Monday, June 24, 2013

At least silver is used for something else than just looking pretty.

What’s going on with this market?  Are we already in a bear market? Is the market finally realizing the enormous debt levels of many governments and is it throwing in the towel? What about the collapsing gold prices?
Well….  I don’t know. I have a suspicion that things are really not that bad. After 5 years of excessive stimulation and artificially low interest rates, central bankers are finally considering that the economy is getting strong enough to take the foot a bit of the gas pedal and maybe, maybe, they're even considering reducing the bond buybacks, Awful!  Terrible! Sell, sell, sell!… Really, are we’re that addicted to whining and to rock bottom interest rates?  
Well, maybe. I have been selling some stocks, but not because we’re reaching yet another 'end of the world'. There are many who still think that all that government debt can only result in one thing: the collapse of fiat money and an explosion in the value of gold. In particular the skyrocketing of physical gold prices as opposed to ETF (paper) gold.
True, the ETF story is scary, but Ladies & Gentlemen, gold prices have collapsed to nearly $1200 where is the inflation? Hmmm... must be reflected in the price of oil then! What about the U.S. dollar which has been on a tear? That is not exactly the result of the collapse of fiat money. Oh yes! Of course!  All other currencies are collapsing that is why you don’t see the effect right away.  Yes?  To be honest, that makes no sense to me.
My guess, is that we’re suffering from artificially low interest withdrawal in an increasingly stronger economy and in the U.S., Central bankers are finally starting to timidly take away excessive stimulus; something the gold bugs wanted for years if not all the way back to the 1970s. Now that they get what they said they wanted, they’re not happy because their gold price is collapsing. This gold stuff is worse than tulip bulbs – those can at least be used to grow more tulip bulbs. He! Did you ever see a gold nugget grow gold dust?
So the economy is strengthening, although China is having some domestic trouble. Irony over irony, maybe China’s banking system is not as safe as you might assume in a country that is the largest U.S. creditor nation. Is China the real bubble as suspected on this blog in earlier postings? May I be so bold as asking whether the Chinese government will survive an economic set back?
With energy supply so abundant and secure in North America are we seeing a revival in our manufacturing sector? How does the productivity of a North American worker compare to that of an Chinese worker? Does that combined with higher transportation costs, lack of resources, less transparent accounting, hidden leverage, hidden state subsidies and overcapitalization offset the Chinese advantage of lower labor costs? How long can the world’s third largest economy (after Western Europe and the U.S.) keep on growing at absurdly high rates? Something must give… and right now China is giving a bit.
That the North American economy is improving is good for us. We now have affordable energy, in particular natural gas, less dependency on OPEC oil, a recovering housing market and high tech and pharmaceutical industries that are finally freed from the excesses of the late 1990s. My guess: North America is about to take off with a roughly shaken Europe not far behind.
Yes I sold shares during this correction, so that I have cash for the bargains. BTW, I wouldn’t be so hasty selling off those dividend growers; because they often are solid companies that also grow at a respectable clip in a higher interest environment. Do you really think that TransCanada pipelines will become less profitable when North America is screaming for pipeline capacity?  Do you really think that shopping mall values (RioCan) will decline in the face of a healthier economy and some inflation? What about insurance companies; don’t they get their float for free and make more money when interest rates rise?
What about all those pensioners who will be able to make some real returns on their cash? Did you think it was so easy for them during the years of zero interest rates?  Yes, the economic winds are about to change direction again but not necessarily for the worst as the markets lately seem to think. Even gold and other commodities that have so severely deflated over the last couple of years are likely not far from a comeback. So hold on to your seats.  BTW, I prefer silver over gold. At least silver is used for something else than just looking pretty.

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