12/21/09 Paris, France – Nothing much happened in the markets on Friday. So, we’ll stop to think a bit about what has happened this year…and this decade.
You’ll recall, of course, our Trade of the Decade – buy gold on dips…sell stocks on rallies. Well, we’ve been very happy with it. But the decade is coming to an end. It’s time to thinking about the NEXT decade.
You’ll also recall that as gold went up, we became more and more concerned.
When Lehman went down, it seemed obvious that the feds were going to do the wrong thing. We were right. They did. They put up trillions of dollars to ‘rescue’ the economy. Since we knew the ‘rescue’ wouldn’t work, we guessed that they would continue pumping in money they didn’t have in order to keep trying to do what couldn’t be done. Under cover of an ‘emergency’ they were able to siphon off billions of dollars for their friends on Wall Street and for their pet boondoggles. And the voters couldn’t complain…at least they were ‘doing something’ to fix the economy!
This led to a very simple observation – eventually inflation (and gold) would go up even more. Because the quantity of money would increase faster than the goods and services that it could buy.
What bothered us here at The Daily Reckoning was that this analysis was too easy and too obvious. What’s more, it was an analysis that was widely shared. We don’t like it when our points of view become fashionable. And we don’t like it when the “story” is too easy to tell and too easy to understand. When you have a storyline that everyone picks up, it almost always turns out to be wrong.
Then, the smart money began buying gold. John Paulsen made a fortune in the ’07-’08 period by correctly understanding the bubble in the financial sector and betting against it. A few months ago, he announced his next big bet: gold. He explained that gold was a ‘can’t lose’ investment. If the economy recovered, inflation would come back and push gold up. If the economy didn’t recover, the feds would continue pushing money and credit into the system, making the eventual inflation worse than ever.
John Williams came to a similar conclusion. He noted that the recovery wasn’t working…and that the feds had no choice but to continue piling up inflationary tinder. When the spark finally reaches it, he says, the result won’t be inflation, but hyperinflation of the blazing sort.
We don’t disagree. The logic seems right to us. That is what OUGHT to happen. But what bothers us is that Mr. Market is a contrary ol’ coot. He always does what he ought to do. But he rarely does it when and how you expect.
What is he up to now? Darned if we know. The dollar is going up. Is it just a bounce? Or is it a trend?
What would be the most surprising and most mischievous thing Mr. Market could do? Make the dollar more expensive!
It would undermine hopes for an export-led recovery in the US (American made goods would be less competitive…)
It would whack the carry-trade speculators hard. They borrowed cheap dollars. Now they’ll have to pay back expensive ones.
It would encourage people to save dollars rather than spend them – thus undermining a consumer-led recovery too.
It would also drop the price of gold – temporarily – shaking off the fair-weather gold buyers in advance of the next phase of the bull market.
So, ask yourself, dear reader… If you were as ornery as Mr. Market…what would you do?
Bill Bonner
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.
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The government’s and Wall Street’s fear is that the market will do what it needs to do regardless of the manipulation. It will make the correction just a matter of when and how hard.
I would consider the “M” theory and escape to another dimension and universe. One without a treadmill or roller coaster that nature invented to keep humans running. One without the slavery of chasing the big dream of collecting as many fun tickets as possible. Then hoarding those fun tickets in whatever form in the name of pursuing happiness which is of course as everyone knows you can’t be happy or joyful unless you earn it.
I come here to read your posts just because I can’t believe there are still people out there like you that are looking for the market to fall. It fell. It crashed. It rebounded.
The economy is getting stronger with each economic report. Yet, here you sit, day in and day out talking about the market as if we haven’t seen the worst. Well, I got news for you. Nothing out there indicates this market is moving lower now. Even the higher dollar can’t take it down.
So relax. Buy some stocks and by the end of the next decade you could very well see 20% returns.
Right on dude,Where is that time portal that leads 2 the other dimension and universe? I guess we”ll c that portal open when were 6ft deep! Until then its all vanity and strive’in after wind! Live long and prosper all! *S*
Bill seems a bit irritated recently.