Dollar, trade deficit, and "white" precious metals up - stocks and yellow metal down?
What's up with that?
There is a lot of scratching of heads going on in analyst circles today. Mine is developing a definitive bald spot right about where right-handed people usually scratch their heads - you know - top of your forehead, a little off toward your right temple.
Times sure are crazy. What the heck is going on? It seems like everything is moving in several different directions at the same time, kind of like the contents of a building that is being shaken by a major earthquake. It's getting to the point where even the - until recently still clear cut - "up-and-down" dichotomies don't seem to work any longer. It's sort of like the position you find yourself in as an airline passenger returning from a trip to the bathroom as the plane hits a huge air pocket and everything around you instantly assumes weightlessness for a short period of time.
Just as neither one of these physical events brings much peace and tranquility in its aftermath, so does the current state of the world's economic system fail to instill any confidence in the ability of its supporters to tame this bucking bronco before it finally freaks out completely, drops its rider on his head, and trots off into the long overdue economic sunset. As usual, the US economy is right at the epicenter of these cumulative imbalances.
In short, the earth is shaking under our feet.
That's about as concise and as descriptive as you can get.
So, what is this all about? Today, economic theory was turned on its head. The data release for the January US trade deficit revealed an enormous increase to $43.1 billion. Under normal conditions, this would put downward pressure on the dollar, as so many commentators continue to note in virtually every news report on the euro vs dollar situation that comes online. Yet, the dollar rose sky-high today.
In fact, the dollar held its ground against the euro early on in anticipation of the trade data release, and when the data were released, the dollar jumped. According to news reports, some analysts attribute this to profit taking by traders who have benefitted handsomely from the euro's recent rise, and are now selling. But would they sell on the very day such normally dollar-devastating news are made public? Hard to believe. It just doesn't make sense.
Another point of confusion is the fact that a lower dollar is supposed to bring with it an improving export picture for US firms - but the December and January export figures are both lower than they were before.
Further still, the dropping dollar is supposed to bring relief from the ever-burgeoning trade and current account deficits. Far from it. Both measures ballooned more than ever during the months of the dollar's steepest falls against the euro.
The rising euro itself is supposed to be so horribly devastating to the EU economies that none can survive it. Yet, we saw a nascent European recovery making its appearance, with rising consumer confidence and all the bells and whistles - precisely during the month of January.
And then, the utter anomaly of the falling dollar's concurrence with a rising US stock market and growing economy was supposed to be the result of improved export opportunities because such makes US good cheaper to foreign buyers - but we have already noted that the drooping buck didn't even bring any improvement in exports. The most that can be said is that it may have prevented a worse drop in exports, if you really buy into that argument.
News reports themselves are confusing. About a month ago it was reported that US export companies made tons of profits, only to find out now that they must have done so on lower exports (?!)
And now we come to gold and the Dow.
As observed in my last essay, the Dow and gold used to be mortal enemies. During the nineties, when the Dow rose, gold fell, and vice versa. That ingrained relationship was supposed to be the reason why the Clinton administration under Rubin and Summers expended so much energy in bashing gold - just so Americans wouldn't smell a rat and see inflation coming.
But as we all know, during gold's steepest rise last year, the Dow and Nasdaq staged a huge rally. No matter whether that was a "bear market rally" or not, fact is that the Dow and gold rose side by side as if they were old buddies. And now, today, they even dropped in total sympathy with each other, while all the other precious metals were having a field day!
Alright, so today was the day when BuBa president Ernie Welteke reiterated for the umpteenth time that he wanted to sell gold to fund research. So what? The German Bundestag (parliament) didn't go for it, anyway, and the whole thing happened after gold all but yawned yesterday at the renewal of the Washington Agreement with precisely the expected increase in sales allocation that so many economists and analysts predicted. So, that one goes out the window as well as a legitimate reason for explaining this very odd congruence between the gold price and US stock indices.
What remains? Is there any explanation?
The point of this article is not so much to present all of this confusion just in order to, "Tadahh!!" jump out of a corner with the only eloquent explanation for the whole mess. The point is to demonstrate how utterly out of whack the entire international financial framework has gone since the introduction of the euro as an alternative to the dollar reserve system.
The point is: there is a financial earthquake in process. This earthquake is the result of a seismic shift in the tectonic plates that make up the world's economic land mass. And these are just the early-warning tremors. Nobody knows where all of this will lead - except for one thing: it can't be good for paper investments.
If the analysts are confused and dumbfounded, what do you think is happening to ordinary traders and investors? They are as confused as the economists they listen to, and whose reports and analyses they so fervently read. And Thom Calandra, before his tumultuous exit from CBSMArketWatch.com, has already documented that American investors have lost even the last semblance of risk aversion (also known as "common sense"), judging by the penny stock boom of 2003. It seems the rest of the world is now following their lead.
I personally believe that there is no rational explanation for what's happening in world financial markets right now. The only rational thing to say is to note that people all over the world are acting most irrationally - and that surely doesn't get us very far.
Is it manipulation? Well, yeah, of course! That's not even a question anymore - if it ever was. The entire fiat-based, fractional reserve/central banking system was created for the very purpose of giving the gods of the market place more elbow room to manipulate economic paramenters. (Of course, they don't call that "manipulation." They call it "safeguarding our investments." Yeah, right. Like a wolf considers a sheep to be safer inside his belly than outside of it!)
The way things are going, it looks like the wolves of the marketplace are getting a bit of indigestion.
If you feel inclined to give the wolves even more indigestion, there is another point worth noting here: if you and a growing number of other people own enough precious metals of whatever kind, in sufficiently liquid form, and if you have some food stocked up for emergencies, most of this will likely elicit little more than a muffled yawn from you.
You simply don't care. You know the world has gone crazy, that's why you bought metals in the first place. And now that it looks like Kipling's "Gods of the Copybook Headings" are finally getting ready to do their terror-and-slaughter thing - you just go and read a nice book, maybe.
That's the whole point of gold (and silver and platinum) investing. Not the paper-profits you can rake in when your bets go your way before the margin calls kill you, but the peace of mind it gives you in times like these.
Are you upset that gold took a beating today? No, not at ll. You don't really care.
If you don't have enough gold yet, do you worry? No. You go out and take advantage of the low price, and buy some more.
If you don't have enough money to buy more metal, is it the end of the world for you? No. You set aside whatever you can and just keep buying in small increments over time;. The world is still turning. Your precious metals dealer still has gold and other metals stocked up. Your computer screen is still functioning to let you read this essay. No sweat.
Such is the incredible sanity that gold and silver can infuse into any crazy breakdown scenario. Just imagine if the whole world was on a gold and silver specie currency system ...
... I wouldn't even have an occasion to write this very article.