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  • More on SocGen's bearish gold (GLD) call: The price is in "bubble territory," say the authors - driven there by fears aggressive QE would spur inflation. Instead, consumer prices have actually been trending lower for the last 2 years, and now economic conditions have improved to the point where the Fed can begin thinking about QE's end. "It seems unlikely that investors would want to add much to their long gold postions." [View news story]
    I continue to believe that the real danger continues to be deflation. That, of course, is the opposite of inflation - which is why most people have been buying gold. To those who ignore history, gold has always risen during periods of deflation. We are perhaps now at a transition point where people no longer fear inflation, but do not yet fear deflation.
    Apr 2, 2013. 03:40 PM | 1 Like Like |Link to Comment
  • The Debt Paradox That Everyone Should Be Aware Of [View article]
    " is not necessary for the government to borrow or tax in order to fund its operations..."
    If that were true, there would be no borrowing and no taxes. Money would indeed grow on trees.
    That's right up there with those who think that minting a $3 trillion platinum coin (why bother with platinum, other than it sounds nice) to solve all our problems.
    Some printing of currency is always possible, so long as the amounts are relatively small and it is done for a short period of time.
    This has been done steadily throughout history; the problem is that once started it is hard to stop and there are no instances -so far - when it was stopped in time to avoid a major crisis.
    Unless you believe in the tooth fairy, wealth can only be created by work and the production of goods and services.
    Mar 14, 2013. 12:19 PM | Likes Like |Link to Comment
  • The Debt Paradox That Everyone Should Be Aware Of [View article]
    The idea that there is not a Social Security Trust Fund is crazy. Currently (as of 12/31/2012) the Trust Fund holds $2,733,073,581 of US Treasury interest bearing obligations which are just as creditworthy as US Treasury Debt held by the public, although they are not marketable. The amount and interest rates are listed on the Social Security website.
    What confuses people is that when the Trust Fund buys government bonds, the Treasury gets the money and just like the proceeds of publicly offered Treasury securities the government receives the proceeds that are now fungible with all other resources.
    Absent some bizarre change in law, the Trust Fund's assets are just as safe as any other Treasury Bond. The doubters should ask themselves if there is an investment that is less risky than Treasury securities. I would argue that there is not as the Treasury can print the money to redeem its obligations.
    Whether or not these bonds may have more or less purchasing power than some other asset is another matter.
    Mar 9, 2013. 12:59 PM | 1 Like Like |Link to Comment
  • Investment Banks Are Now Very Confused About Gold [View article]
    In any bull market, like any bear market, short-term sentiment waxes and wanes and that is reflected in the market averages. National markets will tend to reflect national developments while gold will be impacted by worldwide developments and its performance is different depending on the currency in which it is followed.
    Long-term, gold has had an excellent run in all currencies and has done a good job of reflecting the what has been happening in the economies of the developed world; and, not incidentally, over the last decade has outperformed the developed world's equity markets by a considerable margin.
    What happens to gold is about what happens to debt in a world in which all currencies are also debt, but debt that has no maturity. To the extent that debt remains sound, economies will flourish and real growth will result. To the extent that debt becomes excessive, economies will stagnate and growth will be minimal if not negative.
    In that environment, gold will flourish, principally because it is not debt and its purchasing power does not depend on somebody's ability to repay it.
    To the extent one believes that sound money has returned or that its return is imminent, there is no reason to have gold; on the other hand, if one believes the opposite, then there is every reason to have gold. That's really all one needs to know and all that one needs to have is patience - until there is no longer a reason to hold gold.
    Mar 3, 2013. 03:48 PM | 5 Likes Like |Link to Comment
  • The Debt Paradox That Everyone Should Be Aware Of [View article]
    I agree. The point that I was making is that the Trust Fund will be spending the the money currently in vested in US Treasury obligations and that's why it should be accounted as part of the US Government, because that debt is no different from the from the debt held by the public. The fact that it is held by a government entity on behalf of third parties should not permit it to be disregarded as an inter agency obligation. Bottom line, our real debt is $16.4 trillion+ and not the lesser amount generally cited.
    Mar 1, 2013. 01:47 PM | 3 Likes Like |Link to Comment
  • The Debt Paradox That Everyone Should Be Aware Of [View article]
    Not so fast. The debt (approximately $3 trillion) held by the Social Security Trust Fund in the form of non-marketable Treasury Securities will be needed to pay benefits regardless. Changing the age requirements or means testing benefits will not have very much impact in the near term. Let's not forget that the money being paid out already exceeds the money being paid in so the $3 trillion Trust Fund is already being drawn on (NY Times, March 24, 2010).

    As for printing dollars, you are right; but in global markets doing so will cause interest rates to rise - which would be catastrophic. So far, the Treasury has been able to keep rates low through QE and much of that money has not been "used" which has been keeping velocity at low levels. The paradox is that if the Treasury is successful at restoring confidence, velocity will pick up and interest rates will soar. There is already way too much latent purchasing power out there.
    Feb 28, 2013. 12:47 PM | Likes Like |Link to Comment
  • Has The Gold ETF Bull Market Run Its Course? [View article]
    Those of you who think that sound money policies are back should not own gold because gold never does well under those circumstances; those who think otherwise should make and/or keep gold investments. I would also add that we should all realize that prospective events occur seemingly slowly, while retrospectively, events appear to have progressed very rapidly. "The Great Crash 1929" by John Kenneth Galbraith is a good read (for all who have not read it) and demonstrates the seeming speed of events that were really spread out over the course of some five years.
    Jan 19, 2013. 05:48 PM | 1 Like Like |Link to Comment
  • Gold And Silver Outlook For January 14, 2013 [View article]
    I am not sure what point fishfryer or jklk0429 are trying to make. "Petrodollars" simply refers to dollars held by OPEC members as the result of the sale of petroleum products and are represented by deposits in US banks regardless if they have been exchanged for other currencies or converted into Eurodollars. We buy oil in our currency and others generally choose to purchase oil in dollars because the dollar is the world's most liquid currency and the most frequently used in international trade. All purchasers of petroleum products look at the cost of petroleum in the context of their own currency, regardless of the currency used to settle the payment and it is not unusual for the cost of crude to be rising in one currency and falling in another.
    Jan 17, 2013. 09:51 AM | 1 Like Like |Link to Comment
  • Gold And Silver Outlook For January 14, 2013 [View article]
    There is no such thing as a petrodollar. Let me explain: all dollars are deposits held by US banks or US branches of foreign banks. "Eurodollars" (and the wrongly named petrodollars - which are eurodollars) are created when a foreign entity buys something in US dollars. This purchase always creates a deposit with a US Bank. Should the owner of that deposit wish to invest it with a non US bank, that dollar is not put on a plane and flown abroad; instead, the US bank changes the ownership of that deposit from its original owner to the foreign bank (this is known as a "due to" the foreign bank. The foreign bank now has a new asset (a "due from" the US bank, and a new liability in a like amount to the original owner of the deposit in the US bank. Those new assets are called eurodollars, even though the foreign bank may not be European.
    "Petrodollars" are typically eurodollars owned as a result of the sale of petroleum products to the extent that the deposits created by such sale were exchanged for eurodollars, as described above.
    Alternatively, the original owner of the deposit may want to own a foreign currency. In that case, the deposit will be assigned to someone in exchange for foreign currency. But the deposit always remains with the US banking system. And if the foreign currency remains with the US bank, it will be in the form of a "due from" a foreign bank.
    That is a slight simplification of the process, but necessary to the understanding of what actually takes place. The success of the US dollar is based on foreigners' willingness to hold deposits at US banks. Were they to sell them all for foreign currency, the dollar would fall.
    Jan 16, 2013. 10:07 AM | Likes Like |Link to Comment
  • The Bundesbank is repatriating at least part of its gold from New York (where 45% of the country's reserves are held) and Paris (11%), according to Handelsblatt. Steve Liesman says the Buba has confirmed the story, and the amounts are to be announced tomorrow. [View news story]
    The real question is why are they repatriating. I mean really why, not what they tell us. There is a message here.
    Jan 15, 2013. 12:10 PM | 4 Likes Like |Link to Comment
  • Gold And Silver Outlook For January 14, 2013 [View article]
    In these transactions, the dollar only serves as a means of exchange. You can buy any currency and gold with dollars and use that to pay for crude (or anything else for that matter). Bottom line, we don't care whether our currency us used or not. The Japanese, for interested in what the cost of crude is in yen, not the instrument that they choose to use to pay for it.
    Jan 15, 2013. 10:36 AM | Likes Like |Link to Comment
  • Gold And Silver Outlook For January 14, 2013 [View article]
    It is hard to look at any investment in a very short term context and that is particularly true with gold. Unlike most investments, gold is a hedge against "loose" money policies and, unlike most investments, does not have attributes such as earnings, cash flow or operating risk that serve to help in the analysis of its likely performance in the market. What impacts its performance are macro trends and events that are generally attributable to the economic policies of nations.

    The real attraction of gold today comes from long-term economic mismanagement in most of the developed world and the excessive levels of debt that have been allowed to accumulate. When usually wise and sane economists and treasury functionaries publicly suggest that the debt crisis can be solved by minting trillion dollar platinum coins or tearing up Treasury securities held by the Fed, you know that they are either desperate or not thinking. It does not take a college degree to figure out that if it were possible, there would be no need to collect taxes to cover government expenditures! That suggests to me that we are nearing the end of the "loose money" era and that the ending will not be managed or controlled, but rather, imposed by the market and thus disorderly.

    Beyond soon, it is very hard to know when this will happen, but you will want to own gold when it does as buying it then will be expensive.
    Jan 14, 2013. 09:56 AM | 2 Likes Like |Link to Comment
  • Where Are We In The Secular Bear Market? [View article]
    I think that your point would be stronger and more apparent if you adjusted your charts for inflation. Had you looked at, say, Zimbabwe, your chart would be rising sharply as everybody was losing their money. Weimar Germany in the 20's is another example.
    It is unfortunate, but understandable that most investor advisors look only at nominal movements in the market, but even more unfortunate for those who do not realize that much of their gains are illusory for all but the government who taxes these illusory gains anyway.
    I believe that most people invest because they want to increase the purchasing power of their assets and if so should look only at real returns.
    Jan 9, 2013. 04:09 PM | Likes Like |Link to Comment
  • 2013: The End Of Gold's 12-Year Winning Streak [View article]
    It's really pretty simple: when sound money policies are pursued, gold languishes, when they are not, gold flourishes. If you think that we (or anyone else in the developed world) is pursuing sound money policies, you should not invest in gold. Those who think otherwise should invest in gold. History will show that it is invariably a winning investment in those circumstances.
    Jan 6, 2013. 11:22 PM | 7 Likes Like |Link to Comment
  • The central thesis of gold bugs - that the Fed has lost control of the money supply - is now "in tatters," writes Dennis Gartman. The bulls only hope is a more dovish FOMC in 2013. It may be so at the margin, but not materially so, he says. Gold -1.8%, but - as they say - off the lows[View news story]
    The real problem is that at some point money printing causes interest rates (swap rates, actually) to turn up. At that point, the die is cast and debt service becomes increasingly expensive, consuming an ever larger portion of revenues. Eventually, default is the only option. Latin America offers plenty examples, but so does Europe without needing to go further back than a single century.
    Sovereign defaults are a much better reason for purchasing gold than the simple fear of inflation.
    Jan 4, 2013. 05:00 PM | 2 Likes Like |Link to Comment