Is this the greatest threat to the world?

Stephen Leeb:  “So far, Trump’s tough talk and promise to make America great again have been intoxicating to investors. Money has been leaving the shelters of bonds and gold and pouring into stocks and commodities, propelling the market’s powerful rally and leaving gold – for now – a sad wallflower…

But has anything in the big global picture changed to suggest the bull market in gold I’ve been predicting has been permanently scrubbed? I’ve been re-scrutinizing past data and my own analysis, and from a long-term perspective I can’t find a thing to lead me to revise my thinking. And by long term, I don’t mean years, I mean months. While gold likely has some further downside, I wouldn’t be surprised to see it surpass its recent high and be headed to new heights by mid-year if not sooner.

History’s Warns About Market Moves After Presidential Elections
The history books provide revealing insights. Since Eisenhower succeeded Truman, markets have rallied when the new president comes from the other party. That makes sense: defeat of the incumbent party signals Americans are dissatisfied with the economy, and a new party gives the country, including investors, hope of a change for the better. Given Trump’s aggressive message of change, hope today is running particularly strong.

The market’s median gains top out at about 5 percent around two weeks after inauguration. Within these cases, though, there are significant differences. After Kennedy was elected in 1960, the market gained more than 10 percent prior to his inauguration and continued to rise throughout 1961. But in that era, the U.S. was an utterly dominant country whose standards of living had been rising for more than a decade. Commodities were plentiful, and the future seemed bright.

The Hairy 1970s
On the other hand, when Carter was elected in 1976, inflation was becoming a problem and the U.S. had undergone wrenching experiences including the war in Vietnam and Watergate. Carter’s post-election rally of 6 percent lasted only through December. By the time he was sworn in, stocks were already were headed down, and they finished 1977 some 20 percent lower than they began. Gold was a mirror image: In the two months leading up to inauguration, it had an overall drop of around 10 percent before going on a tear. Indeed, from mid-January the yellow metal rallied from under $130 to about $170 and did not look back until it made a high of $800 in early 1980.

So what’s the outlook today? If you’re betting the Trump rally can maintain its momentum indefinitely, at gold’s expense, you’re betting that he can repeal the laws of economics and geopolitics. Today these are even less favorable to America than in 1977, when despite growing problems we still ruled the global roost in every way. 

China Leading The Rise In The East
In rough terms, today’s world is to 1977 as 1977 was to 1961. In 1977, U.S. economic malaise was in its early stages. Today we are about two generations into stagnant real incomes for most Americans. In 1977 we were in a Cold War against the Soviet Union. Today we face an insurgent East that, led by China, is coming together economically and militarily. 

In 1977, commodities, including oil, were rising at a gradual pace, though that pace accelerated sharply by the end of the decade because of the Iran-Iraq war. Today commodities have risen by nearly 25 percent over the past 12 months, thanks in large part to strength in Eastern economies (see chart below).

36 Year Chart Of Commodities

We’re Witnessing A Historic Rise In Commodities
This rate of change is one of the greatest in modern times. The only time commodities rose at a comparable pace was briefly in the 1990s and in the early part of this century. Significantly, during both those periods, gold rallied sharply. Even more meaningful to today’s outlook is that the 1979-80 surge in commodities reflected geopolitics, not geology. Today we face real scarcities in a wide range of commodities. 

And speaking of commodities, Trump’s tough talk on China and his plans for both growth and a military build-up face some tough obstacles that investors’ celebratory state of minds have blocked out. As I’ve previously noted, we’re highly dependent on imports when it comes to critical commodities – for the majority of them, we import more than 50 percent of our needs. And in the case of selected rare earths, which are essential in areas ranging from electric vehicles to military technology, we depend on China……More Here