Patience – is the unheralded key to success in Precious Metals investing. It is a slow moving behemoth, which requires a lengthy process of unwinding at the swing of the pendulum.
The end of an uptrend is an event, it is dramatic and is over quickly. Without exception – price has behaved in accordance with steep peaks and large valleys.
The Price of Gold has little to do with the Business Cycle, nor commodity Cycle. It has everything to do with the Credit Cycle – specifically the expansion of Fiscal Stimuli – which remains muted presently.
Credit stimuli have been the domain of Money Center Banks and Political transgressions. TARP, TALF, QE V.x and Operation Twist reset the Balance sheets of the Money Center Banks.
Little to nothing was done for the Hi Polloi – you and yours while $300 Billion has poured into the support the edifice each and every month. The above number is likely low, in reality we have little to no idea what supports the present arrangements Globally. It’s all simply a WAG.
Fiscal stimulus is simply tax cuts or new government spending that increase aggregate demand.
Almost any deficit increasing policy: reduced corporate taxes, more generous food stamps, added infrastructure spending can stimulate demand, but the exact impacts depend on the structure of the spending and timing.
By example – tax cuts aimed at the less fortunate can boost the economy in the short run. Tax cuts for the well heeled do not provide a real lift. The lower income strata spend a higher percentage of what they receive than the wealthy.
Building a new Carrier Group five years in the future will not have an effect on demand in the short run. It simply guarantees the MID cash flow for a defined period.
Fiscal stimulus (Credit/Debt) can improve imbalances when unemployment is high and economic output is less than desired. When the economy is at full employment – irregardless of actual fact – fiscal stimulus is more likely to lead to higher prices than to higher output.
Traditionally, the Federal Reserve would raise interest rates to keep higher government spending or lower taxes from producing an observable increase in prices of the things our arrangements require.
Of course, the above is tradition, conventionally scripted wisdom(s).
Nowhere does any of the above represent our present circumstance.
There are a great many elements to the above function(s) which are missing, absent and wholly unrepresented.
The current Credit Cycle has developed along a very different path.
Long economic expansion accompanied by the multiple-bubble Capital Stocks (Stock, Bonds, Real Estate) created an effortless buffet for corporate America to raise vast sums of Credits. Productive capacity expanded well beyond the rationale. Excess Capacity is and shall remain a burden for generations.
The “Wealth Effect” permitted the consumer to borrow and spend, but not enough to cause any real reported (CPI) inflationary problems since the output of corporations was more than enough to meet all demand.
Of course, the essentials to our arrangement did rise in price – Food, Water, Energy, Shelter and Security. Security could easily qualify – Insurance, Tuition… more beyond the MID malinvestment(s).
Returns on Savings plummeted as 10 interest rate cuts took incentives from engaging in building a cushion for the future. Consumption was conspiciously encouraged by Politcos, Corporate Media and programming via aspirational imagery.
The Federal Reserve was never required to raise rates to control inflation. All you wanted to consume was presented on a Credit platter. The Federal Reserve raised rates 1 per cent between the summer of 1998 and the peak in 2000.
Demand in the present Credit Cycle did not decline because of interest rate increases. Consumers are spent and excess capacity remains.
Capital Stocks are holding up a narrowing portion of what remains of the Consumer Economy .
These factors all feed upon one another – Capital spending broke down dramatically and has sent the economy into its present tailspin.
Excess Capacity remains a Global issue and will persist for many years.
Traditional, post Bretton Woods, economic cycles were typified by a monetary policy response to rising inflation resulting from a supply shortage, while the current cycle arose from Excess Capacity, Credit Excess and a Faux Wealth Effect which ignited a collapse in capital spending as profit margins narrowed.
Central banks will be unable to bail out their economies using conventional practices. Consumers and corporations are not likely to borrow and spend in significant amounts for some time to come.
They are, by all accounts grossly over-leveraged.
A global recession is already well advanced, it will be far longer and much steeper than most will be willing to accept.
The Socio-Economic divisions are immense.
Politically, the Nation has been secularized to an extreme.
An entirely new paradigm has arrived from the shadows, it is taking shape right before our eyes.
Some see it, but a great many do not – and therein lay the risk to a monumental shock.