I am a big believer that Pareto's law applies to markets. In other words, 20% of inputs will drive 80% of outputs. I honestly couldn't care less about productivity numbers because what's coming is no demand-pull inflation. I am much more focused on the dollar, bond rates, bond/dividend spreads, TIC capital flows, and the stupidity of governments around the world. Of all these variables, I am most confident in my prognostication that politicians will become increasingly foolish as the economic crisis on our hands becomes more complicated.
I have been preparing for the gold rocket launch for many months now. I am probably different from most people in that I focus more on the likely flow of capital than inflation when trying to figure out gold price movements. What I foresee is a flood of capital going from bonds into gold. The bond market is so huge that even a small percentage of capital flowing from bonds to gold will result in a volcanic eruption of epic proportions. So the potential rocket launch in gold depends largely on the bond market.
You all know where I stand. US government bonds are the biggest bubble I've seen in my life. If you are trying to rationalize 10-year yields at 3%, then you are probably the kind of person who rationalized bubble home prices by using the "there's a fixed amount of land but a growing population" argument. In other words, your mind is stuck in the 5th grade. I advise you to think rationally for a second and consider the credit quality of a country that has to monetize its debt in the face of falling tax receipts and a stalling economy. Are you really on the right side of the trade going long bonds?
There will be monumental paradigm shifts in the years ahead. Everyone is asleep, but I think this is going to change fairly soon. The big changes, which will be evidenced by huge moves in gold, are still ahead.
Essentially, he's counting on government officials acting maladroitly and then adding fuel to the fire by panicking.