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The Deflation Menace
  22 Jan 2014     12:04 am

Dedicated readers of The Wall Street Journal have recently been offered many dire warnings about a clear and present danger that is stalking the global economy. They are not referring to a possible looming stock or real estate bubble (which you can find more on in my latest newsletter). Nor are they talking about other usual suspects such as global warming, peak oil, the Arab Spring, sovereign defaults, the breakup of the euro, Miley Cyrus, a nuclear Iran, or Obamacare. Instead they are warning about the horror that could result from …

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Too Big to Pop
  7 Jan 2014     12:01 am

Most economic observers are predicting that 2014 will be the year in which the United States finally shrugs off the persistent malaise of the Great Recession. As we embark on this sunny new chapter, we may ask what wisdom the five-year trauma has delivered. Some big thinkers have declared that the episode has forever tarnished freewheeling American capitalism and the myth of Wall Street invincibility. In contrast, I believe that the episode has, for the moment, established supreme confidence in the powers of monetary policy to keep the economy afloat …

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The Long And The Short Of Gold Investing
  3 Jan 2014     12:10 am

There are two types of gold investors: those trying to make money on short-term market timing and those looking for long-term asset preservation. It was the fear-driven trading of the former that helped gold break $1900 in 2011, and for good reason – stormy markets steer investors to safe havens.

But gold’s fortune has shifted in the past two years, and finishing 2013 down 28% seems to have sealed its fate – at least in the eyes of the short-term speculators. In reality, the same forces that are stabilizing stocks and …

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A Spoonful Of Sugar
  24 Dec 2013     4:07 am

The press has framed Ben Bernanke’s valedictory press conference last week in heroic terms. It’s as if a veteran quarterback engineered a stunning come-from-behind drive in his final game, and graciously bowed out of the game with the ball sitting on the opponent’s one-yard line. In reality, Bernanke has merely completed a five-yard pass from his own end zone, and has left Janet Yellen to come off the bench down by three touchdowns, with no credible deep threats, and very little time left on the clock.

The praise heaped on Bernanke’s …

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They Bravely Chickened Out
  14 Dec 2013     12:03 am

Earlier this week Congress tried to show that it is capable of tackling our chronic and dangerous debt problems. Despite the great fanfare I believe they have accomplished almost nothing. Supporters say that the budget truce created by Republican Representative Paul Ryan and Democratic Senator Patty Murray will provide the economy with badly needed certainty. But I think the only surety this feeble and fictitious deal offers is that Washington will never make any real moves to change the trajectory of our finances, and that future solutions will be forced …

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The Eastern Lust for Gold
  5 Dec 2013     12:02 am

Having replaced savings with debt on both the national and individual levels, I think it’s well past time for Westerners to take a few lessons from our creditors in the East. Many Americans consider gold a “barbarous relic,” but in Asia, the yellow metal remains the bedrock of individual savings plans. This means that either greater than half of the world’s population are barbarians, or they’ve held onto an important tradition that our culture has forgotten.

A Culture of Gold
One of the most important elements of Eastern gold demand is that …

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Ben’s Rocket to Nowhere
  27 Nov 2013     12:02 am

Herd mentality can be as frustrating as it is inexplicable. Once a crowd starts moving, momentum can be all that matters and clear signs and warnings are often totally ignored. Financial markets are currently following this pattern with respect to the unshakable belief that the Federal Reserve is ready, willing, and most importantly, able, to immediately execute a wind down of its quantitative easing program. How this notion became so deeply entrenched is a mystery, but the stampede it has sparked is getting more violent, and irrational, by the day.

The …

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Janet Yellen’s Mission Impossible
  9 Nov 2013     12:05 am

Most market watchers expect that Janet Yellen will grapple with two major tasks once she takes the helm at the Federal Reserve in 2014: deciding on the appropriate timing and intensity of the Fed’s quantitative easing taper strategy, and unwinding the Fed’s enormous $4 trillion balance sheet (without creating huge losses in the value of its portfolio). In reality both assignments are far more difficult than just about anyone understands or admits.

Unlike just about every other economist, I knew that the Fed would not taper in September because the economy …

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Gold: Hold It or Fold It?
  7 Nov 2013     12:02 am

It’s starting to feel like we are part of a giant poker game against the US government, whose hand is the true condition of the American economy. The government has become so good at bluffing that most people feel compelled to watch how the biggest players in the game react to determine their own investment strategy.
Unfortunately, this past month revealed that even pros like Goldman Sachs have no idea what sort of hand Washington is really hiding.

Goldman Bets Against Gold
A week into the government shutdown, Jeffrey Currie, head of commodities …

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The Website is Fixable, Obamacare Isn’t
  29 Oct 2013     12:04 am

Since Obamacare made its debut, discussions have focused on Ted Cruz’ efforts to defund the law and the shockingly bad functionality of the Website itself. Fortunately for Obama, polling indicates that Senator Cruz has lost, at least for now, the battle for hearts and minds. The President has not been nearly so lucky on the technological front. If current trends continue, the rollout may go down as the worst major product launch in history. But given the government’s enormous resources, it’s safe to say that the site itself will ultimately …

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A Green Light for Gold?
  22 Oct 2013     12:03 am

It is rare that investors are given a road map. It is rarer still that the vast majority of those who get it are unable to understand the clear signs and directions it contains. When this happens the few who can actually read the map find themselves in an enviable position. Such is currently the case with gold and gold-related investments.

The common wisdom on Wall Street is that gold has seen the moment of its greatness flicker. This confidence has been fueled by three beliefs:  A) the Fed will soon begin …

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Janet Yellen Exposed — The Truth Behind the Myth
  18 Oct 2013     12:03 am

When President Obama nominated Janet Yellen to be the next Chair of the Federal Reserve Board the praise he offered was similar to what had already poured in from around the country. In their assessments of Ms. Yellen’s long career, Congressman, editors, and academics have underscored how her prescience and caution distinguish her from the reckless overconfidence that have plagued her male colleagues at the Federal Reserve.

As proof of her wisdom supporters have pointed to speeches she delivered in 2005 and 2006 in which she supposedly issued clear warnings about …

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Debt Ceiling Delusions
  12 Oct 2013     12:02 am

The popular take on the current debt ceiling stand-off is that the Tea Party wing of the Republican Party has a delusional belief that it can hit the brakes on new debt creation without bringing on an economic catastrophe. While Republicans are indeed kidding themselves if they believe that their actions will not unleash deep economic turmoil, there are much deeper and more significant delusions on the other side of the aisle. Democrats, and the President in particular, believe that continually taking on more debt to pay existing debt is …

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The Taper Fakeout
  4 Oct 2013     12:01 am

Anyone who bought the media buzz about a September reduction of QE – called the “taper” – was very surprised when the Federal Reserve announced that stimulus would continue unabated. According the the official narrative, inflation is under control and the labor market is steadily improving. Why wouldn’t a modest taper be announced?

The reality is that the economic indicators the Fed claims to rely on to decide when to taper are all dependent on stimulus money. This is not a mystery to Ben Bernanke. Instead, this entire saga amounted to …

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The Taper That Wasn’t
  19 Sep 2013     12:02 am

The Fed’s failure today to announce some sort of tapering of its QE program, despite the consensus of an overwhelming percentage of economists who expected action, once again reveals the degree to which mainstream analysts have overestimated the strength of our current economy. The Fed understands, as the market seems not to, that the current “recovery” could not survive without continuation of massive monetary stimulus. Mainstream economists have mistaken the symptoms of the Fed’s monetary expansion, most notably rising stock and real estate prices, as signs of real and sustainable …

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Off to the Races
  4 Sep 2013     12:02 am

Summer is traditionally a slow season for precious metals, but this summer started with a rout. In the last week of June, gold and silver hit 2-year lows of $1,192 and $18.61 respectively.
Fortunately, after staggering along the lows, the precious metals are off to the races once more – with gold rallying more than 18% and silver 31%. This remarkable performance continues even in the face of the Fed’s sustained tapering threats.
The exhaustion of short-sellers paired with insatiable global physical demand has positioned gold for an exciting conclusion to a …

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The Unfriendly Skies
  31 Aug 2013     12:01 am

As if the federal government were not already doing enough to kill the U.S. airline industry with restrictive workplace rules, over-regulation, and a monetary policy that supports higher fuel prices, earlier this month anti-trust authorities at the Justice Department blocked the merger between American Airlines and US Air. (Unbelievably, the regulatory roadblock was thrown up more than a year after the two companies had agreed to terms, and after great expense has been incurred to integrate operations). Although long suffering investors had hoped that the merger would allow the beleaguered airline …

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The GDP Distractor
  21 Aug 2013     12:04 am

Albert Einstein, a man who knew a thing or two about celestial mechanics, supposedly once called compound interest “the most powerful force in the universe.” While the remark was likely meant to be funny (astrophysicists can be hilarious), it sheds light on the often overlooked fact that small changes, over time, can yield enormous results. Over eons, small creeks can carve large canyons through solid rock. The same phenomenon may be at work in our economy. A minor, but persistent under bias in the inflation gauge used in the Gross Domestic Product …

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The Half Full Economy
  10 Aug 2013     12:02 am

The marginal economic strength that was described in the most recent GDP release from Washington has caused many to double down on their belief that the Federal Reserve will begin tapering Quantitative Easing sometime later this year. While I believe that is a fantasy given our economy’s extreme dependence on QE, market observers should have learned long ago that the Bureau of Economic Analysis (BEA) initial GDP estimates can’t be trusted. A perusal of their subsequent GDP revisions in the last five years reveals a clear trend: They are almost …

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What Doesn’t Kill Gold Makes It Stronger
  7 Aug 2013     12:02 am

I’ve been emphasizing for months that the current correction in the gold price is a result of speculative money fleeing the market and not any reflection of gold’s long-term fundamentals. Unfortunately, there is so much money to be made (and lost) by day trading that my cautions have once again fallen on deaf ears.

Well, it looks like the so-called “technicals” are starting to support my theory, and so this month I’m going to depart from my typical discussion of market fundamentals and take a look at the COMEX gold futures …

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