By Zak Mir
One of the more unfortunate aspects of the financial crisis was the way that it turned many markets upside down – as pointed out in Jim Mellon’s recent blog, it was time to “rip up the rulebook.” The question was and is, which rules and which rulebook? And do we even need to have rules anymore? For instance, the relationship between interest rates and growth, commodities and growth and even commodities and the U.S. dollar, all seem to be somewhat muddied as compared to what they were before the fall of Lehman Brothers.
There are a couple of aspects in the new paradigm that I have enjoyed as a spectator sport for seven years plus now. The first is the way that apparently highly intelligent people lost painfully because of the idea that QE would lead to an inflationary bubble, meaning that the only store of value would be gold / precious metals.
Some commentators were calling for a $2,000, $3,000 and even $10,000 an ounce gold price by now!
Of course, their calls were a total disaster. We know that the best store of value in the world remains London real estate – Russian fighter jets over the English Channel permitting.
The other thing that everyone has got wrong (so far, touch wood) from hedge fund legend Crispin Odey downwards is equities being totally overvalued and set to crash. Indeed, the C word has been dragged out as many times with relation to equities almost as much as the end of the Euro. While 2015 could be the year that these doomsters have their dreams come true, all the years from 2009 onwards have been THE year of the big meltdown. It is starting to become embarrassing. I dislike quoting anyone, as most quotes are only irksome clichés. But the comment of Einstein that the definition of insanity is to do the same thing again and again and expect different results, does appear to be appropriate.
But I would venture to suggest that nothing is more embarrassing / insane and will have lost people more money than backing the upside argument in commodities.
For some reason, those who are on the commodities buy theory just do not want to back down. They do not even want to wait until there has actually been a sustained up year to start buying gold, silver or mining stocks in general. If we are heading for Weimar Republic style hyperinflation, why not let inflation get up to say 5% or 10% and then shoot for 100%?
All of this cogitation comes in the wake of the latest revelation that the Bloomberg Commodity Index has fallen to a 12 year low. Given the way that oil has halved in three months this is not a shock. Unfortunately, the commodity bugs will say all of this is a generational buy opportunity. Perhaps it will be soon? But stepping back from the mania, it is difficult to see how.
Indeed, I would venture to suggest that if after five years plus of QE going on in one major Western economy or the other, and with rock bottom interest rates, if there has been no bubble in commodities by now there never will be.
To sum up, the ball is very much in the court of those who are looking for a rebound in this space in the alleged run up to a Federal Reserve interest rate rise, and as Germany goes into deflation.