09/27/10 Baltimore, Maryland – Last week it looked like the feds’ efforts to reflate the US economy might be working. Gold was hitting one new high after another. Stocks were going up too.
The Dow rose nearly 200 points on Friday. Gold hit $1,300…but couldn’t close at that level. When trading came to an end gold was $2 short of the $1,300 mark.
What’s up? It’s hard to know. If gold is going up, analysts reasoned, it must mean something. What? The obvious explanation is that inflation is coming.
So the advisors told their clients to buy gold. The economy must be improving they said. The recession ended more than a year ago. The recovery hasn’t been as strong as anyone wanted. But there must be a recovery underway…and it must mean that inflation and gold will go up.
We’re sitting in a JetBlue airplane as we write…heading back up to Baltimore. Each seat has a TV screen on the back of it. A few years ago, you could get away from TV by getting on an airplane. Now, there it is right in front to you…
…which is all part of the creeping zombification of the US. Music plays all the time. It’s in cars. It’s in shopping malls. Some people even listen to it when they work. It’s like prison…or the Orwellian future…where noise is blared out 24 hours a day, so you never have a chance to think.
And now there are all the Blackberries, iPhones, iPads…to say nothing of regular cellphones and portable computers.
And then, there’s TV. You go to a bar. In addition to the music, there’s often a TV screen.
With all these sources of distraction people don’t have any time to think. Who has time to wonder how the dollar has any value at all? Who worries that those pieces of paper could go the way of all trash…to the dump? Who thinks about it at all? Not many people…
Instead, most people go through the day like zombies – watching TV…listening to someone else’s music…surfing the Internet…chatting…schmoozing…distracting themselves…
The passengers on the plane act like zombies…watching other zombies on TV…listening to music…reading airport novels….
Then, on the screen in front of us, there’s a fellow selling…gold! He’s the second one we’ve seen. “Should you own gold,” is the caption on the screen. A man named Scott Carter is advising customers to buy the yellow metal. Apparently, his company has been in the business for 50 years…
Hmmm… This is something new. The last time we saw gold on TV was an ad for a fellow who was BUYING gold. “Got gold? You can get CASH” was last year’s ad. The advertiser told viewers that they should take advantage of high gold prices to get rid of their unwanted jewelry…exchanging it for cold, hard cash.
Only the cash wasn’t all that hard, after all. That was about a year ago. And today, the cash is worth about 20% less than the gold.
But who cares? We’re talking zombies here. Who cares what happens to them?
When the zombies start buying gold, though, the bull market enters its last stage. Ordinary people do not own gold now. They do not understand that the financial system is in jeopardy. And they cannot imagine that the dollar is not a safe place for their wealth.
As for inflation, they’re for it. They have mortgages to pay. And for many of them, those mortgages are higher than the value of their houses. They’d like to see their debts reduced, by inflation.
They’d like to see their assets lifted up by inflation too. And their earnings.
Okay… Inflationary increases are not “real”. The real value of the assets doesn’t increase, just because nominal prices go up. But the zombies don’t know that.
Bill Bonner
for The Daily Reckoning
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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There is a good recent article by FOFOA on this subject. Quote: “when the shoeshine boy tells you to buy gold he’ll be talking about small gold coins only. GLD probably won’t even exist anymore. And in this unique historical case, the shoeshine boy will not be the bad omen of a bubble top mania phase, but he will instead be the amazing bell-ringer of a new era. One in which even shoeshine boys can save their surplus wealth in gold.” http://fofoa.blogspot.com/2010/09/shoeshine-boy.html
I tend to agree: the only way to stop the gold bull would imply low inflation and serious growth in some sector (or relatively high interest rate), which seems to me very unlikely to say the least in the western world (maybe it can happen in some BRICs, though)
Zombies everywhere it seems with pods stuck to them beaming propaganda to their brains. but hey, Obama, Geithner, Summers, Bernacky, Gates, et al saved the economy. Proof that the only way that capitalism can survive is with government interventions.
Is there a PAC for the zombies yet? If only the government targeted legislation towards helping the zombies instead of sucking up to the banks and other blood sucking leeches on K street, then maybe there would be a chance to at least smile and laugh while eating bread at the circus!
You’re not too bright.
If you have a million dollar house and a million dollar mortage and your house value is inflated to 10 million and your mortgage is still one million then you are better off by 9 million dollars or 900,000 inflation adjusted dollars. Maybe you should spend less time running down people and more time thinking.