The "Animal Spirits" - Wait to See the Whites of Their Eyes

By: Ed Bugos | Thu, Mar 2, 2006
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Anyone interested in watching a debate over gold between John Embry (Sprott Asset Management) and Dennis Gartman (Gartman Letter) - with Bill Murphy (Gold Antitrust Action Committee) coming on later in the show as a surprise guest - can go to:

It is John Embry's birthday today: Happy Birthday, John!

Personally I couldn't stand Gartman's over-confident reliance on the neo-classical framework for explanations to the budget deficit and general lack of comprehension of the essence of gold bull markets. I like Embry, but he could have revealed the theoretical flaws in Gartman's answers a little better. In the debate over the budget deficit, for instance, Gartman correctly pointed out that there is no correlation between budget deficits and economic growth, or interest rates, etc. This is true as far as it goes. However, he could have pointed out that the measure of economic growth (GDP) is flawed and that higher budget deficits mean higher inflation (because the only way to finance them is via higher inflation or higher taxes), and therefore that instead of growth financed by savings you get these consumption booms financed by an interventionist entity operating on the very theory that Gartman eschews as explaining the way the world works. In another segment, Embry correctly pointed out the basic argument that the driver of higher gold prices is the falling value of money: "blah, blah, blah... the price of gold will go up." Gartman replied, shrugging his shoulders: (so) "the price of soybeans will go up." Mr. Embry could have explained the process of a gold bull market a little better as a competition between commodities for the monetary premium; all the commodities don't go up the same amount; the one that goes up most is the one that attracts a monetary premium at the expense of the main competitor for the title of THE common medium (the USd)... thus making Gartman's proposition of a future basket of commodities as money look flawed (you can have a basket if you want but the market will still prefer one of them over the others - and furthermore, the basket of commodities concept was theoretically refuted by Mises and others many, many decades ago).

Embry could have made Gartman look like a child just out of junior high school.

But instead of focusing on good versus bad economics they kept shifting the debate to the manipulation of gold prices. Gartman's position is that it is irrelevant. He kept saying "I couldn't care less." If there is any, he said, that's fine - suggesting that he'll just go on trading. I don't entirely disagree. I too think there is much more to this story than the conspiracy to suppress gold prices, but Gartman doesn't have a good grasp on that either.

Besides, I do think it's naïve to ignore speculating on the extent of manipulation and its impact on the markets - it is true that it is not possible to manipulate markets in the long term but attempts to do so can have enormous effects on volatility in the interim. To ignore the scope of intervention in any market is simply going to cause you to miss market opportunities. So, it may be "fine" in the sense that it doesn't impede our ability to trade these things, but it's not fine to bury your head in the sand. To make an assessment on gold you have to pick a side!

Either there is, or isn't manipulation.

If there isn't, okay. It's not really in the market anyway, yet, so there is little downside if that were the truth, assuming that the truth would ever be known. If there is, then you have to adjust your upside targets, higher.

That's the significance. So pick a side. One can't afford not to.

Interestingly, they were all in agreement about sentiment in the gold sector - that it was unusually somber given the stage of the current trend. I've noticed this too; it's one reason why I've remained bullish on the short term.

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Ed Bugos

Author: Ed Bugos

Edmond J. Bugos

Ed Bugos is a former stockbroker, founder of, one of the original contributing editors to and former editor of the Gold & Options Trader. He continues to publish commentary on market and economic trends; and provides gold, economic and mining research to private clients worldwide.

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