Clogging Up the Economy

Posted on April 9, 2013 by MN Gordon

By most accounts, as the season turned from winter to spring in 2013, economic recovery was ready to bloom.  The economy’s fields had been tilled and planted with care…housing was finally on the upswing.  Plus, the Federal Reserve was sprinkling its monetary fertigation at an EZ flow rate of $85 billion per month.

Everyone just knew the next big economic growth would appear at any moment.  In fact, if you skipped a blink, you could already see it.  What’s more, you could almost taste the forthcoming fruits of an abundant and bountiful summer harvest.

The stock market, that forward looking animal, was already investing borrowed capital and counting the unearned returns that would surely be generated by future profits.  New highs were being hit nearly every day.  Suckers were even buying stocks again.

How couldn’t they?  Suckers always buy high and sell low.  New all-time highs were the perfect carrot to bait them back in at just the imperfect moment.

Then, just when everyone least expected it, something rather displeasing happened.  Economic wheat rust appeared last Friday like grade school head lice. Continue reading →

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The Biggest Baddest Bubble of All

Posted on April 5, 2013 by MN Gordon

“The Fed is ‘like a wet blanket all over the economy,”’ said David Stockman on The Daily Ticker on Tuesday.  “Everything is being micromanaged by them … they will fail and take private enterprise economy down with it.”

The former Reagan budget director, private equity investor and author was busy this week promoting his new book, The Great Deformation: The Corruption of Capitalism in America.  In fact, Stockman started off the week with a Sunday New York Times op-ed, which explores many of the themes covered in this newsletter.

It’s quite a lengthy article.  Nonetheless, it’s well worth your perusal.  You can read it here.

In the meantime, we’ll quote Stockman’s closing statement…

“The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it.  When the latest [stock market] bubble pops, there will be nothing to stop the collapse. Continue reading →

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Open Season on Savers

Posted on April 2, 2013 by MN Gordon

Austrian economist Ludwig von Mises called it time preference.  That is, the assumption that, all else being equal, people prefer attainment of a given end sooner rather than later.  People prefer present satisfaction over future satisfaction.

These days’ people’s time preference is instant.  They want instant gratification.  Mises called this high time preference.

Obviously, the discipline of saving and investing doesn’t conform to such a high time preference.  Nonetheless, people also want more…lots more.  More stuff, nicer, things, a bigger house, exotic vacations.

But to enjoy greater consumption, people must first produce.  The cost of production takes time.  It also takes sacrifice.  Mises called the willingness to sacrifice present consumption for greater future consumption, a low time preference.  The result of having a low time preference is increased savings.

Low time preference people (i.e. savers), are critical to the process of wealth generation and the strength of capital markets.  Without them money would be instantly spent and capital would not be available to improve production. Continue reading →

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Ignore Banks’ Bearish Statements on Gold

Posted on March 29, 2013 by MN Gordon

Ignore Banks’ Bearish Statements on Gold
By Jeff Clark, Senior Precious Metals Analyst

Goldman Sachs has lowered its gold price projections and says the metal is headed to $1,200.  Credit Suisse and UBS are bearish.  Citigroup says the gold bull market is over.

So I guess it’s time to pack it in, right?

Not so fast.  As we’ve written before, these types of analysts have been consistently wrong about gold throughout this bull cycle.  Another reason to disagree, however, is history; we’ve seen this movie before.  In the middle of one of the greatest gold bull markets in modern history – the one that culminated in the 1980 peak – gold experienced a 20-month, one-way decline.  Every time it seemed to stabilize, the bottom would fall out again.  From December 30, 1974 to August 25, 1976, gold fell a whopping 47 percent.

1976 had to be a tough year for gold investors.  The price had already been declining for a year – and it just kept on sinking.  Since that’s similar to what we’re experiencing today, I wondered, What were the pundits were saying then?  I wanted to find out. Continue reading →

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