The chart we looked at in the previous article displays total GUSDL and my IDW, both starting from a base of 100 on January 31, 2005. You can notice a small down turn in the GUSDL, but to get a real sense of the current direction of GUSDL, you need to check out the chart below. The year-over-year GUSDL is now falling off a cliff! From the panicked Fed-driven annual growth rate of nearly 48%, we have come down sharply to about 25%. Most of that sharp decline has resulted in the last few weeks.
In my view this may be extremely significant, because during the prior two bubbles—the dot-com bubble and the housing bubble—a decline in the GUSDL predated a major equity and commodity market crash. The magnitude of this decline is absolutely huge and it began from the very top at the start of this year. So, we might expect the impact of this major decline to start to take the markets down fairly soon, and, based on the magnitude of this decline, it could be a very hard downturn into the first half of 2010.
Note what happened following the bursting of the 2000 bubble and when the 2004 -2005 decline in GUSDL took place. Trillions of dollars of wealth was lost by average Americans, and they still have not recovered. When the next bubble bursts, it is likely to be God-awful.
Jay Taylor
Gold Investor
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