Comment The U.S. economy, as measured by the Dow Jones Industrial Average, has jumped over 1,000 points in 3 months. On Tuesday July 17th, it broke through 14,000 for the first time, trading briefly at 14,021.95 before settling back to close at 13,971.55.
It broke through 13,000 points on April 25, 2007, slightly less than three months ago.
It broke 12,000 points on October 18, 2006, which took seven months. It took 9 months to go from 10,000 to 11,000.
But it took over two years to go from 9,000 to 10,000.
So there’s a pattern emerging here. And the pattern says that the rate of economic acceleration is itself accelerating.
And there’s only one of two ways that can end. Both of them are scary.
We either settle into a comfortable rate of growth at the speed of light, or the whole thing coughs and crumbles, and we find ourselves dusting ourselves off and eyeing the bronco from which we were recently pitched warily.
We have an extremely peculiar set of circumstances surrounding us right now that have never seen the like in economic history.
Unbridled growth, global in scope and gargantuan in scale, not the least impeded by equally inflamed energy prices, coupled with global currency oversupply, unaffected (seemingly) by record-breaking, sky-high commodities costs.
Is it just me, or is there something confoundingly wrong with this picture?
Its as if all of the checks and balances normally dictated by supply and demand have vanished for the time being, to be replaced by a situation where there is only growing supply, growing demand, increased profits, cheap money, and …what? We’re never going to die?
That, to me, seems to be the next logical development, given the nirvana-esque state of affairs around the world. Hamas and Fatah embrace, move in with Taliban, and throw a party for Zion?
Or, is all of this rapid acceleration indicative of something ominous and large looming imminently over our collective horizon? Have we reached a point in our evolution where our civilization might in fact be entering a period of de-evolution.
Have we maxed out our systems? Is the global equation, “for every action there is a reaction” about to reassert itself as an irrefutable overriding natural control process?
An economy growing at the speed of light, or its financial equivalent, means that we are, in fact, in the last commodity cycle, because at this rate, it is truly a short matter of time before natural resources are exhausted. And when the basic substances that fuel all other industry are exhausted, well, things are bound to change.
If change is the only constant, then change is at hand.
But what does that mean? How do we prepare?
Its like defending yourself against the invisible man – never knowing from which direction he might strike, and what form of weapon he may choose from his invisible arsenal.
The answer is straightforward enough. All we need to do is look at history to see how we have endured the darts and arrows of misfortune.
Gold!
Gold! Gold! Gold!
Since the beginning of recorded history, the one substance that must needs be stockpiled and guarded in times of war, pestilence, famine, and economic chaos, is gold.
Now, lets assume, for the time being, that the above-forecast darkest of dark scenarios can yet be experienced gradually. A gentle easing into a period of natural re-ordering, where a reprieve to unwind this fiduciary transgression against future generations can be enjoyed as we collectively assess the damage and plan our repairs.
There is only one place to be, as an investor, and that is, in the money.
Which brings us back to gold.
Dennis Gartman noted the following quote from Juan Basco, who heads up market operations at the Central Bank of Argentina: 'We don't rule out increasing our gold holdings in the future, which would depend on the economic environment. Gold is recovering its role as an asset protecting the portfolio against inflation and international financial crises.'
According to Dennis: 'Mr. Basco went on to say that the bank had been selling gold rather aggressively from 1997 onward, for it had gotten far-better returns on its assets elsewhere . . . until now. In 1991, he said that gold was 19% of the bank's total reserves. That had dwindled to only 3% in recent months, and that the bank is now in the process of reversing that trend. What was even more stunning was the added statement that other central banks 'in the region' were looking at doing the same thing.'
Wanting to know more, I scanned the Financial Times, where I found the following paraphrase of a comment by Mr. Basco: 'He considers gold a liquid asset, which could be bought and sold easily and help meet any international debt repayments.' In other words, ladies and gentlemen, gold is in fact a currency, and one possessing features superior to the paper variety (even if it's a pain to lug around or try to make change with).
Thus, the thought process whereby central banks decide to become buyers of gold, not sellers of gold, is now under way. Mr. Basco and his friends cannot be the only group of people to have undergone this transformation. Prospectively, I would expect to see more central banks buying gold and fewer selling gold - exactly the recipe for dramatically higher prices over time."
If central banks are once again accumulating gold as opposed to divesting themselves of it, is it now safe to conclude that the root of the global financial system, the central banks, are bullish on gold? And what exactly does that say about world currencies?
As Michael A. Heilperin, noted economist and author of International Monetary Economics once said, "Until government administrators can so identify the interests of government with those of the people and refrain from defrauding the masses through the device of currency depreciation for the sake of remaining in office, the wiser ones will prefer to keep as much of their wealth in the most stable and marketable forms possible - forms which only the precious metals provide."
So, again I ask, the incredible performance of the Dow Jones Industrial Average is symptomatic of something, but of exactly what?
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