This week, US stock markets finally "did it". Did what? Well, on October 1, the Dow stormed up 192 points to close at 14087, finally breaking through the old 14000 all time high it set back on July 19, before the global interbank credit crunch hit the headlines. And on October 5, the S&P 500 rose 15 points to 1557, finally managing to beat its own record close. "See", crows Wall Street, it's all a storm in a teacup. Look at the stock markets. How can the economy be "weak" when they are at record highs?"
As we have said many times, the "health" of US stock markets has long since become a political "imperative" for both Washington DC and the Fed. Since these are the only widely watched "indicators" left which are showing "strength" in the US economy, they cannot be allowed to fall. Thus we have the absurd situation that the US Dollar hits an all time low on a trade weighted basis and, the very next trading day, the major stock market index on Wall Street zooms upwards to set an all time high.
Of course, the day after that came the first "break" in the $US Gold price since it began its $US 100 upward surge on August 16. On October 2, the day after the Dow broke through to a new high, $US 17.40 was pared off the Gold price. By the end of the week, Gold had regained about two-thirds of those losses. It actually closed with a loss on the week of a mere $US 1.50. And by the end of the week too, the $US Dollar as measured by the trade-weighted $US index (USDX) was once again falling back towards that all time low of 77.62 it set on September 28.
Here is a quote which sums up what Wall Street and Washington would like the world to think was the current situation:
"The future appears brilliant. It is this future which the stock market has been discounting ...we have the greatest and soundest prosperity and the best material prospects of any country in the world. Our national resources, our selected population, our great domestic market, our efficiency and our capital supplies make our securities the most desirable in the world. The whole world has wished to buy our stocks and is pleased to lend money at attractive rates."
Would you say that this reads like something Treasurer Paulson or Fed Chairman Bernanke would write to describe the current situation in the US? Would you say that this is the kind of "fluff" that Wall Street or the mainstream US financial press churns out on a daily basis? We certainly would not argue with you. The point is, however, that this is not a current quote.
The quote comes from a 21 page letter that Mr Thomas Lamont, the senior partner at the firm of JP Morgan, prepared for the President of the United States, Mr Herbert Hoover. The letter was prepared over the weekend of October 18-20, 1929. Mr Hoover read this letter on October 22, 1929. The initial crash of 1929 took place two days later, on October 24, 1929. Then, after "organised buying support" (organised in large part by Mr Lamont's firm, JP Morgan) had temporarily stopped the initial rot, the market crashed definitively on Tuesday, October 29, 1929.
What is now happening on financial markets and in the world of economic "analysis" is not new. It has happened many times before. The "players" are in denial. After watching a quarter of a century of ever increasing inflation, they refuse to even entertain the thought that it could ever come to a bad end. Of course, the easiest way to do this is to deny that any of this inflation exists. It isn't inflation which makes stock prices go up. It isn't inflation which makes house prices go up. These prices rise because, to quote Mr Lamont: "...we have the greatest and soundest prosperity and the best material prospects of any country in the world."
That is what Washington and Wall Street would have us believe. The problem is that they have been saying this so long and laying it on so thick that by now, most of them actually believe it themselves. Any history of the exponential rise of any type of "monetary aggregate" issued by any nation in the world shows without a shadow of a doubt that the last 25 years has been the most inflationary period in the history of the world.
But it isn't "inflation" if we don't admit it's "inflation". It isn't "inflation" if we re-define the term to mean "rising prices" instead of an increase in the stock of money. It isn't "inflation" if the prices which DO rise are the prices (almost) everybody wants to rise - like the prices of financial "assets" of all descriptions and of real estate. Remember Mr Roosevelt's: "We have nothing to fear but fear itself."? That was a twentieth century variation of a much more ancient canard that goes like this: "Ignorance is bliss"
That is the great line which con artists in all fields have been making hay with for centuries and millenia. The problem becomes acute, though, when they start to believe their own scam and to think that they can actually make it work in REALITY. Unfortunately, in today's world of "high finance", we have long since reached that melancholy destination.
The catalyst for the US stock market leap into record territory on Friday, October 5 was a "favourable" US jobs report. Of minor interest was the announcement that 110,000 "new jobs" had been created in September. Of major interest was the "revision" of the August figure, which originally showed a LOSS of 4000 jobs. The "new and improved" report showed that in actual fact, there were 89,000 new jobs "created" in August. "Ah", said Wall Street, "that's a much better number!" Can't argue with that, it is a better number. Where it came from or how they got the first number "wrong" is something which nobody cares to look into. Nor does anybody care to remember Wall Street estimates from a few months ago that it takes 220,000-250,000 new jobs a month in the US to ensure the continuation of "growth".
There's an old saying in the world of poker. "If you can't spot the "rube" within ten minutes of sitting down at the table, better get up and leave quick 'cause you're him!" The problem with today's financial system is that everybody is bluffing and nobody dares to "call", so they just keep betting. They thought they were in charge of the asylum, now it is beginning to dawn on them that they have no choice but to become one of the inmates.
Gold is NO part of the game of modern finance. It provides an "antidote" to the positive delusions of the paper "money" markets to anyone who cares to make use of it. It cannot be created or destroyed. It relies on neither faith nor credit. It simply is - MONEY.
Given the desperation with which the paper hangers are hanging onto their delusions, Gold was overdue for a "correction". It has had one this week. There will be many more. As more and more people leave the financial "table" with at least some of their stake intact, they will be looking for a place to put it. Gold may well not be the first place they look, but it will be the LAST place they look.
On September 23, the entire $US Gold bull market stretching all the way back to early 2001 was revalidated when Gold exceeded its May 2006 highs. We are VERY early in the new upleg on Gold's bull market. So far, almost all of the recent rises have been a reciprocal of a rapidly falling US Dollar. This new leg of the Gold bull market won't get going in earnest until Gold is rising against ALL paper currencies, not merely against the weakest of the major ones - which also just happens to be the current reserve currency.
As you can see from the table below, Gold has hit new bull market highs in US Dollars and Yen terms. It has yet to exceed its 2006 highs in terms of Euros or Aussie Dollars - or several other major paper currencies. It is VERY early days yet in the new upleg on the Gold bull.
|