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Where To From Here?
by Professor von Braun
March 25th, 2000
What an amazing two weeks! As in absolutely, totally, unbelievably, amazing! The US stock indices (the DJIA is up 1676 points in two weeks) seem to power ahead regardless of the circumstances. But can this high-flying game continue? At this pace and at these over overvalued levels? Has the world gone mad? Has Sir Aldot Com lost the plot completely?
Lets put some things in perspective, probably a major and necessary requisite for maintaining, or trying to maintain, a sane viewpoint of where the US stock markets are at, since most value investors have had their sanity questioned some time ago any way.
We have a "bubble", no doubt about that. By any definition of historic prior markets that have gone before us, this is a bubble! Whether it be the Nikkei, the gold market of the early 80's, the oil market, 1929 all over again, the tulip craze, John Law's "Mississippi" bubble, or whatever, this is a bubble. That's BUBBLE!
Now what happens in the final stages of a fully-fledged "bubble" is, to some degree, anybody's guess. I know of several commentators who have called this market a bubble some time ago, who are reeling from the obviousness of their apparent wrong call.
But are they wrong?
No they are not! Too soon in their calls perhaps, yes! But regardless of that, this is a bubble the likes of which the world has never seen before. It -- the bubble --will end badly. They always do and this one, the current bubble, is no different. It is no different!
What we are seeing, in terms of rising indices on a worldwide basis, is the likes of a bubble that has never been seen before by the current generation of players that are involved in this activity. Most of them don't even know what a bubble is! Their attention span is related to that of a humming bird, intense but brief.
The "bubbleonians" have no idea that this could end badly. Badly is not a concept they understand. Which is not surprising since most of them don't have a recollection, as in something personally experienced, of what a bad ending is. Let's not forget that we are talking 1968 here, which was 32 years ago. Sure stocks traded flat for 14 years after that, but that's of no consequence since many of them were not even born at that time. Some of them remember 1987, but they also remember that the Fed fixed the problem by turning on the "liquidity" taps (a practice that continues to this day) and shortly thereafter, life continued in the same manner.
People who remember the years that followed the crash of 1929 are now hard to find. Actual experience of paper wealth disappearing in a matter of days is hard to find. The new age economic theorists have very few living arguments to point out the error of their ways.
Where the U.S. markets go from here in the short term is anybody's guess. Coming up next week is the end of the first quarter and one would expect mutual funds to indulge in the art of window dressing as we approach April 1st. The collective consciousness of the "bubbleonians" will assist also, as will the cheerleaders at CNBC & CNN.
We are witnessing the final stages of this particular bubble. Financial horror stories are already starting to appear, misplaced confidence levels are back at record highs, margin debt is continuing to rise and the party continues. Volatility has become the dominant theme.
Regardless of what appears in the popular press, this ship is taking on water, the captain is asleep at the wheel, the passengers are mostly inebriated, the officers are partying with the passengers, the crew has been sipping Russian vodka and the lifeboats are not up to standard.
The Prof can be contacted by email at firstname.lastname@example.org
Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.
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