Fear Doesn’t Glitter

“All money is a matter of belief.”
– Adam Smith

Gold is taking a solid beating these days. It’s been slipping for a while, but when China revealed that it’s reserves were less than believed it really fell – quickly slipping below $1,100 per ounce when one mysterious trader dumped everything. It’s now more than a third off its 2010 peak and nearly everyone believes that it’s doomed to slip below $1,000 per ounce by the end of the year.

What happened? Isn’t gold the ultimate money in an unstable world? The short answer is no, and this has as much to do with the rise of the US Dollar as anything. But in the end gold is not as much a form of money as it is a barometer of fear – a commodity that appears to be in much shorter supply today than it was just a few years ago.

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The big test for the stock market comes with the release of unemployment figures, which probably has already occurred if you are reading this after 3 October. If unemployment comes in at better than last month’s 6.1%, what is also expected this month, there will be a serious problem for the stock market.

How is that? Do rich people only prosper when the working stiffs are suffering? The short answer is “no”, but the long answer is “yes”. It shouldn’t be set up that way, but the fragile bubble at the end of a 3 year long expansion in the S&P500 is kept aloft partly by Fed Action – and that comes to a halt as good news trickles in.

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Stocks Lower Because … They Just Are, Dammit!

The Dow Jones Industrial Average (DJIA) is down for the third straight day. News outlets that have to attribute it to something attribute it to “global tension,” which does appear to be running a bit higher than usual. But the entire exercise of watching an index from one day to the next is a bit silly from the start.

A more interesting question asked by some commentators is, “Does this mean that the bull market is over?” The short answer is no, it doesn’t, but not for the reasons that most people think. The reality is that we have been in a secular (or long term) bear market since 2000, roughly the start of what we call a “Managed Depression,” and this small correction is nothing but a regression to the mean that proves it.

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