scale…delaying and avoiding necessary adjustments, possibly turning an ordinary depression into a Great Depression…or even a Much Greater Depression.

These are not small challenges. Any one of them would be a worthy crisis on its own. Put them together and you have the makings of a catastrophe.

What will happen? Don’t know. Wish we did.

A series of mini-disasters? Or one big planet-wide blow-up?

Or, are the authorities so smart that they can engineer trouble-free solutions to these challenges?

If you have confidence in Obama…Bernanke…Geithner…Congress…the European Central Bank…the Bank of China…and so forth… Well, you have no business reading The Daily Reckoning! Heck…let them figure it out. Everything will be fine. Go back to the TV…

If, on the other hand, you have a sly suspicion that the authorities are headed for the rocks…you should own some gold. Traditionally, gold is what people buy when they are afraid things might not work out as planned.

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

  • http://www.bestnewspolitics.com Jamie Holts

    I finally decided to write a comment on your blog. I just wanted to say good job. I really enjoy reading your posts.

  • Larry

    Just sold some puts in gold so I hope you are wrong on correction before the fed tries to put on the brakes.

    I guess if gold comes down I will just hold the position until it comes back.

  • 99 cent Nation

    We all enjoy your posts they are well written and well thought out. Saying that I do not see any hope of any “currency”, electronic, paper, or plastic being backed by gold or any other commodity. Gold is a commodity and all commodities are finite. Tradition has been thrown out the door with the population counts. Why not oil, or sea shells for that matter? Given the population of the planet now no commodity will work as a standard of anything. Not enough of it to go around. There will be to many have nots. If it is tried there will be a firestorm the likes the world has never seen.

  • mark d

    my sentiments exactly, in order to understand the full picture, you need to put togethor all of the peices
    of the jigsaw. and this tell a very grim story indeed.

  • Harry

    Reading these posts and comments here are like entering the Twilight Zone. Are you guys living on the same planet as the rational and sane? Doesn’t appear that way.

    We’re seeing undeniable signs of economic strength pretty much world wide now. I wouldn’t be surprised if we see some job growth in the next month or two. Housing is going crazy in a good way. People are buying houses they can afford at good prices.

    Gold should be in the $800′s at the high end in this environment of no inflation and economic growth.

  • John Smith

    Harry,

    If you believe that then why don’t you start buying 30 year US bonds and some mortgage backed securities. We will do what we think has to be done.

  • Layman

    This seems to be way to doom-days. Capitalism has its goodness as well as its evils. Common sense will tell, US and the western world are heavily indebted. It is most foolish if US is to strenghten its greenback. It may or may not be already a strategy. To get out of the wood, US has a sure way – to let the weakening dollars has its natural course. Imagine ! if dollar supply increase by 100 folds or weakens by 100 times. Debts shrinks 100 times and value of gold multiply by 100. With more than 8,000 tons of gold in the pocket, US can easily bails itself out along with the western world. Western has significant gold reserve as compared to the Eastern. In the final analysis, US may emerge the ultimate winner with just a single smart move in this poker game. Look around the world, many a regimes rise to power with a decent approach. Why not review those regimes came out of gambling tents or brothels and let alone other sinful deals ? A superpower is turning a deaf ear to this or nurtures its very beginning. Everything has its beginning and its end, and, I believe the world goes the same way.

  • Bernardo

    The correction will set all countries in the start place of a race, then, the first country that get the changes and hold its society united will be the next center of power! US paradigm is useless!

  • Sundance

    Lmao Harry.

    On one of your previous comments you were boasting that you could sell your house bought in 2006 at a higher price if you wanted to, and now that houses are back at a price at which people can actually afford them ? Please.

    For now every time I’ve read your comments I saw nothing but some senseless troll probably just trying to convince himself despite his total lack of rational arguments…

    I mean come on, you don’t really believe the stock’s bounce is rational do you ? What about the fearsome fact that a good half of the trading on the NYSE comes from Wall Street ? What about these high frequency trading programs ?

  • Hank

    Nothing is correlating correctly. I believe market manipulation is taking place (beyond bailouts). They can’t control all the players though. Look for a big correction in 2010 or dare I say it, sooner.

    99 Cent Nation: your thoughts on gold are the typical arguments of one who has not researched the subject. Go read, “the case for gold” and call me in the morning.

  • 99 cent Nation

    Hank: Yours is a typical libertarian response and the book you recommend is intended for the average educated reader. No where does it take into account population counts and manipulation of commodities.

  • John

    I want some of what Harry’s smoking!

  • *Sparkie*

    I’ve just got 2 get in on this,sry. That troll(He’s Back) that lives under the stairs in his mothers bsmt. Who lives on vitamin-c,reds,and propane. And is piss-a@# broke! And addicted 2 CNBC!And talks with out his hat on!!! Did u ever think that some1 just might b,BB in disguise playing with all of us? I just luv that concept!Don’t u? I’m heading ov 2 the Twilight zone now! Live long and prosper all,and “Happy Holidays.” *S*

  • Joe

    It certainly does .99

  • Hank

    99: Do you hold all of the dollars you “own” or are they digital? Certainly we aren’t all going to carry around pounds of gold for all of our transactions. The problem is “legal tender laws” that don’t allow us to have competing currency. I think if legal tender laws were appealed, or if people just dumped the dollar the free market would win and we would be trading in gold and or silver certificates again.

  • 99 cent Nation

    Just where does it do that Joe?

  • 99 cent Nation

    A side note: I really wish you guys were correct in your thinking The problem is it just does not compute. The book that was recommended was written by a dinosaur wishing for a time when things were simply based on a commodity that can dug out of the ground and for some reason has not caught on to the fact that Banks run everything. Plain and simple and have for a long time. It would take a revolution for things to change as you want them to be and we will be in 1984 long before that happens. Our neural consciousness is way to subjective for anything to change that rapidly and our subjective preferences are always lagging and maladaptive. That said have a very happy holiday and a merry new year.

  • Theophiluspunofall

    Oh.

    I guess I’ll just barter for everything from now on. It’s safer.

    Felicitous Greetings to you as well.

  • Simply Utter

    Come On ! Problems can be solved just by reading books. Bookworm does not solve a problem. In this era we need something more than merely reading books.

  • http://digzz.com/story.php?id=214222#comments paleo recipes

    @Mike – I very much be of the same opinion with what you are saying here although one has to consider all aspects of the argument. We can all be a bit guilty of adopting a somewhat narrow-minded view to these issues and for the most part, stepping back and observing the ‘bigger picture’ can almost always turn out helpful results.

  • stephenjacobs

    The United States is getting its energy house in order from fracking shale and withdrawing oil and natural-gas. The U.S. is also mining coal. America is also going to be building atomic power plants whether the damn Sierra Club likes or not. America is also going to be building hydro-electric dams. The oil sands and heavy oils in Canada have to be upgraded. The basin in the Gulf of Mexico has to be drilled for light weight oil and moderate weight oils by BP. And Canada and Mexico are going to be producing energy and continuing to be woven into the North American power grid, no matter what the environmentalists say or protest.

    As much as I hate the Conservatives in Canada, the Republicans in America and the Torys in the UK, the environmentalists ( including the Sierra Club ) worldwide are even worse!…… LEAN FORWARD.

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