Metals Mania Shifts Into Overdrive

There were 3 investors left in the world who didn’t firmly grasp the concept of the Fed printing and gold being a hedge etc. These 3, who had remained ignorant of the theme are to be excused, they were stuck in an elevator for the last 6 months singing folk songs and nursery rhymes so as not to go completely mad in their Otis-built abattoir.

Upon their return to the outside world and a casual perusal of today’s headlines, they’ve become convinced that their fellow investors have spent the last half-year losing their minds.

Headlines like these have them scratching their heads:

A Hong Kong limousine company is chasing an Australian iron ore property, a money-losing one at that. (BusinessWeek)

This next one I’ll just give you the actual headline -‘Gold-Shortage Threat Drives Texas Schools Hoarding 664,000 Ounces at HSBC’ (Bloomberg)

My friend Erik at Market Anthropology has an interesting take on the drama of it all. He views the panicked commentary surrounding quantitative easing as being just as manic as the Y2K/tech rush was in 1999 – and more “disturbingly dark and romantic” to boot…

In the end, the inflation debate is a matter of relativity and coordination. We are not the only ones intervening in the marketplace with a monetary policy stopgap approach – it is entirely a global effort. And while it does make for a juicy soundbite (that is typically 9 times out of 10 either politically motivated or borne out of ones position in the market), there’s a lot less hyperbole and a great deal more logic behind the Feds efforts than most give them credit for. Here’s the byline for the Financial Crisis for Dummies softcover:

The private sector stopped spending – the government filled the gap.

And although it is quite true that our current fiat monetary system is inflationary over the long run, the degree of distortions that are currently being reflected in both the precious metals market, the commodities market and the currency markets – likely do not reflect a representable correlation to inflation today, but more of a serious bubble in the commodities sector. I believe this minority opinion will prevail in the not so distant future as we emerge from the crisis relatively intact, albeit bruised nonetheless.

Are we facing the final fiat currency collapse or merely a massive and imminent blow-off top in commodities? Having ridden the commodities bull all the way up, I grow increasingly concerned that the truth may be closer to the latter than the former. The headlines and stories we’re reading will end up seeming absurd to us at some point in the not-too-distant future.

Sources:

Gold-Shortage Threat Drives Texas Schools Hoarding 664,000 Ounces at HSBC (Bloomberg)

Y2K = QE2 (Market Anthropology)

Hong Kong Canary Sings Aussie Commodity Boom Peaking: Real M&A (BusinessWeek)