I watch gold get beaten up today and try to ignore the noise. Because that’s what it is. I don’t think the reason to own it has changed, but it would appear that more and more people are comforted by reports of an improving economy, especially if you watch the stock market.
Let’s put that in perspective for a moment, though. A few data points to consider:
-About 47.8 million Americans were on food stamps as of December, 2012.
-As of the most recent BLS employment report for February, the labor participation rate had fallen to 63.5%, its lowest level since 1981. As an indicator, it tells you the number of working-age people in the population who are employed or unemployed but looking for a job. So, think through the implications. That remaining 36.5% represent people who have given up, retired, or probably some other iteration. Forget for a moment that more than a third of this cohort is not working, it also has to translate into higher entitlements and safety-net expenditures going forward, which cannot be good for deficits.
-The average duration of unemployment rose from 35.3 weeks to 36.9 weeks, and the number of people unemployed for more than 6 months rose by 89,000 to 4.8 million. Add to that, the number of multiple jobholders went up by 340,000, more than the total jobs created per the headline number of 236,000, justifiably casting some doubt on that number’s ultimate significance.
The point being, for a recovery, it’s not terribly impressive. At the same time, to quote Kyle Bass (as I did in the title of this post), over 1,400 new billionaires emerged in the past couple of years – think there might be some misallocations of capital.
In any event, let’s try to think about these things from the perspective of a Keynesian. I had Hyman Minsky in mind. He argued that capitalism was inherently unstable, and as people were deluded into a fall sense of security over time because things did not appear to be getting worse (and maybe even marginally better), more and more bad and reckless decisions would be made that would ultimately implode on themselves. I suspect that may be the case here and now. As the cheerleaders cheer, and we see one-off data points that support the rosy case, the aversion to risk starts to dissipate. Of that notion, I think Minsky got it right, even if he offered no credible explanation for the transmission mechanism.
And in spite of that, the world is not in a great place. Every time I hear that Europe is just grand, something happens to dispel the notion. Japan, for all its wonderful money-creation of late, still printed a negative GDP number in the last quarter. And the U.S., well, the U.S. is simply the tallest midget in the room. The problems we face are structural. No way around it. But, we continue to hope and pray that there might be.
The moral of the story: money-printing has a long way to go in its life cycle. It cannot and shall not stop. That isn’t noise.
