Great Depression ComparisonsGreat Depression Comparisons
An article this morning titled 'Comparisons to the Great Depression: Inexact but Telling' begins by saying "For the majority of us (Americans), the credit crisis we are living through has come rather unexpectedly. And because it has been both a surprise to many and a traumatic experience to yet many more, we are all trying to contextualize it using past economic and historical periods. Unfortunately, this is a tricky exercise because it risks conflating the root causes and outcomes of the historical period with those of the present. But, we are going to still do it because the need to explain is so great".The author then has taken the time to write a lengthy, informative, and I think well-balanced article that I strongly recommend anyone participating in the equity markets read by clicking here.
Gold and Inflation
An article titled 'The Gold Bulls Are Right, Inflation Is on the Upswing' focuses on inflation as the driver of the gold price - as many articles seem pre-disposed to do.
From my perspective a sole attribution link between the price of physical gold and a prospective inflation rate is far to simplistic. To me, physical gold is in the first instance about retention of purchasing power which it ought to do for its owner in periods of both inflation and deflation, in the second instance it is something to trade for (hopefully) profit, and in the third instance it is something that needs to be assessed in both a near-term and long-term context by equity investors who buy, hold and sell mining stocks. Aside from inflation supply/demand, U.S. and world economic risks beyond inflation and deflation, risks of escalated inter-country conflict, terrorism issues, manipulation (if that is to be believed), etc. etc. all affect the daily and long-term price of gold denominated in U.S.$.
As I see it, there are at least three ways to think about the physical gold price: (1) as a trader, which I am not, who bets on short-term U.S.$ denominated gold price fluctuations; (2) as a long-term holder (note I did not say 'investor') of physical gold as a 'safe haven' if one or more of the four horsemen of the Apocalypse come riding over the hill; and (3) as an indirect short or long-term holder of gold as a result of trading or investing in gold exploration or producer stocks - or in other mining producer stocks (typically copper, nickel and silver miners) where gold credits significantly affect operating results. In the case of (1) and (3) fulsome - not just 'inflation based' - analysis of the possible short-term and long-term gold price is far more important in my view it ought to be to the long-term 'safe haven' holder.
U.S. Consumers
An article today says 'U.S. Consumers 'Shop Till They Drop' in Q1'.The article reports that yesterday U.S. retail stocks rose to 52 week highs on reports of resurgent retail demand.From my point of view, the real questions are: "Where are U.S. Consumers getting the money needed to increase their collective spending given the U.S. unemployment situation?" and "Is this spending increase statistic valid, an if so is it a permanent change or an aberation?" Only when the answers to those questions are analyzed and understood in a long-term context should Wall Street 'bump retail stock prices' - or alternately 'take them down'.
From 10,000 feet, the 'real value' of the outstanding shares of any company is the present value of all future after-tax discretionary cash flows generated from a combination of operating cash flows and non-operating activities. Barring an extraordinary event (and one quarter's reported increased unanalyzed consumer spending doesn't qualify) the 'real value' of a given retail stock is very unlikely to change from one day to the next. Meaningful 'real value' change occurs over time which is, of course, a fundamental tenant of 'value investing'. As I see it, there continues to be a disconnect between Wall Street and U.S. Main Street - and in many instances Wall Street thinks far too short-term.