Bobby, Consumer Spending has definitely been fueled by the stock market wealth effect. It's sad and tragic when a person loses most of the wealth they have accumulated over a lifetime as the market turns against them. For some people, their mind snaps....
What most people don't realize is that a real Bear market wipes out your wealth, unless your properly hedged. If this is the beginning of a real Bear Market, then I think this is what we should expect: a 50% retracement of the entire Bull Run beginning in the Summer of 1982, when the Dow was at approximately 750. Here's the Arithmetic: 11,200-750= 10,450 points/2= 5,225 point decline, which should put us at about Dow 6,000 when this Bear is over.
Greenspan is in an extremely difficult position here. Last fall, the Dow rallied from 7400 to 11,200 on his 3 interest rate cuts, which provided much needed liquidity to save the system. Inflation was subdued at the time so those easings were a no brainer. Now Inflation has reared its ugly head and he can not lower rates as the stock market falls. Once the hourly wages comes out next Friday and the PPI and CPI a week later, he will have no choice but to raise the Discount rate at the August meeting. Fortunately, the XAU has already discounted 3 rate hikes, but the S@P and Nasdaq have not.
In contrast to most Gold Bugs, I understand and can relate to the Bearish Sentiment and Hostility against Gold. Gold is a currency which is fundamentally at odds with the modern worldwide financial system. I think the value of Ron Reece's posts lies in the elucidation of this. He is not wrong, but....
It reaches a point when the macro environment turns in Gold's favor. As the economy slows and heads into a recession, as bond yields rise in response to higher inflation and an unsustainable trade deficit, the smart ( and BIG ) money has no other choice but to switch their assets into the XAU and Gold. It is all part of the economic cycle.
The big mistake many people will make this summer is to transfer their assets into Bonds. As the Inflation data unfolds, Bonds will not be the Safe Haven they were last summer. |
