Awesome presentation from Goldmach Sachs on the impending economic slowdown in the 2nd Half of 2010 via Paul Kedrosky. Normally these presentations aren't worth a lot because they are always way too optimistic. However, this one is sober and points out some great data points (like the housing market is still a disaster).
Second Half Slowdown
If you've been reading me for a while, you know I've been long term bullish on Gold. Well, this presentation makes the case for Deflation quite convincingly, which is bad for Gold. The true definition of Deflation is less dollars in circulation, which pushes down prices. However, the Press and Finance Community use the term Defalation to describe falling prices, whether it's driven by fewer dollars in circulation (which is not the case) or a monstrous debt overhang (which we have).
Deflation shouldn't be bad, it just means that people who have saved money, have much stronger purchasing power. However, the US is a heavily indebted country and Deflation makes the cost of servicing debt much higher. For example, your mortgage payment is a fixed dollar amount, call it $5k/month. If a dollar is worth much more, and harder to make because your wages are under pressure like everything else in Deflation, then coming up with that $5k every month get's harder and more expensive. Policy Makers are scared stiff by Deflation because that means less discretionary spending and eventually debt defaults when the cost of servicing that debt becomes too burdensome.
Personally, I'm fine with Defltion because I've been saving my cash and my student loan debt is coming down quickly. However, Deflation is bad for Gold because generally the price will come down, like most things affected by Deflation. My entire bet on the Gold sector has been because I've believed that the Fed will print dollars at a crazy rate to avoid Deflation. I've been right for a while but a lot of data like the presentation above is surfacing that contradicts that viewpoint. Jeremy Grantham, an investment guru I read and respect recently threw in the inflation towel and is going with deflation.
If you've invested in Gold you should keep tabs on the battle between the Fed's printing press and the deflationary effects of the slowing economy that Goldman predicts. I'll be watching closely and will share any moves I make. Right now, I'm still hanging in there on Gold because I believe the Fed will print.