Does anyone else question current global economic policy? Is the recent drop in gold prices the canary in the coalmine?
This isn't 2008 and there is no "blood in the streets", so what ever happened to Laissez Faire? No doubt Milton Friedman is rolling in his grave.. The entire world has adopted Quantitative Easing as a cure all which is nothing short of bonkers.
Ben Bernanke, Mario Draghi (of the ECB), Alexandre Tombini (Brazil's current federal reserve president) and Haruhiko Kuroda (of Japan) seem to be in a competition to see who can devalue their respective currency the fastest. With worldwide competitive devaluation underway, this won't end pretty.
So where do we currently stand? Gold topped out at $1800 in October of last year in response to big Ben Bernanke's decision to go ahead with QE #3. Since that top, gold (and silver) have spiraled out of control and gold is now attempting to find support at $1200 (wow a 30% decline in Gold in half a year!). But wait, I thought printing money caused inflation and made gold go up as was the case since the bottom in markets in 2008. Since then, government intervention has boosted the markets with bond purchases to the tune of $85 billion per month. This action by big Ben and the federal reserve is no doubt experimental at best. Big money has strayed away from asset purchases such as U.S Treasuries and even metals and piled into stocks. This rally however is completely artificial and the markets are on edge. Any sign of future tapering in asset purchases by the federal reserve and the markets get spooked. So what is clever Ben to do? Well lets look back to 2007 when the world was on the precipice of a banking system failure/catastrophe created by none other than, you guessed it Mr. Bernanke. Well just before the ball dropped and banks were playing hot potato with bundled, toxic subprime mortgages Big Ben stepped aside let Mr. Hank Paulson deal with the mess. Let's not forget that Ben Bernanke specialized in creating real estate bubbles and popping those bubbles when getting his PHD in economics at Harvard. The real estate bubble was fueled by unconventional and often predatory loans. Complete deregulation occurred and while Johnny First-Time-Homebuyer was getting his first interest only, no doc, stated income mortgage, the deck was stacked against him. Rates sextupled in months and those interest only loan payments became impossible to pay..
Well, in theory we are in the midst of another bubble. What's Big Ben's game-plan for the next few years when this mess is surely to surface and easy money in stocks dry up as smart money head for the exits? Well he is stepping down by year end. Perfect plan!
Every continent has followed Ben's lead and the name of the game is keeping rates low in order to keep borrowing and economic activity sustained. In a zero interest rate environment however, the federal reserve hasn't got much power besides pray for the best and not use the word "taper" too much.
So where we stand in the United States. Good economic data such as job growth and the markets get jittery and a selloff occurs. So what, we want bad economic data? No matter what the news (good or bad), gold goes down by the way. What is that indicative of? I'll tell you, underlying fear in the system. Either the economy falls apart and we see continued support from the federal reserve by means of billions printed and put into U.S bonds, OR the economy sees improvements and tapering in quantitative easing occurs and the markets freak out. Either way its gunna be a rocky ride, maybe not yet but soon. I'll be watching Big Ben and as he steps down I'll be buying TVIX.