U.S. stock market capitalization is now $9 trillion dollars higher than US GDP, with total global market cap of stocks trailing global GDP by $8 trillion. With U.S. stocks currently equal to 150% of US GDP, we are now higher the pre-crash levels of 2008 and 2001.
However, the world is dealing with a much different FED than in 2008, the FED today is more open about the fraud and manipulation it is willing to enact in order to support the markets. With the republican’s taking over in the Senate, a lot of talk is rising again about America’s national debt. The number you will hear, is $18 trillion, a jaw dropping number.
To give you an idea on how big a trillion is, here is a good illustration.
- 1 Thousand seconds ago was 16 minutes, 40 seconds ago.
- 1 Million seconds was 11 days, 13 hours, 46 minutes, and 40 seconds ago
- 1 Billion seconds was just over 31 and a half years ago
- 1 Trillion seconds was 31,688 years ago.
Stunning isn’t it, a billion seconds ago was 1983, but a trillion seconds ago, was 29,674 B.C.! 18 trillion dollars would be a jaw dropping number if that was the end of the story, but it’s not.
You see, when any of our businesses or personal financial statements are under review, we have to legally account for all of our debt. In fact even state and local governments are held to this standard, everyone is, except the federal government. When applying common legal accounting practices, the real debt hanging over America’s head is $115 trillion!
This is why, Ben Bernanke said that we will never see interest rates normalized in his life time.
The kicker in this whole mess is that the entire monetary system is dollar based, so even thought the U.S. is running around bankrupt, this will continue until the world is ready for a massive shift to a new system. Something that could cause riots worldwide, wars, and extreme volatility in the markets, even a global depression. This dollar paradigm shift will likely be postponed for as long as possible, but make no doubt, the end of the dollar dominance will happen in our life times.
Gold’s Outlook for 2015
It’s been a tough year for gold investors, after seeing a high of $1,900 in 2011, gold has continued to decline despite stelar fundamentals. With rising physical demand from the east, and growing deficits in the west, the environment for gold to appreciate seems to be set up for a perfect storm in 2015.
In Vancouver, the junior mining shares are down 70%, with long standing mining conferences experiencing low attendance and closures. This year we saw the U.S’ largest mining show in San Francisco shut its doors. In 2012, the Metals and Minerals conference, formerly the Hard Asset Show, had over 270 junior mining companies attend and over 4,000 investors. 2013 though, saw a dramatic drop, attendance by investors dropped in half, and only 61 junior mining companies showed up to showcase their investment opportunity. One can only imagine how many registrants they received by the spring of 2014 when they decided to cancel the show indefinitely.
Clearly the market has been looking for a bottom in 2014. The numbers are yet to be out for 2014, but going into this year all-in costs were $1,620 per ounce. This number however may be even higher according to Rick Rule who notes that the mining representatives are not including previous write downs in their all-in cost accounting.
Here in late December, gold continues to trade around $1,200, even with lower oil prices, I expect this number to still be below the cost of production for the major mining shares.
Enormous opportunity is what faces gold investors for 2015.
- Physical gold trades for less than the cost to produce it.
- Advanced stage projects are now cheaper to buy, then to explore less established projects.
- Capital is starting to re-enter into the junior mining market, possibly setting us up for a new bull market.
Demand for gold has more than doubled compared to 2009 according to the World Gold Council. Physical demand hit a record in 2013 and the numbers may be even higher for the end of 2014. Now for those of us in U.S. and Canada, it might not seem like gold is in heavy demand, but that’s because only 3% of global retail bar demand comes from North America. You go to India, China, and Russia, and they are buying it by the pallet. I think it’s safe to say that gold purchased by these easter central banks will be taken to a vault and never see the light of day again.
Repatriation of gold reserves have also been making news, with Venezuela in 2012, Germany in 2013, and in 2014, the Dutch central bank announced a repatriation of 122 tonnes that is currently being held in the U.S. and Europe. With the last audit of U.S. gold in 1953, it appears that at least a few central banks are at the very least, a bit insecure about their gold claims in the U.S.
The Swiss vote in 2014, will without a doubt be one of the key drivers for golds rise in the years ahead. Many gold investors were feeling depressed after the Swiss public voted down a law to not only keep more of their gold at home, but to have a fixed amount of gold to support their currency. However, in my opinion this was the best news all year for gold, because if this vote would have passed, the Swiss Franc would have almost become some sort of defacto way for investors to own gold or at the very least, have a currency with some ties to it. With voters rejecting this law, it is now clear to the world, that if you want to own a currency tied to gold, then you need to buy physical gold. This story only supports a continuation of a rising demand for physical gold, with no second tier alternative.
We’re heading into 2015 with a gold price that can’t sustain mining producers, demand is rising, and with the TSX-Venture exchange down 70% from it’s highs, one can conclude that the future supply lines for gold through exploration is not being met. Putting this altogether, I think we are looking at gold to find a bottom some time in 2015, with a bull market to follow in the years ahead, one that just as bad as the bear market has been, the bull market will be equally spectacular.
As I close out this essay, a headline about China dumping U.S. Treasuries just came across my screen…China is now at a 20-month low, a trend that will likely continue in 2015.
The reasons to invest in gold and gold related assets like mining shares seems to be getting getting better every second, literally… e.g. USdebtclock.org