Look Who's Betting on Inflation 32 comments
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If you’ve been reading the popular press for the past 6 months, there’s been a slew of articles talking about deflation. I’ve been somewhat skeptical of the long term probability of deflation and have been investing in gold and commodities in anticipation of inflation. Looks like I was a little early to the game (which, on Wall Street is just the same as being wrong!).
Now however, it looks like we are warming up the printing presses and gold has hit $1,000 twice in a week in anticipation of future inflation. Legendary hedge fund manager John Paulson, who made $2.5 Billion last year from his trades, has been betting heavily on gold and his fund has nearly 50% of its assets in gold or gold-related investments like gold mining stocks and ETFs. The gold ETF, GLD reportedly makes up 30% of his fund! He has also taken a large 12% stake in AngloGold Ashanti (AU) making him the largest shareholder.
According to Reuters, this is not a bet on the company being acquired but rather a bet on inflationary pressures pushing up the price of gold. As opposed to the popular theory of rising prices being a cause of inflation, I like to consider it as an effect of inflation, which is caused by printing money, a side-effect of fiat currency. If you’re unaware about the effects of inflation and how it can ravage the economic (and social) structure of a society, I strongly recommend watching these excellent videos on hyper-inflation.
Another fund which has done well with the gold mining ETF is David Einhorn’s Greenlight Capital, which picked it up at the lowest point of last year and which has more than doubled its investment so far. They both join China in being bullish on gold. Between Paulson’s bullion dollar gold ETF purchase and China’s multi-billion gold bullion purchase, it’s no wonder gold prices have been trending upwards.
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This article has 32 comments:
The governments media blitz is deflation. The actual real time inflation for August is 5% plus.
Go figure, then place your bets.
Asia, Europe and Russia love gold, likely more than Americans.
> Ron Paul is an alarmist but (since I don't know that much about the
> markets) I think he's right.
You get 50% on that test... barely a "pass".
Ron Paul is not an alarmist, and he's right.
Got C-H-I-N-D-I-A ?
I don't buy into the hyper-inflation myth because I believe asset deflation is far more real as a systemic risk than people recognize. Inflation means that housing prices would have to go up in value over time which, if that were the case, most people would be happy to drink from the kool-aid once again.
To be in gold doesn't necessarily mean you believe it's going to $2,000 or $3,000 as infomercials on television have you think by pumpin' "semi-gold composite" coins!
To be that bullish on gold doesn't mean you're betting on inflation--it means you're betting on the collapse of the entire global economy. This strikes me as underestimating global policy that injected liquidity into the system. And if this were the case, it's not inflation or hyper-inflation that is the risk--it's a currency collapse!
Remember that all currencies trade relative to one another and with the entire global financial system in crisis, the U.S. dollar will hold up much better than people would have you believe.
And the real risk remains global in nature due to a domino effect, if one falls they all fall, so where would you rather be if decoupling doesn't realize itself?
Where would you rather be in currencies if the entire macro-economy worsened? Euros in a potential dismantling of the EU? Loons or Aussie dollars tied to commodity infrastructure demand--which requires bullish growth? Zimbabwean trillion-dollar notez?
The U.S. dollar is still the currency of choice when the world panics. And last I checked, it's hard as hell to buy groceries or gas with gold fillings and chains.
Night Cycles:
2001-2019
1965-1983
1929 - 1947
1893 - 1911
1857 - 1875....
Gold is scheduled to do well through 2019, deflation or inflation...with deflation being the most likely scenario.
On Sep 14 01:40 AM C.S. Jefferson wrote:
> Is it a bet on inflation, or strategic asset diversification to protect
> existing equity value? Gold doesn't have to move much higher to
> make diversification into AU a sound hedge as an asset manager, rather
> than an outright bet on the commodity driving ridiculously higher.
>
>
> I don't buy into the hyper-inflation myth because I believe asset
> deflation is far more real as a systemic risk than people recognize.
> Inflation means that housing prices would have to go up in value
> over time which, if that were the case, most people would be happy
> to drink from the kool-aid once again.
>
> To be in gold doesn't necessarily mean you believe it's going to
> $2,000 or $3,000 as infomercials on television have you think by
> pumpin' "semi-gold composite" coins!
>
> To be that bullish on gold doesn't mean you're betting on inflation--it
> means you're betting on the collapse of the entire global economy.
> This strikes me as underestimating global policy that injected liquidity
> into the system. And if this were the case, it's not inflation or
> hyper-inflation that is the risk--it's a currency collapse!
>
> Remember that all currencies trade relative to one another and with
> the entire global financial system in crisis, the U.S. dollar will
> hold up much better than people would have you believe.
>
> And the real risk remains global in nature due to a domino effect,
> if one falls they all fall, so where would you rather be if decoupling
> doesn't realize itself?
>
> Where would you rather be in currencies if the entire macro-economy
> worsened? Euros in a potential dismantling of the EU? Loons or
> Aussie dollars tied to commodity infrastructure demand--which requires
> bullish growth? Zimbabwean trillion-dollar notez?
>
> The U.S. dollar is still the currency of choice when the world panics.
> And last I checked, it's hard as hell to buy groceries or gas with
> gold fillings and chains.
On Sep 13 06:34 PM fireofenergy wrote:
> Ron Paul is an alarmist but (since I don't know that much about the
> markets) I think he's right. Makes me wonder why youtube removed
> his video (that I favorited). Perhaps we should all quit paying registration
> and insurance... and buy gold instead!
Despite the mythology of gold, it actually has virtually no correlation with the cpi, Gold has had long periods of negative return while inflation was positive ( 1980's).. The only period when gold has consistently done well is during recessions when the inflation recedes or actually goes negative.
And then in response to China and India's growth, which I don't doubt can remain in upper single digits, I think Philip Davis has a good perspective, "China and India, which account for roughly 40% of the world’s population, consumed about $2.5 trillion of goods and services. The US, with 4.5% of the world’s population, has $10Tn of consumer spending. A 10% drop in US consumption would need to be offset by a 40% increase in China and India’s consumption - it’s not going to happen, folks! Just this weekend, in Member chat, our main topic was dead and dying malls (anecdotes by members) and poor retail sales. China can’t keep manufacturing goods if no one is buying them - Economics 101."
Personally, I do not think that a Zimbabwe style runaway inflation is going to happen although inflation is in the cards if only because of all the printing going on. Deflation can easily happen also as the economy trys to run the narrow line between the two. On the other hand, Peter Lynch said many years ago "If you spend 13 minutes a year trying to predict the economy, you have wasted 10 minutes." I do not know if it actually matters if either one or both happen anytime soon. I have a balanced portfolio with Precious Metals, Bonds and Dividend-Paying Stocks with a record of 5+ years of paying them and I am comfortable and doing well over all kinds of markets with it over the years.
www.lewrockwell.com/no...
You made this crap up didn't you?
On Sep 14 01:40 AM Michael Clark wrote:
> Actually, buying gold IS NOT betting on inflation necessarily. Gold
> does very well during every Night-Cycle in American history:
>
> Night Cycles:
> 2001-2019
> 1965-1983
> 1929 - 1947
> 1893 - 1911
> 1857 - 1875....
>
> Gold is scheduled to do well through 2019, deflation or inflation...with
> deflation being the most likely scenario.
"Demand will fall more," Suresh Hundia, president of the Bombay Bullion Association, said. "Only those who are short will buy at these prices."
He estimated gold imports to fall to 350 tonnes in 2009 from 523 tonnes last year.
in.reuters.com/article...
According to Daman Prakash, a director with MNC Bullion, high prices have kept consumers away, with festival sales this year being 60%-65% below last year's sales.
In a glaring example of how high prices have hit demand, Chennai, a major market in southern India, is likely to import only around 1-2 tons of gold in the festival months of August to November compared with 6-7 tons last festival season. Average imports during the festival season has been 10-12 tons in previous years before poor demand hit imports since last year.
In the next three to four months, there are about 30 days Indians consider auspicious buying gold.
During the January-August period, India's gold imports fell to 91.6 metric tons compared with 261 tons in the same period last year, according to preliminary data from the Bombay Bullion Association.
online.wsj.com/article...
On Sep 14 09:17 AM Anthony B wrote:
> So, gold is going to decouple from other commodities? Possible short-term,
> but if gold is to remain that high commodity traders will move down
> to other commodities that are underperforming on their traditional
> price ratio to gold. At that point my previous comment is again
> important: "All this money is being pumped into commodities, but
> without wage inflation who is going to buy them. From Felix Salmon's
> article last week on depressing income stats: US median household
> income $51,295 in 1998, $50,303 in 2008."
>
> And then in response to China and India's growth, which I don't doubt
> can remain in upper single digits, I think Philip Davis has a good
> perspective, "China and India, which account for roughly 40% of the
> world’s population, consumed about $2.5 trillion of goods and services.
> The US, with 4.5% of the world’s population, has $10Tn of consumer
> spending. A 10% drop in US consumption would need to be offset by
> a 40% increase in China and India’s consumption - it’s not going
> to happen, folks! Just this weekend, in Member chat, our main topic
> was dead and dying malls (anecdotes by members) and poor retail sales.
> China can’t keep manufacturing goods if no one is buying them - Economics
> 101."
Additionally, in my opinion, M&As will become rampant and large companies, preying upon competitors' weaknesses, will buy them out, strip their customer bases and assets, and close them down. We will see major names drop from the indexes and some will even belly up from the lack of consumer spending. With the unemployment skyrocketing next year, the government will be forced to make drastic revisions to support the unemployed, increasing the burden on the dollar's value. The PMs will be the only safe recourse for such a scenario.
Gold, Au, is an element in the periodic table of elements, no room for differentiation there. Is your gold made from superior quality protons, neutrons, and electrons!
On Sep 14 02:33 PM Goods wrote:
> gold is NOT a commodity u ignoramus
These ideas are actually very old. Hindus write about Brahma breathing out the world, a time of expansion of the bubble of the world, and that was a 'Day of Brahma'; and then Brahma breathed in the world, a 'Night of Brahma'. Economic expansion corresponds to the Day of Brahma idea; economic contraction and depression correspond to the Night of Brahma idea.
Economic cycles in American history seem to correspond to 36 year cycles, 18 for a day, 18 for a night. Stocks do wonderfully during a day cycle, and gold does poorly; stocks do poorly during a Night-Cycle, but gold, historically, seems to do well.
The idea is that everything goes through a spring (a fertility), a summer (a growth), an autumn (a harvesting), and a Winter (rest). These are very old ideas, really -- and they are the basis of all religious philosophy.
www.hoalantrangallery....
On Sep 14 01:04 PM Maxe Paul wrote:
> What the hell is a night cycle? You are suggesting gold goes up at
> night? WTF are you talking about?
>
> You made this crap up didn't you?
But gold actually ran crazy at the end of this Night Cycle. Penny gold mining stocks went through the roof. Everyone wanted gold -- there was panic buying.
Here's a few examples of what happened in later 1970-80: Lion Mines, selling at $.07/share in 1975 was selling at $380/share in 1980. Bankeno: 1975, $1.25/share; 1980: $430/share. Wharf Resources: 1975, $.40/1980: $560. Steep Rock: 1975: $.93/share; 1980: $560/share. Azure Resources: 1975: $.05/share; 1980: $109/share. Only a strange, very abnormal market will see these kind of panic-buying returns: but we are now in another Dark Age Cycle and Ben Bernanke is trying to make sure that such buying panic comes in to the precious metals markets again.
I have charts of historical gold in Day/Night cycles at this instablog
seekingalpha.com/insta...
On Sep 14 08:54 AM Sterling Hayden wrote:
> You are actually betting on deflation even though you don't know
> it!
> Despite the mythology of gold, it actually has virtually no correlation
> with the cpi, Gold has had long periods of negative return while
> inflation was positive ( 1980's).. The only period when gold has
> consistently done well is during recessions when the inflation recedes
> or actually goes negative.
The thing to remember is that if the US$ declines in value relative to other currencies, gold will not rise in price when denominated in the stronger currencies. So, expectation of increased demand for gold in the U.S. is based upon an expectation that the US$ is going to drop. The investment in gold will simply allow the U.S. investor to retain his/her buying power as all other prices will have increased due to the lower value of the US$. That being the case, one could just as well be investing in other commodities for which global demand is expected to rise. In the end, relative price is really a product of supply/demand.
No problem, carry on.
On Sep 14 04:00 PM Michael Clark wrote:
> I've been writing about these ideas for some time and tend to forget
> that some people are new to this board. Here's a draft of a book
> I'm writing. It has the whole framework mapped out: the basic idea
> is that every living form passes through day and night cycles, as
> the earth does. Periods of activity, growth, expansion, empire, science,
> more masculine qualities -- this is the Day. And periods of rest,
> contraction, diisintegration, religion, more feminine qualities --
> this is the Night. Economic cycles do the same.
>
> These ideas are actually very old. Hindus write about Brahma breathing
> out the world, a time of expansion of the bubble of the world, and
> that was a 'Day of Brahma'; and then Brahma breathed in the world,
> a 'Night of Brahma'. Economic expansion corresponds to the Day of
> Brahma idea; economic contraction and depression correspond to the
> Night of Brahma idea.
>
> Economic cycles in American history seem to correspond to 36 year
> cycles, 18 for a day, 18 for a night. Stocks do wonderfully during
> a day cycle, and gold does poorly; stocks do poorly during a Night-Cycle,
> but gold, historically, seems to do well.
>
> The idea is that everything goes through a spring (a fertility),
> a summer (a growth), an autumn (a harvesting), and a Winter (rest).
> These are very old ideas, really -- and they are the basis of all
> religious philosophy.
>
>
> www.hoalantrangallery....
The herd is with the inflation call... look no further than market action. Don't pretend to be contrarian when the facts are otherwise. Inflation is the debtors dream... and we have a lot of debtors in this country. Do markets typically like to reward the crowd? No.