By David Guttery
Recently, I vented my opinion upon my professional Facebook page, regarding articles written by those to whom I refer as “end timers,” who repeatedly call for the collapse of the global economy and the crash of markets.
They haven’t been right yet.
I’m sure that you have seen the articles written by authors wanting you to believe that we’re in some new “end of times” epoch, prophesied by Scripture, and confirmed by tea leaves, and that gold is the “financial bomb shelter” against the coming great global economic implosion.
Consider that on Aug. 11, 2011, an ounce of gold traded for $1,828. On Nov. 10, 2014, it traded at a recent low of $1,154.60. That’s a decline of 36.83 percent. Some shelter.
Meanwhile, the dollar spot index closed on Jan. 12 at 91.983 according to Bloomberg.com. It stood at 73.73 on April 26, 2011. The 24.75 percent gain in dollar strength is nearly the inverse of what we’ve seen from gold over the same period of time. Does anyone else see this connection?
Oil, too, is denominated in dollars. Therefore, as the dollar has strengthened, it makes sense that commodities denominated in dollars will, too, decline in price, given static market demand. Add to this equation, the fact that fracking, oil sand extraction, shale to oil liquefaction, deep water and horizontal drilling technologies, have conspired to make the U.S. a much larger producer of global oil.
A stronger dollar, greater production and an OPEC cartel embroiled in perpetual distrust are factors largely responsible for the dramatic decline in oil. This isn’t a “seventh sign,” nor do I believe this to be some harbinger of a great and coming economic collapse. Read the books for entertainment purposes only. If they have any merit, that’s where you’ll find it.
Innovation, entrepreneurial spirit and creativity have been the factors behind growth for 150 years, and remain so today. Markets fell sharply after TARP, but recovered when ill conceived accounting rules were changed. When the government gets out of the way, the economy thrives. It always has.
Over the time when gold should have hit ,000 per ounce according to Peter Schiff, it has instead plunged by over 36 percent, and equity markets have set new all time nominal highs. Corporate profitability has also been historically high, and earnings and revenues have been strong. The economy hasn’t recovered as quickly as we’d have liked, or expected, but that is largely due to a government that refused to get out of the way.
It’s not a harbinger of impending doom.
If the government announced a dramatic slash to income tax rates this year, would you panic? Of course not.
Gasoline is a price inelastic commodity. Meaning, you will drive to work, drive to the store, take the kids to school, and commute in your daily life, as the price of gasoline fluctuates.
On May 1, 2011, the national average price for a gallon of regular unleaded gasoline was . As of Jan. 12, it was .11. That’s a 47.25 percent decline. Think of it as a huge tax break.
According to the U.S. Census, the population estimate for 2013 was 316,128,839 Americans. Let’s divide that number by 2.5 to arrive at a guesstimate for the number of car owning, driving households, or 126,451,535. Assume one car for every 2.5-member household, in other words.
If in May 2011 the average monthly gasoline bill for these driving Americans was 0, and today it’s 5.50 (a 47.25 percent reduction), that’s an annual savings of ,134 per driving household.
That’s 3,396,041,370.40 remaining in the economy to be spent on other goods and services that was previously being spent only on gasoline in May 2011.
And this is a harbinger of doom?
Folks, this is just my opinion, but everyone should take a step back from “The Mayans predicted this” mindset. The economy is doing very well, all things considered, and those who have heeded the advice of the doom sayers post crisis haven’t fared very well as a result. Absorb the facts and let them direct your decision making, and shun sensationalism.
David R. Guttery, RFC, RFS, CAM, is Ameritas Investment Corp, and President of Keystone Financial Group, in Trussville. David has been in practice for 23 years, with a distinctive focus on the management of retirement assets for the production of durable income.