CROSSROADS

The most important news came from the Middle East again this week, as it is becoming more and more evident that chemical weapons were used in the civil war in Syria. This was a “red line” President Obama warned the Assad regime not to cross. That statement now forces the hand of the president – either he act and drag America into another military conflict, or back-off and become even weaker and less influential in the region.

Neither option is good. And it has proven Obama’s grand foreign policy plan to be nothing short of a cataclysmic failure.

As if that wasn’t bad enough, more affirmation appeared this week that the president’s domestic agenda hasn’t fared much better that his international policy – more than half of the mortgages that were modified under Obama’s Home Affordable Modification Program (HAMP) have defaulted yet again; and because of multi-trillion dollar deficits accumulated so far in his administration, Congress doesn’t have the pocket change to begin funding his signature healthcare law (the Affordable Care Act.)

Regardless of their feel-good names, big government programs never deliver – Social Security is not secure and Medicare is broke, care for veterans is grossly inadequate compared to what Congress receives, and multi-trillion dollar stimulus programs haven’t stimulated anything but the pocketbooks of Wall Street bankers.

Perhaps the latter is why investment markets have once again shrugged off the specter of financial doom and international crisis. Stocks were mostly flat in the week and gold added only modestly to its rebound, up another 2%. Below is a two year chart.

8-23-13a

The comparison between stock market strength and gold is even more interesting in a five year chart. As you will see below, the Dow Jones Industrial Average has been unable to reach the performance level of Nominal GDP since the last market top (October 2007).  That’s why your portfolio needs to beat “the market.” If not, your portfolio will lose money in Real terms.

8-23-13b

Gold and the 15-51 Indicator took two completely different roads to the same endpoint. That means something, for sure, exactly what I’m not certain. However, what I do know is this: Market conditions aren’t rosy but life has been very good for the Dow this year, and since gold and the Indicator won’t travel the same exact path from here, this puts them all at a crossroad.

Stay tuned…