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Matthew Cowie

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  • Gold Vs. Coca-Cola [View article]
    Stocks are exactly like gold in one way: their price (not value) is driven by people's desire to own stocks. A rising P/E ratio is the corollary to a rising gold price; both move in long-term cycles.

    The Federal Reserve Bank of S.F. published research ( that estimates P/E ratios will bottom around 2023 based on demographics. If the P/E ratio is about 10 in 2023 for KO and earnings double over the next 10 years, it will be dead money (not counting dividends). If the P/E fell to 8, KO would lose about 25%, wiping out most dividend gains, assuming you took cash and didn't reinvest. If that scenario plays out, it's likely the Fed hasn't stopped QE and the U.S. is in the Japan scenario. KO may see sub-optimal earnings growth during the decade, in which case it is possible that at some point during the next 10 years KO shares, along with most of the stock market, will be heavily discounted.

    I don't know if that will happen. I don't even put odds on it. I'm happy to say I don't know, and for that reason I diversify.
    Apr 28 10:39 AM | 3 Likes Like |Link to Comment
  • Newmont Mining Is Now Too Cheap To Ignore With A 5% Yield [View article]
    If gold stayed at current levels they would cut the dividend to $1 based on the policy, which is about a 3% yield on today's stock price.
    Apr 24 10:06 AM | 2 Likes Like |Link to Comment
  • Why Does Anyone Listen To Conservative Economists Anymore? [View article]
    There's no spin. The "liberal" and "conservative" economists all have failed policies, a pox on both their houses. Look at this take on this whole debate about the Rogoff study: it's just more politics.
    Apr 22 08:33 PM | 1 Like Like |Link to Comment
  • Why Does Anyone Listen To Conservative Economists Anymore? [View article]
    There is always left/right, conservative/liberal in any system. It is like a Soviet asking why do we listen to the conservative Marxist economists? We should listen to the liberal Marxist economists.

    The Rogoff paper never changed anyone's mind. Even if it were tomorrow proved correct, the liberal economists would deny it.

    The real dividing line is between those who are inside the system and those outside of the system. Steve Keen has been a relentless critic of Krugman, even though they are both on the left politically, yet Mish agrees with much of what Keen writes.

    Hong Kong provides the best example to follow: they didn't collect much of any economic data before 1985.

    This way they didn't get bogged down in who predicted what, but rather focused on long-term positive economic policies.
    Apr 22 07:43 PM | Likes Like |Link to Comment
  • The Fed Didn't Cause The Gold Bubble - Or Any Other Bubble [View article]
    While I do believe some small bubbles are possible due to the human herding impulse, every major bubble in history was based on credit. During the Tulip Bubble, speculators were able to use leverage. John Law's Mississippi Bubble involved him getting to open a bank and circulate bank notes......The South Sea Bubble was fueled by people converting government debt into shares and then using the stock as collateral to borrow money, often buying more stock.....

    Almost every massive bubble is the result of unbacked credit because fads don't last long enough. There needs to be a way for the bubble to feed on itself and the fuel is credit. The story today is that credit peaked in 2008/9 in the private economy. The thing that makes bubbles is itself a bubble in the process of collapse.
    Apr 22 11:08 AM | 2 Likes Like |Link to Comment
  • Gold Lied, Inflation Died [View article]
    I think it is a result of the government and central bank actions. During a major war, the arms manufacturers profit; today the government and central banks of the world are waging a global financial war. But it is a good counterpoint: if the deflation scenario is correct, luxury goods will fall in price.
    Apr 19 03:26 AM | Likes Like |Link to Comment
  • Gold Lied, Inflation Died [View article]
    Mish Shedlock had a good post on this yesterday called: Is the Fed Printing Money?
    Apr 19 03:12 AM | Likes Like |Link to Comment
  • Gold Lied, Inflation Died [View instapost]
    Have you seen companies such as Proto Labs (PRLB)? I'm thinking industrial, not desktop.
    Apr 17 11:05 AM | Likes Like |Link to Comment
  • Gold Lied, Inflation Died [View instapost]
    Here is one contrary data point on inflation from the Billion Price Project:

    If the deflationary scenario plays out then the socionomic argument also seems more likely: there will be reductions/halts to immigration and global trade will plunge. The U.S. is best positioned to "win" because it has a trade deficit and lets in a lot of low skill labor. If these trends are slowed or reversed, a lot of jobs would come back to the U.S. and wages would climb. There are technological innovations working in this direction as well, such as 3D printing that will move manufacturing geographically closer to the consumer. If this plays out, the U.S. will fall into growth and wage inflation, and if China rebalances, the losses in commodities will keep overall inflation at bay. We will see what China can do, the current Premier Li Keqiang is determined to build a big middle class.
    Apr 17 05:47 AM | Likes Like |Link to Comment
  • Is Gold Useless - Part III [View article]
    Yes, private schools will crash too. Public schools will fire professors, raise tuition and cut aid. Biggest bubbles are college loans, healthcare, public education, public debt, public pensions. Gold is a minor decline compared to what is coming.
    Apr 15 01:15 PM | Likes Like |Link to Comment
  • Is Gold Useless - Part III [View article]
    Bingo. I posted on credit deflation: Gold Lied, Inflation Died
    Apr 15 06:19 AM | 3 Likes Like |Link to Comment
  • Is Gold Foreshadowing A Stock Market Implosion? [View article]
    The price of gold has blown straight through to below $1400. I see some stock bulls crowing, but this is not good news.

    I put a post up on the failure of the Fed to create credit inflation: Gold Lied, Inflation Died
    Apr 15 05:59 AM | Likes Like |Link to Comment
  • Bitcoins: New Gold Or Fool's Gold? [View article]
    It is only superficially similar to those things. It isn't a pyramid scheme or a Ponzi. I haven't seen any critic credibly argue it is an outright fraud. At worst it is something akin to some of the .com companies that went bust, a legitimate idea, but one that is destined for failure either through poor execution or being ahead of its time (I remember ebook companies in 2000 went bust, yet their idea was sound). That said, something like Bitcoin will exist.

    "Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative. But I am not familiar with the specific product to assert whether it is the best potential setup. And we need a long time to establish confidence. I only talk from skin-in-the-game. If I had money in bitcoin, I would have reported it. But I don't yet. I am waiting to understand it better, not with my brain, but with my experience..." -Nassim Taleb
    Apr 13 07:35 AM | Likes Like |Link to Comment
  • Some Thoughts On Bitcoin, And Why Bitcoin Is The Ultimate Bubble [View instapost]
    All fiat currencies are a bubble, yes. If at anytime they lose acceptance they go to zero.

    I think the only relevant model is political, such as Iraqi dinars in 2003. Do you buy the currency? Or do you think the government will collapse? U.S. Continentals and Confederate dollars hyperinflated during the wars because no one knew if the government would survive. In this case, it is money without a government.

    From FOA, talking about gold:
    Dollars bidding on MSFT stock set the value of that stock. If dollars are frantically bidding on MSFT (high velocity), the stock skyrockets. If dollars stop bidding for MSFT all at once (low velocity), the price falls to zero. This is true for everything in the world **except gold**.

    Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero.

    All of the investment bubbles are bidding for the object. Microsoft stock, Beanie Babies and tulip bulbs don't bid for dollars. Today, bitcoins are an object, they are not money, because dollars are bidding for bitcoins. If people stop buying them, the price will fall.

    At some point, people may begin mostly using bitcoins to demand goods and services (or dollars). At that point, it is money.

    The main difference with USD or other currencies is that there is no central bank, no legal force behind bitcoins, and people can buy into the system. This ability to buy into the system is what makes it competitive, because if a company tried this, everyone would refuse to buy, since the creator of the money stands to earn huge seigniorage profits. Since the creator of the money is anyone running the software, the seigniorage is distributed. Also, since there's no inflation beyond the 21 million units, there's no threat of the central authority stealing money through inflation.

    The speculative bubble exists as long as people are unsure if it is money or not. When it becomes money, it is just like any other fiat currency, but without central backing it will need to fend off competitors through superior value. One major portion of that value will be the wide acceptance, which means there's a huge advantage to being the first mover. If Bitcoin can become money, it will likely stay that way and defeat all competitors. If not, it is worth zero and something else will try for it.
    Apr 11 08:59 AM | 1 Like Like |Link to Comment
  • Bitcoin: Buyer Beware, This Is A Classic Bubble And Possible Fraud [View article]
    The big difference is that Bitcoin aims to become money. Everything else it is compared to was not money. I flushed this out on an instablog post :Why Bitcoin Is The Ultimate Bubble
    Apr 11 02:48 AM | Likes Like |Link to Comment