Friday, November 25, 2016
WHAT'S UP WITH GOLD?
There was a lot of speculation that a Trump victory would send stocks plunging and gold soaring. Like almost everything, the Pundits couldn't have been more wrong. Stocks are soaring and gold is dropping like a stone.
If you listen to the pundits now you'd get the story that Trump's economic policies (which don't yet exist) have the makets primed for a great recovery - which will be a knife in the heart for gold.
This is a load of BS. Nobody really expects the US or Global economy to recover. The amount of debt in the US and Global system is staggering.
When Reagan cut taxes back in 1980 it took $1.5 dollars of debt to creat 1 dollar of GDP. Not efficient over the long run. Still borrowing growth from the future. But effective in the short run.
Now it takes 6 dollars of debt to create 1 dollar of GDP. And that number is rising as the total debt burden rises. There's no way Trump can borrow his way to a recovery. Not even very short term.
So What's up?
Here's the deal. The Trump election was a confirmation of the Brexit vote. The market realizes that the populist anger that is sweeping the Globe will next be focused throughout Europe. Italy votes on Dec 4th. France votes April 23 2017. If these votes go as polls now suggest, the Euro will ultimately fail. The European Union will break up. And there is no mechanism for a breakup of the Euro Union.
What that means is all that money is now flooding into the US. Because the dollar is safer than a disintegrating Euro no matter what is going on in the real US economy.
That is forcing the Dollar to spike upward. Asset bubbles are expanding here in the US. The market will rise, high end hard assets will spike. And Gold will move opposite the dollar for a period of time.
But the fact is the real US economy is in deep trouble. That's why Trump was elected. People here are starving. Yes, starving. Afraid of losing their homes. Not able to afford college. Their kids can't get jobs and are living in their basements. On meth.
And a spike of hot money into the US will only make things more expensive for them.
It's a recipe for disaster. And when the market realizes the effect of the hot money on the US economy Gold will surge. First it will start to move with the dollar. Then it will outpace the dollar. Then the dollar will drop precipitously against all hard assets as people lose faith in all their institutions and seek the ultimate safety against disaster.
When will this happen?
Forget timing. Only geniuses and idiots time the market. Play safe for the long run. Because it's not that far away.