Gold is in a bull market. Stocks are in a bear market.
That is all ye know…and all ye need to know.
Stocks are being driven down by the market, in a natural, ordinary, inevitable correction.
And gold is being driven up by the central banks’ attempts to stop it.
Buy gold on dips. Sell stocks on rallies.
Simple enough, don’t you think?
No guarantees, though. Mr. Market can do what he wants. And if he wants to set off in the opposite direction, there is nothing we can do, here at Markets and Money headquarters, to stop him.
All we can do is look out the window and see what direction he is heading now.
But what’s this? Is he doing the moonwalk? What bedevils so many investors and commentators is that it’s hard to tell which way he’s going. Mr. Market is clearly marching towards deflation – notably in the prices of houses and stocks. But the feds have a line on him. They’re pulling him in the opposite direction – inflating gold, oil and food prices. Which is it – boom or bust? Inflation or deflation? Prosperity or poverty? The combination of opposing ideas seems to rattle most observers. They can’t tell whether Mr. Market is coming or going. But here at Markets and Money , we take ambiguity as comfortably as gin.
To the question: what’s it going to be, boom or bust? We answer: Yes. Both.
On the bust side, Martin Feldstein, says the coming recession could be “nasty,” unless the feds take decisive action. He wants “aggressive” rate cuts backed by fiscal policy too – say, a tax rebate – to stimulate consumer spending.
Forget it, says Forbes . By the time the feds figure out what to do the recession will be already upon us. It will be too late to stop it.
The BBC says the United States is already in recession. And Congress is out of session for the holidays.
But suppose the pols were already in Washington, with their fat derrieres in their comfy leather chairs and their pudgy, payola-stained fingers at this very moment ready to vote for more zany, FDR-style relief. What exactly could they do?
Well, they could give taxpayers back some of their money…thereby increasing consumer purchases. Well, yes, they could do that, couldn’t they? And they could get Ben Bernanke on the phone and pressure him to cut rates…and open up the central bank vaults so that the voters had more money and credit. Yes, they could do that too. And what would be the effect of all this new money and credit (created ‘out of thin air,’ for there is nowhere else it could come from)? Would it not create an even greater sense of urgency among gold buyers?
But our guess is that Forbes is right in the first place. The feds can’t stop a slump. All they can do is react to it. And their reactions are likely to lead to higher inflation levels.
Meanwhile, a bear market in stocks is underway. Whether it is an entirely new phenomenon…or the long-awaited continuation of the aborted bear market that began eight years ago…we don’t know. But stocks are going down.
Maybe – if the feds were able to inflate fast enough – the bear market in stocks could still be turned around. And maybe – if the economy goes bust fast enough – the bull market in gold could be arrested. But one way or another, with Mr. Market pushing so hard in one direction…and the feds pulling so hard in the other, either gold is going up…or stocks are going down.
One or the other…something’s gotta give…probably both.
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