Gold Macro

Hell of a couple of weeks. And what is with gold going up with the USD? Haven’t seen that for a few years.

Last week, probably worst for equities since Lehman Fukushima.

So, after 9 years of “mission accomplished”, after almost a decade of negative and 0% interest rates in the OECD, designed only to hold the system together, creating the largest debt binge and bubble ever known to mankind, we may have a “problem” as rates move up????

You could be forgiven for thinking that the creation and subsequent bursting of central bank created bubbles was intentional.

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A stable paper monetary environment is something most of us genuinely hope for.

Unfortunately, both recent and long term history demonstrates such stability is rare.

Generally, change comes about when, “something”, some, “out of the box” (for those not paying attention) “black swan event” swoops down and raids on the parade. Bugger, they say, how did that happen.

Well, as history tends to suggest, same way as it always does. Too many promises, too much debt and an eventual lack of market confidence in the system’s ability to meet obligations.

The subsequent dash for collateral leaves many clamouring to paper claims. Then, “Saving” the system by helping deeply levered institutions keep their heads above water became the main central bank policy over the last 10 years.

The chart below is a small but important (the chart that enabled more leverage, in every market) indication of what it has cost so far.

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Before we get going today, we thought we’d just share this snippet of US equity market commentary over the weekend from Sovereign Man’s, Simon Black.

• “For example, a full 60% of corporate debt issued by companies in the Russell 2000 (US small company index) is rated as JUNK.
• How is this possible, an all-time equity high and all time high junk debt rating, AT THE SAME TIME???
• It’s like investors saying, well there is very little chance these companies will be able to pay their debts, so we’ll pay a record price for their stock.
• In larger companies in the land of the free, The S&P500, are now at their second highest CAPE (cyclically adjusted price/earnings ratio) ever. This is what investors are willing to pay for the shares, relative to long term average earnings.
• Right now, this is 33 x earnings.
• The mean, dating back to the 1800s, is about 15.6.
• The only other time it’s been higher was just before the 2000, “dotcom crash”.

Glad we got that off the chest.

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