Wishes Aside, Gold Is Going To Fly
By Chris at www.CapitalistExploits.at
Sure, it may just go to $650 an ounce first, which incidentally would be awesome for those of us who love going long asymmetry.
Rest assured however, when the wheels truly come off of what is easily the craziest monetary experiment of modern times, there will be no stopping gold from running.
A lesson I have learned (there have been many), and one that I’m particularly keen not to relearn, is that it’s dangerous to let emotions influence investment decisions.
It’s easy to get emotional about the shambles central bankers have made of our world.
It’s easy to be fearful of the consequences yet to be experienced as a result of their actions.
The world is more connected than ever before. This connection has brought positives such as increases in international trade, specialisation of resources and skills, and has certainly helped drag many out of poverty. The flip side is that what central bankers do has a truly global impact, and that impact is often harshest for those that can least afford it.
When Yellen, Kuroda, and Draghi manipulate interest rates lower they affect the cost of capital globally, and this includes the little guy in Dhaka buying an apartment, the merchant in Ghana exporting cocoa to Europe, or the tourism operator in Thailand marketing to Russian clients. Asset prices everywhere are affected by these clowns’ actions.
It’s no coincidence that the three culprits mentioned above are running the central banks of countries which also sport the most unsustainable patterns of expenditure and consumption imaginable, but they’re not the only guilty ones!
Meanwhile, some of the world’s most successful investors see the writing on the wall.
When questioned about this, Stanley Druckenmiller, the hedge fund manager who has compounded money at an annualised 30% return for 25 years had this to say:
And when I look at the current picture of expected tax revenues combined with benefits promised to future generations, this is the most unsustainable situation I have seen ever in my career.
Druckenmiller’s concern lies with the demographic trend in the United States and the growth in entitlement spending. As these two opposing forces have converged the response has been to actually increase expenditures by issuing more debt. The exact opposite of what any reasonable person would do.
This completely unsustainable path is prevalent not just in the United States, but even more prevalent in Japan – with Europe not far behind.
Looking back, historians will reflect on this era, scratch their heads and say to each other, “How did the populace let a tiny few create such a massive disaster… right in front of their eyes?”
They will further marvel at how this path was not followed by just one major economic power, which would have been bad enough on its own, but by all of the world’s major economies. It’s as if the entire world collectively went insane.
A “Popular” Solution?
A popular solution amongst those who realise the problem is to bring back the gold standard. That’s unlikely at best, and in truth it’s not a well …read more
Source: Wishes Aside, Gold Is Going To Fly
