08/31/11 Poitou, France – The Dow rose 20 points yesterday…after a fabulous increase the day before.
Gold went up $38.
We’ve already given you our forecast. We think gold AND stocks are going down. But what do we know?
The role of markets is to make fools out of market analysts. So, the shrewd forecaster has to be careful. He shouldn’t be too precise in his predictions. He can say what direction prices are going. Or he can say when. But not both.
If we tell you that ‘stocks are going up,’ we’re sure to be proven right — if we wait long enough!
Likewise, if we say ‘you’ll see gold hit a high this autumn’ we leave ourselves plenty of slack to shape events to fit our forecast. It’s bound to hit some kind of high during that period.
But here at The Daily Reckoning, we have no reason to hedge. No reason to wiggle and slide. You don’t pay for this subscription: you get what you pay for!
For 11 years we’ve told dear readers to ‘buy gold; it’s going up.’ This was good advice. Gold did go up…more than any other asset.
Now, what are we saying? We’re still urging readers to buy gold. Gold is the only true money. It’s been used as money for thousands of years. And it will probably be used for thousands more. At least, we have a strong hunch it will be used when today’s claptrap money system blows up.
Still, the system may surprise us…like an old refrigerator, it may last a lot longer than we think it should.
Did we explain why? Well….here’s the explanation again:
We’re in a Great Correction. Recently, this correction has given every indication of hanging around for a long time — a la Japan.
We’re also in a period when the feds are throwing caution to the winds in order to over-turn the correction. But, here’s what has happened: the feds have not been able to do it. They’ve tossed a lot of caution to the winds already. But the winds don’t care; the correction continues. Just read the headlines. Consumer sentiment is sinking. House prices are still going down. The number of people on food stamps is going up.
This is fundamentally a deflationary economy. It’s not an inflationary economy. It’s not an economy that will take up the Fed’s EZ money and transform it into consumer demand. It’s not an economy that will borrow money from the banks and increase employment and the money supply. The feds have been unable to ignite the kind of ‘animal spirits’ you need in order to get inflation rates up. They’ve tried everything. It hasn’t worked.
No, it’s an economy where demand is falling. We saw that yesterday. Gasoline use in the US has dropped to an 8-year low. Households are saving money. Incomes are going down. The real economy is shrinking.
At the household level, thrift is on the rise. Among the investoriat, fear is the dominant emotion. This stock market could collapse any day; all it needs is the right headline.
The Fed has been forced to tell the world that it will keep its key lending rate at zero for two years. This is an admission that nothing has worked in the fight against the Great Correction. It is a clear signal that the US will follow Japan down that long, lonesome highway…towards a multi-decade slump. The US has already had one ‘lost decade.’ Most likely, it will now lose another one. For now, the feds have been beat.
The victory of fear over greed means that investors are no longer concerned with the return ON their money; they’re worried about the return OF their money. And they think that the safest place for their money is in US Treasury debt. Lend money to the people who print it; what could go wrong?
Well…that’s what we’ll find out when this current stage of Great Correction/de-leveraging comes to an end.
When? How? We don’t know.
But NB…we don’t really know what is coming. So, we try to figure out what we think you should BELIEVE is coming. And right now, there’s a lot of risk in stocks…and in bonds. And in the short term, there’s risk in gold too.
You’re probably best off believing that stocks will go down….gold will go down…and that the economy will remain in a period of fear/demand destruction for months, and probably years, before a major corner is turned.
In the meantime, stick with gold (as insurance) and cash (as ammunition).
At least that way, if the price of gold goes up…you’ll feel rich. If it goes down, you’ll feel smart. And then you can use your cash to buy more gold.
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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“We’re in a Great Correction. Recently, this correction has given every indication of hanging around for a long time — a la Japan.”
Relax Bill. By 2030 it should all be over. But I’m still waiting for the Fed to throw caution to the wind. They seem to have fled to the safety of long term U.S. Treasuries, like the rest of the smart money.
this isn’t no way to plan for a retirement.
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there was a time, i guess it lasted for about 10 years, when everyone would say, we should copy japan, japan management got it right, japan this,japan that. so i would tell them that it’s easy to do good when your economy is moving up from nothing. let’s see how smart japan management is when things get bad. well, eventually things got bad, and so far the japanese don’t have a clue on what to do. that is not a management style that i would want to copy. today it’s china this,china that, china is going to take over, china going to have the new world currency, bah,bah,bah,………………. well don’t bet on it, china is not doing anything different than what japan did, in fact they are just copying japan, and when the chinese economy gets bad, they are going to fall flat on their face, just like japan.
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you don’t judge a man when times are good, you judge him when times are bad.
“If at first you don’t suckceed, keep on sucking ’til you do suckceed!” –Curly Howard. (Intellectual icon and father of Barnanke economics) You’ll know Bernanke is going for the full-Howard when you hear him tell Geithner “Spread-out you muscle-bound porcupine! I’ve got a plan!”
,,..but seriously… Don’t think for a minute that the Federal Reserve has put the fire hose away for the next 30 years. There’s going to be such a flood of dollars before they’re done, that an ark could float away in it. And that, my friends, is not the stuff deflation is made of.
Bruce. Why on earth would a private banking cartel want to inflate away the currency ?
“He can say what direction prices are going. Or he can say when. But not both.”
finance as quantum physics. I love it.
“This is fundamentally a deflationary economy. It’s not an inflationary economy.”
who gives a whack? if we had ordinary fiat currency everything you say would be true. but we don’t. we have debt currency. it’s a pyramid scheme. the currency will inflate.
“Why on earth would a private banking cartel want to inflate away the currency ?”
the dollar is a debt pyramid scheme. every new dollar is a loan. it must be repaid with more money than was borrowed. the only way this repayment can come into existence is if more money is borrowed. the only way that new money can be repaid is if even more money is borrowed. and so on and so on, until no more borrowers can be found, at which time the whole thing implodes.
it has been forty years. the dollar is the world reserve currency and fills every corner of the globe. there are no more borrowers to be found. the only way to stave off implosion is to pretend more dollars are being borrowed by printing more. and more. and more. and dumping them on the entire world.
We Have A More Real Problem People:
Not only are we debtors as a Nation everybody but facing the real music means undersanding this debt can never be repaid. How is that our real problem? Well, you see, when the debts are created @ the Fed., we owe it this money back plus interest don’t we? The problem is that, although the principal is created as they say “out of thin air”, the interest is never created along with it.
So, showing how this work in miniature, let’s say you loan me $100 @ 10%. If all you’ve ever created is $100 but not the $10 in interet, from where will the $10 in interest derive? Do we really believe that the Fed. exists to help our Nation balance its’ budget via our indebtedness to it? All parasites must live off their hosts or die. The parasitic Fed. is gaining more & more strength from its’ host our Nation. The bigger our borrowing problems the fatter the Fed.
Ironic though is the fact that this symbiotic relationship will eventually starve out both the parasite and its’ host. Together for awhile both parties stave off their own reality checks until their days of reckoning. Not to worry, as long as we live, we’ll all be there when that day arrives!
RUSS SMITH, Calif.
I also find in more interesting to invest in precious metals than anything else (like currencies and such). Just read another interesting blog (http://www.takeshiyashima.com/us/my-blog/62-current-economy/294-currency-wars-why-i-am-not-investing-in-currency-market.html) on it.
Thanks for pointing on the issue.