Up. Down. Up. Down. The Dow posted a gain yesterday almost exactly equal to the amount it lost the day before. In other words, it went nowhere. Gold slipped a little, but not much.
Are you out of the US stock market, dear reader? We hope so. We see nothing but misery coming from stocks in the years ahead.
But we’ve rehearsed the reasons why the US stock bulls are so (dramatically) wrong. So, let’s turn our attention to something else…
Scotland seems ready to break with Britain and go its own way. It is by no means the first breakaway country in history. But most of the last five centuries have been spent putting nation states together, with relatively few successful defections.
Putting the Pieces Together
It took many generations for the Frankish kings to bring modern France into being – conglomerating the Picards and the Poitivins… the Limousins and the Corsicans… those who spoke the langue d’oc with those whose mother tongue was langue d’oie.
Only under Napoleon Bonaparte – with national newspapers, national roads, and public schools – was the job finally accomplished.
And Otto von Bismarck didn’t unify Germany until 1871. Before that it was a hodgepodge of kingdoms, duchies and principalities.
The United States, too, was assembled from smaller pieces. Some of these pieces were bought honestly. Others were stolen. The native tribes were exterminated or relocated. The Mexicans had to be defeated – twice – to make them more agreeable.
Texas came voluntarily into the United States, then regretted it.
Finally, the rebellion of the Southern states was crushed… and the union held together.
Britain was assembled over a much longer time. England had absorbed Wales and Cornwall by 1543. Ireland joined in 1603, with the surrender of Hugh O’Neill. Scotland was incorporated by the Acts of Union in 1707. But this followed a series of bloody battles… and preceded even more. (Incidentally, that’s how part of our family first came to the US. Captured and imprisoned by the British in 1745 after the Battle of Culloden, our Scottish ancestor was sold into servitude on Kent Island, Maryland.)
And now, if the Scots go their own way, it is a new trend… and probably a better one.
The True Measure of Wealth
The true measure of an economy’s strength is how much nonsense it can support…
The Soviet Union put up with 70 years of Bolshevism… and was wrecked by it. Argentina has already survived about the same amount of time with Peronism… and still suffers from it.
The US carries its own burdens, typically expressed in underhanded euphemisms – such as the War Against Terror… the Patriot Act… the Independence Card – or in capital letters, such as the TSA… SSA… BLS… SEC… IRS… and so forth.
But the evidence suggests that a small, rich country has a big advantage: It tends to put up with less nonsense than a big one.
Where do taxpayers get the best deal from their government? Our guess is Switzerland. The trains run on time. The airports are clean, modern and efficient. The towns are idyllic. The health system works. Government employees – including those who check your passport at the border – are polite and businesslike.
Switzerland is not only small, it is also a confederation of independent states – like the US before it was consolidated. (The official name for Switzerland is the Swiss Confederation, orConfoederatio Helvetica in Latin, hence its abbreviation, CH).
Small federal states do a better job of controlling their government… their military… and their debt. Not because they are smarter or more peaceful. But simply because there is less distance between the governed and their governors. Citizens can see what their leaders are up to. If they don’t approve, the politician can be beaten in the next election, or in the street.
Independence for Scotland? It’s probably a good idea.
And so is independence for Maryland.
Market Insight: Mailbag Edition
Where Will Gold Go Next?
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
Today, we turn our attention to the reader mailbag. Diary reader Jerry writes:
As Yogi Berra might have said, “When the price of something goes up, it gets too expensive.”
If you guys are so smart, tell us when that’s going to happen to gold.
The short answer is “no.”
There is no such thing as perfect foresight. ALL investment decisions are made in the face of uncertainty. Otherwise, there would be no need for markets. All prices would simply be a reflection of already known outcomes.
But as I’ve written about recently, it looks as though gold formed a bottom at the end of last year.
And the action so far in the gold market is certainly encouraging. As the chart above shows, gold is now trading above its 200-day moving average – “line in the sand” between a bear and a bull market.
If it can continue to trade above this level of support, it’s very bullish indeed.
That said, neither Bill nor I believe in trading in and out of gold. Gold, after all, is “real wealth.” When you sell, you are compensated in dollars. You then hold a position in a paper currency, and have exited your position in a long-term store of wealth.
What’s more, you have exited a position in an asset whose supply is relatively stable… and entered a position in an asset whose supply is relatively elastic. (The quantity of money, after all, is largely determined by bank lending.)
This makes little sense in our view…
Our advice: Buy gold when most of the selling momentum from the recent correction has been exhausted (and we believe that time has come)… and hold for the long term.