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PIMCO On Gold - The Simple Facts

Tyler Durden's picture




 

Via Nicholas Johnson and Mihir Worah of PIMCO,

GOLD – The Simple Facts

When it comes to investing in gold, investors often see the world in black and white. Some people have a deep, almost religious conviction that gold is a useless, barbarous relic with no yield; it’s an asset no rational investor would ever want. Others love it, seeing it as the only asset that can offer protection from the coming financial catastrophe, which is always just around the corner.

Our views are more nuanced and, we believe, provide a balanced framework for assessing value. Our bottom line: given current valuations and central bank policies, we see gold as a compelling inflation hedge and store of value that is potentially superior to fiat currencies.

We believe investors should consider allocating gold and other precious metals to a diversified investment portfolio. The supply of gold is constrained, and we see demand increasing consistent with global economic growth on a per capita basis. Regarding inflation in particular, we feel that the Federal Reserve’s decision to begin a third round of quantitative easing makes gold even more attractive.

We see the Fed’s actions in the wake of the financial crisis as a paradigm shift whereby the Fed is attempting to ease financial conditions and encourage risk-taking by increasing inflation expectations. Its policies will likely result in continuous negative real interest rates because nominal rates will be fixed at close to 0% for the foreseeable future.

To be sure, gold isn’t the only asset with the potential to hold its value in inflationary times. For U.S. investors, at least, Treasury Inflation-Protected Securities (TIPS) offer an explicit inflation hedge. What’s more, TIPS tend to be less volatile than gold and, if held to maturity, are guaranteed to receive their principal back – barring a U.S. government default (which we see as incredibly improbable). Still, history shows that gold is highly correlated to inflation and has unique supply and demand characteristics that potentially lead to attractive valuations.

A unique store of value

For more than a millennium, gold has served as a store of value and a medium of exchange. It has broadly managed to maintain its real value, even as various currency regimes have come and gone. The reason is that the supply of gold is not at the whim of any governmental power; it is fundamentally supply constrained. Total outstanding above-ground gold stocks – the amount that has been extracted over the past few millennia – are roughly 155,000 metric tons. Each year mines supply roughly 2,600 additional metric tons, or 1.7% of the outstanding total. This is why gold can be thought of as the currency without a printing press.
The downside of gold is that it generates no interest. One ounce of gold today will still be only one ounce next year and the year after that. Because of this, gold is sometimes referred to as a non-productive financial asset, but we feel this characterization is misleading. Rather, we believe gold should not be thought of as a substitute for equities or corporate bonds. These have equity or default risk and therefore convey risk premiums.

Instead, gold should be thought of as a currency, one which pays no interest. Dollars, euro, yen and other currencies can be deposited to receive interest, and this rate of interest is meant to compensate for the decline in the value of paper currencies via inflation. Gold, in contrast, maintains its real value over time so no interest is necessary.

Today, the forward-looking return on holding U.S. dollars, and most other major currencies, has been artificially lowered by the Fed’s commitment to keep interest rates pegged at near zero for the next few years; real yields on U.S. government bonds are negative out to 20 years. In such a world, we believe the desire and willingness of investors to hold gold relative to other currencies increases dramatically, creating the potential for continued price appreciation.

The real price of gold

Of course, investors must also consider valuation, especially since some believe gold is overpriced. Figure 1 shows the inflation-adjusted value of gold since 1970. There is no doubt that gold prices, which averaged $1,630 in August, are high. However, in inflation-adjusted terms, gold is 12% below its 1980 peak. Inflation in 1980 hit 15% year-over-year, and inflation today is running much lower so some may question the validity of comparisons to 1980. While we believe that inflation over the next several years is likely to be higher, on average, than it has been over the past 20 years and that the tail risks are for much higher inflation, this speaks more to the outlook for the nominal price of gold.

The price of gold in real or inflation-adjusted terms is less affected by the rate of inflation and more impacted by the level of real interest rates because as discussed previously, it is the real interest rate that drives the relative attractiveness of holding gold relative to other currencies. With real interest rates negative on average for the next 20 years, it is of little surprise that gold is trading near its all-time inflation-adjusted high.

 

Even the inflation-adjusted value of gold doesn’t tell the whole story, however. Thanks to productivity gains and economic growth, per capita GDP is significantly higher today than 30 years ago. Thus, the average person today has more wealth and, all else being equal, can afford to pay relatively more for gold.

To Chinese, gold has never seemed less expensive

Figure 2 shows the ratio of gold prices to per capita GDP in the U.S. and China. In dollar terms, gold is still 34% below its 1980 peak, as U.S. per capita GDP is higher today. Furthermore, this is a relatively U.S. centric view, and considering that China represents the largest source of global gold demand, we believe investors take an overly myopic view at their peril. Chinese per capita GDP has grown at an 18% annualized rate for the past 10 years, compared with just 3% per year in the U.S. Thus, while gold might seem quite expensive to those of us in developed economies, its price seems much less expensive to those in faster-growing emerging economies like China.

 

Another way to think about the relative value of gold is to consider what a return to the gold standard might look like. In other words, what if the entire world’s gold were used to back the global supply of fiat currency? Globally there are roughly $12.5 trillion in physical and electronic currency reserves. Given that there are 155,000 metric tons of gold above ground, this equals an approximate price of $2,500 per ounce if all of the world’s reserves were to be backed by the entire stock of above-ground physical gold.

Not really so pricey

These points lead us to believe that gold valuations are not as stretched as a naïve look at its nominal price might suggest. Central banks globally are seeking to depreciate their currencies in a beggar-thy-neighbor attempt to stimulate their domestic economies (the Swiss National Bank is a prime example). Therefore, we believe investors should consider owning gold, precious metals and other assets that store value as long as central banks continue to print and maintain negative real interest rates.

 

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Mon, 10/01/2012 - 22:15 | 2847213 markmotive
markmotive's picture

Brilliant

Jim Rogers On Gold & Silver: ‘Who Am I To Argue With Thousands Of Years Of Human Stupidity’

http://www.planbeconomics.com/2012/08/25/jim-rogers-on-gold-silver-who-a...

Mon, 10/01/2012 - 22:55 | 2847284 kliguy38
kliguy38's picture

Brilliant PIMPERS .......now take a few billion of that Bond toilet paper and buy some physical.....oh wait....you'll own "paper gold"........too bad soo sad......you'll own shit

Mon, 10/01/2012 - 23:06 | 2847306 Bay of Pigs
Bay of Pigs's picture

LOL, Welcome aboard the Gold Train PIMPCO...its only been going up 11 years in a row.

Mon, 10/01/2012 - 23:25 | 2847334 Pinto Currency
Pinto Currency's picture

Two points:

1) The markets have chosen gold and silver as money over several thousand years.

Over the past 100 years governments have haplessly been fighting the markets and trying to legislate gold and silver money out of existence using paper legal tender laws.  Now their central bank creations are collapsing our economies and gold and silver are reasserting themselves in the market.

2) The real price of gold adjusted for true consumer goods inflation before the Boskin/Greenspan rewrite of CPI calcs in 1992 is something very different than presented above.  See: http://www.fgmr.com/real-gold-price.html

Mon, 10/01/2012 - 23:46 | 2847373 TheSilverJournal
TheSilverJournal's picture

Look at that chart. Especially all you "China Hard Landing" fools. China is set to boom.

Tue, 10/02/2012 - 00:03 | 2847402 Colombian Gringo
Colombian Gringo's picture

Maybe, but rather have physical PM's in my possession over any Chinese stocks. Gamble your money away if it makes you happy, I will stick with what  cant be printed away by banksters, or chinese criminal bureaucrats.

Tue, 10/02/2012 - 00:12 | 2847413 TheSilverJournal
TheSilverJournal's picture

I only recommend silver.

Tue, 10/02/2012 - 00:30 | 2847441 Thomas
Thomas's picture

i am wildly bullish on silver. Above ground supplies are so damned low.

Tue, 10/02/2012 - 00:36 | 2847447 RockyRacoon
RockyRacoon's picture

Good news?  We won't know quite yet.  From FT:

CFTC urged to act on position limits
Tue, 10/02/2012 - 00:54 | 2847464 Dr Benway
Dr Benway's picture

There is a lot more silver above ground than some silver bulls think. Bullion silver and total silver is commonly conflated, but most silver is not in bullion form.

 

Regarding PIMCO, do they really think TIPS hedge against inflation, or do they realize TIPS only hedge against a reported statistic that supposedly tracks inflation?

 

Most telling of all, however, is this: The possibility of total currency collapse is summarily dismissed, as always. So hedging against that scenario is entirely worthless, even if the scenario is disastrous for the non-hedged. It just cannot happen, so no reason to factor it in.

Tue, 10/02/2012 - 00:59 | 2847468 TheSilverJournal
TheSilverJournal's picture

It just can't not happen...soon.

There, fixed it for ya.

Tue, 10/02/2012 - 01:00 | 2847469 CapitalistRock
CapitalistRock's picture

Not exactly. He dismissed a US treasury default. He did not dismiss a currency collapse. There is little doubt your principal will be returned in the form of US dollars when your treasuries mature. The value of those dollars is the problem, however.

Tue, 10/02/2012 - 01:06 | 2847478 Dr Benway
Dr Benway's picture

He implied that real purchasing power can be guaranteed by TIPS as they have an 'inflation hedge', and so he is dismissing both a US treasury default and a currency collapse.

Tue, 10/02/2012 - 01:24 | 2847487 TheSilverJournal
TheSilverJournal's picture

bond bubble credit bubble housing bubble bank bubble deposit bubble fiat bubble government bubble social security bubble medicare bubble medicaid bubble food stamp bubble service sector bubble bond bubble credit bubble housing bubble bank bubble deposit bubble fiat bubble government bubble social security bubble medicare bubble medicaid bubble food stamp bubble service sector bubble bond bubble credit bubble housing bubble bank bubble deposit bubble fiat bubble government bubble social security bubble medicare bubble medicaid bubble food stamp bubble service sector bubble bond bubble credit bubble housing bubble bank bubble deposit bubble fiat bubble government bubble social security bubble medicare bubble medicaid bubble food stamp bubble service sector bubble 

Tue, 10/02/2012 - 01:26 | 2847494 Bear
Bear's picture

I had difficulty reading your post ... too bubbly

Tue, 10/02/2012 - 07:41 | 2847727 Sofa King Confused
Sofa King Confused's picture

You forgot MR. BUBBLE

Tue, 10/02/2012 - 03:55 | 2847587 Urban Redneck
Urban Redneck's picture

PIMPCO was pimping TIPS.

They have a seat at the table.

Tue, 10/02/2012 - 01:30 | 2847501 Bear
Bear's picture

Silver will make more run at 32, then off to the races. It has gone up a little too far too fast, one more selloff to purge weak holders and then on to year-end.

Tue, 10/02/2012 - 01:34 | 2847503 TheSilverJournal
TheSilverJournal's picture

My guess is $40 by Friday. Feels like it's ready to pop. Prob $80 by January.

Tue, 10/02/2012 - 00:14 | 2847416 TheSilverJournal
TheSilverJournal's picture

China will end up with most of the gold.

Tue, 10/02/2012 - 06:21 | 2847653 misnomer00
misnomer00's picture

indian citizens own more gold than the FED's reported numbers. various statistics put the private gold holdings between 15000-25000MT.

you will not believe the amount of gold any middle class family in the southern states of India hold. I was dumbfounded when I accidentally got a look at the safe of one such family (he owed me some cash).

and silver too, mostly in the form of cutlery and utensils.

Tue, 10/02/2012 - 00:16 | 2847418 TheSilverJournal
TheSilverJournal's picture

The purchasing power of silver will increase by at least 30X.

Tue, 10/02/2012 - 00:16 | 2847420 TheSilverJournal
TheSilverJournal's picture

Gold will hit at least $10,000 in real terms.

Tue, 10/02/2012 - 05:41 | 2847575 Al Gorerhythm
Al Gorerhythm's picture

" Globally there are roughly $12.5 trillion in physical and electronic currency reserves. Given that there are 155,000 metric tons of gold above ground, this equals an approximate price of $2,500 per ounce if all of the world’s reserves were to be backed by the entire stock of above-ground physical gold."

Your prediction is closer to the mark than what these guys claim. They conveniently ignore the elephant in the room, namely; the yet to be printed $1.4 quadrillion derivative mountain. All that theirs would accomplish is a fractional reprice of their capital base, our money (ouch, for dollar savers).

Tue, 10/02/2012 - 13:58 | 2847668 kreso
kreso's picture

Dear Sir,

You're probably correct that $2,500 per ounce corresponds to roughly $12.5 trillion of M0 and M1 aggregate.

And all kind of securities on top of M0 and M1 aggregate will amount to $1.4 quadrillion. The point is that, when money crises starts, money pyramide will have to move from coins/notes/electronic money onto gold. This transition period will increase the value of gold, until the pyramide is moved onto gold. When this gold rush starts, we will enter very geo-politically unstable situation. A rational governments would in this case, try to prolong the transition period... And that is the subject on which most of western think tanks should work on.

Kind Regards,

Tue, 10/02/2012 - 00:17 | 2847422 TheSilverJournal
TheSilverJournal's picture

The silver/gold ratio will shrink to at least 10/1.

Tue, 10/02/2012 - 01:28 | 2847496 Bear
Bear's picture

Why?

Tue, 10/02/2012 - 01:30 | 2847500 TheSilverJournal
TheSilverJournal's picture

How won't it? Fiat's going to collapse. Where do you think all that wealth will flow?

Tue, 10/02/2012 - 02:02 | 2847528 Bear
Bear's picture

Understood, but why 10/1 ratio? Gold at 5,000, silver at 500? If so, a silver fork in my pantry is worth $500?

Maybe if bread is $22 / loaf on sale.

Tue, 10/02/2012 - 06:38 | 2847669 MillionDollarBoner_
MillionDollarBoner_'s picture

When gold and silver were used as money the ratio was somewhere around 16:1

Tue, 10/02/2012 - 06:45 | 2847673 malikai
malikai's picture

At 16:1, I convert half my silver to gold.

If by some miraculous catastrophe it goes to 10:1, I convert the rest to gold.

Tue, 10/02/2012 - 00:17 | 2847424 TheSilverJournal
TheSilverJournal's picture

Silver will hit at least $1,000.

Tue, 10/02/2012 - 00:50 | 2847462 THX 1178
THX 1178's picture

Silver is more rare than gold above ground. I expect the ratio to invert (if only temporarily).

Tue, 10/02/2012 - 00:59 | 2847466 Dr Benway
Dr Benway's picture

No it is not. This is a compete furphy. There is several times as much above-ground silver as gold.

Tue, 10/02/2012 - 01:01 | 2847471 TheSilverJournal
TheSilverJournal's picture

Probably about 3X more above ground silver than gold.

Tue, 10/02/2012 - 01:03 | 2847473 TheSilverJournal
TheSilverJournal's picture

About 8B oz of gold and 20B oz of silver is my best guess.

Tue, 10/02/2012 - 06:46 | 2847675 malikai
malikai's picture

How much above ground paper silver is there?

Tue, 10/02/2012 - 04:34 | 2847606 Gringo Viejo
Gringo Viejo's picture

In 2042.

Tue, 10/02/2012 - 00:18 | 2847426 TheSilverJournal
TheSilverJournal's picture

Bonds and currency will become worthless, and housing will fall 75%

Tue, 10/02/2012 - 01:37 | 2847505 vato poco
vato poco's picture

Y'all might be right about the details of this; maybe even the timing too. All *I* know is, I'm gonna follow Bismarck's dictum of "Never believe anything until it has been officially denied". (see: Benghazi attacks, radically "fewer" military absentee ballot requests...) Following that, I'm gonna buy the stuff that western governments are trying hard in ways both loud and subtle to _keep me from buying_: PM's. If they don't want me to have any, I want it. Gold, Freedom, weapons, PGP, videotape of the cops assaulting women, capacity for critical thought......all frowned on by TPTB. So fuck those guys!

Tue, 10/02/2012 - 08:08 | 2847788 DanDaley
DanDaley's picture

I hereby officially deny everything you just wrote.

Tue, 10/02/2012 - 00:21 | 2847430 TheSilverJournal
TheSilverJournal's picture

Equity shares will fall at least 75% in real terms.

Tue, 10/02/2012 - 00:24 | 2847434 AgShaman
AgShaman's picture

Call it a hunch...but I'm guessin' you like silver?

Tue, 10/02/2012 - 00:28 | 2847438 icanhasbailout
icanhasbailout's picture

I'd call him an obsessive nut but everything he said looks quite reasonable to me.

Tue, 10/02/2012 - 02:33 | 2847548 The Shootist
The Shootist's picture

The Silver Journal's going crazy tonight and I'm loving it!

Tue, 10/02/2012 - 00:34 | 2847445 Oh regional Indian
Oh regional Indian's picture

Gold ONLY works in large concentrations. Like for Nations or banks.

The "true" story of gold is slowly but surely un-folding now, EUphoria aside.

It's not all that. 

For the "physically" minded, it's a strange attractor...

ori

shattering-midass-curse-gold-de-spell-ed

Tue, 10/02/2012 - 06:07 | 2847642 Vlad Tepid
Vlad Tepid's picture

Where I happen to be living right now has a massive collection of working Indians.  The gold markets are literally overflowing with gold accoutraments - some of them, not so much necklaces as breastplates.  I've seen 22k gold crowns.  Is there something the rest of the Indian population knows that you don't?

As an aside, I will buy the first 22k codpiece I come across.

Tue, 10/02/2012 - 06:29 | 2847660 misnomer00
misnomer00's picture

We Indians are born short Gold and have to keep covering our shorts throughout our life.

Tue, 10/02/2012 - 07:10 | 2847686 boatman
boatman's picture

more up to date REAL inflation gold price charts

http://inflation.us/charts.html

Tue, 10/02/2012 - 02:21 | 2847542 Peter Pan
Peter Pan's picture

PIMCO has erred to the downside because the inflation figures it uses are the dumbed down rates used to exaggerate real GDP increases and to rip of social security receipients when the time comes for increases. Therefore the real inflation rate is much higher than the published rate.

Wed, 10/03/2012 - 00:26 | 2850898 RockyRacoon
RockyRacoon's picture

You're saying that accurate conclusions can only be drawn from valid data.  I'll agree.

PIMCO is headed for some trouble...

Tue, 10/02/2012 - 04:23 | 2847600 TWSceptic
TWSceptic's picture

Human stupidity? I believe that applies to paper currency, not gold. Money (way to store value) has to have specific properties, gold happens to have most of them. Therefore it's the best commodity to be used as money. Rogers sometimes says crazy things when he's on camera.

Mon, 10/01/2012 - 22:13 | 2847214 flacon
flacon's picture

"potentially superior" to paper money.... yeah.... *potentially* my ass! I use paper to wipe my ass! 

Mon, 10/01/2012 - 22:26 | 2847240 whatsinaname
whatsinaname's picture

Mihir Worah's PRRIX has actually outperformed BG's PTTRX. What is the secret recipe ? MBS also or some other ingredients ?

Mon, 10/01/2012 - 22:14 | 2847218 vinayjha
vinayjha's picture

GOld and Silver were first things to sell off in 2008 crash and first to recover

http://www.freefdawatchlist.com/2012/10/stocks-for-oct-2nd-aapl-fas-jpm-halo-clb.html

Mon, 10/01/2012 - 22:19 | 2847226 markmotive
markmotive's picture

For non-US investors pricing gold in certain foreign currencies, the downside was far less.

How gold performs during a financial crisis: http://seekingalpha.com/article/295567-how-gold-performs-during-a-financ...

Mon, 10/01/2012 - 22:15 | 2847219 Parabolic
Parabolic's picture

Here's a TIPS:  if you dont have it, you dont own it

Mon, 10/01/2012 - 22:17 | 2847223 Bansters-in-my-...
Bansters-in-my- feces's picture

I would love to give Ben Bernanke a Golden Shower.

Mon, 10/01/2012 - 22:17 | 2847225 Insideher Trading
Insideher Trading's picture

This is the ugliest piece of shit I've ever read.

Mon, 10/01/2012 - 22:18 | 2847229 Hulk
Hulk's picture

"potentially superior to fiat currencies" Are you fucking kidding me ???

Mon, 10/01/2012 - 22:23 | 2847234 markmotive
markmotive's picture

A rational person wouldn't make such a blanket statement that one is better than the other. Gold is a better long-term store of wealth, but it's not great for making every-day transactions.

However, I think jewels have some benefits too.

Tue, 10/02/2012 - 00:02 | 2847400 CvlDobd
CvlDobd's picture

No. How many people do you know that could look at a jewel and have the slightest clue as to its worth? The market woul be dominated by the insiders and people would quickly abandon it. Gold, silver, fiat currencies are successful because people believe they aren't controlled by a small group of insiders, no matter how untrue that may be.

Tue, 10/02/2012 - 07:09 | 2847685 markmotive
markmotive's picture

Jewels are a more compact store of wealth - you can store millions of dollars worth in your shoe.

I know this is the wrong audience to say that paper money actually does serve a purpose. Very difficult to make small transactions (e.g. buying a chocolate bar) using gold. Even if physically possible to shave off some gold, it's tough to measure.

I'm saying each has its pros and cons.

Tue, 10/02/2012 - 08:06 | 2847784 ParkAveFlasher
ParkAveFlasher's picture

So, what's the above-ground supply of diamonds?

Right.

Gold, bitchez.

Tue, 10/02/2012 - 15:13 | 2849305 Amagnonx
Amagnonx's picture

There seems to be no technical reason why pure gold leaf cannot be set in resin, or simply pressed inside a paper note.  1/20th oz of gold is worth around $88 at the moment - and even that amount of gold could be physically placed into a paper note.

 

I think that gold isnt at all too heavy for using for small transactions - many nations now use plastic notes, and gold leaf can easily be imbedded into them for true value.  A $10 note would contain less than 0.2 grams of gold - current $10 bills weigh around 1g, so its not a big deal weight wise, and for a $100 bill that would increase the weight from 1g, to just under 3g - again not a big deal when you are talking about actually having real gold in your money.

 

The other reasonable option is to use electronic cards that are loaded from a gold or silver account - so long as the recipient also has such an account, the metal can be transferred using a debit card, or a cash card - again so long as you pay for the gold, and the gold is allocated to your account.  With all the fraud going on these days, and the lack of trust this probably won't fly anytime soon - but if the law came down hard on fraud (in some future world) - it is entirely reasonable to use plastic cards to transfer gold between accounts.

 

Jewels such as rubies have a flat price per carat, but diamonds for example change in value greatly depending on size and quality - they are not fungible.

 

 

Tue, 10/02/2012 - 07:13 | 2847688 markmotive
markmotive's picture

 

 

Mon, 10/01/2012 - 22:27 | 2847236 trembo slice
trembo slice's picture

The potentially superior comment nearly ruins the article.

Mon, 10/01/2012 - 22:26 | 2847238 A Lunatic
A Lunatic's picture

Right now nothing is what it seems........

Mon, 10/01/2012 - 22:32 | 2847244 Toxicosis
Toxicosis's picture

Once again GOLD is NOT an inflation hedge!!  It is the counter-currency to fiat money, it is the counter-currency to fiat collapse.  Why the fuck are central banks in multiple countries buying up the GOLD, cause they damn well know they caused this collapse and are prepared to steal as much of the new and inevitably only money that soon as hell is going to matter.  None of this is a coincidence, and the general public will be decimated as the criminal cartels and sociopathic privileged assholes give it, and hard, to the majority.  I would never hold GOLD as some friggin inflation or deflation hedge.  When the fiat system stinks of collapse that's why you hold this fucker.  And of course lots of glittering silver stuff too.

Tue, 10/02/2012 - 01:57 | 2847527 Pinto Currency
Pinto Currency's picture

 

As a "counter-currency to fiat money" gold and silver protect against paper money being inflated away (i.e. an inflationary collapse).  So it is an inflation hedge.

 

 

Tue, 10/02/2012 - 04:36 | 2847607 Debugas
Debugas's picture

in other words GOLD is not a hedge against inflation but a hedge against hyperinflation (or a risk of such calamity)

Mon, 10/01/2012 - 22:32 | 2847246 zorba THE GREEK
zorba THE GREEK's picture

I've been buying both gold and silver since 2001 to keep from

losing the value of my savings. I would have been more than happy

to double my investment in that time. I have done much better.

It now appears that PMs are poised to move much higher. If I was not

invested in PMs at this point, I would be buying physical at an excellerated

pace. I sure sleep like a baby every night. 

Mon, 10/01/2012 - 22:38 | 2847252 BandGap
BandGap's picture

Silver is a much better hedge.

Mon, 10/01/2012 - 22:40 | 2847253 ultimate warrior
ultimate warrior's picture

Gold and Silver will reign supreme when the collapse is over and we as a country have truly recovered. If one can hold on to  the precious you will be able to buy any and all assets on the cheap. This is when fortunes will be made. Patience, luck and timing is what is important. In the meantime keep stacking PB, AU, AG, and food. We are about to crash but you still have time to buckle up.  

Mon, 10/01/2012 - 22:46 | 2847262 GoodMorningMr.V...
GoodMorningMr.VanRumpoy...'s picture

Rothschild owned (and former edited by the lord of the Redshield himself) The Economist Magazine, laments the resilience and the bounce back of BitCoin after last year's take down.

See article "Monetarists Anonymous" here: http://www.economist.com/node/21563752

Reading-between-the-lines: The article opens with the quote "give me control of a nation's money supply and I care not who makes the laws," and decries the fact that bitcoin is decentralized with no central issuing authority to co-opt, take control of, and base a pyramid of power off of. In the print edition it's next to a small article "Currency Protests Money talks", which talks about how money is also a means to communicate a message to citizens through the use of Symbols.

see: http://www.economist.com/node/21563757

Between-the-lines: they are worried a mass transition to something like bit-coin will mean less people will use their federal Reserve notes and get the symbol of the "illuminated" pyramid with all-seeing-eye on top, imprinted in their subconscious.

Money no longer power? not in the sense it use to be. Bit coin is here to stay.

Welcome to the new paradigm lord Redshield! The game is about up. Perhaps I should just call you red shield as you are rapidly being dethroned with each passing day...

Mon, 10/01/2012 - 23:00 | 2847293 Aguadulce
Aguadulce's picture

Fred "The Ogre" Palowakski, Alpha Beta: [screaming] Nerds!

Mon, 10/01/2012 - 22:44 | 2847263 Monedas
Monedas's picture

PIMPCO ?  That's the name I wanted for my thriving escort service !  Shit !          "Some people like gold .... some people like fiat .... some people like to make love to a woman .... when she's relaxed and cooperating .... some people like to sniff girls bicycle seats .... I cannot respond for the likes and dislikes of all humanity .... I'm just a fly on God's garden wall !" .... Reflection attributed to Monedas 1929

Mon, 10/01/2012 - 22:46 | 2847269 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

Monedas for President !

(Even better would be monedas de oro...)

Mon, 10/01/2012 - 22:43 | 2847264 DoChenRollingBearing
DoChenRollingBearing's picture

Gold has been a store of value for over 4000 years.

My views, unlike PIMCO's, are NOT nuanced.

Those who have no gold are missing the BEST single diversification you can make in your holdings.  I do not know if gold will get to $55,000 (I suspect that it will), but even the mainstream money managers (PIMCO!) usually have no problem with having 5% - 10% in gold.  Physical in your possession only.

Mon, 10/01/2012 - 23:09 | 2847311 Monedas
Monedas's picture

When I'm president, Do Chen, you will get the contract to change out all the toilet lid hinges in the White House with roller bearing hinges .... I hate squeaky toilet seats .... I am a very private person in these matters !

Mon, 10/01/2012 - 23:21 | 2847329 Mr. Fix
Mr. Fix's picture

Too funny............

Mon, 10/01/2012 - 22:44 | 2847265 Dr. Gonzo
Dr. Gonzo's picture

Just spent over 10k on gold and silver today. Lovin it! Think I'll buy an oz of gold over month til I croak.

 

"I liver for my dreams...and a pocket full of gold." ...Led Zepplin

Mon, 10/01/2012 - 23:14 | 2847314 Votewithabullet
Votewithabullet's picture

"There's a lady who's sure all that glitters is gold and shes buying a stairway to heaven." ... Lead zepplin

Mon, 10/01/2012 - 23:24 | 2847333 Bay of Pigs
Bay of Pigs's picture

You've been bashing gold a very long time Vote. You still peddling your flawed theories on gold over at Mish's joint?

Tue, 10/02/2012 - 08:48 | 2847898 Al Gorerhythm
Al Gorerhythm's picture

Leads with his jaw.

Mon, 10/01/2012 - 23:45 | 2847371 Alpo for Granny
Alpo for Granny's picture

I don't always correct spelling, but when I do, I correct the spelling of Led Zeppelin.

 

 

Mon, 10/01/2012 - 23:56 | 2847391 AgShaman
Tue, 10/02/2012 - 00:40 | 2847453 Oh regional Indian
Oh regional Indian's picture

Zep were satinist mind-controllers who made great music.

Listen at yoru own peril.

Wailing man, messages messages, backward and forward.

ori

Tue, 10/02/2012 - 00:51 | 2847463 CrockettAlmanac.com
CrockettAlmanac.com's picture

 

 

Many dreams come true and some have silver linings
I live for my dream and a pocketful of gold.

 

http://www.youtube.com/watch?v=o-tT62bpYlU

Tue, 10/02/2012 - 01:00 | 2847467 AgShaman
AgShaman's picture

I don't have time to get wrapped up in the politics of beings I'm not in direct commune with. All I know is my snowboard works well jammin' to their tunes.

....'fanks' for the warnin' tho

Tue, 10/02/2012 - 01:12 | 2847480 James
James's picture

There's a lady who's sure all that glitters is gold and shes buying a stairway to heaven." ... Lead zepplin

When she gets there she knows, if the stores are all closed,with a word she can get what she came for.

(see the difference in meaning?)

 

What's w/you trolls?

I'm seeing more and more lyrics taken out of context.

The other day on a thread a poster did the same quoting Aerosmiths "Dream on"

That's all he wrote concerning Ron Pauls viability.

Here is the full length version.

Dream on

Dream on

Dream on

Dream until your dream comes true!

Quite abit of difference would'nt you say?

Mon, 10/01/2012 - 22:54 | 2847278 FutureShock
FutureShock's picture

I have not seen hardly anyone talk down Gold recently, especially in the mainstream. EVERYONE is Gold is higher and what happens when EVERYONE is leading one way?  

Long term - yes it goes up but when Sorros got in a couple weeks ago with perfect timing with paper gold, you can bet your ass he will pocket some fiat. I am expecting/hoping for a big dip, it always happens when everyone is leaning the same way. 

We should be back at $1900 by now with openended QE - manipulated like everything else.

Mon, 10/01/2012 - 22:54 | 2847280 BandGap
BandGap's picture

So, when do the "are you kidding me" statements stop? Listen up (assholes), PIMCO is part of the problem too. Everyone wants to make money, shit gets spewed.

Know what you know as right, find other like minded individuals, act accordingly. Simple enough.

Mon, 10/01/2012 - 23:01 | 2847281 DavidPierre
DavidPierre's picture

 

 

Gold Standard?

Forbes magazine ...

 "Signs of the Gold standard are emerging from Germany".

Jenns Wedemann, president of the Bundesbank gave a speech last week warning of the follies of fiat money and the virtues of Gold as a monetary foundation. That very same day, Deutsche Bank, Germany's largest, came out with a paper on the same subject.  It is important to understand the timing and the venue.  These were reported on by Forbes, a mainstream U.S. and global publication, the speech and paper were from Germany's largest bank and the central bank.   This was not put forth by some tin foil hat wearing hack.  No this was done officially and should be ignored only at your own risk.

Why? 

Has Germany asked for an audit of their Gold held in New York?

Why does China continually purchase Gold from the rest of the world while mining new Gold which stays put within their borders?  Why has Russia been accumulating Gold.  Why are Russia, China, Brazil, India and others even including Mexico doing trade deals that specifically EXCLUDE the use of Dollars for settlement? 

The answers to all of these questions are basically the same and pretty obvious. The world knows.  They know that the Dollar is becoming more unstable and less valuable as every day passes. In fact a deal has already been done.

Right around the time that QE 1 was hatched and announced, the wheels were set in motion.  These countries understand that at some point the grand monetary Ponzi scheme would end ... end very badly.  They did not pull the plug immediately because they wanted to exchange some of their "reserves" that they had and accumulate more Gold.  It has been in their best interests to do this because they have been able to accumulate artificially cheap Gold with the aid of the U.S. and UK suppressing prices to prolong the game.  Time, price and supply has been provided by the core of the West.  The world has taken advantage of it.

European nations, Britain and the U.S. are financially untenable business models and the plug is ready to be pulled.  The Swiss stair-step action in Gold is ready for a markup.  The markup phase will benefit the rest of the world as trade is concerned.  This markup phase could be the absolute death knell for the US and it's fiat allies as trade settlement may just require real money. 

This is a war ... a financial war.  For years, the U.S. and Britain (Canada and Australia) have divested Gold onto the market to prolong their financial world dominance.  This talk of a Gold standard, which was done at a very high level and public fashion, is the opening salvo of WW III.

A markup in the price of Gold is the only way to fix and reliquify various central banks.  Once this first markup takes place, "show me the Gold" will come about.

The U.S. "supposedly" has over 8,000 tons.  The world will want some sort of evidence of this.

The U.S. knows all of this.  They also know that when a sovereign bankruptcy occurs, rarely if ever does it happen peacefully.  This is the reason for all of the recent executive orders and new NDAA laws.  They have been put in place anticipating what they know is about to happen.  A suggestion!  Since you are also aware of this, PREPARE FOR IT!  Do not wait until CNBC or network news tells you "it's on"!

Prepare now!

Do it ... do it quietly and do it peacefully without fighting the crowds to do it.

The "tin foil hat society" has been right.  We have been correct, and correct for the correct reasons.  You have had smoke blown up your butts since the late 90's with the internet fiasco.  You have been lied to, misled and treated like morons all along the way.  Please, heed this advice now.  

There is no way that those who have called this thing correctly all along will now suddenly be wrong.

Don't "hope" that the smokeblowers will be right, they won't be and they do not have your best interests at heart anyway. THINK for yourselves now because it will very soon be "every man for himself"!

 

http://www.lemetropolecafe.com

Mon, 10/01/2012 - 22:55 | 2847283 GRsilverking
GRsilverking's picture

I never even thought about PIM suggesting anything PM related. Nuf said

Mon, 10/01/2012 - 23:05 | 2847302 robertocarlos
robertocarlos's picture

I'm not deep or religious. No doubt gold has some value. 

Mon, 10/01/2012 - 23:14 | 2847318 ebworthen
ebworthen's picture

GOLD Bitchez!

(In case someone hasn't said it yet).

Tue, 10/02/2012 - 03:38 | 2847582 Likstane
Likstane's picture

SILVER Bitchez!

(Just in case it didn't get said also)

Mon, 10/01/2012 - 23:39 | 2847360 funthea
funthea's picture

PIMCO speaks of a return to the gold standard with statistics such as 12.5 trillion  in currancy reserves against 155,000 metric tonns of gold. This math may work, but obviously this implies all currancies jump on board or revert to a one world currancy.

Problem is we have all seen this before, confiscation. Fool me once, shame on you. Fool me twice shame on me. No I suspect you would only be able to confiscate half of the gold from the large vaults. The other half, owned by individuals, would all have boating accidents.

Tue, 10/02/2012 - 00:49 | 2847459 ebworthen
ebworthen's picture

That damn stuff is heavy, and makes such a pretty glitter in the water as it flutters down...

Mon, 10/01/2012 - 23:44 | 2847367 AgShaman
AgShaman's picture

"Johnny Come Lately, meet Mr. PIMPCO"

"Mr. PIMPCO, JCL will show you around your new digs here at the WMSBDB"

"as always, converted wannabes and  sell-outs are welcome here...at the Popcorn Theatre, enjoy your stay with us"

Tue, 10/02/2012 - 00:25 | 2847435 walküre
walküre's picture

I get the argument and I obviously prefer phys over anything but he's got me baffled on the China angle. Data from China is pointing to a severe contraction and all the horror stories we read here over the last 4 years including ghost malls and ghost cities which are still unoccupied are merely scratching the surface. China's recession has fully engulfed the periphery and what they refer to as 3rd and 2nd class cities where vacancies are rising, rents and leases are decreasing. In a sense what happens in the European periphery is transferable to the Chinese economy. 1st tier cities Shanghai and Beijing are largely unaffected due to status, trade appeal and political importance.

As much as the Chinese are traditionally perhaps understanding global currency debasement and would like to purchase gold as a store of value, I don't think they can buy as much as they'd like given their difficult economy.

What effect will softer demand have for the price of gold and gold producers despite all these liquidity "actions" by central bankers around the world? Keep in mind that the gold price you see is just as manipulated as the price of any other commodity. Demand or supply issues be damned.

Tue, 10/02/2012 - 05:55 | 2847640 _underscore
_underscore's picture

Well, China must be in pretty dire straits if it can't afford to buy (all) the gold it wants. It has ~$3T in dollar denominated reserves (of which ~60% USD, rest US bonds/similar). The only reason China doesn't simply blatantly hoover up all the gold now is that it could buy ALL the gold with its $ reserves, but in that process tank the value of the $ - so wouldn't then be able to spend the (considerable) remainder on buying up other commodities/resources/land etc.  If you think the Chinese can be tanked, in a command economy, by building 'empty' cities on very low value land with a popn. of ~1.3 billion & a govt. ability to direct resource & popn. where it wants, when it wants, then perhaps you're a little too stuck in notions of local democracy & planning 'debates' that stop the loop road being built because a few greater crested newts might get disturbed.

It's as plain as day that China is finessing the best value it can from its $ reserves - its quietly accumulating all the stuff it can without frightening the horses in the process.  Worried about Chinese exports? China has a middle-class greater in number than the population of the whole of N.America - plenty of untapped demand to go. The only real problem for the Chinese is to stop Humpty Dumpty falling off the wall because all the King's men won't be able to put him together again.

Tue, 10/02/2012 - 00:28 | 2847436 Bear
Bear's picture

Should Obama get elected, I think a lot of people are going to panic and look for alternatives to 'hide' their wealth before the banking system starts draconian oversight.  Gold buying is an absolute certainly when you realize that Social Security and or Medicare will have to be means tested.  $2000 gold by Dec 31, if BHO wins.

Also, if the inheritance tax appears to be reinstated by year's end there will be plenty of business in the physicals that might just cause a run throughout  the PM space.

Tue, 10/02/2012 - 05:52 | 2847637 DosZap
DosZap's picture

 Gold buying is an absolute certainly when you realize that Social Security and or Medicare will have to be means tested. $2000 gold by Dec 31, if BHO wins.Also, if the inheritance tax appears to be reinstated by year's end there will be plenty of business in the physicals that might just cause a run throughout the PM space.

Just ONE more reason to take ALL the funds out of your 401k's, and IRA's, and MM Accts, before Dec 31st.

Depending on your bracket, (Ex: 15%, your NEW tax rate on your withdrawals will be upped 10% off the top, to 25%.you pay an extra $5k tax on a $50k WD,after Dec 31st.).

Personally I am of a firm belief that they will seize ALL the 401k's, and IRA's, and MM Accts, and #1 minimum means test for SS/MC, and # 2, allocate your PRIVATE savings to you at retirement, depending on your average cost of monthly living expenses.(w/ an option for med emergencies maybe).

NO WAY, they are going to keep their hands off of 12 Trillion bucks.

AND, when you kick the bkt, the REMAINING funds, will NOT GO TO your family.

Bank It.

Tue, 10/02/2012 - 00:28 | 2847437 mendigo
mendigo's picture

I suspect that this round of qe is largely a bluff.
a populist action to carry obama through the election then it will fade away on some pretense

the other day I was ranting to a friend about how much this election suck and he (as a loyal conservative) commented that he suspects that obama is a communist as in a Russian plant and I realized that's the answer - it is not possible to accidentally arrive at two so completely inept candidates. our political system has been coopted by Russia how else can you explain the state of our government and media and nation.
did you watch Salt - a lame movie but that is the state of affairs except there's no good guy at the top and no happy ending

Tue, 10/02/2012 - 00:28 | 2847439 Newager23
Newager23's picture

Is the worm turning? This is the first time I can recall PIMCO touting gold. Currently gold is out of favor with nearly all of the investment community. Could this be a signal that the resistance is breaking down, and the run to gold is getting too hard to resist?

I keep seeing little omens, although we definitely have not seen gold move into the risk-off trade as yet. But I can sense that we are getting closer. Perhaps we need to see new highs before this happens. Once we get to $2,000 gold, the fear trade just might kick into gear. I saw that with silver when silver was approaching $50. There was a lot of talk about silver. I think that will happen again when gold passes $2000.

www.goldsilverdata.com (mining stocks)

 

Tue, 10/02/2012 - 00:31 | 2847443 Yen Cross
Yen Cross's picture

 O/T RBA cut by 25basis points.

Tue, 10/02/2012 - 00:34 | 2847446 knowshitsurelock
knowshitsurelock's picture

"PIMP" CO. is pimping gold now?   My memory might be a bit foggy, but isn't this the same bloke who was all loaded up on Treauries about a year ago?

The Pimp might be the best contrary indicator yet.  When everyone is talking gold, isn't it time to exit?

Tue, 10/02/2012 - 00:45 | 2847455 bullionbaron
bullionbaron's picture

Hard to take anything from PIMCO seriously, they are just turning into hardcore Gold bugs ;)

 

http://www.bullionbaron.com/

Tue, 10/02/2012 - 01:01 | 2847470 leadingmarkets
leadingmarkets's picture

Gold has been on a breakout for several weeks now. I love charts, I found a free live charting platform at http://www.jetlifepennystocks.com/live-stock-chart/. This works on GLD too. Stockcharts, eat your heart out.

Tue, 10/02/2012 - 01:05 | 2847476 Bear
Bear's picture

Better at FreeStockCharts.com ... more options, same Worden source

Tue, 10/02/2012 - 01:23 | 2847492 honestann
honestann's picture

TIPS do NOT guarantee return of principle.  In fact, TIPS guarantee you will LOSE principle.  Why?  Because the CPI they are based upon is an absolute, complete, utter LIE and FRAUD... and everyone knows it.  Does anyone imagine that PIMPCO doesn't know this?  I thought not.

Tue, 10/02/2012 - 01:30 | 2847502 Cosimo de Medici
Cosimo de Medici's picture

From gold "is a barbarous relic" to "IS money" is a spectrum;  thus there are people in the middle.  Some of us in the middle see both fiat and gold as just faith based systems, since neither one is a necessity.  One may be infinite, and the other won't be until someone can find a low cost manner of removing it from seawater, but the use of either in a transaction requires faith on the part of both holder and receiver.

In a worst case scenario, i.e., a total collapse of society where production of most everything is cut to bare bones, if I am a person with arable land, water, fuel and protection, someone could give me access to Auric Goldfinger's storage room, ad I'd have no interest in carrying anything away.  It would be useless to me.  There would be nothing to buy I didn't already have, and those who had more of what I have would probably find shiny metals equally as useless.

At the risk of being a heretic, I view gold as a trade, nothing more.  In a non-worst case scenario world, I suspect there will be those who desire it, so having some to trade for something useful is prudent, but past a certain point of societal decline, gold and silver are as useless as fiat.

Tue, 10/02/2012 - 01:50 | 2847523 funthea
funthea's picture

Thou history would disagree.

Tue, 10/02/2012 - 02:36 | 2847551 Cosimo de Medici
Cosimo de Medici's picture

History?  You mean all those dead people?  Only in Chicago do they have the right to vote.  Half the fiats that ever existed are currently in use, being traded for food, Iphones, and Manolo Blahnik shoes.  Seven billion people swear by them, even if some do so begrudgingly.  Even those who advertise "PMs to da moon" will trade you gold or silver for fiat today at spot plus a gouge.

I'll trade it, keep a bit around for a rainy day, but never worship it or make it more than it is, which in a shiny (or easily tarnished) metal.

As for that George Santayana history about those who forget the past being condemned to repeat it, history contains BOTH fiat collapses and PM price collapses (Ag $48.50 to $3.25, 1980 to IIRC 1992).  I'll keep my mind open to the possibility of either one repeating itself, and hedge accordingly.

Tue, 10/02/2012 - 02:54 | 2847561 The Shootist
The Shootist's picture

You name two events from a 12 year period as evidence against the scope of all human history? I agree that pm's are a trade, and we're coming into a big cycle for them now. Money is a mean to an end.

Tue, 10/02/2012 - 10:05 | 2848077 funthea
funthea's picture

When all rational leaves the discussion, there gold and silver will still remain. It's a funny thing, the human psyche. There, the last gasps of desperation push men in peculiar ways, and their resolves always seem find common ground.

Tue, 10/02/2012 - 04:52 | 2847617 Debugas
Debugas's picture

you have a point: money is a concept in the minds of society members - it is what they are willing to work for (exchange fruits of their labour for the money) in faithful expectation that others will do the same in the future. However that conceipt can change with time (what people believe money is)

 

Tue, 10/02/2012 - 08:02 | 2847773 Amagnonx
Amagnonx's picture

What if there was something that someone else could provide that you wanted, but nothing you could really trade for it at that time?  Then it would make sense you trade gold, and if you later on had something they needed then you could again complete the trade in gold.

 

Money exists for a reason - it exists because people need to trade stuff today and tomorrow, and many things are perishable - gold isn't.

Tue, 10/02/2012 - 11:05 | 2848371 _underscore
_underscore's picture

What happens when you run out of those things? (the arable land excepted - although of course, you could lose that if the hired help didn't show up one dayetc.) Don't you think some PMs would be useful then?

 I'm not sure what sort of fin de siecle you envisage, but I'm sure some sort of barter soceity would emerge - and barter beyond the direct swap of eggs-for-bacon/whatever. And if things do get beyond a situation where govt. fiat is accepted, what might be useful for situations where it wasn't practical (nor practicable) to haul a bag of wheat to the nearest market? I'm sure someone would come up with some kind intermediary form of exchange (maybe we could call it 'gold' for example..) that would quickly find an equitable exchange rate based on relative scrcrity/abundance of the tradeable good.

I think you'd be very short-sighted indeed to pass up Auric's storage room or today's equivalent, $1770 per TOz from the local coin shop (supplies still available I believe).

 

 

Tue, 10/02/2012 - 01:42 | 2847509 Bluntly Put
Bluntly Put's picture

Dollars, euro, yen and other currencies can be deposited to receive interest, and this rate of interest is meant to compensate for the decline in the value of paper currencies via inflation.

Hmm I thought interest rates were set by the markets to price risk, not as a pre-determined compensation for monetary debasement, lol.

However, in inflation-adjusted terms, gold is 12% below its 1980 peak.

Using what numbers for inflation, "official fed" numbers for inflation? You don't think they might fudge those numbers or perhaps use elements of the shadow banking system to "absorb" inflation from the real economy to make their printing more palatable? I think you have to look at the outstanding amounts of paper contracts for gold delivery versus actual gold in warehousing and potential production for the terms of the contract, if you did I think you would see a "slight" discrepency. The author must be an economics major.

Tue, 10/02/2012 - 01:53 | 2847525 chump666
chump666's picture

AUD (golds risk proxy) just tanked, still holding supports.  Australia's central bank cut rates, which is bearish - ala China crashing.  All and all, with QE infinity kicked in, ECB a rogue printing machine and BoJ a rogue nut-house, ZIRP acorss the board.  Risk was priced in hard, Aug/Sept major meltups.

Oct/Nov look like major meltdowns.  That would mean gold may sell hard too.

We could be due for a major liquidation trade (only USTs and USD are bid).

Then war.

 

Tue, 10/02/2012 - 06:29 | 2847659 DosZap
DosZap's picture

chump666

Oct/Nov look like major meltdowns. That would mean gold may sell hard too.

Doubtful, THIS time, and QE4 was just announced..........................so, print bitch,print.

Anyone dumping AGAIN, will quickly find none available when ready to get back on the bus.

The physical mkt, is starting to really shrink..............

Tue, 10/02/2012 - 02:22 | 2847543 sink critically
sink critically's picture

As the market swings become more and more wild people will get nervous and look for a place to park their wealth which has the quality known as "intrinsic value". It's not that they are hoping to get rich so much as they are hoping to preserve their purchasing power. Since this is the generally accepted view gold and silver there will in all likelihood be extra value attached for popularity above and beyond intrinsic value. Even without the popularity premium, the intrinsic value insures that no matter how limited the purchasing power could become it will never be zero. On a long enough timeline the survival rate for gold exceeds all of ours.

Tue, 10/02/2012 - 02:26 | 2847544 Peter Pan
Peter Pan's picture

Has anyone ever tried wooing a woman with a fiat ring or fiat necklace?

I did once but that was a long time ago in kindergarten.

Tue, 10/02/2012 - 05:36 | 2847634 falak pema
falak pema's picture

blow her a kiss then kiss her to show you mean it. The best things in life stay free. Above and below the MAson dixie line of the human body. 

Tue, 10/02/2012 - 02:39 | 2847553 polo007
polo007's picture

http://www.forbes.com/sites/investor/2012/10/01/five-stocks-to-buy-for-bond-ageddon/print/

One hiccup of liquidity, where bond buyers pull back from lending the U.S. cash for nothing, and these bonds would be turned into dead president cash.

This freshly minted cash would then flee into hard assets, and off goes a new asset bubble.

But where will this cash go? Euros? Yen?

In fact, the cash has nowhere to go… it has to be sucked up by liquid assets. Stocks.

Equities in huge multinationals are a currency hedge as well as a good inflation hedge. Big stocks have plenty of transparency and a very long trading record.

So investors keen to position themselves to survive “bond-ageddon” should realise the place to look is the giant market cap goliaths–ones paying dividends.

Here are some to put in your portfolio if you think the dam of cash will break.

Kellogg, Exxon, Wal-Mart, Time Warner, Dow Chemical

What a boring list. However, boring will be very attractive when bond prices start to melt.

The timing is, of course, very tricky. These impossible situations can drag on and on long past a point you would feel it was possible for them to continue. The sign to watch for is when the Fed starts to take new corporate debt onto its balance sheet.

Then the final episode of the great unwind will have begun. Monetising corporate debt is the last throw of the reflationary dice and will signpost one last, desperate attempt to keep the old system alive.

Yet even when it does, the sun will come up in the morning and life will go on as if nothing is happening, such is the chronic way the world changes.

Tue, 10/02/2012 - 04:37 | 2847609 Notarocketscientist
Notarocketscientist's picture

But this time is different.   This is not the 'chronic' way the world changes.

We have a new world that was built on cheap oil starting a little over a century ago.  From food, to transportation to consumer goods -  almost everything in this world is made from or in some way uses fossil fuels.

There is no replacement - cheap or otherwise - for cheap oil.  And there is no more cheap oil - the moment we have a whiff of growth oil spikes well over $100 per barrel.  Remember when the Alberta Tar Sands were 'unfeasible' due to the high extraction costs?  Cheap oil is GONE.

So one might say, why can't we just go back to a pre-cheap oil world where economic and population growth was miniscule over centuries... http://worldhistoryforusall.sdsu.edu/images/Popn_Graph2.jpg

Unfortunately that is not possible because we have 7 billion people on the planet made possible by cheap oil.  And maintaining this population volume requires cheap fossil fuels.   Anyone who disagrees might research the green revolution in food - you will find that petroleum based fertilizers and pesticides were the core ingredients - there is no going back because essentially the soils of the earth are dead - remove the artificial additives and nothing will grow.

I am certain we will look back in the next decade or so and see that what we are experiencing now are the first symptoms of the impact of the end of cheap energy.  

No amount of stimulus or money printing is going to help because these policies do nothing to mitigate the real problem - the end of cheap energy.

So unlike previous financial crises in history, this one is completely different.  And it will not end.  In fact it will worsen as we eventually come to realize this is not another cycle but the end of the world as we know it.

The jobless rates we see now are nothing compared to what is coming - I believe that negative growth will snowball as the desperate money printing proves futile - as people lose their jobs the global economy will unwind - fewer consumers mean more job losses - no investment (as we are seeing now as companies hoard cash)

No one will be immune - we will have 7 billion starving people on this planet - and no way out of this prison.  Governments even in the most prosperous countries will be UNABLE to provide even the most basic needs for their people. 

I suspect we are going to see martial law across the world - but even that will not help - when you have billions of strarving people how do you control them? 

Without a doubt something wicked this way comes.

The big question is when?  

I do not think this will be a gradual process - once the dam breaks this will happen very quickly.  And the dam will break soon - something is going to trigger the end game - it could be a major revolt in an EU country that breaks the union and causes a cascading financial system bankruptcy - or a country such as Spain splinters - ultimately the fact that there is no growth and will be no growth going forward is what is going to be the trigger...  eventually people will say 'enough' and take action into their own hands.

Of course that will not fix anything - in fact it will be the spark that sends us into the dark ages.

The above is a best case scenario.  Worst case scenario?

Desperate countries take desperate actions - http://en.wikipedia.org/wiki/List_of_states_with_nuclear_weapons

 

 

Tue, 10/02/2012 - 02:50 | 2847554 orangegeek
orangegeek's picture

Regarding inflation in particular, we feel that the Federal Reserve’s decision to begin a third round of quantitative easing makes gold even more attractive.

 

Actually, gold priced in US Dollars goes up as the US Dollar Index falls.  Would be interesting to see US Dollars on the same chart as gold.  They run opposite to one another.

 

So what keeps the US Dollar down?  The Euro and the Yen strength primarily - together, about 72% of the US Dollar weighting.  So while Japan and Europe boom, the US Dollar remains low.

 

About 60% of world trade is in US Dollars - convert to gold?  Sure, why not.  See spot gold chart below.

 

http://bullandbearmash.com/chart/spot-gold-daily-september-28-2012/

 

The US Dollar is the key to watch - a low US Dollar keeps markets, commodities, particularly gold and oil up.  And what keeps a low US Dollar is a strong Euro and Yen.  Get it?

 

PS:  About 4T in US Dollars are traded in New York every day.  How much was QE this time around?  Riiiiight!!

Tue, 10/02/2012 - 04:36 | 2847574 Floodmaster
Floodmaster's picture

 

Gold sell signal ::

- Mortgage Rate hit 9%.

- 40 hours per week at minimum wage will rent a two-bedroom apartment.

http://takingnote.blogs.nytimes.com/2012/05/30/paying-rent-on-minimum-wage/

Private Bankers Association try to avoid denaturation with TIPS and other products for the naive, stocks with low or no yield are as dumb as private banks paper notes.

Tue, 10/02/2012 - 04:36 | 2847594 TWSceptic
TWSceptic's picture

TIPS are based on government inflation numbers which are unreliable to say the least. And who knows what may happen, the whole thing can collapse, a government default would mean a haircut for all lenders. You should not borrow a nickel to any government, if you do you are complicit to their criminal activities.

Just get into hard assets, commodity stocks, maybe some foreign currencies for cash etc. you'll do fine.

Tue, 10/02/2012 - 04:35 | 2847603 falak pema
falak pema's picture

One analogy I would like to make is between the historic price of gold and that of black gold. In 1980, the price of gold, along with the price of OIL achieved historic twin peaks in current $, as inflation was around 15%.

I know TDs have plotted the correlation of gold and oil in current value prices  and it would be nice to have that represented here again to see where that ratio is today; and more importantly where its projections lie in the current energy conundrum.

As, if the true value of gold is not as currency but as hedge, safe haven, then it will take its cue from two sources : inflation which measures the rate of fiat debasement and oil price which measures the price of the king commodity of our real economy.

Anybody have that graphical historic correlation and its projection into the murky future? 

Here is some historic analysis :

Incredible Charts: Gold-Oil Ratio

What does this tell us? 

Tue, 10/02/2012 - 06:33 | 2847662 DosZap
DosZap's picture

In 1980, the price of gold, along with the price of OIL achieved historic twin peaks in current $, as inflation was around 15%.

In my parts, it was closer to 20%.

CD's were paying 12%+.......................

Tue, 10/02/2012 - 08:01 | 2847772 falak pema
falak pema's picture

ok, but my point is watch the oil price to understand gold price; along with inflation. 

Of course, the current currency wars competing with fiat debasement of USD by Bernanke plays, complicate the understanding of the game; except that the fiat galaxy is heading to supernova incandescence.

Tue, 10/02/2012 - 06:34 | 2847663 DosZap
DosZap's picture

8

Tue, 10/02/2012 - 06:35 | 2847664 DosZap
DosZap's picture

stuplicate

Tue, 10/02/2012 - 04:38 | 2847610 Notarocketscientist
Notarocketscientist's picture

But this time is different.   This is not the 'chronic' way the world changes.

We have a new world that was built on cheap oil starting a little over a century ago.  From food, to transportation to consumer goods -  almost everything in this world is made from or in some way uses fossil fuels.

There is no replacement - cheap or otherwise - for cheap oil.  And there is no more cheap oil - the moment we have a whiff of growth oil spikes well over $100 per barrel.  Remember when the Alberta Tar Sands were 'unfeasible' due to the high extraction costs?  Cheap oil is GONE.

So one might say, why can't we just go back to a pre-cheap oil world where economic and population growth was miniscule over centuries... http://worldhistoryforusall.sdsu.edu/images/Popn_Graph2.jpg

Unfortunately that is not possible because we have 7 billion people on the planet made possible by cheap oil.  And maintaining this population volume requires cheap fossil fuels.   Anyone who disagrees might research the green revolution in food - you will find that petroleum based fertilizers and pesticides were the core ingredients - there is no going back because essentially the soils of the earth are dead - remove the artificial additives and nothing will grow.

I am certain we will look back in the next decade or so and see that what we are experiencing now are the first symptoms of the impact of the end of cheap energy.  

No amount of stimulus or money printing is going to help because these policies do nothing to mitigate the real problem - the end of cheap energy.

So unlike previous financial crises in history, this one is completely different.  And it will not end.  In fact it will worsen as we eventually come to realize this is not another cycle but the end of the world as we know it.

The jobless rates we see now are nothing compared to what is coming - I believe that negative growth will snowball as the desperate money printing proves futile - as people lose their jobs the global economy will unwind - fewer consumers mean more job losses - no investment (as we are seeing now as companies hoard cash)

No one will be immune - we will have 7 billion starving people on this planet - and no way out of this prison.  Governments even in the most prosperous countries will be UNABLE to provide even the most basic needs for their people. 

I suspect we are going to see martial law across the world - but even that will not help - when you have billions of strarving people how do you control them? 

Without a doubt something wicked this way comes.

The big question is when?  

I do not think this will be a gradual process - once the dam breaks this will happen very quickly.  And the dam will break soon - something is going to trigger the end game - it could be a major revolt in an EU country that breaks the union and causes a cascading financial system bankruptcy - or a country such as Spain splinters - ultimately the fact that there is no growth and will be no growth going forward is what is going to be the trigger...  eventually people will say 'enough' and take action into their own hands.

Of course that will not fix anything - in fact it will be the spark that sends us into the dark ages.

The above is a best case scenario.  Worst case scenario?

Desperate countries take desperate actions - http://en.wikipedia.org/wiki/List_of_states_with_nuclear_weapons

Tue, 10/02/2012 - 06:17 | 2847648 jabu
jabu's picture

Grow your own!  It's easy and takes little space.  I have 6 hens in about 40sq ft.  They produce nearly a dozen eggs a day.  My weeds are edible!  And nutritious.  See what grows wild in your region.  I bet 80% of it is edible and grows in vacant lots, and your own yard.  There is no reason any American should ever starve.  Food grows, even when you try your best to eradicate it.  I live in a desert.  There's tasty stuff growing here.

Tue, 10/02/2012 - 04:43 | 2847612 bentaxle
bentaxle's picture

All I know is the number of "pop-up," "we buy your gold" shops, stalls, etc have increased in the last 3 years round where I live. And they are staying open - not closing. In many respects this is worrying. As these retailers, in some cases, only pay out 50% of gold's actual value. So it's worrying the number of sheeple who are blissfully unaware, i.e in sufficient numbers to keep these places in business.

Tue, 10/02/2012 - 05:42 | 2847627 Anasteus
Anasteus's picture

In addition to the already mentioned gold also means a moral imperative requiring accountable attitudes and acts. It's a reliable compass toward a small but stable island of sanity surrounded by the overwhelming scam and mental sickness the world has so desperately fallen prey to. Owning gold demonstrably expresses a do-not-participate-in-the-scam standpoint in order not to be hit when all others will sober up facing the inevitable crash caused by general negligence, unaccountability and childish gullibility.

Tue, 10/02/2012 - 09:43 | 2848087 aerojet
aerojet's picture

Maybe, but when you buy gold at $1700+ per ounce, you are being scammed. 

Tue, 10/02/2012 - 11:09 | 2848335 Anasteus
Anasteus's picture

Maybe, but this time, fortunately, in my favor. If I were not I would have to be paying five times more.

Tue, 10/02/2012 - 06:37 | 2847666 PeaBird
PeaBird's picture

TIPS tend to be less volatile than gold and, if held to maturity, are guaranteed to receive their principal back – barring a U.S. government default (which we see as incredibly improbable)

Let's wait & watch, before believing such statements. BTW a hard default or a currency collapse leads to the exact same place.

 

Instead, gold should be thought of as a currency, one which pays no interest. Dollars, euro, yen and other currencies can be deposited to receive interest, and this rate of interest is meant to compensate for the decline in the value of paper currencies via inflation. Gold, in contrast, maintains its real value over time so no interest is necessary.

Even though I do not agree with doing such things in this climate of infinite re-hypothetication. Gold can also be deposited to receive interest. It can also be pledged as collateral in a covered call play, thus receiving a premium (i.e paper interest) for the call option writer. However, the writers of this article misses the point as to why gold pays no interest.

It doesn't have to pay interest because there is zero default risk. Paper currencies must pay interest, because paper currencies can default (i.e. collapse). In fact, history proves that eventually they all have. The interest paid on paper currencies is supposed to compensate for this potential default risk. Also, pyhysical paper currencies don't pay interest of their own accord either. You must deposit it into a bank account that pays interest in order to get interest. If it stays in your wallet or is stuffed into a mattress, then no interest will be paid. So, there is really no difference between a physical paper currency and physical gold. They both pay no interest of their own accord. One must do something with them (e.g. deposit them into an account) in order to gain interest.

Tue, 10/02/2012 - 09:42 | 2848081 aerojet
aerojet's picture

Interest paid has nothing at all to do with default risk.  What the hell are you talking about?

Tue, 10/02/2012 - 07:11 | 2847687 sabra1
sabra1's picture

PFG FOREX AND PHYZZ METALS ACCOUNTS RAPED 1 POSTED BY ANN BARNHARDT - OCTOBER 1, AD 2012 8:46 PM MST Good grief, this is awful. But not surprising. And look who is doing the raping . . . JP Morgan with an assist by RBS.

Just to be clear, what this means is that people who had CASH FOREX (not FOREX futures, but people who were trading the actual currencies themselves) and people who were trading PHYSICAL precious metals (gold, silver, platinum and palladium) through PFG are having 100% of their accounts permanently confiscated. Imagine that. JP Morgan confiscating bullion. I'm shocked. Knock me over with a feather. The next thing you're going to tell me is that the Rule of Law no longer exists and that the Republic is dead - overthrown in a neo-Stalinist putsch.

Tue, 10/02/2012 - 07:14 | 2847691 dns_di
dns_di's picture

When one considers fact that out of 155 000 tonnes of gold, say, 30% or even less is used for reserves, that would suggest that gold should cost 8000 at least or even more.

Tue, 10/02/2012 - 07:30 | 2847705 Miramanee
Miramanee's picture

You people are hilarious. You are sustained by your little anti-fiat, anti-central banking, feeding frenzies...and the best part is, you are NO DIFFERENT from the sheeple you purport to lord over intellectually. Same rear-brain "thinking", same mouth-breathing. You come to to ZH and huff and puff and vote "thumbs up to everyone who hates Ben Bernanke!!!" Wow. YOU are sheeple too!!!! You are sheeple to prophets of doom, just as others are sheeple to prophets of profit. Gold will go up; gold will go down. And the winners will ALWAYS BE Pimco, and Goldman-Sachs, and Mitt Romney....you people are, frankly, more obtuse than most.

Tue, 10/02/2012 - 08:18 | 2847812 Vlad Tepid
Vlad Tepid's picture

I didn't know that people had to PRACTICE ad hominem attcks to get better at them but apprently you do.

You content yourself with whatever you think will bring you financial succes and I'll content myself with mine.

(And you're forgetting that Obama is President Goldman-Sachs so how do both Mitt AND Obama win, unless they're on the same team.  That should give you something to think about as you roll around in Netflix stocks.)

Tue, 10/02/2012 - 08:02 | 2847758 Quinvarius
Quinvarius's picture

Duplicate post

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