For the past 15 – 40 years, debt and most markets have moved upward in exponential trends. Examine the following log-scale graphs.
Debt: The US official national debt is shown on a log scale. Debt goes up and up with no end in sight!
S&P 500 Index: Note the exponential trend line in blue, and the “danger zone” lines in red. Given points 1 and 2, point 3 indicates that now is NOT the time for complacency. Read: 15 Warning Signs of A Market Top.
Crude Oil: Conventional wisdom suggests that crude oil prices will remain low for a very long time – due to weak demand, strong supply, fracking, economic contraction, wind, solar etc. Perhaps, but I’m not convinced.
Gold: Gold made an intermediate bottom in July after the highly implausible Chinese government gold announcement and the HFT stop run. The official Chinese announcement appears as plausible as the US unemployment rate – if we don’t count thousands of tons of gold and millions of unemployed workers, then the numbers will support the current propaganda agenda.
For the past 20 years, and much longer in most cases, debt and prices have moved upward in exponential trends.
Markets go up and down. Debt however, based on over 100 years of central bank and politician foolishness, only goes up – until a great deflationary crash that may not happen. Expect debt to increase, politicians and central banks to spend and “print” and markets to boom and bust and follow exponential trends higher.
When markets get overextended in either direction, they reverse, or regress to the mean. The 64 Trillion Dollar questions are which markets and when? Look at the graphs again and ask yourself if you truly expect higher S&P prices along with lower gold prices, OR THE REVERSE.
Big Picture Perspective:
Yes or no? Can we borrow our way out of debt and into prosperity? Typical government and central bank actions indicate the usual answer is yes. A more realistic understanding, which is coming, will boost gold prices.
Yes or no? Are more government regulations, restrictions, and controls good for economic growth? Typical government actions indicate the usual answer is yes. But more regulations means less economic activity, less taxes collected, higher debt, more “money printing,” higher gold prices …
Yes or no? Are policies that benefit banks and politicians generally beneficial to the middle class? Typical actions indicate the usual answer is yes. Buy gold, not the S&P.
Yes or no? Is world peace good for the economies of the world? One might think yes, but typical government actions indicate the usual answer is no. More military expenses, more war, more debt, higher taxes, more “money printing,” higher gold prices… and repeat.
Question: What will cause the next “Lehman Moment?”
For those who want a truly pessimistic assessment, read: “The Great Financial Catastrophe”
Gary Christenson | The Deviant Investor