Wherever plunder is less burdensome than labor, it prevails; and neither religion nor morality can, in this case, prevent it from prevailing.
- From Bastiat's "The Law"
Representing all things big, institutional investors believe there is no inflation.
The market "behaves" as if there is none. This undercuts value at risk.
But reality is very different. Across the board, price is determined by a broken system fueled by an unsound economy. (The developing Ebola pandemic may serve as an example and a warning).
Financiers run amok and the computers they program make all systems prone to panic.
In the case of finance and economic conditions, uncertainty and confusion are prime radar for detection. Consider the financial system with its connectivity, complexity, lack of redundancy, and non-linearity. The public touch-points, banks, ATMs, and services.
The systems underlying basic financial transactions are extremely fragile.
Moving out one layer. Observe trading - more than a third of equities are traded via high frequency computer programmed algorithms.
No human middle men - no market-makers willing to take either side of a trade.
Panic leads to selling by everyone - all at once.
Consider that, if the rate on a 10-year bond goes from 2% to 4%, the underlying value of the bond is cut in half. That is a geometric decline, and could very easily trigger a flash crash. That’s a factor that could trigger massive selling against the dollar.
Add to this the geopolitical reality. The BRICs moving away from the dollar.
The next world war. An ongoing currency war.
The economy is weaker by any real measure.
We have very high unemployment and much higher inflation on the ground level along with the dollar's demise and political instability.
There are some other factors as well, such as the relative political stability.
Cognitive dissonance rules the masses.
As John Williams of ShadowStats.com puts it:
“If you look at our fiscal conditions, officially the numbers are getting better but if you look at it on a GAAP basis, using generally accepted accounting principles, the way a corporation would report its financial statements, we’re seeing annual deficits order of magnitude 6 trillion dollars.
Look up GAAP deficits.
That’s a third of the GDP and if you looked at the aggregate obligations, again using gap accounting, we’re looking at something that’s over 90 trillion dollars.
Fifteen times the level of GDP.
It’s the type of the thing the United States can never resolve with normal economic and financial policies.
The government has to address its long term solvency issues if it’s going to survive, if it’s going to have any credibility in the rest of the world.
The global markets look at the U.S. and there’s the big question of the sovereign solvency. We saw the concerns of that come to a head back in August of 2011 when S&P downgraded the U.S. treasuries, and you had a brief dollar panic before there was massive intervention and a variety of things were done by central banks to try and calm things down.
We have ahead of us here probably the worst fundamentals ever facing the dollar. I don’t think the U.S. dollar against the rest of the world’s major western currencies including the Canadian dollar. I don’t think things have ever been more negative. “
For the metals...
It's one thing to deny price manipulation, quite another to smugly deny the existence of real inflation.
Just because instructions are “trading” as if there is no inflation should say everything that is needed regarding risk.
Juxtaposed with price of silver - the supply in suggests versus the actual supply.
You don't have to rely on whether we are running out.
It's been more than five years after the most recent financial crisis. It was contained, or rather further coiled for disaster. In essence, we never really corrected.
The world monetary system is even more tightly wound.
Each day that goes by whistling past the reality guarantees that.
When the next crash arrives, the dollar's demise will play center stage.