Economic 'recovery' built on sand

“STOCKS ROAR BACK” is this morning’s London City AM headline – reporting news that the Dow Jones “smashed through” the 15,000 mark yesterday to a record nominal high, with the FTSE 100 also marking a five-and-a-half year nominal high. The Dow is up 15% since the start of the year, with bulls encouraged by news that the Royal Bank of Australia is the latest central bank to drop interest rates to all-time lows in an effort to boost the Australian economy.

The surge in stocks is entirely due to central bank money printing, which has temporarily succeeded in bolstering animal spirits and convincing all and sundry that all is well and good with the world economy again. Never mind the inconvenient data left out by those talking up economic recovery, or the big sell-offs we’ve seen in stocks since the peak of the last bull market in 2000. Or the fact that yet another currency, the Aussie dollar, has now joined the “race to the bottom” in the currency wars.

It seems like we’re back in the middle of the last decade, when people who warned about an unsustainable boom in house prices caused by cheap money from central banks were laughed at as gloom-and-doom pessimists – “or perma bears” to use one of the preferred terms of abuse. Now those same bears are warning about a coming dollar crisis, and again, they are laughed out of court. Don’t they know countries can just keep on living wildly beyond their means in perpetuity, with no bad repercussions? Silly people.

Gold and silver continue to mark time, with $1,480 and $24 continuing to mark points of selling resistance. This will be overcome, given the on-going transfer of metal from weak hands (primarily western) to strong hands (primarily Asian).