E.D. Hart

Why Economists Have Downgraded Obama to Bush-Plus

Ironic that people complain that Obama is raising or will be raising taxes, when it was Bush who spent the surplus and dug much of the huge hole we are in, debt wise.

So, take a surplus, add massive debt over 8 years, and lower taxes. Then wait for the next guy to raise taxes to pay for all of your spending. Smart.

Guess what--if Palin and her cosmetologist were elected the president,and vice president, instead of Obama--we would have to have higher taxes.

Its preordained by the previous last 8 years of spending. Why blame just one party? Why not blame both parties and ask for fundamental reform?

$800 Billion: Too Much? Too Little? Yes.

There is plenty of blame to go around among the Republicans and the Democrats. The hypocrisy seems a little greater on the Republican side however. Economic security is every bit as important as national security, and arguably Republican policies (unregulated markets, new projects without oversight, bailouts for wall street, while fighting raising unemployment benefits), running larger and larger deficits, massive war spending.

There is plenty of irony, and hypocrisy to go around. But to criticize the Republicans doesn't make one a Democrat, or even an anti-republican. I know lots of good republicans who are furious at their party leaders for betrayal of they key Republican planks. Why cant you be a good Republican and excoriate the Republicans? They certainly have caused a lot of their own problems. Libertarians are about the most intellectually consistent politicians out there that I can see.

The Myth of Uncorrelated Return

This is one of the most cogent well written short papers Ive read in awhile. You have the natural selection analogy right--markets are constantly changing, and market participants are constantly adapting, or not. Their is no single investment strategy for all markets.

I would add that there is no such thing as risk free assets. Treasuries are in a bubble, and cash erodes by the real rate of inflation (significantly above the CPI).

Every asset class has risk. The trick is finding the best risk reward tradeoff--and investing accordingly.

7 Myths About Gold Debunked: Bubble Warning; $600 Target?

Your article was beautifully written, well documented, and mostly correct in the basic facts--and your conclusion was entirely wrong.
Here's another way to think about gold:

Real interest rates positive = falling price of Au (1980-2000 approximately)

Real interest rates negative = rising price of Au (2000-???)

As long as we have negative interest rates (and that looks to be for quite a while) we will see rising gold, and commodities generally.

For my purposes I don't rely on bureaucratic cpi which are bogus, but on adjusted real inflation as put out by shadowstats.com. Yes, I realize that the government reports low inflation numbers.

There will be corrections along the way--as we have seen in oil, and gold could drop 10-20% in a matter of weeks, but it won't be a bubble bursting; it could be dumping, Goldman Sachs-Government manipulation, IMF de-hoarding, etc.

Long term, we are in a golden bull market, and silver will be even better. Why? Supply and demand. Capital assets seeking a safe home in assets that rise with the deluge of dollars.

Instead, we are in a treasury bubble--look there for your bubble to burst. (buy TBT)

There is no bubble in gold , its a bull market and will remain one until we get a new fed chief; a neo-Volker to raise rates above the real rate (not cpi) of inflation. Look for that to happen in 2018-2020.

In the mean time, buy gold on the dips, and sell your eroding treasuries.

Here's Why Asia Must Eventually Ditch the Dollar

Sterling failed because the British Empire (two world wars and numerous skirmishes) along with numerous social programs had loaded so much debt on the balance sheet that the suspicion grew that the currency was more and more hollow.

Debt as a percentage of the British GDP ballooned in the 70's and only mitigated some because of the North Sea oil revenue. Sound familiar? Only difference is the US lacks oil revenue and is a net oil importer.
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On Oct 26 04:42 PM User 183836 wrote:

> So what was it that caused the Sterling to stop being used?
> GC

24 Trillion Reasons to Buy Gold

Socialism for the rich is alive and well in America.

5 Reasons Gold Is Going to Rise: A Response to Nouriel Roubini

"He was wrong then, but being wrong in the economics profession has never damaged anyone's career."

How true. Thanks for the insightful piece.

Why China Can't Dump U.S. Treasuries

China is between a rock and a hard place: neither selling treasuries, nor continuing to buy them at rates they have in the past is in their best interest. Buying more of the treasuries that are in a bubble is not in their interest as the value of those treasuries inevitably falls. Dumping them isnt in their interest either, as that would drive down their value.

What is the third way? The third way to invest their money going forward is to limit their treasury buying to a fraction of what they were buying and using the rest to diversify to a basket of currencies, commodities, and real assets that will hedge the decline of the dollar.

The author presents a false dichotomy, an either /or that doesnt accord with all available options. China doesn't need to dump treasuries for treasuries to fall, they merely need to slow the rate of their purchases, relative to the past.

Falling Dollar: Finally Front-Page News

Lets blame the Democrats and the Liberal Republicans equally for the fiscal morass. A 3 Trillion dollar Iraq war doesn't help our nations budget. 43 also instituted new medicare coverage that will cost new trillions. Lets blame both parties equally. Only the libertarians are unscathed.

Preserve Your Wealth with Precious Metals

A well written summary of many of the same points made repeatedly here at seeking alpha.

We are looking at the decline of dollar hegemony and incremental loss of purchasing power for at least a decade. Those who argue that credit collapse, excess capacity, and a decrease in the money supply are looking at the short term and the narrow view.

Sure, we might see deflation and drop in oil and gold by another 20%. But it will be short term-- one to two years at most.

Its much more clear to predict the economic landscape 5-10 years out than 1 year out because the fundamentals will drive the outcome in five-ten, but almost anything can happen in 1 year.

My bet is on continued decline of the dollar, greater inflation, and loss of US economic and political power as we must reel in spending. Its already baked in the cake.

Manipulation of the Gold Market

The statement that the inflation adjusted price of gold should be $2000-$2400 is based on bogus US inflation numbers. By my calculations, and relying on shadowstats.com to keep me informed with a constant CPI methodology, the real CPI inflation adjusted price of gold should be closer to $4000-$4500. I wish the author would cite the fact that the inflation adjusted gold price is itself twisted by government subterfuge. The gold price is manipulated and CPI is manipulated, together they give us a very cheery, and false picture of the economy.

Here's Why Asia Must Eventually Ditch the Dollar

Except that they think incrementally, and 50 to 100 years out. They already are de-emphasizing the dollar as reserve currency. It took well over 3 decades for the sun to set on the British Empire (read: the Pound Sterling), and we may be looking at two or three decades to replace the dollar as the worlds primary trade currency. Its already happening.


On Oct 26 02:43 PM Mad Hedge Fund Trader wrote:

> bdc Will people pleeease stop incessantly talking about the possibility
> of China dropping the dollar as a reserve currency? What else are
> they going to use? Monopoly money? Taiwanese dollars? Collectable
> postage stamps? At nearly $2 trillion, the Middle Kingdom’s reserves
> are so enormous that no other currency in the world could accommodate
> the switch, and no other security offers the necessary depth and
> liquidity but Treasury bills. Chinese attempts to buy anything in
> size causes its price to immediately skyrocket, such as we saw in
> the relatively Lilliputian commodity markets last year. And really,
> how like is it that China embarks on policies that quickly halve
> the earnings of the country’s exporters, as well as its 30 year
> hoard of accumulated savings? The demise of the dollar has been predicted
> more often than the ditching of Microsoft’s Windows as the global
> PC operating system, and is just as likely. Hate the greenback as
> much as you like, but there just isn’t any other alternative. I have
> been hearing these arguments ever since the US went off the gold
> standard in 1973. First there was a perennial Arab threat to price
> crude in a basket of currencies. Gee, they never seem to complain
> when the buck is going up. Then there was the speculated emergence
> of the “Yen Block”, in the eighties, back when Japan was dominating
> international trade and the yen was bumping up against ¥80 to the
> dollar. Remember the book “Japan as Number One? Ha! Double Ha! Then
> we got all that European whining after the launch of the euro when
> the weak dollar was everyone’s one way trade. Let’s face it, Europeans
> hate using someone else’s currency as the primary reserve instrument.
> Before the dollar, sterling was in widespread use and was equally
> despised. So rather than waste time discussing this issue anymore,
> let’s talk about something more important, like which of those two
> flies over there will jump off the wall first.

Potential COMEX Gold Fail

Hedge your bets. Armageddon need not break out to make money in gold. Because the gold market is so small compared to the rest of the money/credit pyramid, it would only take a small move down the pyramid to make a sizable upward move in gold.

The Myth of Uncorrelated Return

A person holding 25% gold, 25% 30 Year Treasuries, 25% Equities, and 25% real estate would have had a positive return over the last decade, even with the 2008 carnage.

Gold was up last year. In the eye of the storm, and its passing, gold shone last year, and is in a 9 year bull market. Silver will likely outperform gold going forward and silver is up some 80% this year.

Check out the Permanent Funds holding. I used asset diversification to gain a real return last year using gold, and gold derivitives. This is a nuanced issue, not simple to put into rules of thumb. I agree that the common view portrayed in the media and the brokerage houses is incorrect at the margins.

But, asset allocation does work--and yet not in the way that they oversimplify it. Targeted retirement funds are an example of oversimplified products for the financially uneducated masses that can be a horrible idea.

What good is an portfolio of 40% bonds, and 60% equities going to do me in a highly uncertain regulatory environment, with global macro and currency realignments going forward that may last the next ten years?

Asset allocation needs to be rethought as pertaining to dynamic/adaptive systems. I see commodities as an asset to mitigate some risk of inflation going forward.

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On Oct 30 02:45 PM mna wrote:

> E.D. - Perfect statement right there.
>
> I would disagree with the premise of the article above though. I
> think assets are uncorrelated, until when it really matters; everything
> is correlated when stuff hits the fan.
>
> In other words, asset diversification will not help you when you
> most need its help. It's not to say there's no value in diversification,
> it's just that you have to do value/risk calculations to see if it's
> worth it.
>
> Don't trust your broker to do your calculations either. Most are
> completely clueless and are just there to sell you financial products
> for commission. Don't believe me? Ask your broker next time about
> whats your value at risk for your portfolio and ask to see the math.
> You'll be met with many blank stares and attempts to sidestep the
> question. Are there good brokers that actually know there stuff?
> yes. but chances are, you don't have one.
>
> On Oct 30 12:28 PM E.D. Hart wrote:

Gold Not Faring Well Against Inflation

Golds peak is more like $4200 in inflation adjusted terms according to real inflation numbers from shadowstats.com and not the bogus numbers put out by the US government.

But so what if gold is 1/4 of its 1980 peak? That's irrelevant to me going forward. What is Microsoft in its inflation adjusted price?

It doesn't matter--only if its fundamentals look good going forward.

Golds fundamentals look excellent going forward--so its historical under performance is immaterial. In fact isnt that true of every investment or assett class?

Periods of out performance followed by under performance...don't invest using the rear view mirror.