The Fed Can’t Fool Gold – A Record of What Things are Worth

Surely some revelation is at hand;

Surely the Second Coming is at hand.

William Butler Yeats,
The Second Coming

Bad omens…evil portents…mass slayings…proliferating claptrap…prices turn screwy and the world wobbles.

Basements are flooding in Baltimore…but we are in Orly Airport, south of Paris, this morning, waiting for family arriving from the US. At least here in Terminal 4, it might as well be Lagos or Mogadishu.

In an exclusive new video interview, Greg Canavan talks all things gold with Richard Hayes, CEO of The Perth Mint. Watch now.

Long history

Almost all the travellers come from Africa…the men in blue jeans and T-shirts, the women in colourful get-ups…long, flowing skirts…and elaborate headscarves. Often, there is a whiff of an exotic perfume as they walk by…

Oh my…what’s this? The gendarmes walked by with a young black man in handcuffs…hooded…and fighting against them.

The French have a long history in Africa. While the English, Spanish, and Portuguese established colonies in the New World, France set its sights on the dark continent. And now France seems to have a constant flow of immigrants and visitors coming from its former colonies.

Here in the airport, they are generally well turned out, meeting up with friends and relatives and ready to take their places in a stable, Western society.

But others are less well off. We saw them as we were driving to the airport. They live among trash and squalor, protected from the rain by the highways overhead. Some have tents. Others are out in the open…or under makeshift lean-to’s.

There seemed to be thousands of them, camped out on the edge of one of the world’s most elegant and sophisticated cities.

Obviously, they have not yet discovered the magic of zero interest rates!

Inflate or die

Back in the US, with the debt ceiling out of the way, the sky’s the limit. The US treasury prepares to issue nearly a trillion dollars’ worth of new debt; this extra supply should sink bond prices. Instead, they go up!

Savvy traders are front-running the world’s central banks. The gamblers know the score — inflate or die.

They know central banks are preparing for more rate cuts. So they buy bonds; yesterday, $15 trillion worth of bonds traded at negative yields…when the rate cuts do come, the bond prices will climb.

Some reports claimed that investors feared Donald Trump’s trade wars…they worry that while tariffs and tough talk may have been fake and foolish at the beginning, they are having a real effect now…making companies hesitate…making consumers wary…and making everyone wonder what the hell is going on.

Bloomberg adds:

The escalating trade war between the U.S. and China is nudging the world economy toward its first recession in a decade with investors demanding politicians and central bankers act fast to change course.

And then, there’s Snapchat…Spotify…WeWork…Lyft…Uber…and the whole cohort of hallucinogenic companies carried aloft by a gust of hot money.

Investors don’t know what to make of it. And if they try, they only give themselves headaches.

Bear market bounce

We reach for something more solid…something we can hold on to.

As we saw yesterday, since January 2000, almost everything in the financial world has been queered by central bankers. The whole bull market — 2009–2019 — for example, was false…phony…a fake-out by central banks.

Yes, stock prices rose impressively in dollar terms. But in real-money terms — gold — the bull market of the last 10 years looks like an average bear market bounce.

In gold terms, the Dow merely retraced half of its losses. You could buy the Dow with 40 ounces of gold in January 2000. By January 2011, the Dow 30 stocks would cost you only eight ounces.

In other words, stock investors had lost 80% of their money. Then, in the following run-up — fuelled by extravagant and nutty efforts to inflate asset prices — the Dow-to-Gold ratio rose to 22. At that point, stock market investors had recovered about half of what they lost — a classic bear market bounce.

Can’t fool gold

The feds can fool some of the people some of the time, and they can fool stock market investors almost all the time. But they can’t fool gold.

Gold is real money. Yes, it gets overexcited once in a while…and it tends to exaggerate. But over time, it faithfully records what things are worth. And right now, it’s telling us that the stock market is worth less than half of what it was worth 20 years ago.

We will pause to let you absorb that info-grenade.

If we’re right about this, it tells us what we’ve long suspected…that from an economic perspective, the whole 21st Century has been a bust.

America’s most precious capital — its leading industrial companies — has lost half its capital value. Whizzbang technology has gained these companies nothing.

Wall Street has been unable to add a single penny. The feds, the manipulators with PhDs at the Federal Reserve, and the genius elite have totally failed to produce a richer society. Instead, they’ve produced a poorer one.

Could it be? Could that be right? What are we missing?

We don’t know. But our job is to connect the dots. And putting them together this way reveals a whole set of patterns:

Why have incomes for most people gone nowhere?

Why is the world $250 trillion in debt (anti-capital) when it should be flush with more real money than ever before?

Why is the US federal government running trillion-dollar deficits…why is the Fed cutting rates…why would anyone buy a bond with a negative rate…and how come American families are going deeper into debt when employment is at record highs?

Yes, dear reader, a revelation is at hand…stay tuned.


Bill Bonner,
For the The Rum Rebellion

PS: Greg Canavan’s Top Two ASX Gold Stocks for 2019. Download your free report.

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.

Bill has been a weekly contributor to The Rum Rebellion.

The Rum Rebellion