Ottawa sure is a long way from Silicon Valley. In the summer of 2010, Tobi Lütke met with venture capitalists at Bessemer Ventures. He was looking for a couple million bucks to fund his money-losing Canadian startup. Cash was so tight Lütke’s father-in-law had to write checks to pay the employees.
Bessemer was skeptical at first. A tech startup in bitterly cold Ottawa? But they took the plunge with a $7 million cash injection, valuing the startup at $25
million.
It’s Canada’s largest company, valued at $160
billion. Longtime RiskHedge readers know
I called Shopify
“the next great trillion-dollar stock.”
overstimulation risk will far exceed the “output gap” shown in the latest Congressional Budget Office economic projections.
What is an output gap? Gross Domestic Product measures (or at least tries to) economic growth. Economists also calculate “potential GDP,” which is how much the economy
could grow, if every available worker and other resource were fully employed.
Inflation tends to occur when actual GDP exceeds potential GDP because the economy is “running hot.” An output gap is when it goes the other way, with the economy operating well below its potential. That’s what we see in recessions.
Of course, all this involves numerous assumptions. GDP itself has problems, too, but it’s still a useful framework for analysis. Government and central bank policy should aim to keep the economy running roughly in line with its potential: not too hot, not too cold.
In the first part of this research series, published yesterday, we explored the rising Yields and how my team and I expect markets to react to the new level of fear that may begin to enter the global credit markets. Rising Yields suggest investors believe the future risks to the global economy don’t support lower Yield rates. The talk that investors expect a super-heated global economy may have some truth to it, but we feel the rise in Yields is related more to global credit risks than any type of super-heated global economy.
Today we will explore the potential for a Crazy Ivan event in the global markets. This would be represented as a price revaluation event, causing the global markets to suddenly attempt to revalue price levels based on new levels of fear and more data.
Can the precious metals move lower before a short-term correction, and after correcting, will they continue their medium-term downtrend?
Gold & silver reversed yesterday (Mar. 2) and the GDX rallied after bottoming right in my previous target area, but it’s still unclear if the bottom is in.
Let’s check what’s happening in the charts.
Figure 1 – COMEX Gold Futures (GC.F)
In short, gold reversed yesterday after touching the upper border or my target area. Can the temporary bottom be in? Yes. Is it likely to be in? Not necessarily. Most likely it’s not in yet, because gold still hasn’t moved to its strong support levels.