The Dollar is increasingly frowned upon as a world reserve. As of Oct 6th gold surged to new highs. This was helped by the global meetings to talk about creating a new reserve currency not pegged to the dollar. But this comes as no surprise to those following my blog or those paying attention to the “recovery”.
We have a few reasons for these rallies in stocks and commodities: the “psychological” rally, the “recovery” rally, and then there is the “nothing else to buy” rally.
The “psychology” rally is hard to peg, from what I have read it is spurred by the fear of getting in too late and in my opinion is the same as the “recovery” rally or what some refer to as a "recessionary" rally.
The “recovery” rally is a natural cycle seen in recessions called a “recessionary” rally. A recessionary rally can last up to 24 months, I have read. That would mean this rally has some legs still. More interestingly, that would make this rally mature around the next election cycle in 2010. Then there is the “there is nothing else to buy” rally. This is basically a matter of liquidity. What I have referred to in a previous article as the “Bubble Transfer”. With all other investments shrinking on the back of a falling dollar, there is no other place to put money other than stocks and commodities.
Since the recessionary rally is basically a matter of psychology, that is, the idea that the economy is recovering, it will be a matter of psychology that changes the trend from up to down. When this will happen is anyone’s guess but, many analysts are saying they think we have seen the bottom in stocks last March. The technical indications point to this as well, i.e. the strong rally to DOW 10k to name just one item of note, the surging GDP fueled by the FED hijacking of trillions of tax payer dollars another item that has analysts seeing a recovery beginning and other less wise soothsayers claiming we are out of recession already. Try to explain that to the unemployed, however. One problem with techs as anyone who trades knows, they can change just like the fundamentals driving the market can change. On the tech side of the rally many analysts think that the market is due for a pull back from these levels soon. I don’t think we will see a major pull back before year end however.
Still many other analysts are saying that there is no way the economy will recover from the hole were in this time. I guess they think the stocks will go even lower than what we saw in March of `09 at some point. This might be true, however even if this is so, we will not see this happen this year or even next. It will take some time. I think we could even see another bull market ensue before then. This will hinge upon the GDP, Employment and Housing data going forward in 2010.
So that leaves us with the last great bubble and only place left to put our money for secure growth over the foreseeable future: commodities. Since we are seeing some kind of hybrid recovery going on via China and FED magic, there will be a greater demand on fewer resources.
The wealth cycle of bubble transfers is underway and in full force. We have wheat and various commodities trading at depressed levels and even gold is depressed compared to historical inflation measures. As the trillions of dollars of wealth that was harvested from the tax payers and by the corporations dwindles in value and is transferred to the newest bubble of gold and commodities, Main Street will be left with a dwindling middle class as their purchasing power vanishes and is consumed by higher prices for food and energy. While their children will be left with a debt that is to big to even comprehend.
Yet in this process the ultimate goal will be accomplished; to drive up the value of gold, then use the profit to buy up wheat and other staple commodities, sending their value up; thereby securing a food and energy monopoly for the very rich.