The Perfect Storm (Economically Speaking) a Year Later. The Worst (Best) is Yet To Come.

To understand this article you will need to read my article from a year ago with a similar name.  The Perfect Storm (Economically Speaking).  What's different, what's new, what have we learned and how far have we come and where are we going?

Capital, even though it is hemorrhaging slowly, is still pent-up. It needs to flow faster to the capital demand and will as it realizes it is missing opportunities (which it is).  What do the markets think?  Go to almost any trade show this year - They are bigger and the crowds are huge, much larger than just last year.  This is definitely a leading indicator of the state of our economy (Peter Lynch style).

Businesses are spending and hiring; the pace on both is going to increase.  Last year I felt like we were in a sling shot still pulling back (potential energy) - it's definitely moving forward now (kinetic energy).

As I have said before, a government that is indecisive, causes money to sit still - no one invests when the rules-of-the-game have not been defined.  Today, even though the rules still need some tuning, the capital and venture markets can no longer hold back - we are moving to flowing dollars.  What is even more amazing (IMHO), business activity is driving our government policies to make decisions (immigration reform).

So what else is coming?  High interest rates, high inflation, low unemployment, cheap non-exportable energy (venture $$$ abuzz), re-urbanization and localization.

Fun times ahead, I wish I were a young entrepreneur again; I envy my children and my grand children as there is a bright future for the young entrepreneur.

Oh, and I took the summer off from writing :) .

Bob

Where Gold is Going and Why is this "Up or Down" So Different.

Everyone needs to do a little research on some basic economic principles because our next economy is going to be very unique - unique in that what could occur will be unique, not only to my life, but in modern history.

What defines today's economic environment:
Low Interest Rates (3.25% Prime)
Low Inflation (1.72% annualized in April 2013)
High Corporate / Business Profit
High National Unemployment (7.6%)
Ridiculously High (and still growing) National Debt 

What I think the future brings us in the next 10 years.
Higher Interest Rates (duh). Yea, yea, but try to remember the 80s where good mortgage rates were 13% - 16% (think about what that would do to your monthly mortgage payment).  Prime rates exceeded 20% (21.5% on December 19, 1980).  So what will cause rates to go up?  Demand for capital and inflation.

Higher Inflation.  No one likes to talk about this one much but there is definitely the buzz  of borrow today (or yesterday) and pay back at and with tomorrow's dollars.  Can our government (the controllers of our M1) do anything else?  With a 100% inflation over a 10 year period (this is not a lot nor hyper) paying back the national debt will be only half as costly.  Think about that... and then consider that inflation could be as high as 250% in the next 10 years.  Back in 1980 inflation went as high at 14.7%; 1980 was a very interesting year.!  It takes only 7.2% inflation to double the cost of living in 10 years (rule of 72).  In a time of record corporate profits and stagnate wages, we can expect our wages to increase because of new and higher demand for labor and profit potential from that labor.

Corporate profits will, likely change hands and most likely drop from their current levels - but not much.  What does this mean?  Stocks are not necessarily the best investment.  Corporate balance sheets will also change from very high cash positions to lower, more normal, positions.

Unemployment can only go one direction and that is down.  This drop in unemployment will be a part of the fuel to drive inflation (again, remember the 80s and Reagen's 84 classic speech repeating what he said in 1980, "are you better off now or then you were 4 years ago".  In addition, there is a "feel good" to big raises even if they are only to keep up with inflation.

National debt is, like said above. The government will address this with tomorrow's less valuable dollar rather than today's more expensive dollar.

The title of this article is "Where Gold is Going and Why is this "Up or Down" So Different".  So where do you think it will be in 10 years?  A better question to ask is why (based on the information above) is the price dropping over the last several months.  My prediction: $8K to $10K per ounce before 2020.  Hmmm, consider contra-investing.! and ask why some pros are buying.

NOTE: I AM NOT AN EXPERT - JUST MY OPINION

Personal Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 30 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.