June 22nd, 2015

The True Reserve Value of Gold

For thousands of years, in countless cultures around the world, gold has been recognized as an exceptional store of value and, as such, accepted in all forms of transactions.  Up until the twentieth century, most nations were still using the gold standard and the gold standard has historically provided long-term stability and inflationary controls.

However, as a result of central banks around the globe issue incredible amounts of debt in an effort to prop up or to stimulate their economies (and to not let their currency be left behind in a rush to the bottom in terms of exchange value), there just isn’t enough gold to support all the fiat currency that’s been created.

A recent article in Business Insider very graphically explains the problem in the following:

 

Gold

 

You read that correctly.  The price of all the 184,000 ounces of gold estimated to have ever been mined would have to increase 30x to around $34,000 per ounce if all the currency created would be converted into (spent to buy) that gold.  Clearly that’s never going to happen but it’s also true that the price of gold will have to increase from the current $1200/oz if it’s to continue backing up fiat money.

The only way this won’t be the case is if a global, recognized and accepted digital currency (like Bitcoin) replaces gold.

Check out the article here.

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April 14th, 2015

Buffett Indicator

Check out my article in today’s SeekingAlpha: “Tune out the Buffett Indicator“.

Buffett Indicator

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March 1st, 2015

The Crash is Coming, The Crash is Coming!

The following piece appeared here on March 25, 2013 entitled The Known Stock Market World, almost exactly three years ago. I repeat it here because Paul Farrell just came out with another one of his dire, “end-of-the-market-as-we-know-it” predictions. What prompted Farrell to make his doomsday call in 2013 was the fact that the market was about to cross into all-time new high territory and he, along with many of the other gloom-and-doomers were saying that the market was about to swoon into a major correction. In today’s blast (see today’s MarketWatch), Farrell claims

“the crash of 2016 really is coming. Dead ahead. Maybe not till we get a bit closer to the presidential election cycle of 2016. But a crash is a sure bet, it’s guaranteed certain: Complete with echoes of the 2008 crash, which impacted on the GOP election results, triggering a $10 trillion loss of market cap … like the 1999 dot-com collapse, it’s post-millennium loss of $8 trillion market cap, plus a 30-month recession … moreover a lot like the 1929 crash and the long depression that followed.”

Everyone put a link to this MarketWatch article in your “stocks” Evernote folder, in your electronic calendar, where ever you can so that you’ll be alerted to it then, can quickly retrieve it (unless MarketWatch pulls the story by then) and can lobby to take away Farrell’s soapbox.

Back in 2013, it was clear that the market would be going to new heights, which it did.  In 2015, when we’re in the sixth year of a secular bull market, there’s no question there will be a correction soon.  But no one today can predict when it will begin nor how far it will carry the market down.  Anyone who claims to know, like Farrell, is taking you for a sucker.

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imageI was asked to read Paul Farrell’s most recent blurb on the Wall Street Journal’s blog site Marketwatch.com entitled “New Critical Warning as 2013 shocker looms” in which he enumerates 6 new critical warnings, which added to the 7 he says were issued last year but to which there doesn’t seem to be a convenient link of the site.  This “critical warning” comes from Gary Shilling (the others came from Bill Gross, Nouriel Robini, Reinhart and Rogoff and Farrell himself.

Farrell clearly spells out that their vision of economic and market doom is rooted in their dislike and distrust for Fed Chairman Bernanke and his policies.  Is it professional jealousy?  Does it come from an contest between Keynesian and Austrian monetarist inside schools of economic philosophy?  In Farrell’s own words:

“Timing is critical at a turning point. We warned of the coming crash well in advance in 2008. We picked the bottom in March 2009. We are in the fifth year of an aging bull. These six Critical Warnings tell of a hard turning point dead ahead. Wake up. It takes time to restructure a portfolio. If you think you can do nothing and just wait for another year, you are like most investors: You just “can’t handle the truth.” Or you “have no idea what’s about to happen.” Or you believe “this time really is different.”

But the truth of the matter is that all these perma-bears have continually been calling for the market’s reversal and demise since last year, a 15% missed opportunity had you taken their heed and fled the market.  Was the turning point in 2012, in January 2013 or some undefined point in the future.  Why do these guys want us to sell equities?  Where do they want us to put our money?  Are they gold-bugs in disguise?

I’ve been reading much over the past couple of years from those who view a market reversal at the level of the previous all time high high as indisputable.  The reasons they offer could be technical, like Prechter’s obtuse Fibonacci reckoning, or fundamental economic, like those of Farrell, et al.  To me, it all sounds like a through-back to beginning of the Age of Discovery in the 1500′s when most believed the world was flat and you’d fall off if you sailed to the end.

1500 WorldYou could sail the Mediterranean Sea or Indian Ocean but sailing beyond the sight of land meant sure disaster.  It’s like the course the market’s followed since 2000, the Secular Bear Market seas.

Map of Known Stock Market

So long as we don’t venture outside the bounds, we know the landmarks, the levels at which the market pivoted in the past and has a probability of pivoting again in the future.  If the market reversed direction for a third time, we can guess, by looking at the above “map of the known stock market” where islands of rest might be and where it might reverse direction again.

But if half the stocks break into their own all-time new high territory and cause the index, by definition, to also begin to venture into uncharted territory then where will the first island be?  Where might we hit and wreck on a market/economic shoal or reef?

Bottom line: are you someone who has the confidence to sail where no one has ever sailed before to discover new lands and new wealth?

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