A Dark Portent?

Globe and Mail blogger David Berman has a post that opens up with an old contrarian indicator: when an investment appears on the cover of a major newsmagazine, or is mentioned in the normally-ignorative mainstream media, then it's time to get out of it. He mentions an Esquire journalist touting a leveraged investment, and marshals other blogger's posts that show this fellow doesn't have a very good track record when his opinions are published in Esquire.

The trouble is, the investment in question is a leveraged gold fund.


The question almost begs itself: is the gold bull market over, or is this a fake-out of naive contrarians? To repeat points I've made earlier, gold has not spread all that much from its usual subculture; so far, there has been interest in the regular-investing world but also a lot of skepticism. If gold goes into a bear market from here, then the gold bubble I've been expecting will have never really gotten off the ground. So far, except in the usual haunts, there has been no gold mania. It was deflationism that took the world by storm, not inflationism.

Another factor to consider: at this stage of the business cycle, except perhaps for China, we're not at the blow-off/inflationary stage; we're in the recovery stage. Rather than inflation being a serious worry, and central banks taking steps to clamp down on money-supply growth, we're seeing central banks at least trying to expand briskly. Some, it's true, would argue that they're expanding impotently. There are two ways to interpret that last claim.

There's only one way that the above-mentioned Esquire article could be the signal of the gold bull's end: if inflation vanishes and is replaced by a spell of deflation instead. I don't see that happening, because central bank officers are far too vigilant about the deflation threat and shrinking credit. It's almost a certaintly that more quantitative easing will be called forth by any double-dip slideback; there's still too much debt out there that's still too vulnerable to a downturn. One example, recently mentioned by Elizabeth Ann Warren, is U.S. commercial real estate loans.

Another dip in the economy will likely trigger another run of trouble for the banking system. Central bankers know it.

The only macro kicker that could result in a gold bear would be a hard landing for the Chinese economy kicking in, soon.