Every upside down concept will one day go downside up
Our house is a very, very, very fine house
Going back for another look at the Shanghai Composite this morning was like peeking through a time-warp and discovering that yes, it’s still Groundhog Day.
The traders all sell in the morning, then there’s the Chop Suey break, and in the afternoon the PBOC buys it all back again. We all know that this is barmy, but it’s been like this since mid-September: the largest stock exchange in the fastest-growing nation on Earth is adopting a dump-and-hoover tactic that reflects nothing except a lack of bravery, a lack of principles, and a lack of ideas.
But it’s working. It must be, right, because nobody wants to buy gold as a hedge against something nasty being about to happen. No less a source than Bloomberg says Gold may be on the verge of becoming a three figure commodity in $US. It’ll sink below a thousand bucks, says Bloomberg (via Fitch-owned BMI Research) because the Fed will raise rates to bolster an already soaring Dollar.
And yes, the Fed will raise rates because the signs in the US economy are now so good, who wouldn’t?
Er….well, apart from output production and capacity utilisation falling back noticeably in 2015. But hey – details, details…the Dollar and people long in it can’t be wrong can they?
So there you go: Bloomberg concludes (my emphasis):
‘Gold has lost about 9 percent in 2015, dropping to a five-year low, as Fed policy makers prepare to raise borrowing costs for the first time since 2006, curbing the appeal of the metal because it doesn’t pay interest.’
Bad gold, naughty gold: how dare it not pay interest. Why, next thing we know, gold dealers will be charging us for the privilege of having some. Like German bunds. Or Zirp at the banks.
Wise man say, Flowermountain sage talk out of ass. People with tons and tons and tons of money are buying gold as a long, long hold. Everybody else is quite rightly wary of investing in a commodity that’s being repressed for the usual rainbow of can-kicking reasons.
Former China Gold Association President Sun Zhaoxue observes:
“More and more people are recognising that the ‘gold is useless’ story contains too many lies. Gold now suffers from a ‘smokescreen’ designed by the U.S., which stores 74% of global official gold reserves, to put down other currencies and maintain the US dollar hegemony.”
That does come under the heading of “he would say that”, but both the Russians and the Chinese – in fact, all the Brics – know precisely that Washington-sur-Wall Street is at….hence their moves towards breaking it by (in China’s case) signing trade deals that freeze the dollar out from as much international trade as possible. Our man with the hatchet Vladimir Putin has openly declared that he “wants to axe the dollar from Russian trade”; today Russia, tomorrow the world
But nihil desperandum chums, because a deal was done with Greece to tighten its chains another notch yesterday, and so things are slowly starting to stabilise in the Eurozone. I mean fine, senior Finnish politician Paavo Vayrynen yesterday said, “Now is a good time to have a wider debate whether we should continue in the eurozone or not” – but who are these Finns anyway and what do they know? Pah.
Not as much as Thomas Fazi at the Ash Bennington site, I’d be willing to wager. However he, um, concludes that QE has been a failure, and ‘the last thing the eurozone needs is a further dose of quantitative easing. What it needs is a fiscal expansion aimed at boosting investment and demand through direct injections into the real economy, bypassing a broken financial sector.’ Smart bloke: this piece is a cracker in my view.
The upside-down headcase nature of fiscal and financial economics is alive and well, but there’s a burgeoning crowd of opinion leaders who think the Alchemist is a phony. In the Wall Street Journal two weeks ago, Shahin Valée pointed out that ‘The latest European Commission economic forecasts show a disturbing continuation of the recent build up in imbalances within the European Monetary Union’, following which he blasted neoliberal globalism in a manner rarely seen in the old Establishment business media.
Although we have the queer QE, zany Zirp, and bonkers bailin concepts out there, the daftest of the upside-down bunch has always been, for my money, the insane idea of paying to invest in the indebted finances of a country using fiat currency. It’s way past the 40,000 Gilder tulip…so much so, in fact, that a Berlin bund issue charging 0.38% for the fun of it all came unstuck this week: the €5bn offer of a 2 year series was underbought to the tune of €600m.
Is this, perhaps, the end of the beginning for Upside Down?
Were he alive today, Abe Lincoln would probably change the middle line of his famous epithet to “you can fool all the people for a very long time”. But his payoff – “you can’t fool all the people all the time” still holds good….at least in the markets.
If everything is upside down, there can only be an upside as long as the down dimension is suitably disguised. Once that downside outweighs the upside, everything will go tits up until we’re back the right way up. Discuss.