Thursday, September 13, 2007

Economic Developments Underscore That Secular Change Is in Process

13 September 2007

While my attention has been taken up with other matters, the financial markets have been sending out powerful signals of continued change.


The Canadian dollar is at 30-year highs (though $36 US dollar books still retail at $58 on Amazon.ca!); oil has traded to an all-time high near $80 per barrel (as Boone Pickens said it would); the Euro has moved to new highs; the US dollar index is flirting with unexplored depths, hovering below the critical .80 level; and gold is challenging its May 2006 high, remaining stronger than commodities generally, including its sister metal silver.

Further, the fundamentals are in place for essentially more of the same.

All of this adds up to the development of a new secular trend. Dictionaries define the term “secular trend” as “a shift in normative patterns of development,” or “the smooth long-term direction of a time series.” A secular change is in essence a change in direction of a secular trend. My regular readers will know that I've been drawing attention regularly to a secular change in global economic fundamental conditions, and the implication is that new secular trends will be the result. By their nature, secular trends exist over period of decades or longer, and so their emergence is rare, and often unique within a single generation.

The US president, Mr. Bush, is in my view oblivious to the present secular changes that are afoot, and so has been caught unaware. In fact, up to the present, Mr. Bush seems to have remained uninterested in the evidence of the emergence of new secular trends, and this has been to his detriment as a leader in a time of change. The effect, in essence, has been that Mr. Bush has increasingly governed from within a bubble, and I suspect that he will now remain insulated from developments around him through to the end of his undistinguished presidency.

While the present trends appear to indicate more that we are plateauing, rather than breaking out (to new highs or lows, as the case may be), the fact that we are skirting right on the edge of the breakdown of long-established and comfortable economic realities should certainly concern us. You can't skate on the edge of a cliff indefinitely without slipping or stumbling at some point.

The consequences are immediately perceptible to anyone who understands basic household financial management (you can't keep spending indefinitely without paying the bills).


When the time for change comes, whether sooner or later, its implications will be momentous. Be prepared. The price of gold will be the telltale indicator.

As is often the case, Richard Russell has summed it up well in his recent essay.

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