We might be approaching the moments when the markets resume the natural function of price discovery. For those holding paper assets or shares of companies tied to the distorted financial system that exists today, that price discovery could be very unpleasant. If interest rates and prices are freed so they can seek natural levels, the destruction of both nominal and inflation-adjusted prices would be swift and severe.
Precious metals and the mining shares continued to head the asset classes at the end of the week. The HUI extended its calendar 2014 lead over the Dow Jones Industrials to 28%. As the degrees of freedom available to the central planners become less opaque, our belief is that we are in the final stages where their choices are few, risky and unpleasant.
The belief has been that central control and unlimited liquidity could cure anything. We can see clearly that the Japanese attempt to do this with their own version of unlimited QE was nothing more than a one-year sugar high. The change in the yen and the meteoric rise in the Nikkei proved to be transitory. For the rest of the central planners, it must be sobering to see such a failed experiment in the real world.
Despite the empirical evidence to the contrary provided by the Japanese, the progressively rotting underpinnings of the global economy and the dangerous outbursts of social unrest will cause the central planners to turn to what they know best, even more printing. If that is the case, we should continue to see repressed interest rates and supported equity prices. While it is always possible that they will take the occasional sucker punch at the metals and miners, the supply/demand equation and the deep value embedded in those assets should make such attempts tremendous opportunities for investors to accumulate more significant positions.
- Robert Fitzwilson via a recent King World News interview, read more here:
