Musings on "change" occurring in markets... and parallels between dot.com bubble markets in 2000 and "everything" bubble markets today.
In the last decade, consumer price inflation has been tame... money creation has not...
In the early 1970's... with inflation at >4 - 5%... gold roared from $45 to $250... and in the late 70's with inflation ramping up to >8 - 12%... and higher... Gold roared ahead to almost $800. It wasn't alone in moving higher. Real estate values were driven dramatically higher by inflation too... even with interest rates at >6% and moving to 8%, causing "stagflation". In my teens in the early 70's I watched gold soar higher from $45... and saw $45K houses in my neighborhood reprice to $125K in the span of a year or two.... and to $450K in a few years more. [I just went and checked Zillow... Today, in the "everything" bubble with rates at <2%, those same homes are $1.2 to $1.4 million.]
Then, in my early 20's, I watched as Volker crushed that inflation... and the price boom in assets... by sending interest rates soaring to over 20%. I bought four year CDs from a cash starved Bank of America that yielded 21.6%.
Today, "the Fed is trapped"... means people understand there is no chance they can, will, or want to raise rates enough to actually throttle inflation back... although, they clearly can "throttle the market" back... as the flow of QE has created a massive asset bubble. That "everything bubble" included gold and silver into 2011. But, since 2011... its been all and only an "everything" bubble in all assets, including particularly stocks and bonds... but, truly, an "everything (except gold and silver) bubble". Today, in relative terms, adjusted for the change in M2... gold is back to where it was in 2002... while silver is now half of what it was then ? But, as was true in the early 70's, most people seem to have no idea that gold could move much higher, with unchecked inflation driving it... [and no idea that a home valued at $1.4 million with rates at <2%... will become worth very much less when the economy stagnates, and THEN rates are finally forced higher by the markets in a tacit acknowledgment of the fact of inflation... and the Fed's failure (inability) to significantly raise rates... or sustain the lie of "transitory".]
Since the 2011 peak in gold and silver... it has been all downhill as an small but indefatigable band of true believers... mostly retail scale focused dealers and investors, but including... Sprott... and the small mining companies... have waged a steady campaign to fight the evil banks efforts in price suppression... and to promote gold and silver ownership as an inflation hedge... even when no one saw any inflation, and when no one saw inflation coming as a problem that steadily declining prices for gold and silver could counter...
The market, today, is filled with BTFD advocates... who have never known a market that wasn't in a bubble... who do not understand market history, market cyclicality, or the longer periods of time in which market periodicity operates... and they mostly cannot even conceive of gold, silver, and the mining shares outperforming major market index stocks... ever. However, historical ignorance is not a qualification of ones opinions ?
What I see coming... is a role reversal... as mining stock investors will have to learn to manage to BTFD with prices generally rising instead of falling... and the BTFD "stonks" crowd... will win an education in what a "decline" in prices really means... which is an education that mining share holders have already won.
When the market in mining shares bottomed in 2015... having wrung many higher cost or wannabe miners out of the market... almost no one was paying attention... Few are paying attention even now... to the fact that the market has been "thinned"... ?
The market today... is unused to inflation... slow to accept it... slow to understand it...
And, after a brief burst or two of excitement in gold, silver and the miners in late 2020, and again in April and May of 2021... [some few having a dead cat bounce in November]... a mere 7 months on from "ending the decline in gold miners"... we're once again at the point that "no one cares"... about metals and miners... and everyone thinks they can only go down... and SHOULD go down... along with the stock market ?
The market is even more unprepared for and does not expect to see a reversal in the trade in stocks versus gold and silver ?
But, the banks have carefully crafted this trade... wound the spring tight... particularly in silver... and apparently fully intend to use that stored energy to ensure they survive the coming downturn in stocks...
What no one seems to expect... is that the next leg higher in the ongoing [since 2002 to 2011, and up again since 2015] bull market in gold and silver, probably will not be fostered by retail suddenly succeeding in resisting the banks persistent price manipulation ? Nor driven by engineering a "silver squeeze" ? But it will instead, as was true from late 2010 into the peak in 2011...be LED by the bankers driving the trade...
Comparing stocks and gold in the dot.com bubble in 2000... and in the "everything" bubble today:
I have included charts for GOLD only, below... for the two periods. Where were stocks in relation to the gold price at the time in these charts ?
Back in 2000... when the dot.com bubble peaked and then popped... the stock market got slaughtered. And, then, after peaking, stocks ground lower throughout all of 2001 and 2002, finally moving higher again only in early 2003. But, as the stock market was moving steadily higher into its peak... gold was declining. As the stock market made new highs into 1998, 1999, and 2000... gold was declining through 1996, 1997, 1998, and 1999. The stock market peak... and the bottom in gold... occurred AT THE SAME TIME in 2000... with gold rising from the lows after that... and continuing higher... as stocks fell...
What's different this time ? For one thing... INFLATION is running hot and accelerating... unlike in 2000.
In 2015, 2016, 2017, 2018, 2019, and 2020, (although it did briefly get away from them)... and in 2021... the stock market WAS NOT ALLOWED TO DECLINE. So it didn't. Instead... the market bubble in stocks continued to grow larger, and larger.. But, gold and silver WERE allowed to decline... and they did... bottoming in December of 2015... and have been rising again since. However... unlike in 2000... the PM's have not been allowed to sustain their move higher... but have continued being SUPPRESSED in price... while stocks have dodged the declines that the metals experienced... from 2011... UNTIL NOW...
From the gold market bottom in 2015... stocks rose for another SIX YEARS without a real correction... while gold did correct, bottom, and then return to its prior highs... it has not been allowed to sustain its NORMAL moves higher... but has been SUPPRESSED while stock prices have instead been INFLATED.
It appears... gold and silver are overdue in continuing their moves higher... as M2 is rising faster than ever ?
And, it appears... stocks are running late... and, in result... have a lot of catching up to do...
The relationships seen in past cycles... have been DISRUPTED... by intervention...
But, with INFLATION now imposing a shutdown and reversal of the QE pumps that have inflated stocks ?
Stocks should revert to correct BOTH the prior suspension of correction AND the additional deviations imposed... while the suppression imposed on gold and silver as part of the same effort... should also revert to correct the deviation imposed on them... which, instead, would mean gold and silver continuing HIGHER... to correct for their prior suppression.
Charts of gold in the two periods: 1996 to 2004, and 2012 to 2021.
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