Gold as an Investment - Final Thoughts
Your author is a big fan of the precious metals, both gold and silver. I have dropped enough pixels with my ideas on the "why" that I will not rerun all that now. I wanted to clarify any misconceptions of ideas any may have about my stance on the metals.
-I am not and have never implied or stated that anyone should run out and convert all of their wealth to gold. I think gold needs to be a part of any portfolio. As a fan of the metals, gold and silver make up about 20% of my investment capital and about 5% of my entire net worth. So in no way am I an all or nothing kind of thinker on this.
-Gold is a terrible "end of the world" play for all the reasons many have noted (Mark and others). If everything goes down, some metal coins or bars may have some value and use, but not really. I do not think the end of the world is coming. I prefer to think of an Argentina type currency issue instead. If you like the whole "end of the world" type thought exercise, take a trip to The Survival Blog and you can find some good stuff. Look, I live about 35 miles north of Boston, if the sh*t hits the fan I am screwed royally and unless I have a private army I will have to do the best I can.
Hope that clears things up.
Deflation and Inflation Wrap Up
I really liked my simplistic analysis of the common thread of both Deflation and Inflation. The comments section had plenty of great debate, and I would refer you there to see the discussion.
There is no doubt that deflation is going on right now. Nobody can argue otherwise, and if they do they are in a losing position. Mish noted Friday that "Flow of Funds Report Offers Hard Evidence of Deflation", and I totally agree. If any of my posts have implied that I thought inflation was an issue right now, then I am sorry for the confusion.
When I talk about inflation I am of course talking about the longer term. Next year and into the next 3 years I think we will see policies at work to make inflation happen. Remember, Ben Bernanke's whole claim to fame is his paper titled "Deflation: Making Sure It Does Not Happen Here".
While the system has been stabilized, deflation will rule the day unless more is done. Consider that:
-The Fed is about to get an extension of powers through which they will have even more room to bypass the US Congress. With no check on their activities, the academic elites may well have a real world blackboard (dry erase for you younger folks) to try out their silly Keynesian ideas.
So deflation is here to stay? Not if the leading thinkers on economics have their way. People like Paul Krugman are chomping at the bit for more stimulus. A new $4500 car buying credit is coming out. The new $15000 home buying credit is out, and will get bigger.
Still not convinced spending will be forced no matter the cost? Here are two respected economists asking, no begging, for more firepower to be deployed:
-Paul Samuelson; Fiscal Policy Must be Sustained
A key excerpt:
Back to some middle-term and long-term policy questions..., do you worry about the rising deficit and the potential risk of inflation? There's been a lot of articles on this in the past two weeks -- Paul Krugman and Niall Ferguson and others.
I think it would be surprising if, down the road -- not in the long long run but in the somewhat short run -- we don't have some return of inflation. On the other hand, I'm of the view that if we come out of this with some kind of temporary stabilization at least, and the price level is let's say 10-12% above what it was before we got into the meltdown, I think that's a price I would be willing to pay!
A 10-12% inflation end point is just dandy for this guy.
Mark Thoma: Don't "Nullify" Fiscal policy
A key excerpt:
As Brad DeLong notes, if it is the long-run budget you are worried about, ending the stimulus package, say, six months or a year earlier makes little difference to the long-term budget outlook. That being the case, and given the dangers of not doing enough and the dangers of ending the help too soon, why are we in such a hurry to end the stimulus package, and we are we so reluctant to consider doing more?
Not today, and not next week, but at some point panic will hit about deflation and a depression and then the money accelerator will be matted until something changes. It is at that point I envision a dollar crisis or other major event.
The Real Threat of Deflation
The real danger of deflation was revealed to me by a great comment over at the Seeking Alpha print of my last blog:
ejhickey writes;
Another question. If we are still going through deflation and deleveraging, then prices for most things should continue to fall. For anyone who has a lot of assets in cash, why bother to invest in stocks or bonds or anything that has a risk of declining in price? If the deflation theory is correct, a cash based non investor could increase his purchasing power simply by doing nothing. This would not only avoid risk but taxes as well. In the short, medium or long run this is the whole purpose of investing - increasing one''s ability to buy stuff.
ejhickey, thanks for the great insight.
Faced with a new thinking that cash must be preserved and risk shunned, just what do you think is going to happen to America's last industry, the banking sector? Do you think that the Goldman Sachs (GS) -Fed-JP Morgan (JPM) -Treasury cabal is just going to sit tight and watch it all unfold?
I think of the line from a Dylan Thomas poem:
"Rage, Rage Against the Dying of the Light!"
Savers are already being punished by obscene low rates on savings. Bond yields are as low as they have ever been. Risk free is also return free. The very system is being set up to dare you to reach for a return.
Now, I do not think the efforts will work, but I am sure they will try. It is when this process kicks into high gear that we will see the "major event" occur. But not this week.
