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With the Asian stock markets stalling,
and the US markets insisting on rallying a suspicious 25 points a day with
nary a correction in over a year, something is definitely wrong out there.
What gives? I cannot believe the US economic prospects are that good right
now.
But then again, with the EU
markets and the EU itself looking like it’s about to disintegrate, with
a new bailout story on Greece that never pans out, and what a failure to bail
out Greece will do to the Euro – a Euro crisis alone can tank all
markets and cause massive social unrest in the EU with nations starting to
bolt as they find staying with the huge budget cuts are politically
impossible.
But there are many developing
crises right now. What then is the next crisis that will lead to panicky
markets again? Surely one is due again. The VIX is at low levels similar to
just before the Bear crisis in 2007 and Lehman mega crisis in Fall 2008.
Gold
The relentless rise in the US
stock market is either a head in the sand routine by Funds who have nowhere
else to put money, or the central banks are unilaterally supporting the
markets with these rather suspicious 25 point rises in the Dow day after day
for a year…(a bit of exaggeration but you get the idea). It’s as
if some great power has made an edict to relentlessly make the Dow (or your
favorite index) rise no matter what to scare financial bears out of the
market.
There is a much larger issue here
But there is something much bigger
out there driving all this, and unfolding right in front of our eyes –
the deconstruction of the entire world economy from its post WW2 US centric
consumer model – combined with relentless employment shrinkage and
labor arbitrage with Asia. That combination is leaving the Western economies
and their accustomed standard of living in tatters, with a very bleak outlook
henceforth. Europe especially is vulnerable to depression level forces with
youth unemployment age 16 to 24 in Spain for example at 42%! In short,
meaningful austerity measures are impossible for the weaker EU countries.
The only outcome must be chaos in
the West – economically and socially. That chaos is going to begin
soon. It is already showing a few stirs.
Serial crises unavoidable
What the world is presently going
through are serial crises each year, roughly two a year since 2007, which
rocks currency markets and ultimately rallies gold, which is the one market
that seems to prosper in these uncertain times. The commodity markets are
more like speculator zones, and I don’t feel these are very good havens
because of that.
We did some brief price studies on
prices back in 1908 to the present. Even with the gold ‘Manipulation
story’ (which is true) gold actually does reflect the price changes of
real goods since 1980 and even all the way back to 1908. I picked 1908
because I have data from then on prices and its pre US Federal Reserve.
(Example a loaf of bread was 10 cents in 1908-1930 roughly and now is $3.
That is 30 times higher. Gold is also roughly 30 times higher).
So even with manipulation, gold is
still reflecting the price changes of real goods in the economy pretty
accurately. Now of course if gold were to spike it would then start
reflecting the massive world central bank public bailouts of all and sundry
markets which are on the verge of total collapse (banking, sovereign bonds,
and so on). That phase will yet appear when it’s ready.
But getting back to the theme
– that of serial crises on the horizon as far as the eye can see…
China has a major problem ahead
And then there is China –
and its gigantic construction bubble which is alive and well (way too well)
and – is going to be popped by a determined Chinese government. And
Even so China certainly is well aware that 60% of their economic growth in
recent years is construction related. Did you know that? If China is popping
a huge construction bubble that is 60% of their economy then why is everyone
talking about using basic commodities as an investment haven? There is a
difference between a haven and a speculation. Commodity markets are
speculation markets right now. That makes them subject to wild price swings.
All this crisis list is because of
one major theme
Everything that is happening in
the world – market dangers, sovereign debt crises, labor arbitrage of
West to East, government budget overruns of a huge magnitude, currency
instability (Euro situation as one example), pressure on China to let the
Yuan rise, looming trade wars, and especially social chaos in the West if
austerity measures are implemented, falling tax revenues on a nothing less
than disastrous scale worldwide (except in China for the moment but that is
going to change rapidly) – are all derivatives of the changing of the
economic guard from West to East.
So, all the crises we are facing
also represent this larger picture – of a changing economic world order
from West to East – Asia is rising.
The problems are all compounded in
the West and Asia by an age gap (aging gap) of huge magnitude. This age gap
is all the baby boomers retiring not only in the West but in Asia too –
especially Japan which is on deflationary legs and needs government stimulus
– again- to try and replace what all the aging boomers earned and
bought. Which isn’t going to work; it hasn’t worked for the last
20 years even when things were pretty good for Japan since 1990…
We can list more looming crises
but I think you get the idea.
How do we get from here to there?
Now, the world will transition to
some state where Asia takes over the economic engine, and if labor arbitrage
keeps up, the West is going to be left out cold in any economic rebound.
If that is so, how do we get from
here to there? I certainly have doubts that the commodity sector is not
vulnerable for the second coming economic downleg,
particularly when China is trying to pop their construction boom/bubble. Which is probably going to happen later this year.
In order to safely navigate
through your retirement years, you are going to have to find ways to protect
your savings – and that will probably involve not only gold and silver
stocks for example to hedge against a falling USD, but also some mix of
currencies during the turmoil that is to come for liquid assets like cash.
The recent favorite havens do not
have a good track record except gold
6 years ago the Euro was bandied
about as being the solution to the USD. Now the Euro appears fatally flawed.
I also get concerned that commodities are constantly being promoted as the
safe haven, especially after witnessing the horrendous commodity crash in
Summer 2008. We warned subscribers of that pending crash two months ahead of
time that the USD was due to rally.
In any case, the only way to
safely preserve your savings will involve closely tracking developments in
sovereign bond markets and careful choices of a batch of currencies, gold
stocks (or coins) and possible well chosen commodities, but not ones being
turned into speculation markets, which many are now.
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breaking financial news. We have anticipated many significant market moves in
the last two years, such as imminent drops in world stock markets within days
of them happening, and big swings in the gold markets within days of them
occurring. We have also made a number of good calls on big currency swings, such
as with the USD, the Euro and the Yen. We called the USD rally in late Nov
2009 for example.
We invite you to stop by and have
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Chris Laird
Prudent Squirrel
Chris Laird has been an Oracle systems engineer, database
administrator, and math teacher. He has a BS in mathematics from UCLA and is
a certified Oracle database administrator. He has been an avid follower of
financial news since childhood. His father is Jere
Laird, former business editor of KNX news AM 1070, Los Angeles (ret). He has
grown up immersed in financial news. His Grandmother was Alice Widener,
publisher of USA magazine in the 60?s to 80?s, a
newsletter that covered many of the topics you find today at the preeminent
gold sites. Chris is the publisher of the Prudent
Squirrel
newsletter, an economic and gold
commentary.
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