Easing Into a Phony Boom

Our goal every day in these Markets and Moneys is to give you your money’s worth.

That’s not hard to do, since this service is free. But our daily commentaries take time to read. And it can be very annoying – with starkly unpopular points of view…long, rambling, philosophical perambulations…personal notes of no particular interest to anyone except the author…and aggravating reflections of no interest to no one at all, including the author.

So, what makes it worthwhile?

Well, occasionally we have an insight…a little soupcon…a suspicion that turns out to be right.

Do we have one now? Don’t know. But after much thought, light meditation, praying and heavy drinking…we at least have a hunch.

Here it is: these clowns are going to screw up big time…

We’re talking about the world’s central planners and central bankers and central financial authorities. They are laying the track…they are building the train…they are about to take off…right over a cliff!

There’s a “growing consensus on the need for a new round of buying assets,” says a report in The Financial Times. The idea behind this “consensus” is breathtakingly absurd:

The economy is weak. So you print money. The money pushes up asset prices.
People think they are wealthier. They think there’s a real boom going on.
They invest. They hire. They spend.
Then, there is a real boom!

Do you believe it works like that, dear reader? If you do, you should be an economist. Or a doorstop.

There’s no doubt that printing money can create a boom. But it’s a phony boom, not a real one. And when it blows up…which it inevitably does…people are worse off than they were before.

It’s one thing to introduce small amounts of extra “money” into a growing, prosperous economy. It’s a fraud. It’s a mistake. But it doesn’t blow-up the system. It’s petty larceny; nobody cares.

It’s another thing to introduce large amounts of new currency into a funky, struggling economy.

But that’s what the markets seem to be reacting to – at least, the anticipation of QE – quantitative easing.

Some investors have bought stocks. Some have bought gold. Some have bought Treasury bonds. Those buying stocks and gold are focusing on the inflationary effects of QE. Those buying bonds are focusing on the Fed’s asset purchases themselves; after all, they’re going to be the biggest, flushest, most inebriated buyer at the auction.

But they can’t all be right. Gold buyers expect the dollar to crash. Bond buyers expect it to hold up. It can’t do both.

So who’s right?

Ah…if we knew that…we’d have to charge you for your Markets and Money subscription. Nobody knows the answer. But we’ll take a guess.

Stocks headed down yesterday. The Dow lost a modest 19 points. But gold lost $12. Gold is overbought, in our opinion. The dollar is oversold. And the idea of a “recovery” is oversubscribed.

We expect a correction. A great correction.

The economy is weaker and more vulnerable than people think. It is not going to bounce back. So, stock market P/Es are too high. They should sell off. The Fed’s new money will be too timid, at first, to turn it around.

As stocks fall, Treasury prices should go up. Yes, buying bonds – that is, lending to the world’s biggest debtor, who is printing money to buy his own IOUs – seems like a crazy thing to do with your money. But our guess is that crazy will get even crazier before it goes completely mad.

Gold, meanwhile, is probably not going to enter its final rocket stage until this correction is further advanced. Puffing up asset prices alone probably won’t do it.

That said, we confess…we’re no good at short-term timing. So, you want to buy gold now? Go right ahead.

Our suggestion: buy coins. Not ETFs. Not gold stocks.

Why coins? Because then you won’t be tempted to sell them when the price of gold goes down. Analysts are talking about a 10% decline over several months. It could be much worse…say 20% over several years.

Ten years ago, we urged dear readers to buy gold. The yellow metal was low-hanging fruit at $290 an ounce. But now it’s $1,335. It’s higher up on the tree. You’ve got to get on a ladder to get it. Ladders always mean risk.

Is gold going higher? Probably. Much higher. But not necessarily tomorrow, next week, or even next year.

Best advice. If you want to buy more gold, buy coins. Bury them. Forget about them.

Just don’t forget where you buried them! More, after today’s column…


It is the Final Struggle of the welfare states…the Zombie War.

“Greece paralyzed as workers strike again,” reports The Wall Street Journal.

In France, the zombies are on the attack too:

“Sarkozy’s pension tweak fails to appease unions,” the WSJ continues…

Le Figaro tells us, meanwhile, that the “unions are going to prove their point by force.” They’re planning a huge strike beginning next Tuesday…and have pledged to keep at it until the government backs down.

The zombies always want more money from the government…more benefits…more privileges…more make-work… They want something for nothing. They want to continue draining out the blood from the active, wealth-producing economy…

And they have the heavy artillery, because they usually control the legislature, the army and the police forces.

The wealth creators are outnumbered. Pushed back. Voted down and hunted down. Exterminated. But the more of them that are eliminated, the fewer resources the zombies have to support themselves.

Eventually, complex systems always blow up… They become harder and harder to support…and less and less efficient. Near the end, they are value-subtracting systems, like the old Soviet Union or perhaps the Roman Empire in its final days, consuming more than they produce…until, finally, they can’t go on.

All empires collapse. Usually, they are taken over by zombies…little by little. Gradually, they become degenerate, wealth destroying societies. Then, they are vulnerable – either to barbarians from the outside…or the zombies on the inside. Or both. Either way, zombie wars always result in the death of the zombie culture itself. Complex zombie-ridden systems are replaced by simpler systems with fewer parasites.

The barbarians don’t necessarily brush their teeth. But at least they don’t make you fill out a lot of paperwork.

Enjoy your weekend,

Bill Bonner,
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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