Wednesday, June 26th, 2013 @ 3:11PM

By Hard Assets Alliance Team

By Justin Spittler, Hard Assets Alliance Analyst

Is this the real life? Is this just fantasy? These are the opening lyrics of Queen’s epic rock ballad Bohemian Rhapsody. For years, rumors circulated about the meaning of this iconic song, including a popular theory that it was a metaphor for Freddie Mercury’s battle with AIDS. The legendary front man ultimately dispelled such speculation, explaining that the lyrics were nothing more than “random rhyming nonsense.”

While the song may not have been written with any particular symbolism in mind, the opening lyrics are strangely metaphoric of today’s irrational investment environment, which has many investors pinching themselves as the stock market continues its historic rise despite deeply entrenched structural problems.

A Recovery That Only Wall Street Can Feel

Though the stock market has never been a true proxy for the state of the economy, the degree to which today’s financial markets are decoupled from reality is astonishing, and it increasingly appears to be the result of some sort of collective cognitive dissonance toward bad news.

To understand just how out of touch the markets have become, one need only consider the stock market’s jubilation over the April jobs report, which sent the Dow Jones Industrial Average over 15,000 for the first time in history. Sure, the unemployment rate fell to its lowest level in four years as the economy created or filled 165,000 jobs, but what media pundits and financial “experts” aren’t discussing is how unemployment is still well above pre-recession levels, or that jobs are being created at the slowest rate of the past eleven recessions.

More important, the numbers themselves paint a disingenuous portrait of the labor market, due to the use of highly controversial methodology. For reasons only a bureaucrat can comprehend, “discouraged workers – those individuals who have given up looking for a job – are not counted as part of labor force and therefore are excluded from the unemployment rate, even though the majority of these people are not without work voluntarily.

What’s equally concerning is how the headline figures are taken as is, without the slightest curiosity for the sorts of new jobs being created. Certainly, investors would be more skeptical of the so-called recovery if they realized that the overwhelming majority of new jobs being created are of the low-wage, low-skill variety, or that many positions being filled are second or third jobs for people simply trying to make ends meet. The blissfully ignorant mentality of the mainstream media is further evidenced by the fact that no one discusses how nearly one in four American households is now dependent on food stamps.

Reality Check Around the Bend

While the oft-cited job numbers may be the most obvious example of a stock market stuck in a state of denial, it is also true that the major stock market indices have relentlessly advanced in the face of weak exports, a contracting manufacturing base, and shaky consumer confidence, not to mention the ticking debt time bomb that has inexplicably become an afterthought to lukewarm economic data.

Of course, complacency to bearish signals only partially explains the stock market’s monumental rise. More than anything, today’s bull market is the consequence of an unprecedented expansion of the money supply and the associated suppression of interest rates, which has pushed investors further up the risk curve.

Like an alcoholic at the end of a destructive bender, the American economy is due an unpleasant awakening after decades of binging on debt, deficit spending, and flimsy monetary policy. As the signs of the looming economic hangover become obvious for all to see, reality will trump unwavering optimism, concocted economic statistics, and even aggressive stimulus measures.

Although the repercussions of the impending market downturn will be widespread, severe, and indiscriminant, there are ways for investors to preserve their quality of life during these challenging times. Precious metals, in particular, offer unparalleled protection during a market contraction that will likely be accompanied by a sharp depreciation of the dollar.

For investors who can see the recovery for the grand illusion that it is, exceptional opportunities await. And with gold and silver markets currently suffering from their own irrational valuations, the Hard Assets Alliance believes investors have been presented with an opportune time to fortify their financial future with precious metals. However, more than ever, successful investing in today’s environment requires serious discipline and confidence in one’s one investment thesis, even as the stock market continues to defy all odds.

Posted by AIA Research & Editorial Staff
Categories: AIA Newsletter
Tags: economy, gold, stock market, unemployment