Contributor since: 2009
It's hilarious how after years of moving sideways, an article from Morningstar comes out and proclaims that gold will have a dull future, when in reality all Morningstar is describing is gold's dull recent history.
Such a statement would have been much more useful and laudatory in 2011, not 2013. Guys like Soros are on record calling a gold top in 2011...it's guys like that that we should really be listening to, not has-been news organizations like Morningstar.
Or maybe GOOG has hit the top. Just maybe.
This guy is "pump and dump, INC"
"No, I don't want social security to fail. But we should stop worrying about a debt that our country owes to us. Either way (lowering the debt or hurting the economy), we lose. So pondering about it is maddening."
No, what is maddening is that we allowed us to get into this situation in the first place. We DO need to think about it, and we DO need a workable solution, and we DO need it sooner than later.
Old story, nice article nonetheless.
Great article. Hard to follow, but your point became clear by the end.
I haven't looked at the numbers closely for P, have always assumed that the problem was price discrimination between IP delivery and other forms of delivery. I've learned by reading your article that the problem may indeed be that P is giving away product, much like most of the dot-com busts in the late 90s.
"TGR: The value of gold is not $1,700/oz?
PvE: No. The value of gold is about $900/oz. Expectations of monetary inflation are keeping gold prices high."
I caught this too. He doesn't explain how he reached this conclusion, or quantifies the circumstances he uses as a baseline, yet somehow is able to quantify a price for gold.
Just because this guy says that gold "should" be $900/oz doesn't mean it "should" or that it "will".
The real question is how much inflation does America need? Looking at the debt and deficit, it's fairly simple to conclude that we need a lot. The Fed knows this, which is why Bernanke has spent over a year doing little else than jawboning Congress to act. The more dysfunctional Congress gets regarding the deficit, the more bullish the price of gold and the more bearish the action on the dollar.
Also, current debt levels are already unsustainable at "normal" rates. At 4%, servicing the federal debt will take up 40% of the budget. More than likely inflation will be the method used to solve this problem, and again this is bullish for gold.
This was a great read, it reaffirms my beliefs in what is occurring in Europe.
Regarding this quote:
"Herein lies the weakness of capitalism. It is administered by politicians. "
I think this is less the weakness of capitalism and more the weakness of democracy. As you mentioned, capitalism is self-correcting, but democracies are only as strong-willed and financially astute as the populace that elects their leaders.
Agree, the article on the Draghi Put is really good, thank you.
I'm not certain a gold/Dow comparison is valid. Dow stocks are all productive vehicles, and gold is a money replacement. Two completely different types of bean.
In this sense, the gold/WTI comparison is much more valid IMO, even though WTI demand is also derivative of productivity, unlike gold.
Gold is an unique commodity. It has little utility in industry, and is widely seen as a store of value. No other commodity can claim this status to nearly the extent of gold. The only real comparisons one can make is gold/money, and then look to see where the "price" of money will head in the future. Money can be extremely, repeat, EXTEMELY volatile depending on the situation.
" The premium that investors are willing to pay for gold today (defined as the amount by which today's price exceeds the average historical real price) is almost as much as it was in early 1980, when inflation had already attained double-digit levels."
This is a tricky argument. "Historical real price" only has meaning after 1971. From 1971 to the 1980 peak, gold increased in price by several thousand percent. Depending on which benchmarks you use to compare, gold commanded an arguably lower "real price" during the 2000s lull than it did in 1971 when it began trading as a commodity. Since the 2000s low, gold has gone up by "only" several hundred percent. We are arguably at a much more difficult crossroads now than we were in the 1980s.
By your argument, gold will peak when inflation rears its head. There's little question that ZIRP, TARP, QE infinity, etc, are all inflationary policies...the only real question is when the inflation will hit. Using this logic, it would make sense to be heavy gold until the Fed raises rates precipitously to combat inflation, and that gold will probably pick up steam before reaching its eventual peak.
"...why are the phenomena you describe above not a "one time" event?"
Given overall investment yields in other markets, there's not much reason to suspect that demand for houses will diminish anytime soon. Rental yields are superb in many regions of the US.
"This is their latest effort to reduce their trade deficit that, primarily, is the result of huge gold imports that topped 1,000 tonnes last year and was valued at over $60 billion. I doubt they'll be successful in this effort as the Indian people have a cultural affinity for the yellow metal that, importantly, has outperformed just about every other asset class over the last ten years - but they'll probably keep trying."
Fascinating. I didn't know that India's trade deficit was largely a result of gold hoarding.
Agree with nishtu, this was the entire purpose and premise of introducing the Volcker Rule.
My understanding of SA pro is that subscribers have access to the "smarter" articles earlier than others, and after a certain amount of time, those articles become available to the general public.
"Within the context of a global reserve currency - or some other manifestation of an SDR - prohibitions on speculative positions in gold is very reasonable to expect "
I beg to differ, given the rampant amount of currency speculation on today's markets. Also, to expect that some international syndicate would be capable of restricting gold speculation worldwide is outlandish. If it is curbed in the US, it will probably thrive in China, as gold starts to pour out of the US and into tradable markets.
In the end, the whole debate about gold speculation and confiscation is a symptom of a much more complicated problem, that of reducing deficits and reigning in profligate spending. If the latter happens, the former would disappear as an issue of concern.
Good article.
"If anything, a gold confiscation would display a vote of no confidence by the U.S. government with regards to the dollar."
Very true. However, no confidence can also entail rampant inflation, not just deflation. The Fed's goal is price stability, and if it loses control in either direction then it may become motivated to do something drastic, like confiscate gold. More than likely a confiscation would first entail price fixing by the government, and would probably be a precursor to a major conflict - war is always a reliable tool for governments to pacify dissident sentiments, and there would be plenty of those with an uncontrollable currency.
It will make renting more attractive than buying, thus hurting home prices in the short run. However, if it results in rising rents, then home prices will rise in the longer term.
Still, I doubt it will happen. You get more deductions owning investment property than owning your own home, even with the mortgage tax deduction.
Agree with most of your comment except this final line:
"I will become optimistic when the banks lower the required down payment to 10%, unemployment declines to historical norms, and real wages begin to increase."
In my opinion, one big reason for the sub-prime mess was loosening down payment restrictions. I would be for keeping down payment at 20% permanently, as it is easily the best way to keep home prices from going "nucular". The boom-bust would have never have happened if not for the zero-down nonsense that proliferated in the final years of the boom.
"Chairmen Bernanke wants a buying panic?? He wants to keep inflation at healthy levels by creating more house for sale. More houses for sale=inflation."
Incorrect. I believe Bernanke is trying to stoke demand by creating more housing sales, not houses for sale. More houses for sale without a concomitant increase in demand = deflation, my friend. In this sense, I think Mr. Clark has a point, although I disagree with him on the severity of a buying "panic".
"Would you like to borrow money, and then pay it back when the money is worth more than when you borrowed it?"
This is interesting, but in my opinion doesn't matter. Japan is borrowing from itself, so if it is forced to pay back its own citizens in yen that has appreciated in value, its citizens probably won't mind. The problem is that as more and more of its budget is financed by borrowing, the probability of pronounced, uncontrolled inflation becomes a greater possibility. More than likely Japanese bondholders will be ruing the day they bought from their government.
" Lending standards and defaults are inversely related. The tighter the standards, the fewer defaults. Since the summer of 2007, there have been no more subprime loans and underwriting guidelines returned. The fact remains that after 5 years, new defaults continue to be high."
There is a lull between underwriting and default. I've seen some studies show that this lull can be 3-5 years. This makes sense, as it takes 1-3 years for the adjustable period of a typical sub-prime loan to end, and it takes a year or two before the default occurs. In that sense, Bernanke is probably right, that lending standards are still too high amidst high levels of defaults.
"Massachusetts provides best economic opportunity - survey."
"“The states that invest in their citizens...(have) better economies, which would go counter to the idea that we should strip down the size of government,” says one of the authors of the study." .
Later in the article:
"Massachusetts often ranks high in such reports because, while government spending might be higher, it has a concentration of top universities such as Harvard and the Massachusetts Institute of Technology, according to Alan Clayton-Matthews, professor in Northeastern University’s public policy and urban affairs school."
I think whoever produced this survey failed to account for some significant outlier factors. It would be interesting to see whether data on % of college grads state by state would correlate higher with economic opportunity than the bogus claim about higher spending. My understanding is that California spends about the same per capita to Massachusetts,and both Massachusetts and California spend far less per capita than Alaska, yet California ranked 30th in this survey, and Alaska only 19th.
"Finally, another major issue: Near zero interest rates makes it virtually impossible for Pension Plans to reach their absurd target of 8% annual appreciation. Already they are a ticking time bomb. When does that cripple the system???"
There was a strike in northern California, Raley's supermarkets - the parent company attempted to deal with a similar issue by denying retirees health care once they reach the age of Medicare/Social Security, among other retirement/pension issues. First strike in its 85 year history.
I don't think this issue will cripple the system, but many future retirees may have cause for concern.
I believe the lame duck Congress will kick the can to the incoming group in order to facilitate accountability and deal-making. I don't see any definitive game-changing deals until several months from now. At that point, I would imagine that pressure outside Washington will build steadily to the point where lawmakers will feel compelled to act, much like they did in 2011 during the debt ceiling debates.
Title: Intel: The No-Nonsense Reason It's Down
Stock price, 11/4/2011 - 23.74
Buffett announces INTC stake on 11/14/2011 (more than likely bought months beforehand)
Stock price, 8/10/2012 - 26.88
Buffett announces dumping INTC stake, 8/14/2012 (more than likely months before)
Stock price, 11/14/2012 - 19.94
Stock price, 8/19/2011 - 19.19
Throughout this time, INTC's outlook has changed little. It is still the dominant chip maker, it is still a quasi-monopoly, its earnings have grown as well as its dividend. P/E is below 10 again, and dividend yield is above 4% again, about where it was August 2011, before Buffett-mania touched this stock.
IMO INTC has done quite well despite being given the shaft by the world's most famous investor. Tablet computing certainly has led to a demand shift away from INTC's bread and butter, high-powered workstations. I see this as a temporary trend - computing's long term future is not about slimming down and reducing speed and power. INTC easily has enough cash to weather this storm, and it has little to no debt.
100% agree with your assessment.
Mr. Friedland,
Thanks for your well written article.
I have 3 questions for you:
1) Given your quote:
"I remain impressed by the company's strong cash position, which, as of the end of the September 30th quarter, was $608.6 million."
...what is your opinion regarding a XIN privatization, and management's antagonistic attitude towards it?
2) Are you familiar with Muddy Waters and Carson Block? Have you done and would you recommend that any investors looking into the US-listed-only China sector do similar due diligence as done by Block?
3) Given the prevalence of fraud found amongst other NYSE-listed-only Chinese IPOs that went the ADR route, what comfort should an investor get from such a listing?
"In addition, I would like to dispute the "prestige" and "goodwill" value for listing in NYSE. There are more than a dozen real estate developers listed in the Hong Kong Stock Exchange, and the difference in goodwill between listing in NYSE and HKEx is not that significant for mainland companies. "
Thanks again yiktin for providing a voice of reason and healthy skepticism. I'm continually drawn to the prospects of this company, in no small part due to sustained, low valuations levels I have never seen before in my 10 years of investing.
Personally, I see the NYSE argument as playing to the pride and hubris of its investor base, the US retail investor. After all, why would Chinese trust American institutions and safeguards more than Chinese safeguards, even though most Chinese can't even read English...? Only a wide-eyed, bushy-tailed, Bambi-faced American would believe that, I'm sorry to say.
You're asking excellent and pertinent questions that I've asked in the past. From my prior research:
http://bit.ly/Zqt0ka (XIN Q3 2011)
"CFO: If we bought back in current multiples and then listed it, let’s say a multiple of five times higher that would be profitable, but I have to reiterate the Chairman’s goal. Chairman’s goal is long-term, he likes being listed on the near expected exchange, it has its cost, but the parts he likes, he likes the discipline that comes with Sarbanes-Oxley (inaudible) he likes the – comes from the quarterly reporting like I'm doing right now. And he thinks it makes us a stronger company. "
When I read this quote, I immediately smelled a gigantic bucket of bullsh*t nearby. XIN was less than half the price it is today, making a buyout last year much more attractive than it is today, and like you said, a buyout with stated cash flow would be a piece of cake for this company if its earnings were real.
Anyone that has digested the P/E argument for this company needs to also consider historical cash flow. This company has taken in FAR MORE CASH than it has distributed during its life as a public company. Caveat emptor.
I can answer your question. For someone who earns below the mean, a larger percentage of their income is non-disposable. For someone who earns above the mean, much more of their income is disposable and thus discretionary. Those at the bottom would feel a "flat tax" dis-proportionally compared to those at the top, even though those at the top would end up paying a lot more tax.
A) earns $25,000 per year, spends $1500 a month on rent and food, insurance and other necessities, and $500 a month on transportation (car). Has about $1000 annually for discretionary income. After a 10% flat tax, is in the hole for about $1500 annually, zero discretionary income -- in fact, this poor soul is slaving his or her life away.
B) earns $75,000 per year, spends $3000 a month on rent and food, necessities and etc, and $1500 a month on transportation (a nicer car). Has about $21000 annually for discretionary income. After a 10% flat tax, still has about $14000 annually for discretionary income, enough to send a kid to college if he or she so chooses.
Generally speaking, there comes a point where the necessities of life take up less and less of a rising income, hence the justification of a progressive tax code. In order to prevent the lower brackets from drowning under an insensitive tax code, those at the higher brackets end up paying more.
My understanding of at least one criteria SA prioritizes for publishing is "actionable information". I believe if you can meet that key hurdle (which looks to be difficult for you at the moment), then they'd probably publish your articles, no sweat - your research looks like exactly what SA would want to publish on their website, good investments that are missing only the spotlight.
" Many consider the impossibility of running perpetual deficits under the gold standard as proof of its unsuitability to the modern economy. As I see it, this is precisely why the gold standard is so desirable and so badly needed today."
As always, a sorely needed voice of reason from Peter Schiff, thanks again.