Animals, real or imaginary, must be fed on a regular basis. That feed, as we have also learned in recent years, can be either real feed or imaginary feed. Virtual animals that live on web-based children’s games can survive on virtual feed. Real bulls can only survive on actual grass or hay. Financial bulls can survive on a variety of imaginary feeds, but only for a limited period of time. As real feed has not been available for financial bulls for such a long period of time, their survival may be in question.
Financial market bulls can survive for short periods of time on rumors of feed on the way. These rumors are usually conjured out of thin air by cable media gurus, Keynesian economists, Street strategists, and other cartoon characters. False rumors of food for the financial market bulls in recent years have been abundant. Included have been:
- Hyperinflation is imminent, a perennial favorite.
- U.S. dollar is to become worthless.
- Euro zone is to collapse, and Euro to become worthless. Alternates with previous rumor.
- QE-3 will happen next week.
We note that none of these fantasy reasons for expecting a dramatic move in the prices of Gold and Silver came to pass. Unfortunately for the purveyors of investment fantasies, one of the real sources of food for precious metals has also not cooperated, as shown in the following chart.
Red line in above chart, using right axis, is the year-to-year rate of change in the U.S. money supply. As is readily apparent, at this time the growth rate of the supply of dollars is not sufficient to cause either hyperinflation or a collapsing dollar. The food supply for the Gold and Silver bull markets is simply not growing sufficiently to keep them healthy.
