Days when the Dow rallies 112 points don’t make us feel at ease. More and more, it feels like the result of the Fed’s money spigot — the inverse relationship with the dollar being the gigantic red flag.
On this subject, Gregor Macdonald has some excellent thoughts:
Asset reflation therefore, in equities and especially in gold, should be seen not as exuberance but merely as part of the same chaos in pricing unleashed by The Federal Reserve, starting earlier this decade. As so clearly outlined in the recent data on employment, credit demand, consumer spending, and our ability to save there is little to no prospect for a sustained economic recovery for one simple reason : Americans are now trapped by their debt.
For those who recognise a rising stock market as evidence of disarray, what we should anticipate now is the recognition phase where the wider public finally comes to understand the nature of our inflationary depression. My marker has been 100 dollar oil and 15% unemployment in California. That should finally get the message across. But other combinations will do: 1300 dollar gold, 1300 on the SPX, and more problems with Commercial Real Estate will also suffice. Like the prestige-performance gap, the divergence between the economy and asset prices apparently has to become even more grotesque before people will understand.
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