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Jeffrey Dow Jones

 
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  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    No, the further gold is below its inflationary trend line, the greater the outperformance becomes over which every forward window you want to use. If you go all the way back to 1900 when the price was formalized under the Gold Standard Act at $20.67, the outperformance from then until today isn't as dramatic. It's about 50% above trend ($1,200 vs. the $800 fair value I suggested).

    Since you're cherry picking dates, the date you really want to use is 1970. That was the moment of maximum artificial suppression and undervaluation. The price was still $35, same as it was almost four decades earlier when the peg was reset to counter the deflation in the early years of the Great Depression. The price should have been around $100/oz.

    1970 was right before the price started floating in certain private markets and 4 years before a fully floating gold price.
    Jun 3, 2014. 05:16 PM | 1 Like Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    Actually here's what you should use as a basis for calculating forward gold returns relative to other assets:

    1900 - $20.67
    1934 - $35
    1974 - ~$130
    Jun 3, 2014. 02:41 PM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    This may be true. (Or it may not be true.)

    Either way, it's not exactly a robust case for investing in gold. :-)
    Jun 3, 2014. 02:37 PM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    Well, I'm debunking the worldview that some irrational gold investors have. :-) That explains the hostility. But yes, you are absolutely correct here. It's a general model that's part of a bigger set of models that simply govern which assets investors should overweight and which they should underweight.

    It's tough to measure this optionality. I guess one way we can look at is that in the last 40 years, it's never really happened, right? The end of the world gold option has never really been exercised. In that sense, can we even say what such a scenario, the one that we're trying to hedge against with gold, actually looks like?
    Jun 3, 2014. 02:32 PM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    $35 is the wrong price to use. That was artificially cheap after 40 years of suppressing. So you have to either use $35 and change your date to 1934 or you can leave your date as 12/31/1974 and change your price to $193. (Or choose some sort of trailing average in the 1973-1975 years)

    That's when the free market finally had full control over setting the price.
    Jun 3, 2014. 02:29 PM | 3 Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    I referenced this in the original article. Disagreeing with inflation is totally cool, and it's a logically sound way to go about pushing against my thesis. It's probably the BEST way, and it's the way I pushed back against my own thesis here.

    The problem is that you need to come up with a better alternate measure of systemic inflation. 4 articles and 1,500 comments later and still no one really wants to (or can?) do this.
    Jun 3, 2014. 02:23 PM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    " I think the article totally missed the Asian equation and mass psychology influence (especially when a black swan event happens - and one will)."

    These are definitely factors that can influence the price of gold over the short-run. The problem is that I don't understand them and can't even come close to modeling them. I also can't even say for sure if they matter and how much.
    Jun 3, 2014. 02:21 PM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    Vooter:

    http://nyti.ms/1pClFMX

    The other thing is that I'm not saying everything or even some things are going down in price. The CPI is up 50% since the mid 90's! Everything has gone UP in price. It's that this idea that systemic inflation is out of control when it isn't that I want to push back against.
    Jun 3, 2014. 02:19 PM | 1 Like Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    "Much like the markets, there is manipulation that does not reflect the "real" value of inflation, equities, gold, etc."

    You can't say something like this unless you provide evidence to support your claim. You need to provide a better alternate metric for measuring systemic inflation than what the BLS provides.
    Jun 3, 2014. 02:17 PM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    I hope you're not serious! :-)

    The data on this is about as incontrovertible as it gets. Pull up a long-term chart of Barrick or Newmont or somebody alongside a chart for gold.
    Jun 3, 2014. 02:16 PM | 1 Like Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    People subscribe to newsletters like these to have their feelings validated, and also to gain a better vocabulary on how to articulate them and defend those feelings when required to do so.

    Shadow Stats Guy does this with the gold crowd. It's misleading and wrong. But everybody in the dynamic is getting what they want. Power to 'em.
    Jun 3, 2014. 02:14 PM | 1 Like Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    I appreciate the perspective, but if the "global bankruptcy" / "fiat papering" argument is sound, then why should only gold benefit? What's so special about gold? It's just another asset denominated in Dollars. Wouldn't everything denominated in Dollars go up in that scenario?
    Jun 3, 2014. 11:43 AM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    Money is a medium of exchange that's recognized by a sovereign entity and can be easily exchanged for goods and services. It also has to act as a unit of account and be a reliable store of short-term value.

    Period. End of discussion. That is what money is. Things that don't satisfy those criteria aren't money.
    Jun 3, 2014. 11:40 AM | 2 Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    What should we be using to measure systemic inflation if not the CPI?
    Jun 3, 2014. 10:48 AM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    The interesting thing about gold is that it can act as a "negative investment" over short windows of time i.e. it can perform well when other asset classes aren't.

    Gold might rally if the market collapses. Or it might not. I don't know.
    Jun 3, 2014. 10:47 AM | Likes Like |Link to Comment
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