Changing Meaning of Money

The Big Picture had guest authors recently, who stated the obvious thing, which is currently lost as is always, in excess verbage of the media.  Credit deflation in combination with monetary inflation changes the the make up of things, yet investors still only hold on to paper currency-denominated cash and the majority of financial assets will produce negative real rates of return over time.

Opportunities will present itself for solid returns as long as investors don't fall back to safe haven instruments only or buying index.  Especially as the crisis in Greece deepened, the Euro does a hot potato. No one wants to hold it for long. This makes the dollar strong in the short term (also consider the Euro in general - all those disparate economies).

Most market participants, however, still seem to be ignoring the 1971 change in the Bretton Woods monetary regime, wherein central banks gained unilateral primacy in setting monetary conditions at the expense of more organic economic incentives. As a result, economies that now want to shrink to become sustainable again will not be allowed to do so by political establishments.

The vast majority of economists seem to be using econometric models that fail to capture the impact of vast money printing, and markets remain priced as though most investors are extrapolating past cycles forward. Market observers and participants do not seem to understand there is no such thing as goods, service and asset deflation in a world where central banks can, are, and will continue to, double, triple, quadruple their money supplies. Global investors, especially those in the developed world, seem to have split into two camps: the smaller camp (in numbers) is comprised of professional investors that are currently staying close to home (hugging indexes) or, in the case of “more aggressive” managers, trading quickly in and out of “risk assets” and cash.

Gold is still a safe-ish place, but for how long remains the question considering it's had a nine year run up. It's a secular bull market for precious metals and that will eventually burst, but not too soon.