Nouriel Roubini, One on One: More Doom and Gloom 99 comments
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By Dave Nadig
Dr. Nouriel Roubini, professor of economics and international business at the Stern School of Business at NYU and chairman of RGE Monitor, is perhaps best known for his prescient predictions of the financial market collapse in 2005.
Dr. Roubini will be the keynote speaker at IndexUniverse’s upcoming “Inside Commodities” conference on Nov. 4 at the New York Stock Exchange. We sat down with Dr. Roubini ahead of the conference to take his temperature on global markets, the role of oil (NYSE: USO) and gold (NYSE: GLD) and the impact of regulation.
Index Universe (IU.com): You’ve said that you’re worried we’re already sowing the seeds of the next crisis. Where do you see that most directly?
Dr. Nouriel Roubini (Roubini): Well in commodities, I look at oil prices. They fell from $145 last summer, came down to $30 earlier this year and now they’re back close to $80. But if I look at the fundamentals of demand and supply, demand is down to 2005 levels, supply and inventories are at all-time highs. In my view, the movement in oil prices is not fully justified by the fundamentals.
There are improving fundamentals. There is a global recovery. But that justifies oil going from $30 to maybe $50. I think the other $30 is all speculative demand feeding on it—speculators and herding behavior. Last year, when oil was at $145, that killed the global economy. I worry that oil is going to go up above $100 for reasons that have nothing to do with the fundamentals of supply and demand. Oil at $100 would have the same negative effects on the global economy as oil did at $145 last year.
Last year, when oil was at $145, the global economy was still growing. Right now it has collapsed, and is recovering. Oil pushing above $100 would have nasty, negative real trade effects and real disposable-income effects on all importing countries: U.S., Europe, Japan, China, India; all the countries that were hit by the oil shock last year. So that’s an element that is in my view totally speculative, and dangerous to the global economy.
IU.com: Is that true elsewhere?
Roubini: I could make a similar argument for other commodity prices. In my view, rising commodity prices are not justified by the fundamentals.
There’s a huge bubble, because we have zero rates in the U.S., zero rates around the world and a huge carry trade. Everyone is borrowing at zero interest rates in dollars and getting a capital gain because the dollar is weakening, so they are borrowing at negative rates. And then they invest in risky assets: commodities, equities, credit. We’re creating a bigger bubble than before.
It’s going to go crashing down, in an ugly way. That’s the basics of the argument.
IU.com: Is there a regulatory solution to the speculation issue? Is the CFTC tightening and enforcing position limits a step in the right direction?
Roubini: I think it’s an idea worth considering. I’m not usually in favor of position limits, but I think the swings in the value of oil have been extremely dangerous for the global economy. Oil at $145 was the reason—more than Lehman or anything else—that the global economy tipped into the worst recession in the last 60 years. After the collapse of the global economy, oil collapsed to $30. At $30, there can be investment in new capacity. But now it’s back at $80 and soon enough it’s going to be at $100.
If position limits are going to be effective—and I don’t know that—I would not be against them. Because these swings in value of oil, on the way up and on the way down, are extremely damaging to global economic activity. They are dangerous. They are not justified. And if they can be controlled, so be it.
IU.com: You recently co-authored a report in which you and your colleagues ranked the U.S. third in world financial markets, after London and Australia. Was regulation a big component of that?
Roubini: The U.S. might have been No. 3 overall, but it was ranked No. 38 out of 55 in financial stability, because we’ve had a disastrous banking and financial crisis. That was in part due to poor regulation and supervision of financial institutions. That’s one of many factors and reasons why the U.S. was ranked so low on that particular pillar. Certainly there has been a massive failure of regulation and supervision of the financial system. But the regulatory failure was more in the direction of unwillingness by regulators to apply regulations. The Fed had all the powers to regulate toxic underwriting of mortgages, but they believed in laissez faire markets, and they created a disaster.
IU.com: How does this get fixed?
Roubini: I don’t believe in market discipline. It doesn’t work. That was the ideology of the last 10 years; self-regulation means no regulation. Market discipline doesn’t exist with irrational exuberance and reliance on internal risk management models that don’t work. Nobody listens to risk managers, because it’s risk takers that make the profits. The reliance on ratings agencies that have their own conflicts of interest, the reliance on soft-touch regulation, the focus on principles instead of rules—that particular regulatory philosophy has been a disaster, and we’ve learned it the hard way. We have to go to simpler rules, tougher rules and more binding rules. That’s the right approach.
IU.com: You’ve been clear that you think most assets are currently overvalued. Do you think there are opportunities for investors in certain asset classes or certain geographies?
Roubini: Well, there is a wall of liquidity chasing assets. That liquidity can chase those assets higher for the time being until the huge carry trade—the asset bubble and the wall of liquidity—comes crashing down. You can still have all the risky assets going higher. Of course, the higher they go, the more they diverge from fundamentals, and the riskier the situation becomes. But eventually, if the recovery of the economy is going to be anemic, sub-par, below-trend and U-shaped, there is going to be a correction. And therefore my view is to stay away from risky assets. Stay in liquid assets. I don’t know when the correction is going to occur, it could be a while longer, but eventually it will be a pretty ugly correction, across many different asset classes.
IU.com: When you say “stay away from risky assets,” many people hear that and think, “Aha, gold!”
Roubini: I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.
The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.
IU.com: Thanks for taking some time with us today. We look forward to seeing you in November.
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This article has 99 comments:
I see little improvement in the real economy. Just froth from monetary easing.
A Roubinin quote: "We have to go to simpler rules, tougher rules and more binding rules. That’s the right approach."
Teutonic.
Strange thinking. Do markets wait for events or price in expectations? Why expect a speculative bubble in oil, but not in gold? Where is all this "wall of liquidity" going to go if the recovery is "anemic"?
Dr. Roubini has built a fine business following this rule, as have Robert Prechter, Mark Skousen, Howard Ruff, and scores of others in the past. "What's going to happen?" "There will be a terrible decline." "When?" "Sometime in the future." "How do you protect yourself? Gold, commodities, equities, debt?" "No. None of those will work?" "What then?" "Stay liquid."
It happens that Dr. Roubini and I agree that this thing has come too far, too fast. Where we differ is that I refuse to cower in a hole somewhere eating trail mix and muttering, "I told you so," so I will allocate to the assets and purchase the sectors I've been writing about, all the time enjoying the party, but taking some profits along the way so I don't have a lot of baggage as I quietly edge toward the exits.
In the real world, I need to make a reasonable return for my clients and myself no matter what I THINK the markets or the economy are going to do. Being rich, or at least protecting assets and making a reasonable return in all types of markets, is more important to those of us in the real world than being right!
China's citizens are being encouraged to buy gold too--and they are taking to the idea enthusiastically. So that's another booster. Here's a link to an SA article just posted on this topic: seekingalpha.com/artic...
asset inflation (what asset)
commodity inflation ( is commodity asn asset)
food inflation (is food a commodity)
consumer goods (ppi or cpi)
Lots of new money being created, however lots of asset values were destroyed. On 2 year basis we have quite strong deflation over many of the above. Over 5 years we have had very serious inflation. Over the past year we have had asset, commodity,food and slight ppi inflation along with cpi deflation.
In different parts of the world there has been different inflation scenarios.
China has seen huge credit and property/fixed asset inflation.
USA has seen huge credit and property/fixed asset deflation.
Roubini and others certainly need to be more specific.
Saying this, if they use economic theories then their analysis will lack any predictive value. The global economy is larger than anytime in the past and more complex.
Does he actually believe a $100 barrel in today's dollar is even close to being as much as $100 was two years ago?
Frankly this was a dissapointing article I was looking forward to getting a doom and gloom perspective from an educated standpoint as opposed to rhetorical drivel like in "The Greatest Depression is Coming"
We are NOT in a moderate environment economically. The way the world is behaving, flooding the world with more and more liquidity, how can we not have armageddon? "And Noah was commanded to build and ark; and Noah was made of gold; and the ark was made of silver."
1) He fails to mention the weakening dollar when talking about supply and demand for oil. He does subsequently mention easy money and weakening dollar when talking of other commodities.
2) He talks of the wild swings in oil as dangerous for the economy, and as a justification for regulation; he fails to address other, more realistic (less artificial and dictatorial) means of smoothing out oil pricing: increasing domesting supply would, a) make pricing less dependent on the whims of OPEC producers, and b) reduce the currency exchange effect on pricing.
3) He has fallen into the anti-free, socialist way of thinking regarding markets and regulation:
"It doesn’t work. That was the ideology of the last 10 years; self-regulation means no regulation. Market discipline doesn’t exist with irrational exuberance and reliance on internal risk management models that don’t work. Nobody listens to risk managers, because it’s risk takers that make the profits."
This is only true if you don't allow failure to happen...when risk becomes merely the idea of risk, and the real consequences are spread to others. By coincidence, that is what insurance does...only it does so without coercing those who end up picking up the pieces to do so. Those who wish to take bigger risks must be allowed to do so, but they must be allowed to fail -- and then they will make sure to insure against their risk being realized, instead of depending on government and taxpayers to pick up the pieces. It's this risk insurance that must be regulated, so that those doing the insuring don't overleverage...but let those taking the risks do so!!! That is the engine that drives innovation and growth.
4) His assessment of our current situation with regards to deflation vs. inflation is off and doesn't mesh with his previous statements regarding there being a bubble due to excess liquidity.
I pay attention to his macro read, but discount his investing advice altogether. It may also be true that his ego & status is now obstructing the coherence of his calls. Too bad.
"It happens that Dr. Roubini and I agree that this thing has come too far, too fast. Where we differ is that I refuse to cower in a hole somewhere eating trail mix and muttering, "I told you so," so I will allocate to the assets and purchase the sectors I've been writing about, all the time enjoying the party, but taking some profits along the way so I don't have a lot of baggage as I quietly edge toward the exits."
I happen to like trail mix.
Joseph L. has animal spirits and he can write.
When China's reserves are at 70% (Like France or Germany) and people are selling stocks and putting gold on margin, and people are saying, "gold can never go down", and you see advertisements for courses in "How to make your first Million in the gold market", and News Week and Time have pictures of gold coins or bullion on their front cover, and your neighbors are giving you gold stock tips (when they never spoke to you about investments before), and you or someone you know are planning on setting up your college saving plan for your youngest on 100% gold investments, because thats the only investment that makes sense.
Well, then we will be in a bubble.
Here's a similar video and soundtrack: www.youtube.com/watch?...
The sooner we know the real value of the markets, the sooner the real economy can start to grow again in a meaningful way.
Case in point the 1921 crash vs the 1929+++ crash.
Politicians clearly need shock therapy before they will bring budgets under control.
The TBTF's clearly need to fail because they will never learn from their huge mistakes.
The Fed can then start 10 new banks, with clean books, to service small companies in a new sustainable economy, shielded from "cheap" Asian imports.
I hope it's clear by now that these "cheap" Asian imports turned out to be very expensive to our economy ??
Please let it sink to have it over with, it wouldn't be the first time in history, and in the end things got better.
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On Oct 23 10:37 AM rcstocks wrote:
> "There is a global recovery." No there isn't. There is global coordinated
> government spending, e.g., cash for clunkers. We truly are all socialists
> now that economic commentators accept this as a recovery. Marx has
> won.
Want better pay? Quit buying your stuff at the WalMart and start buying AMERICAN.
Anything else will just price MORE jobs out of the country.
It really is that simple. Too simple for this entertainment based generation to understand.
The days of family-supporting wages are over. Soon black market jobs and government dole will be the only way the average American can afford to buy their Chinese-made Sam's Choice foodstuffs & socks.
On Oct 24 09:53 AM sunnsea wrote:
> Yes. And the American form of toxic, predatory capitalism is dead.
> That is our great hope. The next step in the process is accelerated
> movement toward democracy in the workplace via employee owned firms
> so American workers can begin to recoup the losses they have suffered
> in lowered wages over the past 35 to 40 years.
You are correct with regards to someone like Greenspan, Geitner, and Summers. However, there are realists out there like Dr. Roubini and Brooksley Born.
Don't know who she is, then watch this 55 minutes of how she predicted this disaster over a decade ago and how it is going to happen again:
www.pbs.org/wgbh/pages.../
She should have one the Freedom Medal bestowed upon Greenspan. It is amazing to watch Mr. Waxman question this man and just how small he looked at the end of this video when his theories of letting the markets handle themselves was shot all to hell. Pure econonomic theory does not take into account human greed.
So I will have to strongly disagree with you on this one. The Frontline piece is enough to scare the hell out of even the most conservative person on the planet. Robert Rubin and the Goldman Sachs connection are a real piece of work.
We now know the "how" and "why" but not the question of "when".
The Meltdownman
On Oct 23 10:38 AM Joseph L. Shaefer wrote:
> The Economists' Rule to avoid ever 'fessing up to being wrong is:
> "Tell 'em what or tell 'em when, but never tell 'em both."
>
> Dr. Roubini has built a fine business following this rule, as have
> Robert Prechter, Mark Skousen, Howard Ruff, and scores of others
> in the past. "What's going to happen?" "There will be a terrible
> decline." "When?" "Sometime in the future." "How do you protect yourself?
> Gold, commodities, equities, debt?" "No. None of those will work?"
> "What then?" "Stay liquid."
>
> It happens that Dr. Roubini and I agree that this thing has come
> too far, too fast. Where we differ is that I refuse to cower in a
> hole somewhere eating trail mix and muttering, "I told you so," so
> I will allocate to the assets and purchase the sectors I've been
> writing about, all the time enjoying the party, but taking some profits
> along the way so I don't have a lot of baggage as I quietly edge
> toward the exits.
>
> In the real world, I need to make a reasonable return for my clients
> and myself no matter what I THINK the markets or the economy are
> going to do. Being rich, or at least protecting assets and making
> a reasonable return in all types of markets, is more important to
> those of us in the real world than being right!
On Oct 24 10:15 AM TeresaE wrote:
> The lost wages are directly attributed to cheap foreign labor, both
> imported and outsourced.
>
> Want better pay? Quit buying your stuff at the WalMart and start
> buying AMERICAN.
>
> Anything else will just price MORE jobs out of the country.
>
> It really is that simple. Too simple for this entertainment based
> generation to understand.
>
> The days of family-supporting wages are over. Soon black market jobs
> and government dole will be the only way the average American can
> afford to buy their Chinese-made Sam's Choice foodstuffs & socks.
>
Look outside, look at the Hoovervilles poppin' all over America, look at the U6 unemployment... no depression like phenomenons?
I think he should make a move towards Austrian economics. Never too late to learn some more in my opinion. Roubini is still young compared to Summers. He should retire instantly...
Match a chart of historic gold prices to that of the markets and in recessionary or depression gold retains value or goes up when markets go down. Gold becomes a commodity, an asset storage vehicle.
Oil is now being used in the same way because it is universally valued and useful.
Dollars and database digits of stock funds are paper and binary data only.
So cash will be more attractive and government bonds will likely get hit.............. shorting treasuries should be profitable. I like the risk/reward of that more than worthless money markets.
Instead of this high stakes game of the stimulus package, Obama would have been better assesing his term as one dedicated to Reagan type policies........Cut spending, cut taxes and suck it up for the long haul. Explain to the American people that they are in for tough times.
Now he is in a situation where he will probably look worse and he will have a helluva time getting re elected once the dam breaks. I predict his financial advisor "tim" will go down as one of the worst to serve his position. It is called defining your presidency and this guy obviously has can't make the tough call so he will be out.
Your best comment ever. No more need be said, in my view. Thank you very much!
On Oct 23 10:38 AM Joseph L. Shaefer wrote:
> The Economists' Rule to avoid ever 'fessing up to being wrong is:
> "Tell 'em what or tell 'em when, but never tell 'em both."
>
> Dr. Roubini has built a fine business following this rule, as have
> Robert Prechter, Mark Skousen, Howard Ruff, and scores of others
> in the past. "What's going to happen?" "There will be a terrible
> decline." "When?" "Sometime in the future." "How do you protect yourself?
> Gold, commodities, equities, debt?" "No. None of those will work?"
> "What then?" "Stay liquid."
>
> It happens that Dr. Roubini and I agree that this thing has come
> too far, too fast. Where we differ is that I refuse to cower in a
> hole somewhere eating trail mix and muttering, "I told you so," so
> I will allocate to the assets and purchase the sectors I've been
> writing about, all the time enjoying the party, but taking some profits
> along the way so I don't have a lot of baggage as I quietly edge
> toward the exits.
>
> In the real world, I need to make a reasonable return for my clients
> and myself no matter what I THINK the markets or the economy are
> going to do. Being rich, or at least protecting assets and making
> a reasonable return in all types of markets, is more important to
> those of us in the real world than being right!
On Oct 23 08:49 PM Wisdom vs. Information wrote:
> we are in a recession b/c we built 1.4 MILLION too many houses (no
> one wants them, and no needs more) and only God knows how many too-many
> cars at 16M a year and built up too much much personal and government
> debt. not MO, check the charts-- our bills are higher than our income.
People in China can buy gold from only one legal source, which is: government of China.
So if China belives in gold why do they want to sell it?
Why do they target small investors? Is this because they are not smart enough? Or is their government stupid to let go this yellow metal. Out side of China there are no more gold buyers since all the gold bulls are in, exept 3% of bears that will never buy any gold at this juncture. Rubini is with in this 3% of inteligent smart people.
Metals used in construction going up. I get notification of 5-8% increases for materials from my suppliers every month. Groceries, gasoline. My health Ins went up 20% this year afte going up 25% last year.
I think the forces that be are lying about no inflation.
The only question of interest is, When? When will it go up? When will it go down?
The next question is what. What to invest in as it goes up and down? Like you, I struggle with that daily.
People like Roubini do not help with either question.
On Oct 23 10:38 AM Joseph L. Shaefer wrote:
> The Economists' Rule to avoid ever 'fessing up to being wrong is:
> "Tell 'em what or tell 'em when, but never tell 'em both."
>
> Dr. Roubini has built a fine business following this rule, as have
> Robert Prechter, Mark Skousen, Howard Ruff, and scores of others
> in the past. "What's going to happen?" "There will be a terrible
> decline." "When?" "Sometime in the future." "How do you protect
> yourself? Gold, commodities, equities, debt?" "No. None of those
> will work?" "What then?" "Stay liquid."
>
> It happens that Dr. Roubini and I agree that this thing has come
> too far, too fast. Where we differ is that I refuse to cower in
> a hole somewhere eating trail mix and muttering, "I told you so,"
> so I will allocate to the assets and purchase the sectors I've been
> writing about, all the time enjoying the party, but taking some profits
> along the way so I don't have a lot of baggage as I quietly edge
> toward the exits.
>
> In the real world, I need to make a reasonable return for my clients
> and myself no matter what I THINK the markets or the economy are
> going to do. Being rich, or at least protecting assets and making
> a reasonable return in all types of markets, is more important to
> those of us in the real world than being right!
The problem with gold as a store of value is that it is purchased more out of fear and other capricious reasons than from any true supply/demand equation. The industrial uses of gold are well supplied and most can be serviced, increasingly, by alternate materials, so that leaves gold's price to be driven principally by speculation.
That fear drives gold is amply demonstrated by the fact that when people fear deflation or inflation, the price rises equally. Of course, common sense should dictate that gold's price declines in a deflationary environment, but common sense is usually in short supply when it comes to gold trading.
In the real world, nobody eats or has a genuine increasing basic need for gold, but people do have an unavoidable requirement for food, clothing, shelter, energy and various goods. It's here that we will see inflation do its dirty work .
We seem to live in a world where people avoid simple truths, as a way of not having to make decisions or take sides, preferring instead to claim everything is riddled with complexity. Well, the simple truth is that if the supply of currency is multiplied many fold while the amount of necessities (food, clothing, shelter, energy) remains relatively unchanged, then, you're going to have inflation. Simple as that.
Fiat currencies always, relentlessly decline in value. They always grow in quantity faster than goods and services. Their are momentary periods of price stagnation, maybe even a decline for a year or two, but, that prices will return to escalation can barely be debated.
This is the history of the economic world, and so it remains.
I have gold investments. Why do I have gold investments? Answer is quite simple. I don't know what the future brings -- deflation or inflation? Anyone who says that they know is deluding both themselves and anyone who listens to them.
I do know that I don't have any faith in the central banks and/or legislative bodies to do rational actions to control the turmoil. I do have faith in gold simply because it has limited supply. I don't know where it will go in the short term, but in the long term I am convinced that its price will be significantly higher. There will be a time to reduce gold holdings, however, it is not now.
Now, let us talk about the price of oil. Dr. Roubini says that $30 is a good price. I disagree. There is no doubt that overall consumption can be controlled by different methods. But, one thing that is not stated is whether the so called baseline has oil *underpriced* over the longterm. I am of the opinion that energy resources have been underpriced for all too long. Similar situation to have clean water. We can have clean water, at the expense of cleaning up 'dirty' water. Just think about the cost of drilling for oil 10,000 feet below the ocean surface.
Thus for the energy issue, I see energy as a long term buy and hold investment. You don't trade the stuff. The value of the energy resources will mitigate the impact of any kind of financial instabilities. In a modern society, you will always need source of high density energy. A bunch of wind mills and/or bio fuels will never provide it in sufficient amounts. As far as I can see, nuclear power is the only long term energy resource that will meet the requirements.
The present result, the carry trade propping-up the market to irrationally exhuberent levels that are doomed to fall both soon and rapidly. I give it less than 6 mos. Since I'm not a pimp (or pseudo-economist)for anybody, I can say what and when. Lucky me, alI have to face are a few thumbs down.
The alternative view to the last, and perhaps present depression; we did and are doing too much. By pumping up the "too big to fails,"
we are inflating multiple more bubbles waiting to pop. In a world-wide economy, bubbles are always forming somewhere. And pop they will. Nobody suggests a place to run and hide (stick your ass[sets]) because there will be few. Global markets will drop in unison, some more than others (try to quess the relative "winners" here; do I lose 30% of everything or 90%--such decisions?!). All commodities will drop; precious metals may hold their shine for a while, but they too will drop.
So oddly in this doomsday scenario, the US dollar will be wildy propped-up as investors "flee to safety." Our dollar will be worth something for a while (as it pays nothing), exactly in contradiction to the will of our present regime; you know the neo-marxist-progressives. All gov't notes and bonds will increase 10-20-30% in value overnight. How will the gov't extract this wind-fall profit...?/!!
How will they do it?....stay tuned to keynesian econ. 101..TARP chap. II...III..IV.............
Steven Roach made some interesting comments on China today:
www.planbeconomics.com.../
Soon as his Friends had their money he completely reversed his entire story on the spot. What a great game he played .
Now he seems to be worried that interest rates will be raised and his Friends are not going to have all that easy money at zero %. So he talks down Inflation.Is he lying or does he need glasses? 35 million Americans on Food Stamps because they can not afford to buy Food. Food and Doc and Vet are so very expensive. If Roubini ever walkesinto a real grocery store and actually sees the prices he would be so shocked that he would wish he would have worn Diapers before leaving his house.
R. Jump, Conifer, CO
On Oct 23 12:42 PM Shaftsinker wrote:
> How can he talk so much about oil without mentioning the devaluation
> fo the US dollar?
>
> Does he actually believe a $100 barrel in today's dollar is even
> close to being as much as $100 was two years ago?
"The problem with debating the future price of gold as an inflation hedge is that it has a very poor historical record, in fact, based on its inflation-adjusted price. Even the lowly dollar has been a better investment than gold if one tracks relative values and purchasing power for the last 50 years."
Reply:
Gold does poorly when interest rates are positive, and can do quite well when interest rates are negative. Interest rates are currently negative if you look at honest accounting of inflation. I don't believe the US governments inflation data.
Therefore the carry trade is out of dollars and into commodities. Pick you time period--gold is lousy or great depending on the macro environment. Equity bugs have had a 25% fleecing if one was holding the SP500 from 1999-2009--after accounting for the loss of the dollars purchasing power. Hold the Dow Bugs have lost 25% after inflation (more if you use honest accounting of inflation).
Gold has appreciated at 11.3% annually in nominal terms, and 8.5% annually in real terms over the last decade. I don't care about the last 50--I care about the future going forward and how gold has performed in analogous time periods with similar macroeconomics.
"The problem with gold as a store of value is that it is purchased more out of fear and other capricious reasons than from any true supply/demand equation. The industrial uses of gold are well supplied and most can be serviced, increasingly, by alternate materials, so that leaves gold's price to be driven principally by speculation."
Reply:
Fear and greed drives markets. Treasuries are also purchased out of fear and we will see the next great Fed bubble pop--Treasuries in the next year or two.
Dollar bugs don't see the bond bubble because it has very little precedent in US history.
Speculation and supply /demand are interrelated and not exclusive. When the 1.3 Billion Chinese are encouraged to buy gold weekly over the counter from their banks, and the government declares a campaign to increase gold as a percentage of reserves to rise from 2% to be more in line with Western Governments--you have long term locked in demand. And it is speculation.
When the Chinese and Saudi, and Brazilian, and Kuwaiti, and Yemeni Governments call for dollar divestiture and possible pricing of oil in Euros or IMF drawing rights--that is dollar bearish.
Dollar bugs will say that their is no possible way for the countries that hold the majority of their reserves in dollars to divest without hurting their position by decreasing the value. The answer to that is--they are already doing it and have been for the last three years at least.
"That fear drives gold is amply demonstrated by the fact that when people fear deflation or inflation, the price rises equally. Of course, common sense should dictate that gold's price declines in a deflationary environment, but common sense is usually in short supply when it comes to gold trading."
Actually, supply/demand drives gold prices, as well as government manipulation by banks dumping gold to drives prices lower as they please. As these Government reserve bank gold holding have become exhausted--gold is starting to shine again as a legitimate investment driven by the unencumbered supply/demand fundamentals.
Its not conspiracy, its public record, and official policy of Western central banks. Maintaining the value of the dollar in the past has meant central banks after Bretton Woods have systematically sold gold and bought dollars.
This trend is now reversing, as Western Central banks have become exhausted from losing money on the short gold/long dollar trade. Eastern Central Banks see the writing on the wall and are increasing their gold reserves in response.
Yes there is emotion involved, but it is predictable emotion that when people no longer trust their governments ability to maintain stable currency, the people turn to gold, silver, and other commodities.
"In the real world, nobody eats or has a genuine increasing basic need for gold, but people do have an unavoidable requirement for food, clothing, shelter, energy and various goods. It's here that we will see inflation do its dirty work ."
Reply;
I never understood this argument.
Over the last ten years that I have been a serious commodity investor. No body eats copper or palladium, or treasuries, or shares of Google either, but it can be rational to invest in them.
Moreover, shelter may be in a deflation trend for another 5-6 years, and food may be in a year deflation, followed by a decade or two of inflation. Energy will fluctuate but the long term trend is up.
"We seem to live in a world where people avoid simple truths, as a way of not having to make decisions or take sides, preferring instead to claim everything is riddled with complexity. Well, the simple truth is that if the supply of currency is multiplied many fold while the amount of necessities (food, clothing, shelter, energy) remains relatively unchanged, then, you're going to have inflation. Simple as that."
Reply:
Supply of gold is similarly constrained, and the demand (albeit jewelry demand has slacked) has increased every year since 2001 from investor demand (both private and government). You seem to be saying that demand for gold is not the same as demand for other commodities. This simply isnt the case.
Demand for gold is partly investor demand due to golds currency status, and partly for jewelry. It has been entirely predictable.
What has been utterly unpredictable and completely irrational (from a long term perspective) is that the last 25 years has been a period of central bank dumping of gold to unsustainably support the value of the worlds trade currency--the dollar.
"Fiat currencies always, relentlessly decline in value. They always grow in quantity faster than goods and services. Their are momentary periods of price stagnation, maybe even a decline for a year or two, but, that prices will return to escalation can barely be debated."
Reply:
Agreed. As mistrust of the US dollar grows, a portion of those disaffected former dollar holders with turn to commodities to preserve their wealth.
"This is the history of the economic world, and so it remains. "
Reply: I agree with the author of the main article and the author of the post I'm rebutting on many points---but the simple fact is that it is possible to have inflation in some assets whilst at the same time having deflation in other assets.
Gold is a small market compared to oil or treasuries or global equities. Consequently, it would take only a small percentage of global capital to continue to make a stealth move into gold for gold to continue rising another decade.
No one was predicting gold quadrupling from 2000--but near quadruple it has. And every year the financial press warns of the irrational gold fever.
On Oct 24 03:47 PM Plan B Economics wrote:
> There is no demand. It's all supply-driven, which is stimulus-driven.
>
>
> Steven Roach made some interesting comments on China today:
> www.planbeconomics.com.../
On Oct 24 04:59 PM searcher wrote:
> As I read the gold puffs, apparently gold is good for the coming
> inflation and good for the coming deflation and if it's both, never
> mind the order. It's good as gold. Hell, there's gotta be an incredible
> conspiracy that restrains gold from trading at $5k.
On Oct 24 12:30 PM kaszub wrote:
> People in China are told to buy gold.
> People in China can buy gold from only one legal source, which is:
> government of China.
> So if China belives in gold why do they want to sell it?
> Why do they target small investors? Is this because they are not
> smart enough? Or is their government stupid to let go this yellow
> metal. Out side of China there are no more gold buyers since all
> the gold bulls are in, exept 3% of bears that will never buy any
> gold at this juncture. Rubini is with in this 3% of inteligent smart
> people.
They will move out of the USD when it strengthens again in the future, not now when it is at a low relative value to their currency.
On Oct 24 02:23 PM E Nuff Sed wrote:
> As far as I am concerned the Chinese are idiots and regularly fleeced
> by the Americans. You just have to look at the 2Trillion of treasuries
> in US dollar treasuries they are sitting on. Now they are buying
> commodities and gold in a desperate bid to diversify out of USD (therefore
> accelarating its fall) and creating another bubble in the process.
> Where is the demand? Their internal market is too small to absorb
> all these commodities. It is going to end very badly for them.
Banks and corporations have shown their willingness to defraud their investors, and our government has followed suit.
So...if I can't trust the financial institutions or my government, what is left? Hmmm...let's see...I think everyone values gold, needs food, and fears a loaded weapon.
On Oct 24 04:59 PM searcher wrote:
> As I read the gold puffs, apparently gold is good for the coming
> inflation and good for the coming deflation and if it's both, never
> mind the order. It's good as gold. Hell, there's gotta be an incredible
> conspiracy that restrains gold from trading at $5k.
If everyone is the U.S. is trying to pay for things in devalued dollars with rampant inflation individuals and the nation will be worse off. If everyone goes to take "dollars" out of the banks, the banks will be even less solvent (versus putting gold into the banks gradually in exchange for food).
Seems the Chinese might be smarter than some people think.
On Oct 24 06:20 PM E.D. Hart wrote:
> The fact that the Chinese Government has an official policy of encouraging
> gold ownership may be that some day the government would like the
> option to confiscate their gold, as Roosevelt did.
On Oct 23 01:14 PM pungent wrote:
> I have to agree with Joseph S. And what does "stay liquid" mean?
> Does it mean stay in cash? Cash is like ice -- it melts while you
> hold it. USD used to melt at about 5% a year but those happy days
> are gone. Other fiat currencies have the same issue. Only time
> will tell what our current real inflation rate is. But one must
> invest (and win) just to break even. I would not be entirely out
> of gold, nor all-in. It's balance, baby!
On Oct 24 02:23 PM E Nuff Sed wrote:
> As far as I am concerned the Chinese are idiots and regularly fleeced
> by the Americans. You just have to look at the 2Trillion of treasuries
> in US dollar treasuries they are sitting on. Now they are buying
> commodities and gold in a desperate bid to diversify out of USD (therefore
> accelarating its fall) and creating another bubble in the process.
> Where is the demand? Their internal market is too small to absorb
> all these commodities. It is going to end very badly for them.
According this Mr. Roubini comment...Where do I put my money then?, in T bills paying 0.5% (actually negative if you deducts transaction fees).
This is "Americentric"approach to reality is inaccurate, China is growing again around 8% "official" rate, Brazil, India, Chile,Germany,France, Denmark, Korea, Singapur etc. all of them are right now growing, the wall of liquidity will bring inflation and higher rates and commodities rises.
I will review my stop loss points anyway.
Regards
On Oct 23 09:57 AM chap08 wrote:
> "Without inflation, or without a depression, there’s nowhere for
> gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30
> percent unless we end up in a world of inflation or another depression.
> I don’t see either of those being likely for the time being. Maybe
> three or four years from now, yes. But not anytime soon."
>
> Strange thinking. Do markets wait for events or price in expectations?
> Why expect a speculative bubble in oil, but not in gold? Where is
> all this "wall of liquidity" going to go if the recovery is "anemic"?
On Oct 24 02:23 PM E Nuff Sed wrote:
> As far as I am concerned the Chinese are idiots and regularly fleeced
> by the Americans. You just have to look at the 2Trillion of treasuries
> in US dollar treasuries they are sitting on. Now they are buying
> commodities and gold in a desperate bid to diversify out of USD (therefore
> accelarating its fall) and creating another bubble in the process.
> Where is the demand? Their internal market is too small to absorb
> all these commodities. It is going to end very badly for them.
My own calculation is that the DJIA bottom would be around 2000-3000 before it is all over.
Obama says: "...We are going to CAP unemployment at 8%...", and that "...there will never be another boom and bust cycle anymore..." Those are his words, those are his caliber of judgment.
TK
"Marx has won"
Marx didn't win, nature won--as always. Marxism was never an "ism"--Marx entire "manifesto" was just an explanation of why the capitalist system would unwind and trend toward socialism (not even communism). He considered it an unyielding natural phenomenon.
It wasn't even a philosophy--just an academic exercise. For that, he became a convemient bogeyman of the West.
On Oct 23 09:57 AM chap08 wrote:
> "Without inflation, or without a depression, there’s nowhere for
> gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30
> percent unless we end up in a world of inflation or another depression.
> I don’t see either of those being likely for the time being. Maybe
> three or four years from now, yes. But not anytime soon."
>
> Strange thinking. Do markets wait for events or price in expectations?
> Why expect a speculative bubble in oil, but not in gold? Where is
> all this "wall of liquidity" going to go if the recovery is "anemic"?
Personally I like SDS for a long term, 3-4 year hold, to the bottom.
Roubini is a proven economist, yet that does not make him a necessary execellent investor (asset manager).
He was able to analyze the irrational exuberence of 2007 based on the statistics of the housing market, interest rate, cap yield of real estate, the balance sheet of Fanne and Freddie etc.
You got to pick the best out of each person, but not all from one person.
Kennesian Economics ( Roubini)
Austrian Economics ( Peter Shiff)
Real Estate ( Shiller)
Short/long/sudden trend (Soros, Marc Faber)
Medium/long term fundamental shift of an industry or asset class or a company ( Jim Rogers, Marc Faber)
Micro, individual company analysis ( Warren Buffet)
Don't buy both fish and tomato from the fisherman.
Don't expect the farmer to provide you with the highest quality fish either.
The media is streching Roubini's expertise a bit too far. And are expecting Micahel Jordon to bat just like Ken Griffy Jr.
On Oct 24 12:21 PM Joe Shareholder wrote:
> Roubini predicted the economic collapse in 2008, but he's been wishy
> washy since then. The story keeps changing. Initially he predicted
> 2009 Dec as the end of the recession. Now he's predicting another
> crash. Why pick an end date to the recession if you're predicting
> another crash? Regardless, this is a depression, and it will get
> worse so if I were a betting man, I'd stick with his second prediction.
India is mad about gold as well..they're only buying more in recently since their economy has grown for the past 10yrs.
So, this is nothing new....always there.
On Oct 23 11:28 AM Roger Knights wrote:
> Gold's price will be set by the elephants--the world's central banks,
> particularly China's. It's overweighted in dollars and underweighted
> in gold. It's reserves could soak up the gold market in a heartbeat.
> It has to ask itself, "Am I diversified?" and "Am I as confident
> in the dollar as in gold?" Maybe Arab sovereign wealth funds and
> central banks will ask the same question. European central banks
> have dramatically slowed their selling, and may soon stop. There
> has been a sift in the long-trend, a shift that will persist, given
> the fundamentals. Gold has little downside risk, and is likely to
> keep gaining at the same 17% rate that it has achieved in the prior
> years in this century, assuming nothing wildly abnormal happens.
> If the abnormal does come to pass, then gold will do even better.
>
>
> China's citizens are being encouraged to buy gold too--and they are
> taking to the idea enthusiastically. So that's another booster. Here's
> a link to an SA article just posted on this topic: seekingalpha.com/artic...
It might be suggested that major new storage capacity has recently come into being in China and elsewhere and that the time being taken to fill this new capacity accounts for the delay in price correction back towards the ‘natural demand’ level. Surely this could only increase demand for a relatively short period and prices would soften during that period in anticipation of storage being filled.
A more plausible explanation might be that there are bottlenecks in the tanker transportation network (perhaps caused in part by the use of tankers to store oil in anticipation of further price increases). It is hard to believe, however, that in a time of comparatively moderate demand based on economic activity such a bottleneck would exist or continue for long.
In short, while speculators might accentuate the move up in price in the short term and might prolong that period of artificially high price somewhat, the process described above should undercut the higher price within a relatively short time. What am I missing?
Because the capacity to significantly ramp up production quickly does not exist for most base and precious metals (or for many other commodities as well) because of the nature of mining or other production process, one would have thought inflationary or speculative pressures would be felt for these commodities more significantly than for oil.
To those who would attribute oil’s rise to concerns about future inflation of about the future of the USD, wouldn’t oil be the commodity least affected for the reasons to which reference was just made?
In other words, there doesn’t appear to be a plausible explanation for a $30 or more a barrel premium for oil for more that a very short time. Speculation or fear of future inflation alone can’t account for this.
Please explain what I am missing.
On Oct 25 02:11 AM JBond wrote:
> That goldbug article about China encouraging its citizens to buy
> gold is "worthless"..because China doesn't need to encourage it's
> people....Culturally, they love gold and always have. If there's
> extra money, people buy gold..24k gold jewelry is what everyone buys..
>
> India is mad about gold as well..they're only buying more in recently
> since their economy has grown for the past 10yrs.
> So, this is nothing new....always there.
Moore's law may be the only economic rule we need to cite. As real estate reprices to 2002-3 values, a blip in time, technology will easily replace the value lost with its astonishing and reliable exponential gains in productivity. Unfortunately, the dismal scientists are "doomed" to dine on their hysterical models. Take comfort. We know history never repeats itself with the same people. Or, the same economists.
Green is the new color of gold. The increasing education of the world population will make hundreds of millions more productive and keep inflation low for generations. Half the planet will never be hard wired for communications, use gasoline as the primary fuel to power their vehicles, go to a bank to deposit money, pay bills by mail or visit a store to buy light bulbs that will glow brighter for ten years. How much does that save? We're not talking quarterly earnings, but decades of prosperity.
Technology's impact is best revealed when old world assets such as real estate fall behind in value creation as they always will when competing with technology. So, Intel, Apple, Cisco and Amazon roar with cash and appreciation while office buildings and homes naturally depreciate further burdened with debt.
The jobs lost represent natural selection in hyper-drive. Nothing more. Government will provide the necessary subsidy to care for and retrain the learning audiences. Revolution will be avoided; all funded with the wealth created by the technologists.
The DOW was at 10K when real estate took its write-off. It crashed to 6.5K when Chicken Littles like Roubini yelled "Fire!" in the Theatre of the Absurd. The fact that we're almost back to 10K in 6 months confirms the undeniable exponential economic juggernaut of open innovation and invention powered by the indomitable hope of the human condition.
Incompetence and greed has won at the expense on tens-of-millions of everyday Americans.
On Oct 23 10:37 AM rcstocks wrote:
> "There is a global recovery." No there isn't. There is global coordinated
> government spending, e.g., cash for clunkers. We truly are all socialists
> now that economic commentators accept this as a recovery. Marx has
> won.
Yes, unfortunately, a long-drawn out, torturous, dead-man embraced sinking in quick sand scenario would be more likely, as you described as SDS lasting 4 to 5 years. This is because the power elites are absolutely dedicated in clinging onto their power draining every drop and every bit of its to practice self-denial.
I feel sorry for the next generation, folks who are in their twenties starting out a family and a career. My heart breaks when I vision the U.S. Economy in a "New Kind of Hell" to come. [Note: I coin the phrase of a New Kind of Hell after Stephen Wolfram's a "New Kind of Science" with his Mathematica invention.]
TK
On Oct 24 11:32 PM rob134 wrote:
> Teutonic...Glad to see confirmation of my own estimate of DOW 3000,
> but I also think we have a chance to see 1000. As for when the next
> decline will start, and there will be significant market rises and
> falls before the bottom is hit, I see the market peaking within the
> next three months. Now whether or not we have a sharp downturn or
> a long rolling one from that point... ???
>
> Personally I like SDS for a long term, 3-4 year hold, to the bottom.
On my forum there si an article he wrote in March that predicted the S&P would fall futher to about 600
Imagine if you listened to this guy and lost your butt sitting out this market
This guy is a teacher NOT an investor
Giving a few Loans to a handful of minorities didn't cause it.
The practice of creating and using worthless paper debt as currency caused this Ponzi scheme to collapse like a house of cards.
The "solution" was to transfer all the losses of the failed Banks and WS Firms to the taxpayer.
All the Bankers had to do was go to Congress and say, "Who's your Daddy?"
in comparing UUP (u.s. dollar index) against USO (proxy for the price of oil), the u.s. dollar is down about 5% over the last 2 years, virtually all of which has occurred in the last 3 months, compared to a drop in oil of around 40%. the normal inverse relationship one would expect to see between the cost of a barrel of oil and the value of the u.s. dollar doesn't hold during this period. why? because oil was in a speculative bubble 2 years ago. roubini's fear is that the speculative bubble is now reforming and he has good reason to be fearful. while the u.s. dollar has declined around 10-12% over the last 6 months, the price of oil has climbed over 45% in a still-weak world economy.
oil prices continue to be substantially driven by speculation..not the value of the u.s. dollar, supply/demand, war premium or fears of "peak oil."
On Oct 23 12:42 PM Shaftsinker wrote:
> How can he talk so much about oil without mentioning the devaluation
> fo the US dollar?
>
> Does he actually believe a $100 barrel in today's dollar is even
> close to being as much as $100 was two years ago?
Technology doesn't make anything more efficient, it simply shifts efficiencies across state and nation and continental borders.
Technology takes away as much efficiency and jobs as it gives.
Technology is not a panacea, it is a pandora's box.
On Oct 25 10:34 AM Lou Siegs wrote:
> Roubini is just plain wrong. Real estate took us down and technology
> will save us from ourselves as it always has throughout history.
>
>
> Moore's law may be the only economic rule we need to cite. As real
> estate reprices to 2002-3 values, a blip in time, technology will
> easily replace the value lost with its astonishing and reliable exponential
> gains in productivity. Unfortunately, the dismal scientists are "doomed"
> to dine on their hysterical models. Take comfort. We know history
> never repeats itself with the same people. Or, the same economists.
>
>
> Green is the new color of gold. The increasing education of the world
> population will make hundreds of millions more productive and keep
> inflation low for generations. Half the planet will never be hard
> wired for communications, use gasoline as the primary fuel to power
> their vehicles, go to a bank to deposit money, pay bills by mail
> or visit a store to buy light bulbs that will glow brighter for ten
> years. How much does that save? We're not talking quarterly earnings,
> but decades of prosperity.
>
> Technology's impact is best revealed when old world assets such as
> real estate fall behind in value creation as they always will when
> competing with technology. So, Intel, Apple, Cisco and Amazon roar
> with cash and appreciation while office buildings and homes naturally
> depreciate further burdened with debt.
>
> The jobs lost represent natural selection in hyper-drive. Nothing
> more. Government will provide the necessary subsidy to care for and
> retrain the learning audiences. Revolution will be avoided; all funded
> with the wealth created by the technologists.
>
> The DOW was at 10K when real estate took its write-off. It crashed
> to 6.5K when Chicken Littles like Roubini yelled "Fire!" in the Theatre
> of the Absurd. The fact that we're almost back to 10K in 6 months
> confirms the undeniable exponential economic juggernaut of open innovation
> and invention powered by the indomitable hope of the human condition.
>
I do agree that oil at $150 made no sense, and that speculation led to that surge. But that eventually corrected sharply and helped lead to decreased oil use. Creating further restrictions in this area may not have the desired effect.
Tom Henderson, Strategist JBH Capital
I know that the economy isn't good. I'm positioning for a market downturn, etc. etc.
But Hoovervilles? Please provide one specific location of a Hooverville in the U.S. (I can show you incredible poverty just a few miles south of me in Mexico, but haven't seen any of this yet in the U.S.)
On Oct 24 10:47 AM De Graaf wrote:
>
> Look outside, look at the Hoovervilles poppin' all over America,
> look at the U6 unemployment... no depression like phenomenons?<br/>
On Oct 25 04:08 PM Charlie J wrote:
> Just looked outside, didn't see any Hoovervilles.
>
> I know that the economy isn't good. I'm positioning for a market
> downturn, etc. etc.
>
> But Hoovervilles? Please provide one specific location of a Hooverville
> in the U.S. (I can show you incredible poverty just a few miles
> south of me in Mexico, but haven't seen any of this yet in the U.S.)
>
[1] seekingalpha.com/insta...
On Oct 24 06:27 PM TLassen wrote:
> No it's cheaper for the Chinese to buy gold and other commodities,
> it is not because they are diversifying out of the USD, the commodities
> are bought to meet the demand needed for their expanding economy.
>
>
> They will move out of the USD when it strengthens again in the future,
> not now when it is at a low relative value to their currency.
asset inflation (what asset)
commodity inflation ( is commodity asn asset)
food inflation (is food a commodity)
consumer goods (ppi or cpi)"
There is no such thing as "asset" inflation or "commodity" inflation...theres just inflation. Remember, inflation is the increase in the money supply...so, as a result, price increases, can show up in different areas of the economy.
[1] seekingalpha.com/insta...
No offense but he has about 6 weeks for a 45% downward move
Look unlike the teacher turned smart guy.I have made my money allocating capital for the past 20 years
Buy a great stock at the right price and reinvest dividends its really that simple
I Finaancial independence is possible i know because it happened to me.peace
I recall he once said "...Buying and selling individual stock is a waste of time..." Note he emphasized the word "waste".
TK
On Oct 25 09:23 PM Sovestor wrote:
> If Roubini is so smart, why he is still a professor and not a billionaire?
> Get real.
I once heard an economic professor commenting on a basket ball game: Why do they waste time fighting each other for just one ball. Just buy a couple dozen balls and give each a ball, then there is no need to fight!
That was how Roubini thinks about stock investing.
On Oct 26 08:39 PM Teutonic Knight wrote:
> That depends on what you mean by "smart". If to detonate the CDS
> bombs in the basement of Wall Street and get away with Trillions
> is what you mean by "smart" then Roubini won't fit your categorization.
>
>
> I recall he once said "...Buying and selling individual stock is
> a waste of time..." Note he emphasized the word "waste".
>
> TK
"You recently co-authored a report in which you and your colleagues ranked the U.S. third in world financial markets, after London and Australia. Was regulation a big component of that?"
Now I think he's a BS artist.
[1] seekingalpha.com/insta...
~ Needing to do what's necessary to win the next election - Not willing to do what's required to save our children's planet,it's economy and their future.
~ The problem with the Fed,is that they believe in Laissez Faire markets when the bull is in town,but then they swing to government intervention and protectionism when the bear roars,at the precise time when it is critical to stick with laissez faire equilibrium.
~ Because corrections are painful,real corrections get governments booted out of office. So the market is constantly interfered with,allowing risk takers to stay out late at the roulette wheel,paying the fat lady to sing 'All night long',but when the fat lady finally falls silent as she must. Don't get stampeded at the exit door.
~ Then after the grandaddy of all Darwinian flushes the government gets to impose all sorts of regulations,write your own ticket,until the next election rolls around and the gladhanding begins anew and regulations are eased or overlooked for certain parties and the schmooze begins all over again. This is the failure of democracy.
~ Written by a cival libertarian...J.T.Towner
" The way to stop gambling is to stop gambling".