Well, I am on the road again.  Right now I am in St. Paul, Minnesota, readying myself to give a one-hour talk and one-hour Q&A session to the general public at the request of the MN state legislature energy commission.

As I scan the news, I am seeing a number of worrying trends, not the least of which are the number of high-level money managers who are essentially throwing in the towel on the financial system.  They have either lost faith that markets are worth participating in, because they are too heavily influenced (or manipulated) by governments and/or their agents, or they have lost faith in the idea that we can ever grow our way out from the mountains of debt that we not only created in the past, but continue to pile on, even today.

Once the big money folks lose the connection to value of fiat money (something I lost a while ago), then I would predict some rather sudden changes to the system.

The biggest new trend or potentially disruptive event is harder to track, but profoundly important.  One of the dominant themes holding the narrative together for many, many people is the role of technology in ameliorating, if not solving, our future problems.

The impact of the Deepwater incident lances deep into that narrative, creating a wound at a terribly delicate time.

Is Gold In A Bull Market?

Friday, May 28, 2010

Executive Summary

• Asking whether gold is in a bubble or a bull/bear market misses the point.
• Better questions to ask involve fiat money management, government responses, and financial market risk.
• Gold is not in a bull market; rather, faith in our decision-makers is in a bear market.
• Trust is hard to come by these days. 
• As for whether or not to buy gold, there are a number of factors to consider.

I’d like to clarify my views on gold, because I approach this topic from a unique perspective that I think has value.

For most, the idea of investing, or even speculating, is a matter of placing one’s money somewhere with the anticipation of getting more money back out at a later date.  Naturally, the footnote to this expectation reads, “…assuming money is worth the same.”  In this idea of investing, ‘more money’ is assumed to be synonymous with ‘greater purchasing power,’ because devalued money may represent a significant loss.  The shifting target in this story since 1971 has been the untethered value of the currency itself.

For many investors, it has been a useful frame of reference to define various asset classes and markets in terms of being either “bull” or “bear” markets, where prices for investments have risen or fallen over some period of time, respectively.

Sometimes, when a bull market ramps out of control and then crashes, it is said to have been in a “bubble.”

Recently, the WSJ asked the question of whether or not gold is in a bubble, which is an important distinction for many investors, because if the answer is “yes,” then the next question is, “So when will it crash?”

Well, we are getting our second taste of a multi-day power outage for the second time in a month, and this one may last for the better part of a week.  We had a ripper of a thunderstorm come across the entire region on Wednesday.  The power company is saying that the damage is worse than last year’s ice storm, which was the most destructive event in their history at that point.

We’ve got some amazing damage up here.  One lady in town had a string of 5 trees all get ripped up and pushed over, and now she has a literal wall of roots 50′ long and 15′ high, dead vertical, right where her shady backyard used to be.

So score another one for harsh weather.

Right now the power suppliers are on full triage and are focusing on getting power back to hospitals and emergency services, then grocery stores, nursing homes, etc. etc. etc., until they finally get to residences – and even then, they’ll go for higher-density areas first.

Today the Dow closed below 10,000 for the first time since February 10, when it finished at 9,908.  Trying to figure out which way this thing is headed has proven difficult.

Such high volatility is often a feature of tops and bottoms.

Again we find that the markets were trading as the inverse of the dollar, which had another strong day.

Money sloshed this way and that way.  Etcetera and so forth.

I don’t necessarily want to diminish the psychological importance of closing below a ‘big round number,’ but it hardly has any real significance at all.

The real problems remain firmly in my view.

There are four truisms that form the core of my near-to-intermediate-term outlook: