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Gold Looks Like Its 2008
Near term record high negative correlations between equities and gold. Looks like 2008 all over again.
If one looks closely at the data though, in 2008 the negative correlations peaked approximately a month before the Lehman event. On August 15th, 2008, the prior 50 trading day correlation hit -.59. At this point the S&P was still at approximately the 1200 area (before then plummeting to the 600s). When things really started to unravel, gold lost its magic touch as an effective hedge.
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Should be an interesting October and November but I may not step out in front of this beast when she gets going cause it will surprise both sides equally and most likely leave both sides worse off than we are today.
Trade Well - these are the best of times.
Author forgets one major thing: 2008 was a liquidity crises; 2011 is a solvency crises. In 2008 everybody was dumping gold into the downturn because they HAD to. Now, even the central banks are buying gold because there's no other safe haven that isn't somebody else's liability. Charts aside, the DXY is up 5%+ in a week while gold is holding its own within a 100-200 pip range. Besides gold, oil/gas and food, what other REAL safe havens are there now?
Sure, I buy PMs, but on the other hand I am the anti-consumer here. Only thing I have really purchased in the past month is some nice cast iron to cook better food in. All our food we buy fresh at the morning market for cheap. Apart from that, my laptop battery died. I repaired it myself with new panasonic cells... they only cost like $1 a piece. So... new battery for $10 total... or drop $200 on the same damned thing for a "genuine" one... or $17 for a decent third-party. $10 sounds like a better use of resources.
From my perch, this Ron Paul stuff is really about redistributing wealth from the majority to the very few who happen to own precious metals. And those few will include the rich as I've alluded to awhile back. The truly rich will have advisors who will signal them to load up, and they have all the money in the world to buy gold. Maybe your hollywood stars, nfl and nba stars will get their wealth distributed..maybe.
So gold bugs have been complaining all the money (bailouts what have you) goes to the wealthy bankers and Americans are poorer for that...and that's why we need the gold standard. Huh? Tell you what, whatever Ron Paul is proposing, the majority of Americans will suffer more than they are now supposedly suffering. Their dollars may have been devalued but at least their income have risen 3 times since 20 years ago...so they can live with that, and they do. But this move-back-to gold standard shit will make 95% of all Americans poorer like never before. You know, like Untouchables poorer.
So I don't understand the gold bugs' thesis. Are they trying to save the world, or are they trying to redistribute the wealth all to themselves? Tell me about it.
You are right, no-one should ever be able to profit from being correct. I think we should all throw all of our assets into one common pot according to our ability, and we can then take from the pot what we need. With a world where there are no posessions, man can live in harmony with man.
lol
Never mind that the government is supposed to have a bunch of gold that it could link to dollars, which everyone has. Nevermind that a large portion of people actually OWN gold already (in the form of wedding rings if nothing else). Nevermind that when the price of gold rises as a gold standard is set, the owners of gold only get to spend it once, as opposed to the current oligarchs who get to spend as much printed money as they like without contributing anything to the economy.
Never mind it all. Anyone who makes money is automatically evil, and we must punish them by perpetuating the current system.
How this all became Ron Paul's fault in your mind is puzzling. Fiat allows the bankers to take a part of everything we own without ever having to justify or account for this theft. Fiat also allows them to take a much bigger amount through the tax that is inflation. A gold standard will bring about a greater degree of accountability and help plug the inflation leaks. It will also help curb government spending, and we seem unable to do anything in that regard.
A gold standard is definitely not a panacea for good government, but it is an important first step. Yes, you are one of the few people who seem to get it that MOVING to a gold standard can be very painful for anyone without gold. Once the global apparatus for holding down gold prices is removed by those who have now amassed a lot of gold, and with every incentive in the world for them to want higher gold prices, we can expect the price of gold to ramp exponentially. At this time, the value of everything else will drop in respect to gold. If gold doubles, anyone without gold can be viewed to have had their net worth cut in half. It is the ultimate stealth tax which we are all going to pay for the excesses of the past. That is, unless you own gold yourself.
This bitter pill must be swallowed for us to move to a more viable system. There are 7 billion people depending upon the ruthless bankers to succeed in setting up a system that operates smoothly. In the minds of the bankers, it's God's work. In reality, they are evil and caused all these problems. It's irrelevant whether you or I view the cure as good or evil, it is the only life ring in the water.
PS: Under some form of a gold standard, people will once again know how to store real money and protect their wealth, and have a chance of leaning the truth. That's a very good thing.
So I don't understand the gold bugs' thesis. Are they trying to save the world, or are they trying to redistribute the wealth all to themselves? Tell me about it...
For those accumulating gold, it's to be used at a later date to re-establish a foundation of future commerce. Realize, if and when it is to be used as currency, unless it can be held "on deposit" and be allowed to have multiple calls printed for redemption, (fiat), it's trad-ability will be a one time event.
It's advantage however is that while in trade, it builds trust, which will Always be the foundation of every commercial transaction. What we're witnessing is the breakdown of Trust. Gold's use as currency can succeed only if the velocity of trade can occur quickly enough to prevent bottlenecks. Silver has historically filled the gap prior to the eventual widespread acceptance of fiat again.
These are generational changes that I hope will, can occur without needless bloodshed. imho.
Where are you getting your information that income has risen 3x?
If anything its flat or down after inflation in the last 20 years...
When I was still in college, engineers were making $30k a year and that was considered good living. Now they make $90k. Inflation basically devalues the dollar. Since their $90k probably buys around the same amount of items they were able to buy 20 years ago, wouldn't you say their "wealth was preserved" (similar to how gold preserves your wealth)?
you are repeatedly throwing these two numbers around as if they are gospel, yet you are conveniently omitting the primary cause for the increase: experience! no entry-level engineer is making $90k today; maybe half that. also, how many stay-at-home moms were there back then compared to now? try convincing them their household wealth would have been preserved had they stayed home.
http://www.payscale.com/best-colleges/degrees.asp
With the exception of petroleum engineering, new grad engineering salaries are around 60K, not 90K.
Families used to have four kids, a vacation home, and one income with no credit. Income has not generally kept pace with inflation. That isn't credible.
The wages of NOBODY I know have kept up to balance the depreciation of the dollar over the last 20 or 30 years, as even official US government statistics will attest. Adjusted for inflation, real wages peaked in the early 1970s, roughly stagnated for around a decade, and have fallen since. And even THAT is based on the official CPI statistics, which everyone but top federal officials recognize to be a fraud and an insult, grossly understating inflation, most especially since the early 1990s (e.g., do you REALLY believe that the average cost of living has ONLY risen 23% since the year 2000?).
Are americans really that much poorer, as you say? Many may have overspend due to temptations of modern luxury, but those who are reasonably frugal on average have been doing well, assuming they make a reasonable income. The baby boomers still have lots of money because they saved and invested, unlike the Generation X who like to be hip and follow the Joneses. The baby boomers didn't have many temptations that we have today. Isn't America still one of the richest country in the world and that everyone still wants to come here?
Ok, I give you that you're right --- the standard of living has gone down because our dollar is being devalued like crazy, faster than the income to pace. We have 350 million americans. How is the gold standard going to make our lives better, for 350 million Americans? Since the govt cannot spend what it doesn't have, many millions of Americans would have to starve to death. Social Security? Gone. Might as well euthanize them at age 70, n'est pas? Medicare/Medicaid? Gone. Let the sick rot on the streets? Stock market? Probably gone or dramatically marginized because fledging companies won't be able to borrow money they don't have.
Is that the grand plan of the gold buggers? It seems pretty solemn to me. Is that what you folks, the Peter Schiffs of the world, are fighting for?
Your argument is basically that we shouldn't start to fix a disfunctional system because fixing it is disfunctional, so the only answer is to keep spending money we don't have.
Psst, we don't have it.
Ex #1 of how easy it is to tackle these problems: Everybody fights about social security because it is such a big issue, but if they break the program down into smaller problems, it is easier to fix. First, you should be able to withdraw what you put in, plus a reasonable rate of return. Once those funds run out, you should be moved into a similar program that is called what it is, charity. There is absolutely no reason to have the wealthy on charity and allow them to shake their fists in our faces claiming "keep your hands off my money." A. They voted for politicians who stole that money. B. They outlived THEIR money and are accepting charity, so show some humility and STFU. Moving charity out of SS allows for means testing.
Disability shouldn't be in the program and needs to be administered seperately. We are getting eaten alive by fraud, and an expanded concept of what should be covered. Right now, a disagnosis of depression or obesity earns you lifetime benefits.
Just these two simple fixes would patch the system and make it solvent, but we don't have the political will to fix them. Your solution is to not even try. The reality is we are going to have to face these issues when the end comes. The end is upon us, and blaming gold ignores reality. The end is here.
I'm 61 and been staring at charts and trading professionaly since 1974 .WTF is your recommendation and prediction and what caused what to effect what?
If I'd deposited gold bars in an account and bought the DJIN 30 with the collateral how much was the combined return in the past year, 3 years and decade?
Say what you mean , mean what you say and stick your neck out.
Ben Bernanke, he's the man. He saw things old guy Trichet didn't see.
Gold buggers -- they are a vile group. They wanted the Fed to raise interest rates in a fragile economy, and luckily Benanke didn't fall for the trap. We would be like Greece today...about to default.
So that's what Trichet did, he raised interest rates at least two times on the Euro this year. And now Greece is now a global systemic risk; certainly Europe is in big trouble now.
Gold bugs, they want it both ways. They poo poo the Fed and bid up gold when Bernanke kept rates low. Now they bid up gold again because Greece is about to go default (because the ECB raised interest rates). Basically, gold buggers don't care what happens to the world. They want it destroyed both ways to Sunday. Just so they make some money.
And you have read and spent your life learning to support these opinions, right?
Hey, how's that fantasy foot ball league doing? You are a real source of enlightenment, thank goodness you showed up, my TV is on the fritz and I can't watch CNBC to tell me what to think.
Hint: While you were out celebrating all the shovel ready jobs in the summer of recovery, the readers here are ZH predicted everything that has come to pass. Meanwhile, the opinions of those whom you appear to agree with, you know, the biggest and best minds (egos) in the world on things economic, were proved terribly wrong again and again. They were all conclusively proved to be either fools, frauds, lying whores, or all of the above.
You might want to show some humility.
Untrue. People who buy gold have capital to invest, including me. If there were a stable currency and a solvent government offering reasonable yields, I'd purchase their bonds. If goddamn central bankers weren't printing into oblivion, we'd invest. If the damn stock and bond market wasn't infected top-to-bottom with insider trading, we'd invest. If high-frequency traders were prohibited from scalping investors blind, we'd invest. If conflicts-of-interest were prosecuted, we'd invest.
But listen up dope: the SWISS, of all countries, have given you exemplar number one why we invest in gold. With the push of a computer key, some fat fucking bankers, just a few humans among billions, devalued the Franc, making all of them ~8.5% poorer, instantly. Imagine you are a Swiss citizen -- congratulations, your hard-earned wealth and years of labor has now been vaporized into euro trash, because some motherfucking banker said so. And this is only the beginning, because the Swiss are now on record, promising to inflate until oblivion.
Do you not see the rape, the violence, the brutality of such an act against their own citizens, and the collateral damage to all the citizens of other countries? Yep, some Swiss bankers basically said, "fuck you," and now we're all going to pay the price. But I hasten to add the Swiss took this action only after many, many other central banks (U.S., Japan) have been flooding the market with paper. Paper backed by nothing but obscene amounts of debt that can never, ever be repaid, except with, you guessed it, more printed currency.
This system is pure, utter insanity. I hate it intensely. It devalues labor. It pillages value. It destroys wealth.
And this is why we buy gold. Because bastard bankers and their central bank protectors ARE destroying the world, and they don't give a flying fuck about me, or you, or anyone.
Very well said Cobber....nice to see some reality hit the screen
20 years ago, engineers made around $30,000 a year. Now they make about $90,000. So income did go higher even as the dollar is being devalued, as you say. So what is the problem, son?
If you REALLY believe that wages have kept up EXACTLY with the depreciation of the dollar (never mind even considering what that ongoing currency depreciation has done to savers, or the retired most particularly, which is rape them seven ways to Tuesday, nor considering what it has done to radically skew economic and price signals and how it has lead to massive malinvestments of all kinds), then proceed directly to "FUCK YOU" --- do not pass "Go", do not collect 200 much-depreciated dollars.
Actually it's pretty consistent. 20 years ago, an engineer makes $30k and it was considered good living. At that time these engineers were buying houses that costed $100k-200k average. Now they make $90k and that is considered good living. And now they buy homes that cost $300k to $600k. Right? So what is the problem?
How about the collapse in the number of engineers?
http://www.nspe.org/resources/pdfs/blog/Abt-Report-on-Engineering-Profes...
The fact that wages have kept up with inflation doesn't really help when the numbers have been cut by some 30% from the peak. And that is just people graduating. Let me tell you a bit about the hoards of unemployed engineers in the Houston area who were competing with my father for a job. It took him, an extremely talented and highly experienced engineer, TWO YEARS to find another job after his department was cut.
He didn't appreciate having the value of his dollar savings cut nearly in half during his unemployment term either.
One problem with your use of engineer salary is that it is one of the groups whose salary has kept up better than most. When I was in high school (1980s) the projection was for a broadcast meteorologist to earn a starting salary of around $24,000. Today (2011), most start out around $20,000-25,000. Inflation has wiped out a formerly profitable career. Only government meteorology jobs have (so far) kept and a pace a little closer to the inflation rate - which is part of the core problem in the U.S. - the government has grown to big and is sucking the life out of the private economy - and the debt is leading to more inflation (borrowing and printing).
You bring up an interesting self-interest question about the "gold-buggers". Sure, they would make out like bandits if we returned to some sort-of gold standard, but the end result would be a more honest and fair economic system. It "seems" like things are not all that bad (for engineers) right now with the fiat system, but even you must know about the 45 million U.S. citizens on food stamps, the collapse of the welfare (fiat) state in Europe, the 5 wars an counting the U.S. is fighting to keep cheap energy flowing, etc... If you hang around engineers (silicon valley perhaps?) then you are quite insulated from the shit-storm. That won't last. Unless there is some new nearly free clean energy source invented very soon, or productivity goes into hyper-overdrive, then there will be a collapse of the fiat/debt system and that $90,000/year engineer might be hoping for a gold standard as well, even if it means some gold-buggers are going to do well.
Recently, a friend of mine bought house and put only 3% down. Being good at numbers I did some calculation. She owes the bank 300K and let's just assume she got the best deal for mortgage - 3% fixed rate interest. And let's further assume that she pays $1,500 a month.
In the first year, she pays $9000 interest and $9000 pricipal
second year $8730 interest and $9270 principal
third year $8468 interest and $9531 principal
fourth year $8166 interest and $9834 principal
fifth year $7870 interest and $10129 principal
So in 5 short years, she would have paid a whopping 42k in interest, thats almost her entire after-tax income. That's like working in a labor camp set up by the banking parasites for a whole year, for free!
So what does that have to do with the fiat vs gold standard debate?
1. For one thing, under a gold standard, the bankers wouldn't be able to run a 10% fractional reserve system. I seriously doubt they could run a 30% fractional reserve system. But even if they could, there'd be 66% less money sloshing around chasing these mcmansions.
2. The scarcity of money also means the scarcity of credit. So under gold standard, only productive, profitable ventures can get loans. The so called "comsumer credit" would be non-existant, meaning everyone must live within his means and buy everything (iphone, big tv, car, house) with cash.
With much fewer people bidding, that 300k house will probably sell for 100k or less under a gold standard. (if you don't believe, check housing priced in gold over the years)
3. There is no inflation under a gold standard, so people have the incentive to save. In the case of my friend, she can save 100k in mere 5 years and buy the house with cash.
Someone may argue that her salary might also be lower under a gold standard. Sure, but eventually the market will still pay her a fair salary comsumate with her skills and work ethic. Whatever salary she gets paid, I'm sure about one thing: she wouldn't end up paying 600k for a 300k mortgage, living for 30 years in constant fear of lay-off. By the way, paying 300k interest is like spending 7 years in a slave labor camp set up by the bankers. Not only that, the bankers are using the money they made to lobby the politicians so that they can screw everyone further
So you tell me, does a gold standard benefit ordinary folks or just a handful of gold bugs?
Enough with the ignorance schtick.
Ignored
Many professions also suffer from the effects of outsourcing. Many jobs, including engineering jobs, have gone poof! Many more engineers had that buying power years back. It is coming at us from all sides.
Go find the nearest retiree, or somebody on a fixed income, and declare to them that "inflation is income neutral, so what's the problem?"
The punch you receive to the face may be illuminating.
The Swiss answered one big question I've had, namely that "stock Bulls" AKA idiots, will tell you that if the dollar dropped it would ALWAYS be possitive for stocks. The Swiss MKT dropped the next day.
Bean-head, read the Sequitur response, 4 times...
It is that accurate.
Thank you Sequitur...my thoughts exactly!
Beanieville, you're full of the slushy stuff. Greece is not defaulting because the ECB raised rates. They're defaulting because they ran up dabts they can never pay back, whether at 4% interest or 8% interest. And suddenly the market woke up. When will you ?
you're right but imo the ecb is compiling an impressive record of counterproductive interest rate increases that propel the euro economy into the toilet, both now and in the run up to the initial collapse.
my underwear streak is a better indicator then that useless chart
So what does your streak say about gold? Does it also say what's going to happen on Monday morning to the XLF? Just wondering.
lol
Gold Trading with 5 minute 60$ bear aids is no fun any more
http://www.dailymotion.com/video/xlc2k_adolf-ich-hock-in-meinem-bonker_fun.
Scriabin - Three Pieces Op. 52 No. 3
http://www.youtube.com/watch?v=6Ev0fYJSVi8&feature=related
Nice. Thanks.
dennenger .. quote cant have sex with gold .
any one following dennenger about gold is following a lemming into a hole .
he may be bright about a financial statement .. and give s his opinion on all things . but some things are above his paygrade ..
That is an interesting comment about what Karl D. is good at and bad at. I think most people have a basic hero worship mentality, especially towards those who made money in the markets. However, the markets are bigger and more complex than anyone can fathom in one lifetime. That's why even the big winners like Paulson can get caught in a Sinoforest. It's important to understand what you don't understand, and fear it.
So I guess my point is to not worship at the feet of the winners who only seem to know everything, and perhaps don't revile those who show they don't know everything, at least they won't lead you off a cliff like the persuasive know nothings.
Spot on with KD...can pick apart a statement with the best of them but on the Shiny... forgettaboutit. Inflation, KD, not deflation!
How about Inflation + "deleveraging" instead of deflation? Stagflation is: inflation (currency problems/shocks) and a crappy economy/unemployment. Crappy economy can certainly put the brakes on asset inflation; and we still have a long way to go on asset deleveraging (housing/real-estate in general).
I think Inflation and deflation are mind-sets; and people are smart enough to see both at the same time. For instance, we saw an inflated housing market going gangbusters well past the "posted" rate of inflation during the last decade. Money wasn't severely losing value, except in reference to housing. So people bought houses either speculatively or because they thought they would get priced out of the market.
We do not have money not severely losing value (consumer view) while the housing market is coming off its financially levered peak. I don't interpret the housing downturn as deflation - its a big unwind of over-inflated prices.
We also see the risk of inflation with money printing ad nauseum (4% based on the real prices index); but its not yet high enough for people to move to an inflationary mindset (I need to buy today because it'll be more expensive tomorrow). What comes from that mindset is the change in consumer behavior leading to velocity. Velocity is the key missing ingredient for inflation (how fast money turns over because it loses value and no one wants to keep it).
So what'll kick velocity off? Too much money printing; the money printed in QE1/2 actually hitting the economy with a delayed reaction of 18-24 months (?).
Assuming this next recession is a doozy, and the accompanying write-offs clobber growth, the US and European government don't have a lot of choice except to monetize - how else will they pay for these mega-deficits?
My conclusion is deflation is less likely at the broad economic level than inflation (erosion of the wealth value of your $); but we certainly see asset deflation for quite some time, and balance-sheet repair seems likely to keep the inflation mindset in check (people are paying off debt and are more stingy with their money).
Have talked thru this with a couple of friends and am interested in counter-arguments ~!~
Conclusion: I don't see deflation except in certain asset classes; and I see a higher risk of dollar debasement leading to inflation...
Velocity is the key missing ingredient...
Velocity, or rate of circulation is critical to the growth of our economy. Unfortunately, the motivation to unload your legal tender because it's rapidly declining in value the longer you hold it, results in a deterioration of the system.
On the other hand, holding on to legal tender because it's appreciating in value can be equally destructive as the story of the unprofitable servant that buried his entrusted hoard of gold in the ground, only to return it to the owner at a later point in time illustrates.
Legal tender is designed for use. Accurate weights and purities guaranteed by issuing agencies facilitate trade quickly, and improves velocity. And with each transaction, additional value is brought to market, the definition of "productivity". This differs from "money changing" which has more to do with capturing imbalances between currencies and attempts to profit from deceit, insider knowledge and betrayal of trust. Any of which are un and non profitable activities and damaging to the community at large. imo.
Nice Flypaper. I agree with that argument. You seem to have an organic view of the inflation/deflation argument, and I have similar views. Most discussions go awry when they tacitly accept that we will have one or the other, when in fact, the banksters have no intention of allowing deflation to have its way or in hyperinflating their currencies into obliviion. They are walking a thin line between both in order to kick the can and guy gold.
The real question is will they print and do nothing so that their currencies eventually reach zero, or will they pull the plug on our current monetary system at some point and put us on a new standard. In the first case, the central bankers lose their grip on society and you get out of your mortage for the price of a cup of coffee. In the latter case, they stay in power and you remain a debt slave. So it's pretty easy to guess which one will come to pass.
When they have enough gold, they will pull the plug, not until
I don't see how that chart means anything at all. The chart and the article basically seem to say that there are some similarities with the 2008 situation, but also some differences.
Yes... and...? No conclusion can really be drawn from this data. If the data is meant to indicate that we're in the shit, then there are far better indicators that have been screaming that fact for ages.
If I was asking myself "should I buy gold, or sell it?" then this article doesn't help with that decision (or maybe I am missing something?)
If I had enough spare cash to buy more gold, I would be buying. Fuck the chart.
The 3 month TMS rate of change was about 2% in Aug 08 and is presently about 21%. This should be supportive of asset prices, especially gold (imo). I don't expect a repeat of 08 this year.
The DOW crashed 500 on Aug 4th and crashed 600 the next monday. That was the markets attememt at a 2008 redux and it failed.