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With the Dow
continuing its steady climb into September, economists are giddy with
enthusiasm as they usher forth a stream of emotional pontification throughout
the news media. Calls for a new bull market and an end to the recession are
increasing with the rising levels of optimism (see: MarketWatch). How anyone
can be bullish on stocks despite the innumerable economic warning signs is
beyond my comprehension.
The recent
figures in the Daily Sentiment Index reporting that traders are 89-90%
bullish is a testament to human emotion as a market mover and the efficacy of
state-run propaganda. Do economists really believe in the power of green
shoots? Incidentally, the college term "green shoot" represents a
different kind of stimulus. Maybe that explains it.
But one man's
bull market is another man's gilded rally, as the mania always peaks at the
end.
This mania has
been especially intriguing to observe among gold bugs, at the present time
vindicated by gold's heroic push into four-figure territory. Some claim gold
is "finally" on the verge of breaking out, as though the yellow
metal hasn't spent the entire decade breaking out.
But the dollar
price of gold, while important, is only a secondary consideration to its
value against all other assets, hence the reason that many, like me, favor a
strong gold position in a deflationary or hyperinflationary environment.
Since gold is true money, and intrinsically, fiat currency is hardly worth
the paper it is written on, then the value of assets in terms of gold is a
better barometer of gold's performance than its price in dollars. While
gold's push above $1,000 has been exciting for many, it is worth noting, as a
rudimentary comparison, that gold has actually lost ground to the Dow in the
last six months.
However, when
measured over a wider swath of time, we see a clearer picture of gold's
formidableness. Gold's performance lays waste to the notion that the economy
is "strengthening" or in "recovery," and manifests the
stark, decade-long decline of our nation's economy. I have included only
three comparisons below to prevent redundancy because all of the comparisons
against gold look the same. The US economy is clearly in a depression when
measured against real money.
(Bureau of Labor
Statistics, US City national average composite of prices: Pasta, Flour,
Bread, Ground Beef, Turkey, Milk, Butter, Cheddar Cheese, Apples, Bananas,
Potatoes, Lettuce, Broccoli, Sugar)
This silent
crash, among other things, is the reason business is a-boomin' for those in
the doomsday market. And that is a terrible thing. Surf the web long enough
and you will uncover a mini-catalog of downer books like Crash Proof, Conquer
the Crash, How to Survive the Collapse of Civilization, and How to Survive
the End of the World As We Know It, among many others. You will invariably
encounter writers predicting some specie of the Great, Greater, or Greatest
Depression. (Yes, that would include me.)
Everywhere we
hear of well-meaning citizens prepping with the four "G"s: guns,
gold, groceries, and God.
Or the four
"F"s: food, funds, firearms, and faith.
Or the four
"B"s: beans, bullion, bullets, and Bible.
There exists a
stark polarization in mood between the powers-that-be and their
"bosses" - the American public. Emerging from the cold war and into
the gold war, many patriotic Americans have shifted their panic from foreign
to domestic enemies. What does it say about the empire when, in fear of the
government, a good segment of its citizens have hunkered down with food and
ammo, or when millions of "taxpayers" march on Washington? Is there
any way this ends well?
Meanwhile, the US
dollar is in need of a new PR firm. According to the Daily Sentiment Index,
only 3-4% of traders are bullish on the dollar, meaning a historic number are
bearish. Well, dollar bears beware: Those are leading indicators of an
imminent change in direction. The sentiment is actually worse than in March
of '08 when 5% were bulls. As for a reversal, history speaks for itself.
Contrary to
popular belief, the US dollar, that black sheep of international currency,
may once again strengthen its power grip under deflationary pressure - at
least in the near term. Now wouldn't that come as a shock the investment
world? One might even be inclined to invest in the dollar if one could
actually trust the dollar. The threat of debt defaults, the proliferation of
SDRs, the loss of reserve currency status - all remain ominous possibilities,
and all render that king of deflation to be largely precarious.
We are left with
gold. Whether your camp is hyperinflation or deflation (or any of the
'flations), gold is king, regardless of spot price.
'Til next time,
that's my Saab Story.
Tarek Saab
Guardian
Commodities
Tarek
Saab is the President of Guardian Commodities and a
former finalist on NBC's "The Apprentice" with Donald Trump. He is
an international speaker and syndicated author.
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