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Uncertainty is spreading around the world.
It’s not just the Occupy Wall Street crowd, or the European protestors
who are frustrated, everyone is being affected in one way or another.
WE’RE ALL IN THIS TOGETHER
Rich, poor, business people, salaried employees,
old, middle aged, young or unemployed… they’re all concerned
about the changes happening before our eyes.
The elderly are receiving little, if any income. In
many cases, their plans and hopes for a good retirement have been dashed.
Plus, with the markets so volatile, they don’t know where to turn.
Middle aged working people are struggling too. Their
incomes have gone nowhere for decades and concerns about job security and
future retirement are becoming more worrisome. Essentially, they’re
nervous, angry or depressed as a not-so-bright future seems to hang overhead.
The poor and unemployed wonder if they’ll ever
get a job as their ranks grow by the most since records began over 50 years
ago. And many young people are feeling the same.
DIM OUTLOOK
For young people, the situation is also very
serious. With youth unemployment at levels last seen during the Great
Depression, the consensus is that this young generation doesn’t have
the same opportunities that the last several generations have had. So the
older generation has been helping the young and it looks like that’ll
be continuing. In the past, it was usually the other way around.
It’s no wonder then that so many feel the
system has failed them. And if they haven’t been directly affected,
they worry they will be (see Chart 1, which shows the Misery Index at
a 28 year high). This coincides with a recent poll showing that 75%
feel the U.S. is on the wrong track.
As we’ve often discussed, the world has indeed
changed and many of the jobs that used to be available aren’t coming
back, not only in the U.S. but throughout most of the Western world.
They’ve moved to other countries where the wages are much lower.
Whether people understand this and all of the other
fundamental factors that got the West into the situation it’s in,
isn’t really the point. The point is, people are upset, they
don’t like what’s happening and they’re taking action.
PROTESTING IS GLOBAL
This explains why the Occupy Wall Street and the
“indignados” movement in Spain (where
youth unemployment is almost 50%) gained momentum in such a short time.
From New York, to Oakland, to European capitals, to
Sydney, protests have occurred in hundreds of cities all over the Western
world.
The protestors blame the banks, Wall Street greed,
the governments, war, the rich, capitalism, socialism and corruption.
Just what’s happened in Greece has been an eye
opener. It’s brought the Eurozone and the world economy to the brink, a
couple of times. And considering that Greece’s economy is only one
seventh the size of Italy’s, the growing crisis there is evolving into
a much larger danger for the global economy.
VOLATILE & MORE VOLATILE
This is making the markets even more volatile than
they already were as uncertainty remains a constant. In fact, if you look
strictly at the world’s fundamental picture, it’s currently not
good.
Aside from what’s happening in the West, the
Middle East remains uncertain too.
GO WITH THE FLOW...
With so many uncertainties hanging overhead,
it’s best to just turn to the markets. Like we always say, they look
ahead and they’ll tell us the story. The trick is trying to understand
what they’re saying. And since they’ve been so volatile,
it’s been more difficult.
In fact, it’s hard to remember a time that
compares to the present one. The markets are still swinging wildly and simply
reacting to the news of the day, which indicates nervousness. This reflects
how people are feeling… nervous and uncertain with spurts of
optimism… and that’s what nearly all of the markets are
suggesting.
The gold price has actually been telling us for the
past few years that the world is a scary place, even more than it was during
the 2008 meltdown.
The fact that gold has hardly declined in a normal
downward correction (down only 16% so far) since then, after reaching record
highs, reinforces that the world is tense and uncertain. Plus, with gold in
other currency terms also rising to record highs, it further reinforces this
(see Chart 2).
But you may remember that during the financial
meltdown in 2008, all assets fell, including gold, and only the dollar and
bonds held up. This is something that could happen again. We might see
an accident or a meltdown at any time, which would tie in with the much
awaited full downward correction in gold.
Most telling during the 2008 crisis, however, was
that gold fell much less than the other markets, and it ended the year on an
up note. It fell almost 30% during the year but ended up about 5%.
A RESILIENT BULL
Last time we showed you the current bull market in
gold compared to other bubbles of the past. Gold is hardly near those
explosive high levels, and the next chart provides yet another good example
of this.
Chart 3 shows the gold price above, along with its
leading indicator, below, since 1968. Note the sharp steady rise in
gold since 2001. It’s been an amazing rise, up 660%.
But the type of volatility gold had in the 1970s has
yet to be seen. The indicator (lower chart) helps to identify volatility, as
well as high and low areas in the major trend. Note the clear difference
between the volatility in the 1970s and the movements since 2001.
So looking at the big picture… this indicator
is saying that gold is near a normal high area within a major uptrend, but it
has yet to experience any type of explosive action. This is likely still
to come once this current period of weakness is over.
Mary Anne and
Pamela Aden
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