Radical Changes Are In Store For The World And Global Markets, Are You Ready?
On the heels of continued chaos in key markets, radical changes are in store for the world and global markets.
Radical Changes Are Coming
On the heels of the release of his KWN audio interview covering the gold smash and urging investors to remain strong, KWN did a follow-up interview with Dr. Leeb because of the intensity of the recent takedown in gold, silver, and the mining shares: “If you’re worried that gold’s post-election drop means the bull market in the metal that we’ve been predicting is a mirage, relax. The current dip in gold, while it could last a month or two longer, is merely a slight head fake in a bull market more on course than ever to be of momentous proportions…
If we had to sum it up in a single (albeit long) sentence, here it is: Trump’s victory and the market’s subsequent turbulence signals a seismic shift in market leadership to commodity-led growth; U.S. imports of increasingly scarce and ever more costly commodities will rise drastically and so will inflation that a behind-the-curve Fed will be helpless to curb; the eventual, inevitable upshot will be that commodity producers will become increasingly reluctant to take paper money for their ever scarcer resources and will want some more durable asset like, you guessed it, gold.
That’s the case for gold in broad outline. Now for the supporting evidence.
Let’s start with the reality that the U.S. has been blindly complacent about commodities, which will be required in massive amounts for the big infrastructure push Trump has promised. The U.S. Geological Survey tracks around 65 vital commodities and minerals. For over 40 of them we import more than half our needs; for 25 (about 40 percent), we import at least 90 percent of our needs. We used to be far less dependent on other nations. At the beginning of this century we imported 90 percent or more of our needs for only a quarter of important commodities and imported 50 percent or more for about half.
If you wonder why that’s a big deal, the problem is that those resources will be increasingly difficult and costly to obtain as they become scarcer. And scarcities are inevitable – in fact, they’ve begun. The chart of the index of raw industrials, the prices businesses pay in real time for the commodities they use (as opposed to futures trading) is revealing. Remarkably, it shows that even at the nadir of the Great Recession, when capitalism’s very existence seemed precarious, the index stood 20 percent higher than its average during the 1990s. There is no way to explain this other than by realizing that commodities had become scarcer than in the previous decade.
Since the 2008 crash, global growth has been strong only in 2010 and the first half of 2011. In this period, the index far surpassed its 2008 high. After 2011, world growth retreated to recessionary levels until mid-2016, when just a hint of growth sent commodities almost to their pre-Great Recession peak. Now with commodity-intensive infrastructure a worldwide imperative, they are destined to go well past their all-time highs.