The opinions expressed in this article are those of its author and do not necessarily represent the views of Mint News Blog.
Since the Great Recession I have constantly heard the phrase “Bad news is good news.” What exactly is that supposed to mean?
During the Great Recession the stock market plunged, bonds yields dived, precious metals skyrocketed, unemployment nearly doubled, and median household income decreased approximately 8 percent. To bring us out of the Great Recession, the Federal Reserve and the U.S. Congress used both fiscal and monetary policy. Even though some policies were politically unpalatable, a number of financial bailouts and stimulus packages were passed, and we did indeed start to come out of recession in late 2009.
During those tumultuous times it was common to hear it said that “bad news is good news.” After the initial, controversial financial bailouts of so many entities in the country, fiscal policy was for the most part abandoned. For whatever reasons, Congress punted the ball. All the heavy lifting to get us out of recession was left to the Federal Reserve in the form of monetary policy. Various named and quantifiable stimulus programs were initiated by the Fed to stimulate the economy. The stock market always referred to these stimulus programs as “the punch bowl.” Sometimes when we got “bad news,” the stock and bond markets would rally on the perception that the Fed would be more accommodating because of the bad news and would maintain the “punch bowl.” Thus the Bad News (economic bad news) would be good for the stock market or bond market.
As we’ve emerged from recession we’ve seen an enormous gulf between Main Street and Wall Street, between working people and those who’ve benefited from the monetary policy enacted and continued by the Federal Reserve. The vast majority of financial benefits achieved coming out of recession have gone to those in financial assets.
For years, AGE’s and ASE’s followed the same trajectory as financial assets. Then, during the period of the Great Recession and coming out of it, gold and silver were a mirror image of financial assets, going up as financial assets went down. The trend reversed as the Great Recession peaked: metals began to go down as financial assets went up. This switched again in December 2015, and for months after Brexit, gold and silver rose again as financial assets dropped.
I’ve never been in the camp that believes that for precious metals to go up, financial assets have to go down. For years, AGE’s and ASE’s followed the same trajectory as financial assets. The divergence has occurred since the Great Recession, but I believe that possibly—just possibly—after the election we can get back on track, where good news is good news and precious metals will rise with the good news. Most will not agree with my opinion; however, I think we have a possibility. It has happened before, and I think it will happen again.