Monday, January 24, 2011

Stocks Up, Metals Down

The precious metals continue to get hammered downward today as the stock market continues its relentless climb higher.

The market currently believes that the economy will continue to grow at a strong pace and that inflation is less of a concern moving forward.

It is wrong on both accounts, which will present opportunity as we move forward.

America's inflation is currently being exported around the world to places like China where we send them dollars for their goods and their central bank is forced to print yuan currency to buy dollars as they wash upon their shores.

The new yuan currency then stays trapped within the borders of China and has sent food, gasoline, and rent prices through the roof. 

The same is happening in other areas around the world where food riots are breaking out on a daily basis.

Ultimately, the Chinese will have to decide whether they want their people to starve, or whether they want to stop sending Americans products in exchange for worthless I.O.U.'s.  The will have to decide if they want their own citizens to enjoy the products they work hard to create with a stronger currency.

My guess is they will ultimately choose to enjoy their production over starvation.  When they allow their currency to appreciate, and they are no longer forced to swallow the endless dollars created by Bernanke's printing press, there will be a flood of dollars that are washed back upon American shores.

At that point you will see both high inflation and lower economic growth, resulting in the exact opposite effect you see today in the markets.

In the meantime, as stocks run higher it presents a better opportunity to sell (or short), and as gold and silver fall lower it presents a better opportunity to buy.

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