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April 05, 2006

Partying Like it's 1999
by Christopher Galakoutis

Everyone loves a good party. But all parties must eventually come to an end. If they did not, the party goers might run into a little trouble when they returned to their homes, jobs or school; what with the intoxication induced dead brain cells and all.

Today in the US however, age old truths have apparently been cast aside if favour of new house rules. The new rules include a spouse who doesn't care what time you get home or how stinking drunk you are when you do; a boss who would happily continue to pay you as you lye under your cubicle sleeping it off or a college professor who gives you an "A" even though you never showed up to class. The party thrower is also hailed as a great fellow, enriching the lives of his alcohol addicted party animal friends.

How else would we explain what is going on in the financial markets? The dollar has maintained a levitation that even the world's greatest magicians would be scratching their heads at. So too have the stock markets, attempting their own rendition of the famous pop hit about that great internet stock bubble year, penned by the guy I've always known as Prince.

Perhaps it all has something to do with the kid gloves that the Federal Reserve has handled the markets with for the last two decades. Akin to the parents who spoil their children by giving them everything they want, but teach them nothing of the hard work that went into earning the cash with which to make the purchases, no one should complain when that child grows up to be just as dependant as ever, unable to fend for himself at the first sign of trouble.

Lulled into a similar false sense of security, Americans continue to spend while savings be damned, as nothing can ever go wrong and all signs to the contrary are ignored. The media further adds fuel to the already raging fire with their puppy dog and ice-cream reporting; Pulitzer prize winning moments include how booming January retail sales due to gift cards and unseasonably warm weather portend great things to come in the new year; only to be disappointed in February when consumer spending slows due to the balances on those same gift cards having been utilized the month before.

This of course followed a disappointing December holiday shopping season as among other things, gift card accounting created an income recognition timing issue that hurt that month's sales. In effect, the fact that some Americans may have been too lazy and brain dead in December to buy real gifts for their loved ones, opting for gift cards instead, created a roller coaster of false expectations, taking financial journalists along for the nauseating 3-month ride.

The other area badly in need of some honest reporting is the unemployment picture. Despite the fact that commentators in the public eye point to the disturbing and painful plight of millions of Americans who no longer "count" in the unemployed statistic- because they have given up looking for work altogether- our low 4.8% unemployment rate is all the rage in the mainstream media and the general public, with many shrugging off the plight of France's young people and their ongoing public protests as something that couldn't happen here.

In fact, some go as far as to say that French youth should simply come to the US and find work, given our abundance of high paying jobs. Of course, from the careful-what-you-wish-for files, if something like that were to actually occur, all you would succeed in doing is covering the protests from a US locale, instead of Paris' Left Bank. Such a spectacle however just might light a fire under the dormant US unemployed and/or under-employed population, and then you might finally have some serious problems to deal with.

Gold is watching as this all unfolds, and is reacting accordingly. Now increasing across all currencies, gold's march higher is all but assured as imbalances continue to build in world financial markets, geopolitical issues ruffle more feathers and trade and budget deficits continue to break new records. Those who understand what is happening and in it with a longer term view will in all likelihood be better served than those who try to catch every top and bottom. Temporary counter-trend moves and short-term corrections will always exist as nothing moves straight up; therefore understanding and accepting this reality will help weather the inescapable volatility that accompanies any commodity bull market, or any futile attempts by governments and central banks to "manage" the gold price.

At the end of the day, this game of "managing" the price of gold, whether it goes on or not, can be viewed as a high-stakes poker game, with central bankers trying to pull off the most gargantuan of bluffs, and gold calling them on it. If you are unsure who to bet with, just remember that for centuries gold has stared down and defeated the best of them, including Kings, Emperors, Caesars and others time and again. Given that historical perspective, does anyone believe for one second that a few irresponsible bartenders will come out ahead this time around?

Christopher G. Galakoutis
CMI Ventures LLC
Westport, CT, USA
Website: www.murkymarkets.com
Email: info@murkymarkets.com

Christopher G Galakoutis is an independent investor and commentator, who in 2002 re-directed his attention to studying the macroeconomic issues that he believed would impact the United States, and the world, for many years to come. He works diligently to seek out investments for his own portfolio that align with his views, and writes about them on his website. With a background in international tax, he also works with clients holding foreign investments (ExpatTaxPros.com), ensuring their global income tax costs are being minimized.

Copyright © 2006-2009 Christopher G. Galakoutis

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