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Joshua Brown has heard from just the three people he needed to convince him that gold is frothy...

Joshua Brown has heard from just the three people he needed to convince him that gold is frothy - Jim Cramer (calling for a 20% allocation), Richard Russell (saying gold's in "speculative" phase), and his mom.
Comments (37)
  • kaa1016
    , contributor
    Comments (176) | Send Message
     
    Cramer is a joke. I was buying gold stocks in 2002 back in the days of Tom Calandra of CBS Marketwatch when he was one of the first calling for a bull run in gold. Anyone remember Ivanhoe Energy? Anyway, gold was around $300/oz. Now it's it $1400 and even the cool kids are talking about it now. If we see another credit crisis caused by sovereign debt restructurings or defaults, gold and silver are going to get destroyed. There is way too much speculative "hot" money in precious metals. The dollar has bottomed now it's time for further credit deflation causing risk reversal in everything. It's just a matter of time.
    12 Nov 2010, 06:33 PM Reply Like
  • Billyaustin
    , contributor
    Comments (2) | Send Message
     
    How would another crisis crush Gold and Silver. It would at first like it did last time ( silver hit 9 ) but it will recover stronger. If we have another crisis, it may be the last, as there will be nothing left BUT PM and Commodities. I personally think you could invest ONLY in Commodities over the next 20-30 years and you wouldn't loss in the long term. China, India, and other upcoming countries have so many people moving to the middle class it is almost ( I say that lightly ) a no brainer.
    12 Nov 2010, 08:45 PM Reply Like
  • earl880
    , contributor
    Comments (137) | Send Message
     
    And part of the huge drop in silver back then was JPM manipulating the silver market. Global stagflation is the name of the game now, and gold is going nowhere long term but UP.

     

    When the DOW-Gold ratio hits 2-1... then it might be time to start looking for the door. Not now.
    12 Nov 2010, 09:50 PM Reply Like
  • ChartProphet
    , contributor
    Comments (142) | Send Message
     
    I agree. The dollar may rise, commodities should fall, gold and silver need to correct.
    seekingalpha.com/artic...
    13 Nov 2010, 02:49 AM Reply Like
  • kaa1016
    , contributor
    Comments (176) | Send Message
     
    Let me explain. If we get another situation where the credit markets freeze up, there will be a rush into the deepest and most liquid market on the planet, the US debt markets, particularly the short term duration. Look at the 6 months after Lehman went bankrupt and again in May of this year with the Greek default fears. People consider that a flight to safety, but in reality it's a flight to liquidity. We are in a highly correlated environment where when the dollar rallies sharply, every other asset class gets sold. The reason why is due to de-leveraging. When you de-leverage, you're pulling credit out of the system and with the dollar being the global reserve currency in a debt backed monetary system, all assets that are priced in dollars and employ high amounts of leverage fall disproportionately more than the rise in the dollar, especially commodities. This is the reason for Bernanke's QE2. He's trying to weaken the dollar knowing that the risk further monetary deflation is extremely high. It's all about propping up the debt Ponzi scheme. Has anyone ever wondered why central banks and governments have done everything that they can to make sure that debt holders are made whole? It's because they know that with extremely high debt loads, credit deflation would be a sort of check mate for the current global monetary system.

     

    My point is gold has had a hell of a run and will continue to do well, IF, there is credit inflation in the near term. With certain countries in Europe at risk of imploding, a higher Euro isn't helping, what I think is more likely, and Bernanke probably sees this as well, is continued de-leveraging causing credit deflation. If we see a situation where the global debt situation turns into a crisis, gold and all other risk assets, especially after the run that they've had will fall substantially more than most people expect. After that, I would re-evaluate and see where things are priced.
    13 Nov 2010, 10:40 AM Reply Like
  • filipo
    , contributor
    Comments (4202) | Send Message
     
    @kaa: Unless one fires Uncle Ben and reanimates Federal Reserve Chairman Paul Volcker to change policies and start dramatically raising interest rates, I see no chance of a long lasting deflationary environment taking place.

     

    John Mauldin once pointed out: as soon as you get your appointment as a Federal Reserve Chairman, they nowadays take you in a back room, do some major surgery on your brains and out you come as a fierce warrior ready to fight deflation.

     

    Have you recently seen Paul Volcker these days ???
    Neither did I, so I keep my gold.
    14 Nov 2010, 02:08 AM Reply Like
  • kaa1016
    , contributor
    Comments (176) | Send Message
     
    @filipo: What you're saying makes absolutely no sense. You're saying that the Fed would have to raise rates to cause deflation? Is that right?
    15 Nov 2010, 11:14 AM Reply Like
  • filipo
    , contributor
    Comments (4202) | Send Message
     
    @kaa1016
    yes
    15 Nov 2010, 05:11 PM Reply Like
  • kaa1016
    , contributor
    Comments (176) | Send Message
     
    You don't need higher rates to cause deflation. What the Fed is trying to do is cause inflation in order to fight deflation. Most people confuse price inflation (higher prices for goods that we purchase like gas, food, etc.) and monetary inflation (an increase in the money supply that is passed through the economy through an increase in monetary velocity). What we saw at the height of the credit crisis and what the Fed is trying to avoid is monetary deflation where credit is destroyed at a faster rate than can be created. Look up liquidity trap. In a credit based economy, deflation is something that is near impossible to break free of. You can't force people to borrow money, regardless how low interest rates are. As long as the monetary velocity is as low as it currently is, the Fed can print all the money in the world and it's not going to stop the de-leveraging that is happening and needs to happen in order for the economy to grow again.
    15 Nov 2010, 08:11 PM Reply Like
  • filipo
    , contributor
    Comments (4202) | Send Message
     
    @kaa1016
    I'm aware of the difference.
    However, monetary inflation (according to von Mises & alii the only true form of inflation) often causes price inflation, hence the confusion.
    Some economists (Keynes & alii) go even as far as to define inflation as price inflation, what in my view is wrong.

     

    Now, concerning the interest rates. If, in a "normal" economic situation the CB lowers the interest rates, people will be more willing to borrow, Banks will be more willing to lend (their Leverage will rise, so will the Monetary Inflation) and consumption will develop.
    Not only M3 will grow, expanding the monetary Base, V (The "V" in the Fisher Equation) also will, causing also Price Inflation.

     

    The reverse (raising Interest Rates, or what they do in China, compel Banks to hold a larger Banking Capital and hence practice less Leverage) causes the reverse: excess Money (M3) is mopped away, the Monetary Base shrinks, causing less Monetary Inflation, people take less loans because Money gets more expensive and finally (but that can take awhile, look at the seventies) Price inflation stops and can even, if interest rates stay too high too long, turn into Price Deflation (ask the US Farmers in the eighties).
    16 Nov 2010, 11:19 AM Reply Like
  • kaa1016
    , contributor
    Comments (176) | Send Message
     
    @ filipo: We are in anything but a "normal" environment. The world is flush with excess debt that can only be brought down through repayment (unlikely), restructuring or default. The world needs to de-lever. Credit is being destroyed faster than its being created which is why the Fed fears deflation over inflation. As credit is reduced with the dollar being a debt backed global reserve currency, a lower supply of dollars increases its value against everything else where the price is denominated in dollars. That means lower asset prices, stocks, gold, etc. Lower interest rates are useless in an environment where people don't want to borrow. As long as people are de-leveraging, there's nothing that the Fed can do. We are seeing the end of a 30 year period of over-consumption and excess credit. This is not a 1 or 2 year event. This will go on for at least the next decade. Just ask the Japanese.
    16 Nov 2010, 11:48 AM Reply Like
  • filipo
    , contributor
    Comments (4202) | Send Message
     
    @kaa1016:
    Again, I'm aware, that's why I placed "normal" in brackets.
    However, I consider the "abnormality" of the current situation different then you do.
    What you describe is a normal deflationary situation, the result of a normal deleveraging mechanism after the normal building (leveraging phase) up of a huge stockpile of debts (since 1981) and the normal reaction of the Fed (at least to a certain point, f.i. lowering interest rates, not monetizing - I come back to that point).

     

    The reason why I placed "normal" in brackets, is:
    1/ US interest rates are abnormally distorted by actions of the Fed (monetizing the Debt this excessive way keeps rates artificially low, too low; negative interest rates are nonsense and cause economic harm);
    2/ Capital drain out of US economy by an abnormally long lasting negative Trade Deficit, mainly due to the chronic Chinese Yuan-$ peg, causes an equally chronic Shortage of Credit in the US (in a normal economic situation, the currency of the nation that has a Trade Deficit experiences its currency to plummet, allowing that nation to resurge as an exporter);
    3/ Delocalisation of labor: US companies go abroad, pay taxes abroad, pay wages abroad, do investments abroad, not adding value to American GDP (except if they repatriate capital, but that's redundant);
    4/ The US is at war, adding still more Debt, more Credit Shortage. Investing in military equipment and using it is a costly affair and it doesn't pay back.

     

    Your words:
    "That means lower asset prices, stocks, gold, etc."
    I agree for stocks and most asset prices.
    The reason I don't agree for gold is that in a deflationary environment as the one you correctly described, Banks tend to go bust (how many in the US this year ?) and Corporates tend to go bust, all raising unemployment and social unrest... These events are not favorable for general trust or stability. Actually they cause widespread unrest, high volatility in equities (VIX-factor rises) and currencies, fear for war... a highly favorable situation to make gold attractive. Look at the chart of the Gold Price in the thirties, it soared.

     

    Your words:
    "Lower interest rates are useless in an environment where people don't want to borrow."
    Right, but imagine Interest Rates 20% higher (meaning 20% of f.e. 2% = 2.4%). What a blood bath there would be among people not being able to pay back their mortgages.

     

    I did ask the Japanese. And here's what they told me: one of the main reasons of Japanese economy (mostly Industry) not willing to recover is Delocalisation at a scale even more impressive than what happens in Europe and the US now.
    Every single Japanese Company fled Japan and started producing in neighbouring Asian countries (China, Vietnam, S.Korea, Taiwan, India, Indonesia, the Philipines, you name it), attracted by low wages.
    If everything would have been "normal", Japanese QE would have worked out all right. Now, it didn't, Japanese GDP stayed anaemic, credit was drained away, the Carry Trade causing further distortion and negative feedback loops.
    16 Nov 2010, 01:34 PM Reply Like
  • kaa1016
    , contributor
    Comments (176) | Send Message
     
    Gold is becoming another speculative financial instrument attracting huge amounts of capital due to a massive amount of non-traditional players, just like oil when it exploded to $147. Some of the smartest people in the world were calling for substantially higher prices with some of the soundest logic backing up their predictions. Within a year oil was at $35. Gold was hit as well. What stands out, the credit crisis. The amount of money in the financial system was decreased by roughly 40%. I'm saying at this price, with the recent moves and obvious leverage involved, as the dollar gets stronger due to problems in Europe, gold and all other PM's will drop hard and fast. If you want to own gold, own it in Euro's. When that hot money comes out, look out below. Just look at the last week.
    16 Nov 2010, 01:59 PM Reply Like
  • filipo
    , contributor
    Comments (4202) | Send Message
     
    @kaa1016
    Your words:
    "Gold is becoming another speculative financial instrument attracting huge amounts of capital due to a massive amount of non-traditional players, just like oil when it exploded to $147."

     

    I consider Gold as the mirror of the shape of a currency.
    If you increase the Monetary Base x 8 (that happened between 2001 and now), you call for inflation (monetary inflation, not (yet) price inflation.
    So the Gold Price should surge x 8. Take a modest $250/oz as a start, and you get $2000/oz, by chance the figure some gold pundits would like the Gold to get to.
    That's my mathematical Logic. You call it a speculative financial instrument, your problem.

     

    Your words:
    "Some of the smartest people in the world were calling for substantially higher prices with some of the soundest logic backing up their predictions. Within a year oil was at $35."
    I suppose you mean "...were calling for substantially higher OIL-prices..."
    Well, I didn't, because in a deflationary environment resulting from deleveraging after a Debt backed Credit crunch, it's Logical oil-prices collapse. Oil has no monetary relevance, only an economic one and if economy shrinks, oil price shrinks (people get unemployed, drive less cars, factories get closed and consume less energy...). As soon as the Subprime Crisis started, I knew the oil price would plummet.
    But wait ! He won't stay low forever, the Chinese will make him soar again.

     

    Your words:
    "Gold was hit as well."
    How long did that last ?

     

    Your words:
    "The amount of money in the financial system was decreased by roughly 40%."
    You could not be more wrong. Money once created, doesn't disappear. It gets reallocated and it resurges at times and at places you don't expect.

     

    Your words:
    "I'm saying at this price, with the recent moves and obvious leverage involved, as the dollar gets stronger due to problems in Europe, gold and all other PM's will drop hard and fast."
    The problems in Europe will go by. Europe is in the phase of being built and this building needs crisis situations to get effective.
    Last year, how many times did the € plummet and surge a few weeks (days) after, when Euro-crats reached one or other (to the markets) sensible agreement ?
    I don't expect the $ to get stronger vs the € on a permanent basis. I see no reason why it should. American trade balance negative; Yuan-$ peg pulling the $ down; Costly Wars with no issue; Uncle Ben monetizing at 200mls/h...
    Give me one good reason why the $ should rise.
    A cheap $ is a hedge for gold... for the moment.
    16 Nov 2010, 03:50 PM Reply Like
  • kaa1016
    , contributor
    Comments (176) | Send Message
     
    One last thing and then I'm done. You just said that money once created it doesn't disappear. You could not be more wrong. Do you understand that in a debt backed monetary system, credit is money? Once you reduce credit, you reduce the amount of money. Most people have a complete misunderstanding of our monetary system. In any case, enjoy. It's been fun...
    16 Nov 2010, 04:03 PM Reply Like
  • filipo
    , contributor
    Comments (4202) | Send Message
     
    @kaa1016:
    Your words:
    "You just said that money once created it doesn't disappear. You could not be more wrong. Do you understand that in a debt backed monetary system, credit is money? Once you reduce credit, you reduce the amount of money."

     

    There are two possibilities:
    1. You meant actualized Credit, say existing Debt. Please tell me how you are going to exterminate that, except through defaulting or put greenbacks afire ?

     

    2. You meant new Credit, not yet existing Credit, say potential Debt. I agree that if you reduce new credit, you will make less new Debt than was made in the past. In other words, the amount of additional Debt will slow down.
    But that doesn't imply you reduce the stockpile of EXISTING Debt or Credit or Money. Once created, the Exististing Money won't disappear.

     

    I can only agree with:
    "Most people have a complete misunderstanding of our monetary system"
    16 Nov 2010, 04:41 PM Reply Like
  • If U Say So
    , contributor
    Comments (349) | Send Message
     
    Cramer getting big time bullish on gold is a step beyond a palm reader asking me about gold. Nevertheless, there will likely be more buying on the dip thus limiting the downside.
    12 Nov 2010, 06:48 PM Reply Like
  • Venerability
    , contributor
    Comments (3043) | Send Message
     
    I just LOVE all the sudden rash of Gold-bashing stories and comments.

     

    That one is particularly silly.

     

    Not only is sentiment NOT overly Bullish on Gold - or commodities in general - I'd say it's overwhelmingly Bearish the last few weeks, among the only audiences which count - those actively participating in these markets.

     

    The ratio at Seeking Alpha, for instance, seems to be 12 or 13 - possibly even 14 - "Gold Is in a Raging Bubble and About to Be Given Away on Street Corners" stories for every modest "I Hate to Be So Forward, But Gold is Really Not That Yucky" stories.

     

    Bulls tend to be glad this is the case.
    12 Nov 2010, 06:54 PM Reply Like
  • Anwar Bhamla
    , contributor
    Comments (98) | Send Message
     
    When Cramer says put 20% of your assets in precious metals, it is time to sell. Just wait a few days as the fools that follow him, drive the price up (temporarily).
    12 Nov 2010, 07:11 PM Reply Like
  • earl880
    , contributor
    Comments (137) | Send Message
     
    Cramer is probably short gold now b/c he sees the dollar has bottomed and he's trying to sheer some sheep. But I would be shocked if he does not have a major allocation in the metals. Remember, short term, whatever Cram-it and GS say, do the opposite. Long term, knucklehead will be right. Say, in a month, tops.
    12 Nov 2010, 09:53 PM Reply Like
  • RG
    , contributor
    Comment (1) | Send Message
     
    In response to Anwar Bhamla, for the sake of accuracy...
    Cramer has been recommending a 10-20%, but no more than 20%, allocation in gold for quite some time, not just recently, as you would have us believe. So if (your disdain for) JC's advice is your sell indicator, you would have sold months ago, if you took your own advice. Cramer always recommends people do their homework. You misrepresentation indicates you would do well to do yours.
    13 Nov 2010, 12:11 AM Reply Like
  • Richard Mackenzie
    , contributor
    Comments (453) | Send Message
     
    I'm still good on Gold, but when Cramer said it wouldn't be topping or frothy until the average investment portfolio had 5% Gold in it... Wow! I don't think there's that much Gold in the world! (He said the current average was about 0.5%)

     

    What do you think about the "inflation adjusted" price of Gold being so low by historic standards. Buying that as valid to our situation?
    12 Nov 2010, 07:15 PM Reply Like
  • Hendershott
    , contributor
    Comments (1621) | Send Message
     
    So far the ground is littered with the corpses of pundits calling the top in gold, and the bottom in the dollar and the top in the stock market. Eventually someone will be right though.
    12 Nov 2010, 07:20 PM Reply Like
  • hayekvonfriedman
    , contributor
    Comments (647) | Send Message
     
    kaa1016: Please explain how another credit crisis will cause gold and silver to get destroyed?
    12 Nov 2010, 07:20 PM Reply Like
  • cbc
    , contributor
    Comments (411) | Send Message
     
    I troll the comments but comments about cramer's opinions are not worthy of seeking alpha. Thumbs down welcome.
    12 Nov 2010, 07:43 PM Reply Like
  • Jay H. Owen
    , contributor
    Comments (7) | Send Message
     
    I still like metals.
    12 Nov 2010, 08:01 PM Reply Like
  • dondon
    , contributor
    Comments (290) | Send Message
     
    Did Joshua Brown hear from Ben Bernanke? Did Ben suddenly decide tell Joshua that monetizing the debt was not going to happen? Did Ben tell Joshua he was raising interest rates soon? Did the Chinese tell its citizens to sell all of their gold? Has Saudi Arabia stopped buying gold?

     

    Nothing has changed that would make gold go down to 1999 levels. Yet everything is still in place to allow gold to continue to climb. One week or two maybe even three weeks of consolidation and it will continue to climb. I am long physical gold and will be for probably several years. I look forward to pauses and down days as it gives me an opportunity to buy more.
    12 Nov 2010, 08:46 PM Reply Like
  • The Geoffster
    , contributor
    Comments (4221) | Send Message
     
    Lots of leveraged liquidity goosing the markets is causing volatility in precious metals. The dollar is toast as is the U.S. economy. The fiat gangsters are manipulating gold and silver just as the Fed is manipulating the dollar. Don't be fooled. Gold and silver will secure your future.
    12 Nov 2010, 09:26 PM Reply Like
  • earl880
    , contributor
    Comments (137) | Send Message
     
    The talk of gold being in a bubble is foolish. About 1% of investors are invested in gold and silver. 1%. Does that sound like a bubble to you? I do believe that the dollar is in a brief turnaround mode right now and that gold may drop to 1250. That's about it. Then we're off to the races again.
    12 Nov 2010, 09:46 PM Reply Like
  • bricki
    , contributor
    Comments (1099) | Send Message
     
    Gold is clearly in a bubble. Ads on TV offering to buy gold were last seen during the last gold bubble in 1980. Newspapers where I live are reporting arrests of gold dealers for using rigged scales.

     

    The bubble will burst. What will the price be when that happens? Who knows. But when it happens the rush to the exits will be unimaginable.

     

    What I do know is that the bagholders are going to be small inexperienced investors. Like the people who read this message. That's the way it always is.
    12 Nov 2010, 11:16 PM Reply Like
  • dondon
    , contributor
    Comments (290) | Send Message
     
    Inexperienced investors quite often get burned. It is what makes them experienced. Those of us that hold gold as a store of value aren't really concerned one way or another about the daily fluctuations of the spot price. I have been buying gold and silver since the '70s. Yes the price will go down and yes the price will go up but if you think I will be rushing to the exits when it goes down, then you do not understand why I hold gold.
    13 Nov 2010, 01:57 AM Reply Like
  • Mr. Ed, Jr.
    , contributor
    Comments (745) | Send Message
     
    Is gold a bit "frothy" ? OK.....that may be true. And Cramer's endorsement of the metal set off mega-alarm bells at my house (wired to alert whenever Cramer likes anything I have more than $25 invested in)

     

    But we have years of sovereign crises left....Ireland is in the batter's box now....other PIIGS are crowding the on-deck circle....Bernanke has installed a brand new Twin-Turbo Moneyprinter that does not have an "off" switch...

     

    Also, the author is not suggesting gold has neared its peak-- but only that it is starting to get attention. This is how the housing bubble got rolling, as you may recall.....Before too long, "Mom", Aunt Betty and half the neighborhood were flipping condos. The other half of the neighborhood was camped out overnight at the new homes sales office, afraid of being left out.

     

    During the tech stock bubble, do you remember how many people were giving you stock tips ? It was hard to tell if it was a tech bubble or a stockbroker bubble.

     

    Soros is right about this one-- The gold bubble will be the ultimate bubble. It will be something to behold. Gold is not overheated-- it is just warming up.
    13 Nov 2010, 02:55 AM Reply Like
  • Saint Poodle
    , contributor
    Comments (133) | Send Message
     
    Not all the banal things are wrong. Listen to your mom, you bad boy!
    13 Nov 2010, 05:38 AM Reply Like
  • Venerability
    , contributor
    Comments (3043) | Send Message
     
    A dozen thumbs down for pointing out Seeking Alpha has way too many Gold-bashing stories?

     

    Doesn't that prove I'm right?

     

    (I'd be thrilled if they started printing the headlines in red with pictures of little monsters or devils. The shriller the Bears get, the better we do.)
    13 Nov 2010, 05:47 AM Reply Like
  • filipo
    , contributor
    Comments (4202) | Send Message
     
    Some reasonal reason to be skeptical about the Gold Bears:

     

    www.ibtimes.com/articl...

     

    Those Indians talk business: +67% increase of gold demand YoY in H1 2010.
    "In 2009, total Indian gold demand reached 15 percent of the global gold market to 974 billion rupees ($19 billion). Over the past decade, the value of gold demand in India has increased at an average rate of 13 percent per year, outpacing the country’s real GDP, inflation and population growth by 6 percent, 8 percent and 12 percent respectively."

     

    The question is, is this dumb money or smart money ?

     

    www.ibtimes.com/articl...

     

    Some would call it unsophisticated money.

     

    In the meantime one has given us something to muse about in the weekend: a backlash of -4% (in €-terms) of the gold price on Friday.
    13 Nov 2010, 09:26 AM Reply Like
  • erniem
    , contributor
    Comments (572) | Send Message
     
    Buy it and hold it. If you think you can buy gold today and profit in a week or month, you're delusional. Gold has been the single best investment I have made, aside from buying McDonalds at $14. However that's because I buy and hold. I have bullion from 1979 in my safe deposit box.
    14 Nov 2010, 12:19 PM Reply Like
  • hayekvonfriedman
    , contributor
    Comments (647) | Send Message
     
    Even a broken clock is right twice per day...Jim Cramer is right this time.
    14 Nov 2010, 05:56 PM Reply Like
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