The mark is putting in rizing buttums and is diverging with respect to the price of gold. Maybe you don't want to hold gold vehicles because sentiment hasn't ripened, but the mark is leaking upward and represents a great speculative buy.
As far as the FED's commitment to inflation fighting, they've already conceded the fight. It's easy to fight on paper, but can you let the free market raise rates with a falling stock market and slowing economy? You can a little. That is you don't feed in as much at the margin. Hopefully that cures inflation. It won't. If the market really starts jumping when letting fed funds rise 1/4 point doesn't work, you have to pump faster to keep rates from rising even more, adding excessively to money growth. Then you have the seeds of stagflation forming sprouts.
If labor productivity is flat like it is instantaneously and wage demands stay on the 3 - 5% course, general prices will rise. They rise because the alternative cheaper cost of labor in Asia will no longer be cheaper. Asian labor cost is rising and would be evident but their growth went ballistic and broke down. It will soon be growing again and labor demands will increase accordingly. Our domestic production then is calling the marginal cost of labor because even though its cost is rising, so is the alternative cost.
FED lets rates rise. Economy slows. FED pumps to get it going. Slowing economy causes profitability to suffer, but rates don't return to previous lower levels and the slowing doesn't crack wage demands. The opportunity passed months ago to use the Asia slowdown to raise rates and get ahead of the Phillips Curve. Too late now. FED won't allow rates to rise high enough to bust inflationary wage demands. They'll feed money in at the margin to "save the economy". That will just entrench the wage demands. So more and more money is not commensurately generating more and more output. That's stagflation land. Eventually, inevitably, rates bust loose, FED goes into hiding, and the market cracks the non-negotiable wage demands with nasty recession. Greenspan and the FED are too weak to do this by choice. They're old and fat. They could take a lesson or two from McChesney-Martin.
Trade deficit and national debt are irrelevant. They never were relevant. Popularizers just look around for something amiss to blame problems on and they trot out these two as the usual whipping boys. Currencies do NOT adjudicate trade. Trade disbalance is just an abstraction. It only means that the nation in an abstract evaluation has imported more than it has exported. Why should that change the price of goods sold or purchased? How does failure to pay for goods sold or bought change the price of manufacture? It doesn't. Currencies also have LITTLE to do with internal banking situations. Currencies are 95% determined by the efficiency of manufacture or service output of one country vs another.
So why should a rising mark cause gold to reverse? It doesn't. Rather the forces that are causing the mark to reverse will be also causing gold to reverse. The same perception caused the DOW to drop like a rock today. The DOW is most sensitive, the mark is secondary, and gold is least. Asia is bottoming. When they start up there will arise inflationary pressures that will be evident to everyone. The Asians will be demanding more raw materials, oil, foodstuffs, whose ability to supply has been shut-in by the superficial intermediate deflation. The commodity complex will reverse and you'll get the buy-before-it rises-in-price psychology. The Asians haven't learned about that process yet so they will consider chasing production has more importance and they will ignore raw material price increases. That and wage push inflation is the kinds of forces that the DOW and mark are sniffing out now.
The FED? Do you really think that if the DOW is tanking that they will be able to stay the course with their foot on the brake? Just think of all those old people depending on stocks to sail them to the happy hunting ground. If the FED tries to do anything, the AARP will burn the FED building down. Your analysis forgets the only element that counts: psychology of greed and fear. |
