The inconvenient truth is that An Unprecedented Monetary Destruction Is Coming.
In democratic societies, people love everything that causes inflation but hate the consequences, which are among others rising consumer prices. It is therefore, no coincidence that debt-to-GDP has increased in all western democracies over the last 40 or so years.
Marc Champion who is a columnist at Bloomberg recently wrote about American values. He noted that, “It’s no longer clear what American values are even supposed to be.” Well, “debt denial” makes the list, according to Clive Crook, a Brit expatriate in America. “Asked how he went bankrupt, one of Ernest Hemingway’s characters famously said, ‘Gradually and then suddenly,’” Clive writes. “It’s the same with governments. American fiscal policy is firmly on course for default – and every delay in confronting this prospect makes it harder to avoid.”
As I have argued multiple times in recent reports, something important is occurring in asset markets and the probability that we are at major turning points is high. [the August report titled Multiple Turning Points in Asset Markets! outlined the reasons for this view,] Just consider the following. According to @dailychartbook, “Today the average EPS growth rate among Artificial Intelligence (AI) ETF constituents has fallen from 18% to just 5%, below the S&P 500.” Let us assume that @dailychartbook is correct and that AI constituents are no longer growing at a faster rate than S&P 500 earnings. Under this assumption there would be no longer any reason for paying a premium multiple for AI companies
My friend Mark Galasiewski (mgalasiewski@gmail.com) who writes The Asian-Pacific Financial Forecast for Robert Prechter’s Elliott Wave International (www.elliottwave.com) is of the view, just like me, that Asian stock markets including Hong Kong/China along with gold and other emerging stock markets are breaking out on the upside.
Last month, I quoted an Alpine Research Survey. I mentioned that according to the Survey, “EM remains the most shunned region.”
The last item that I find rather important and which I want to discuss relates to the following. The Bank Credit Analyst recently published a figure that showed the performance of gold in real terms According to this Figure, it would seem that gold is rather pricey. The last time gold was this high in real terms (in 1980 and in 2011), meaningful corrections followed. At first glance, this would seem to me to be correct. However, what I question and I have no precise answer unfortunately to is, whether gold is currently as expensive as the BCA figure would suggest??
I reproduced already John Williams’ calculation of cost-of-living increases in the US (what people commonly call “inflation”) last month.
What is interesting to note when we compare The Bank Credit Analyst (BCA) chart to the ShadowStats chart is that in the BCA chart gold was “pricey” in 1980, 2011 and now. Whereas in the ShadowStats chart Gold became only once “overpriced,” which was in 1980. Moreover, the ShadowStats calculations would suggest that gold is currently priced as it should be. In his latest missive (September 25) Williams writes that, “Where the Latest Annual CPI Headlined at 2.5%, and the ShadowStats Alternate Was at 10.3%, the Recent Gold Price Surge Has Held Consistent with the ShadowStats Number.” [The gold price seems to suggest that the BLS inflation numbers are nothing else than a BIG LIE, which delusional Wall Street happily accepts - for obvious reasons.]
Lastly, let us assume that I am wrong and that gold is as expensive as the BCA chart suggests. In the case of an expensive gold price, what about the valuations of stocks and bonds in the world?
Last month, I showed how undervalued gold assets were relative to financial assets. I am bringing this up because if an investor is afraid to own gold believing it could collapse, I would really suggest that he should not own any US stocks (or for that matter any assets) because they would seem to be far more inflated than gold.
With kind regards
Yours sincerely
Marc Faber
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