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Will Those Bold Enough to Buy Gold When the Fed Folds Wind Up in the Cold?
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This is an article that is three months old, that references an article that is a year and a half old, all warning about the inevitable chain reaction that is occurring today as governments pay the price for rescuing banks by burdening tax payer funded governments with private bank problems. Stagflation baby! As predicted, and as is occurring, in damn near real time. Of added note, it also shows that some guys who have not run the numbers are putting more faith in gold than it empircally deserves. This is bound to start a fight, for I know gold is the "Trade du Jour" among the financial blogging crowd. Hey, don't shoot the messenger. I'm just relaying what the fundamental/historical crystal ball has shared with me.
This post was the beginning of the Sovereign Debt Crisis series in January, whose entire theme is practically internal deflation and currency debasement (where possible). Below, there are links to the entire crisis, heavy duty premium material (for those that care to have access to the heavy analysts material) and links to subscribe to my blog). Notice how the overseeing thing went right along as anticipated. On to the repost...
Deflation, Inflation or Stagflation - You Be the Judge!
In continuing the rant on the possibility of the US entering a stagflationary environment, as was hinted by Alcoa's quarterly report (see "Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?"), I have decided to graphically illustrate the historically most successful inflation hedges. Click graphic below to enlarge.
For those "gold bugs" who have never ran the numbers, gold offers less inflation protection than your house does. The same goes for WTI crude and probably most other categories of oil.
The number one inflation hedge appears to be apartment buildings, followed very closely by other classes of commercial real estate, with MSCI emerging markets coming in a close second. I can assure you that the supply/demand imbalance, credit environment, fundamental and macro situations will prevent apartments (oversupply and softening rents from condo conversion competition among other things, driving up cap rates) and most CRE from taking off anytime soon. The short to medium term direction for most of that stuff is down (see CRE 2010 Overview for the 42 page white paper).
So, if the traditional inflation hedges do not point to inflation, but input costs are going up while real assets are deflating, what do we have???
From "Economic contractions AND rising prices, dare Reggie utter the "I" word - Enter a global phenomenon", we get:
Stagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time.[1] The portmanteau "stagflation" is generally attributed to British politician Iain Macleod, who coined the term in a speech toParliament in 1965.[2][3][4] The concept is notable partly because, in postwar macroeconomic theory, inflation and recession were regarded as mutually exclusive, and also because stagflation has generally proven to be difficult and costly to eradicate once it gets started.
Economists offer two principal explanations for why stagflation occurs. First, stagflation can result when an economy is slowed by an unfavorable supply shock, such as an increase in the price of oil in an oil importing country, which tends to raise prices at the same time that it slows the economy by making production less profitable.[5][6][7] This type of stagflation presents a policy dilemma because most actions to assist with fighting inflation worsen economic stagnation and vice versa. Second, both stagnation and inflation can result from inappropriate macroeconomic policies. For example, central banks can cause inflation by permitting excessive growth of the money supply,[8] and the government can cause stagnation by excessive regulation of goods markets and labor markets;[9] together, these factors can cause stagflation. Both types of explanations are offered in analyses of the global stagflation of the 1970s: it began with a huge rise in oil prices, but then continued as central banks used excessively stimulative monetary policy to counteract the resulting recession, causing a runaway wage-price spiral.[10]
John Maynard Keynes wrote in The Economic Consequences of the Peace that governments printing money and using price controls were causing a combination of inflation and economic stagnation in Europe after World War I. Stagflation was also a very serious macroeconomic problem in the 1970s. In contrast to central bank responses to the oil price spike of the 1970s where similar policies were pursued on both sides of the Atlantic, the 21st century began with America going one way to fight recession and Europe going the other way to fight inflation.
From the "The Butterfly is released!":
The decline in consumer spending has compelled many companies to reduce production. Toyota Motors Corporation reduced its auto sales forecast for 2009 to 2.1% from 5.6%. The company projected auto sales to be 10.4 million vehicles in 2009, but rising gasoline oil prices are likely to dent demand. Toyota expects sales to decrease 10% in North America, its biggest market.
The cost of most inputs has risen sharply in the last one year. Although prices have come down from record highs and are declining m-o-m, they continue to remain high on a y-o-y basis. Prices of iron and steel, which are essential components of manufacturing, increased 16.1% y-o-y in August 2008. Prices of other commodities also rose globally, leading to a sharp rise in input costs. Various indices in the UK are pointing toward a trend of declining sales. The non-store retail & repair index fell 3.2% m-o-m in July 2008. Falling sales are further pressurizing the margins of industrial companies.
Source: Government Website
The price of crude oil, one of the major inputs for manufacturing companies, increased at a rapid pace in 2007. Although the price has cooled down (falling 44% from its all-time high) as of September 11, 2008, it continues to remain high (37.4%) on a y-o-y basis. The increase in crude prices has pushed the cost of production higher.
The high cost of production can be passed by the manufacturer to the retailer only in certain cases. Various companies are evaluating the extent to which they can pass higher prices to end-customers. However, industrial companies would be affected in both cases-higher prices would weaken demand, while the increased cost of production would hurt margins. In such a scenario, maintaining a fine balance between the two is an extremely challenging task for industrial companies. Decline in sales due to increased cost (input and borrowing) is exerting pressure on industrial companies.
The article above is about a year old, but still drives home valid points. This material is a pre-cursor to the subscription material I will be releasing to subscribers illustrating the concentrations of sovereign risk around the globe. Remember, just because you transfer private risk to the government doesn't mean it disappears. There are pockets of risks in the usual suspects, but certain banks in certain areas have actually acted like sponges, concentrating risks in places where nobody really wants it. Now, back to the stagflation rant...
As you can see, UK inflation is trending down, but you can rest assured that many input costs will trend up, as in the diagram from the "butterfly". Spain, Ireland and Switzerland suffer from outright deflation, but will probably not be spared higher input costs as well.
Economic growth doesn't look very promising in any case. The EU is a dead-zone for the time being.
Very few in the EU can afford the result of higher input costs on the back of sagging GDP. The jobs just aren't there.
Does the CDS market see what I see?
So, what about the US and North America?
GDP is expected to increase, but relatively anemic compared to other so-called recoveries. Some expect a double dip recession, I believe the recovery is really just the masked effects of the government literally purchasing GDP points, paying $1 for every 30 cents worth of recovery.
As you can see, as in the EU, we cannot afford price spikes in anything. Higher input costs will simply lead to lower profitability, for price in-elasticity is here. People couldn't afford to pay more if they wanted to. Credit and income are way, way down. This means that companies will have to eat higher input costs since they can't pass them on. Translation: those sky high S&P earnings forecasts are fantasy, at best. Even if fantasy were to transform to reality, the stock market has already priced in la la land.
Inflation is expected to be tame. Stagflation is the threat.
I will walk through all of the world markets in the next week or so, and culminate the study with the banks that I feel are most at risk from the weakness in various sovereign states. The most "at risk" banks will be for subscribers, but there are quite a few that I will share publicly.
For the complete Pan-European Sovereign Debt Crisis series, see:
1. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.
2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect
3. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.
4. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
5. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!
6. The Beginning of the Endgame is Coming???
7. I Think It's Confirmed, Greece Will Be the First Domino to Fall
8. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!
9. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
10. "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!
11. Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...
12. The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino
13. As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis
14. Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?
15. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!
16. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe
17. Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks
The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!
Premium Subscription research for the following sovereign states and their respective domiciled banks at risk are available for immediate download.
LATEST SOVEREIGN DEBT CRISIS SUBSCRIPTION CONTENT
- Spain public finances projections_033010
(Global Macro, Trades & Strategy) - UK Public Finances March 2010
(Global Macro, Trades & Strategy) - Italy public finances projection
(Global Macro, Trades & Strategy) - Greece Public Finances Projections
(Global Macro, Trades & Strategy) - Banks exposed to Central and Eastern Europe
(Commercial & Investment Banks) - Greek Banking Fundamental Tear Sheet
(Commercial & Investment Banks) - Italian Banking Macro-Fundamental Discussion Note
(Commercial & Investment Banks) - Spanish Banking Macro Discussion Note
(Commercial & Investment Banks) - China Macro Discussion 2-4-10
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The question that struck me in viewing the chart of investments was that there was no reference to agricultural real estate. In the 70's ag land more than doubled in price because the commodities that were exported off of them also doubled in price.
My ongoing belief is that barring a nationalization of the farming industry, ag property will benefit from both a flight to quality and a natural beneficiary of the only export industry left in the U.S.
Again, why is it never mentioned in the context of investment instruments?
by b_thunder
on Sun, 04/04/2010 - 14:20
#285878
Reason #2: In the 1970s inflation/recession, the unemployment was lower, and workers had a lot more bargaining power than today. The wages largely kept up with price increases, which drove prices higher yet. This time around, if inflation does happen, it will be not because of rising wages, but becasue of money printing.
************************************
Yes--but--unless that printed money flows into the economy or somehow ends up in consumours hands--we will not have inflation--
Velocity tells you that--money sitting in banks and not being lent out-has no inflationary effect--
http://2.bp.blogspot.com/_nSTO-vZpSgc/SpWuG563wSI/AAAAAAAAGu4/P68CFKWWkq...
Until that chart reverses--inflation is a dead issue--
I don't believe this is stagflation-although with the trillions in stimulus that has 'propped" prices over the last while-I can see where people think stagflation is the future-I believe deflation will prevail--
prices will "have" to drop-as unemployment increases and wages fall-as they are doing (including all the old perk bonuses)
falling wages-falling commodity prices-should help producers at the margin--
I know everything is out of sync-right now-but this is caused by governments trying to control the market and it interferes with the natural market pricing--
That game cannnot continue forever-in fact-it looks like stimulus is drying up--
I'm not sure why Gold was used as a reference to inflation--
Gold will hold its buying power in inflation-but does poorly compared to assets-
People that buy gold for price increase due to inflation expectations-are mistaken-
Gold does well in deflation-which is happening--hyper-inflation which we had 01-07 and or political uncertanty-which we definitly have--
If anyone thinks we'll have inflation--sell gold and buy a house-that's a no brainer-
Here are some charts-that counter stagflation--
http://1.bp.blogspot.com/_nSTO-vZpSgc/R93skm1_VRI/AAAAAAAACUk/Fkk2aJKZkO...
Just look at the base money patterns--nothing even resembling our years of stagflation--
http://1.bp.blogspot.com/_nSTO-vZpSgc/SRVLM8Kif0I/AAAAAAAADs8/Ad1Iwf_fPJ...
The phrase "money talks" has more then one definition--
http://4.bp.blogspot.com/_nSTO-vZpSgc/SRVN4sw-LCI/AAAAAAAADtE/6EYg40HZUf...
This is an old chart--but you can fill in the blanks and use today as a reference--
http://4.bp.blogspot.com/_nSTO-vZpSgc/SsTna8Z69aI/AAAAAAAAG-o/72HmglUeTU...
My first response when reading this is that markets have been so manipulated the last ten years that what happened in the Oughts is fairly worthless as far as predictive value going forward. That includes real estate, equities, and precious metals.
I have a difficult time determining how to react to the inflation/deflation debate. I can see both sides of the argument. Therefore, not trusting the markets, my liquid assets are probably 60% USD and 40% physical precious metals. I don't lose sleep over either. I couldn't sleep if I was 75%+ in the paper markets, I do know that.
I've been trying to figure out how to take 10% or so and place a bet that would pay off big if the Fed/Treasury get what's coming to them, but I think that may be pointless. Under that scenario, does any paper that would be redeemed in USDs have any real worth?
Am I already set up to take advantage of the situation with my physical precious metals position?
Just thinking out loud. My capital position isn't large, but I started at less than zero and worked very hard and sacrificed mightily (while many I know were going to Disneyworld, driving Acuras, and swapping McMansions) to get it to six figures. And I'm really not happy that ZIRP is stealing part of it from me to rescue those profligates.
It was pondering on how to pay real estate taxes (on free and clear re) after a currency collapse that led me to own PM's. Folks should own both at this juncture..
Owning PM's at the levels I am currently at is just capitulation on my part. Capitulation on the fact that I really don't know the true depth of fraud and corruption in our current system, I just know its really bad, as Dr Black fully describes. I expect a repeat of fall 08, this time the fed will be out of ammo.
I don't give a shit about manipulations, backwardization, Au to 5000 , folks who call us goldbugs or any of the hundreds of other bullshit articles\ideas on gold.
Sometime they make interested reading, but most of the time they are just a waste of time to read.NOTHING I can do about manipulation...
I do care that CB's are buying gold..
Thanks for making us think RM
For a full history of Fiat currencies and their complete and utter failures read Ralph T Foster's book:
http://www.goodreads.com/book/show/2877426.Fiat_Paper_Money_the_history_and_evolution_of_our_currency
I am not Ralph T Foster!
Great book . I bought several as Christmas gifts in 08. I have also bought quite a few gold coins from Ralph.
Not a note to Hulk (I am sure you understand this H).....an addage to your post:
Gold and silver do not make money, they merely maintain wealth.
Hey MB, gold biotchez!
Gold and silver are money.
Not a problem Mr Lennon Hendrix
We were hours away from complete financial collapse and martial law.(martial law ought to be real fun in this zoo we call a country. I call it a zoo only because its packed with dangerous animals..just watch your nightly news. 5 people rape a 7 year old, etc. fucking animals) Anyway with the prior financial collapse in mind, it shouldn't be too hard to understand the value of gold (yah, right)
Comments like this, which make a good point, make me wonder if access to a private plane or yacht would be more valuable still.
I don't really know Mad Max. Small planes and helicopters are easy to take down as witnessed recently in FarmVille va, where the Marine shot the fuel tank of the helicopter, forcing it to land.
He could have just as easily shot it in a location that would have caused it to crash. So they would be very vulnerable to take offs, landings and low altitude fight
I was walking through Harlem late one night when I was approached by a gang of thugs intent on doing me bodily harm. Confident in my bona fides, I showed them a a piece of paper on which was written, "Please show my homeboy all the courtesy you would show me." It was signed," Barrack Obama." After smacking me silly, the thugs relieved me of my gold Rolex. Lesson learned- put not thy faith in paper nor princes. Gold is real money bitches.
Good one !
I don't know what time period the data refers to, does anyone know? That will have a huge impact on the numbers generated.
Also, my expectation is that what results will be more akin to Argentina than the U.S. in the late 70s (or Japan circa the "lost decade" or two). To extend the Argentina analogy, you sure as hell didn't want to be in commercial real estate ( or any real estate for that matter) during or after the economic crises. The one thing most Argentinians would have liked to be invested in would have been precious metals. Why is that? I'm glad I asked, because when your government effectively blows up your currency, domestic asset prices drop and things that can be used as alternative currencies do very well in real terms. For me the bet is do I trust that the U.S. federal government (and even state and local governments generally) will get its house in order before it pulls an Argentina (actually many of our numbers are already worse than Argentina's were)? My financial bet is on an Argentina like outcome, my personal hope is the opposite.
Full disclosure, I more positioned for fiscal and monetary silliness to continue until the market (or rather what is left of them) stops the music.
But what if the government decides to cut spending to what it can realistically collect without stifling small business growth and leaving enough for morts to actually save. And the federal reserve opens its books and it turns out none of the 8300 tons of gold has been leased out, all there and no tungsten. And they decide to make all the banksters buy back all the crap mbs's and if they go broke oh well. And it turns out JPM wasn't manipulating the silver or gold markets that it was just a big misunderstanding because, look see, underground vaults full of gold and silver that need hedging, oh and we are gonna leave Pelosi, Barney, Dodd, and Rahm down there in the underground vaults for awhile until they learn to tell the truth or there is only one of them left alive (place your bets). And Ron Paul is invited to Basel to help iron out the kinks in Basel 3 with the BIS and other central banks. And, and,....and,....Look!.... UNICORNS!!!!!!
You lost me at "the government decides to cut spending".
I wish I was still optimistic enough to buy some more gold and silver. I am preping like a Morman on meth.
There's an image I never thought of and would prefer to never think of again.
The tipping point into blow up is very complicated or impossible to calculate due to the many factors involved & if one tries to model it, they may overlook factors they didn't even know existed. Exponential debt & debt service kills countries, that's a fact & proven throughout human history. No need to ponder that.
"...because when your government effectively blows up your currency, domestic asset prices drop and things that can be used as alternative currencies do very well in real terms." Precisely, you buy gold to protect your wealth against sovereign default & currency collapses. As Martin Armstong has said, when all else fails, you buy gold. You get it, as do many here that have studied the past (GG) & come to the realization that the current paper system will eventually collapse. It will likely collapse when folks least expect it to. Those that are prepared will prosper; those that aren't will suffer the consequences of their actions as it should be.
That is the beautiful thing. Most the people who were participating in fraudulant, fake or unsustainable non-useful jobs end up having the whole system fail on them. Meanwhile, there is a huge wealth transfer to those who thought for themselves and prepared. The poetic justice of it all makes me want to believe in a God.
The only problem is that it seems like such a loooong wait.
It's a huge spell of hope and trust. The suscipicous minds who are working to collapse it will be joined by more and more suscipious minds until the veil falls down. I can already see it cracking and more and more nonsense pouring out. Easter weekend must have dropped at least 100,000 conciousnesses out and spilt a huge overflow of just brazen bullcrap.
"[Buy] gold to PROTECT your wealth."
+911
I am presently looking for talleysticks to store my sovereign energy away from the clutches of the pervy 3rd graders (Hank Johnson and Co.)
Can't find them so I am left to choose from what is left.
Real Estate: at present I choose to rent as this asset class has been unbegabaliegably destroyed (and for many years to come).
So what's left that's compact and mobile? Cha-Ching!
i wouldn't go out and buy an apartment building, just yet. in CA vacancies are persisent, as downsized home owners cannot afford to grab the next rung of the ladder. several families often move into a home together. then there is section 8, which you should read about at wikipedia, government is subsidizing renters, often in foreclosed homes. the fear that a glut of foreclosed homes would be turned in rentals may be coming true.
apart from that are Ireland and Spain in full out deflation? sure looks that way, negative inflation, and GDP.
the one thing i know for certain, is that some prices (assets mostly) are falling faster than others, (like rent). that situation creates relative inflation, or stagflation, or destagflation, or stagdeflation. my call is for inflation, to rise faster than yields, but to remain nominally low. 5% inflation vs 3% interest rates. thats' a huge relative shift, but the public tends to look at round numbers. and the fed would be more than happy to push that situation, as it discourages savers, once again fiscal sanity is its own reward.
how would gold do in that scenario? i don't know, at least those stock funds have a dividend, which is the big question, what sort of income is this thing I bought making for me?
Reggie is missing the point that it has been proven by GATA that the precious metal markets have been manipulated for years.
How can you realistically critique a market that hasn't been allowed to operate normally?
Pointless.
Agreed to some degree Harborcity. Also, you have to remember that dollar bugs and stock bugs are equally as ignorant to other items as gold bugs. Then again the paper bugs must remember there is limitless paper that can be created out of thin air, whereas gold takes real effort/energy/time to produce and there is a limited supply in real/physical terms.
The real price of Gold hasn't been known since at least 1971 when the US DEFAULTED on its obligations to the world. The longest running Ponzi scheme in the history of the world, if you will.
GG you are a great point man. Lead on! This is a battlefield .
Trust me there was a time when I was an MSM fed zombie myself and didn't know anything about Gold (or the Wall Street scams for that matter). Let me just say that learning the truth about our society, history, economic, political and financial system has a way of turning you into a Goldbug (who are really nothing but TruthBugs, IMO). Goldbug is just a term used by paperbugs to make fun of people who know the sorry truth behind their various Ponzi schemes and frauds.
G_G,
You are dead right. Just not sure about the timing... Frauds, ponzies, bubbles, etc... tend to play out much longer than most people can grasp or wrap their heads around. It's the fact that people cannot perceive time. That is their biggest failure and their biggest weakness. We mere mortals look at 40 years (since Nixon took us off the gold standard) and believe that we have sufficient data points to develop real, scientific models that can predict the future. We don't (at least not with 40 years of constantly changing macro data points). But, that does not stop us from trying to predict the future based on the results of the recent past. Those looking deeper into the past see a cyclicality to history. But, in their ability to see large scale trends, fail to realize that events take place sometimes over generations, other time overnight. Trying to predict the short term using long term cyclicality is a fools game. You could be right, but not live long enough (or have sufficient capital) to profit from your correct view. Then again, you could be right, and everything goes to hell tomorrow. Point is that unstable systems can appear stable longer and actually work longer than most people who don't understand the math behind modeling can grasp. So, it becomes easy to discredit those claiming problems with the said models, until they are finally proven right.
Currently, about 1/3 of my net worth is in gold and silver (in my possession). Ironically, for the sake of my other 2/3 of my net worth, I hope that the day everything goes to hell is delayed as long as possible. When I try to warn people to build up their "SHTF emergency kit", people think I'm nuts. But, when they see both my academic achievements and my financial successes, they get confused. They ask me how someone so intelligent can get so wrapped up in my views, which are contrary to everyone else's. I tell them that I've been predicting a financial meltdown since 2003. But, just because you can predict that an unstable model will eventually implode, does not mean you can tell when that will definitely happen. All you can do is prepare for it, and live your life in the fullest in the meantime. That means build your ark, put it aside, live your life like nothing bad is going to happen, and then put some money into the Las Vegas of the East Coast called Wall Street. Just don't fall into the trap of believing this is reality. Just like Vegas, the house has the odds on its side, not yours. One day, the music will stop, and anything you don't have in your own possession may not be "yours" anymore.
Rich
This meltdown is of titanic proportions because it is a failure of the West and a shift to the East. These mega trends are so huge with so many variables and tricks along the way, that timing to the year or day is something only Armstrong types can begin to tackle.
One thing is for sure, momentum to the downside is accelerating, the exposure of the fraud is hastening the demise of faith in the USD and China and others are moving as fast as they can out of USD without dramatically unsettling the market.
The black swan event could come and collapse the dollar by tomorrow morning. We are nearing the cliff.
This is a great description of the dilemma I think of daily. Everyone who has studied history should be able to figure out that the game will end. The when is much more difficult. Rome took 500 years of slowly imploding after they debased their currency. The one thing that might be different is how fast news travels now and how much easier it is to find information. I'd think that back then most people wouldn't even realize their silver was no longer silver. Additionally, with how interconnected everything is, maybe the implosion will be quicker.
I like RM's composition of graphs and work on this piece. However, the use of names to describe scenarios seems pointless. Isn't inflation (if called that by real asset prices going up) also deflation? Let's see, gold goes up (inflation) while prices collapse (real estate, stock market) in terms of it (well, gold is money after all). How could this phenomenom have two completely different names? Yes, I think too much about this. Plus, stagflation is measured in terms of using a made-up GDP and deflated using a made-up CPI, which for all intents and purposes, is generally not the useful of a measure of the growth of real wealth per capita (the only real measure I find important). All this banter I've written above is generally to show that all that we're told is what some other human said the period was like. History is always written by the victor. Will the 2000s be considered "inflationary" or "deflationary?" It really depends who you ask.
Producing more dollars while producing less gold or other real products of labor, means gold price goes up. Once you produce so many dollars and the velocity starts moving as people wake-up, people will no longer see value in dollars, but will see it in gold or whatever else is finite and transportable. No one can walk with their apartment building out of a pandemonium filled city or country - good luck getting paid rent too.
Thank you for this post. This is the direction I have been leaning for the past 6 months, and I've been feeling kind of lonely between the diehard "end of the world" types on one side and the "Feel the joy!" types on the other. Nice to know I'm not alone out here. Best of luck to all of us.
HERETIC !!!
Burn him, BURN HIM I say, so that this heresy, nay, this APOSTASY, shall not be repeated.
"Our father, who art in heaven . . ."
Calm down.
Your name says it all...
Just a joke on this fine Easter Sunday, amigo! (FWIW, my allocation to physical PM is about 40%.)
RM-
You can't look in the rear view mirror and compare this Great Recession to anything in the post-WWII era. It IS different. If anyone thinks that the correlation between real estate of any kind, residential or comercial, is going to be the leading inflation hedge over the next decade, they are smoking something illegal. Neither residential nor commercial RE are anywhere close to their bottoms. Over-suppy on the market and over-capacity in the construction industry is massive. No bottom for RE in the next decade, IMO.
Although history may rhyme, it doesn't necessarily repeat. When the dollar system collapses, all these "numbers" - which are either massively manipulated themselves (such as the [paper] Gold price) or are based on manipulated data - will go out the window. The only people left in the cold will be those holding worthless promises of a bankrupt nation i.e. dollars. Thousands of years of human history is on my side.
We're not in some "cyclical bull" or "cyclical bear" in ANY market but are headed straight for collapse of the fiat dollar-based economic system underpinning the past century.
GOLD IS THE ONLY THING THAT WILL SURVIVE THE COMING FINANCIAL ARMAGEDDON.
The Coming Financial Tsunami
Quite right GG. At the risk of falling into the classic 'This time it's different' trap - this time it IS different. There is no parallel in recent history to the events we are currently experiencing from which we can draw any meaningful comparisons of the relative performance of various asset classes. Never before has confidence in the world's global reserve currency collapsed, and this I think, is what awaits us. Conceivably it will bring most or all of the existing Fiat currency systems with it as they are all in one way or another dependent on the dollar's reserve status. Gold may not be the answer if this comes to pass, but in that case, nothing else will be either.
Agreed. Reggie does good work, but, for one thing, he's missed the root cause of the 70s stagflation. it wasn't the oil shock, it was the departure from gold backing of the USD and the wild money printing the Fed engaged in. The Arabs took an excuse, long after the fact, to jack up oil prices to compensate for the dollar debasement and try to recoup prior losses.
In any case, gold will be just fine. The system is totally corrupted by the fiat printing and government is in bed with the financial speculators. Stagflation of sorts is the result of fiat printing. Production and wages decline, prices of everything people need goes up. Some things may deflate. The system is totally corrupted by the fiat printing. Having observed for a while, I am increasingly certain you've got the ending right. Until then, enjoy the game.
i agree.. but i think half your savings should be in gold/silver in these times.. you still need to be liquid and still deal with the currency of the moment but when it all falls apart if you have just atleast 25% of your savings in PMs you should be fine since so many won't have much of anything besides extra toasters and tvs to barter with
You totally get it G_G. Not only that, but you always come to the table with valuable insights succinctly stated.
The stagflation/hyperinflation argument is moot.
Gold is it.
The massive liquidity cannot be drained. This is an historic event unlike any other in our history and the cyclical charts are irrelevent in this situation.
Exactly. Gold MUST rise sucking up all of this perceived wealth that is in the system.
Confiscation.
fdr never confiscated gold miner shares and they outperformed bullion. a general argument can be made for miner outperformance in a deflationary depression as costs of labor, materials, land, government lobbying, etc. go down as the price of the good sold goes up, widening margins. and in our current world with so many portfolio managers having to stay invested, just trying to beat some index, they would probably find ways to own such stocks when they start outperforming. also when the stock market turns after its collapse, gold miners participate, thus alleviating the problem of picking the bottom.
Some gold bugs are willing to reference periods like 1929-1932 as a rationale for why gold is a necessary hedge during a stock market collapse. To respond to such spurious claims from the gold bugs, I have included the price history of gold and silver stocks from 1924 to 1933. This data is from Poor's, the company that pre-dated the merger of Standard and Poor's.
Notice that some gold stocks ran up in price and peaked before 1929. For the remaining stocks that did peak in 1929, take a look at the high and then the low in 1930. All of these stocks fell by at least 50% during this two year period. Some stocks would stabilize, while the majority would collapse until 1931 or 1932. Once hitting their bottom in 1931 or 1932, the stocks would then recover, along with the rest of the stock market. The only gold stock from this era that still trades on the New York Stock Exchange is Newmont Mining. Newmont went from the hefty price of $236 in 1929 to $4.63 in 1932. After 1932, all stocks started moving much higher regardless of the industry group the company was in.
The lone glaring exception to this survey is Homestake Mining. I would have loved to have bought Homestake in 1924 at $35 and never have to watch it fall back to where I got in. However, Homestake is a special situation that is completely unrelated to the general conditions of the market. Homestake Mining has become the rallying cry for gold bugs despite the fact that there are numerous special situations that can be pointed out in other industries during the same timeframe.
http://seekingalpha.com/article/109880-gold-not-the-safe-haven-people-think-it-is
The manipulation in the precious metals arena is astoundingly audacious and by the j'accuse, buy and large.
Totally agreed. What I always find funny about paperbugs, is how they try to find reasons why gold would go 'down' or 'collapse'. One simple question is enough to make them silent: 'If gold is going to collapse or is such a bad investment, then why are central banks holding huge amounts of it?'. This ends the discussion right away.
Or, as Apocalypse Now asked the other day, 'Why did Nixon close the gold window?'.
I saw that too by Apocalypse Now. Indeed, if gold is not important, why not just turn it over the French?
Reggie, another nice piece.
I'm not running any stinking numbers though.
Gold for me is the best wealth preservation vehicle with the side benefit of being a form of insurance against .gov & Fed mishandling of our financial system and our continuing inabilities to elect a responsible Congress & White House.
Just put me in the same cage as Gordon, Lionhead, Chumba, Shameful, MsCr, etc. We're all saying pretty much the same thing.
Does the fact that gold has a lot of fans at ZH make ME nervous? Nope, I saw a recent comment that only about 1% of Americans own investment gold. And only 3% have ever touched a gold coin.