oldgoldbug

Window Dressing for the Markets

Ah macro man, I see the furry suit all tattered and torn as the equity market moves up to nominal highs. Keep the faith! The SPY looks so toppy when compared to the farther up moving "barbarous relic". The recent nominal highs are likely to "be it" for awhile.
Your negative Tbill yield fits nicely with my hypothesis that some semi-smart fellows might be abandoning all ships as GLD is up over 20% since Sept 1 and SPX is up 20%+YTD. TLT refuses to crash, giving encouragement to park in dollars for the totally unexpected bounce.

Why the Stock Market Should Crash

Sorry to be so late to the party. I think the author is correct. In fact it looks to me that GLD (111.35) is likely to stall/fall and common stocks (SPY 109.72) are ripe for a good sized drop. The commenter who mentioned SPY puts is right - if you don't want to sell at least buy some cheap insurance.

Equity Gains by U.S. President: The Problem with Linear Thinking

I find this article quite valuable as it clearly shows the very important impact of reinvested dividends over time.

From empirical experience I would suggest competitive investments like gold, silver, oil etc must be more volatile as the only way to "profit" is to sell. That makes the recent strength of these commodities even more meaningful as the implication is that "rational investors" are willing to forego income and incur significant expenses with the expectation of retaining some of their current purchasing power.

The Mother of All Asset Price Bubbles

The purchase of 200 T of gold by India is perhaps the most visible example what some holders of dollars plan to do. It is reminiscent of France in the 60's getting lots of gold for dollars and forcing the US to abandon dollar convertibility into gold. For those of you keeping track, the 1960's price was $35 so here is India buying "same" gold but exchanging over 1050 dollars. Yikes, that means that "barbarous relic" has climbed a mere 30 times!
Gold and other commodities are the "relief valves" for paper money holders. Their prices still react to supply and demand, but demand is not necessarily for use but as a store of value. Other than gold, and to a certain degree silver and the platinum group, commodities eventually have to be used, so using oil for example, as a store of value is highly questionable. Yet what are the big holders of dollars to do? Jumping into the metals markets in any significant size will push prices to the moon. There is just too much paper money.
Buffett buying BNI is also a good example of moving out of dollars into "hard" assets.
Timing is always uncertain, but I would submit that some pretty sophisticated investors are bailing out and the day of reckoning may not be far away. Interestingly, this may not be all bad as stocks represent "real" assets as we have seen with BNI above. Buffett paid a 30% premium which makes one think he surely wants to gather as many assets as he can with depreciating dollars.

Investors Ignore Risks, Chase Market Higher

In terms of gold, stocks in general have taken a heck of a beating already, having given up all the gains (except for dividends) from 1994 til now. Just about the time you start closing out positions, stocks will figure out the upcoming inflation tsunami won't be good for most of them and the selling will commence. Good luck.


On Sep 16 12:07 PM buyitcheap wrote:

> All true, and being short, I'm running out of walls to bang my head
> on.

Deflation Looms

The article and the comments are, for the most part, about as good as it gets in terms of intelligent and thoughtful commentary.

The velocity of money stands out to me as the biggest uncontrollable variable. If it stays down, then the scenario presented by the author appears likely to occur. The recent rise of TLT from 88 to 97 tells us that investors continue to consider deflation a decent possibility- is another economic shoe about to drop? But 97 is still a long way from the 122 high much as 9600 is a long way from the 6500 low, especially when the amount of bond buying from the FED is taken account.

Will the velocity of money skyrocket if holders of dollars panic? There is already some evidence of this in the "hammering" (thank you Peter Schiff) of gold at the $1000 level. $1000 folks - that is a long long long way from $35! (Sometimes I think we are like the proverbial frog in the pan of slowly heated water - we don't get it until it is too late) Add to that the way silver is perking up and my interpretation is that real concern about the value of the dollar is beginning to reach very significant proportions.

Perhaps deflationists take comfort in the belief that should inflation really ignite, all that is needed is a Volckeresque stand and all will be well. But do Helicopter Ben and the government have the fortitude to actually do it?

Is the Stage Being Set for a Multi-Month Rally?

Looks to me like a good shakeout is due in the PMs. Will set up talk of a double top in gold and be the final straw on the backs of "disillusioned" investors. Ensuing rally in PMs may be unfathomable because longer term (in a month or two??) I have to think the Fed will be the buyer of last resort of the $1.5 Trillion in new Treasury debt to be issued this year and as the money gets circulated, prices of just about everything including beaten down equities, houses and (used Volvos) are likely to respond. Of course, savers get screwed again but there seems to be no reluctance to do that. Besides, bond holders have done well over the last 10 years so it makes sense they are about to get theirs.
How high can gold go? Who knows? How much money is going to be made up out of thin air? Pick a price.
BTW, at the local coin shop a few days ago and not a lot of action. In fact, old school guy like myself selling some walking Liberty halves at $14+ spot. I don't think even the smallest fraction of the public has any idea what might be coming in the future or what to do about it.
It seems to me the only way out is a big inflation, but I've sure been wrong before.
Good luck all.


On Mar 04 11:40 AM paultaut wrote:

> Kelm: I do not believe that it is just a matter of aversion to risk,
> I think a lot of the aversion lies in not knowing what and where
> the risks actually are.
>
> Everyday something new seems to surface, if its not some sort of
> Bailout then its another Crook(Madeoff, Blaggo, Daschell, Sanford)
> in politics and out.
>
> I mean, I have difficulties and I have been at it for over 3 decades.
>
>
> I hope and pray that Gold pans out. Otherwise investors will be totally
> disillusioned for decades. IMO

Economy Watch: What if Stocks Were Priced in Gold?

As far as I know, gold has traded at a 1:1 ratio to the Dow twice - when the Dow collapsed 90% during the Great Depression and gold was increased by about 75% to $35 from (I believe) $20.67 and when gold peaked around $875 in the 80's and the Dow traded about the same.
After the massive move up in the stock market during the 1990's gold sold (roughly) as low as .025. So gold dropped over 97% versus the Dow. The sword cuts both ways.
The concern about the liquidity of gold or any other investment is well taken. Wasn't the Russian stock market closed on and off for weeks at a time fairly recently? I would imagine selling stocks over there to eat would indeed have been a problem. Gold, silver, stocks, bonds etc are not money, they are investments and all have their risks including illiquidity. (Real estate anyone?) I have personally never had any problem liquidating physical gold or silver to get dollars but that doesn't mean it can't happen.
I believe the author makes a good case for thinking outside the box and considering how far "up" or "down" might actually be. If gold goes to $5000, most likely under highly inflationary conditions, which is only about 5.5 times the current price, is it not possible for the Dow Industrials under those same conditions, to drop to 2500? If so, owning some gold might be a great hedge against a mega black swan event and give the holder the opportunity to buy back into the stock market at a great price, much like the sellers of gold at $875 were able to do back in the early 80's. After all, 875 to 14100 surely beats $875 to $300.
It seems to me highly unlikely that gold or stocks or real estate or any other single investment will be profitable under all potential future investment scenarios. We all want to be 100% invested in the next big winner, but it will happen for only a very few. Better to invest across investment categories with the goal that the winners will more than offset the losers. After all, a portfolio that simply kept its dollar value since the end of 2006 or 2007 would have standout relative performance versus most strategies.

Last Thursday Was the Bottom - It's Time to Get Back in

It takes guts to call a bottom, especially when things look so grim.
The point about not reacting to bad news is well taken.
Only time will tell.

John Hussman: It's Tough to Buy Into Fear

"Investors pay an enormous price for constant comfort". Very true.

The One-Word Topic of the Day, and Week: Obama

There was a ray of hope when oil prices were going much higher and shipping costs were escalating - some companies decided to bring manufacturing back to the US as it was cheaper than shipping to China and back. Now oil is way down, shipping costs have crashed and so has demand - what now?

Perhaps the whole model is broken - The Wall Street Greed Machine - demanding rising sales and earnings every quarter, growth premiums, up up up and away! Maybe the treehuggers are right and its all about sustainability, efficiency, low energy usage, recycling, getting off the grid etc. It looks like more, more, more is something we really can't afford.

Dow Price Targets

GM probably has the best chart.

Coming Inflation To Boost Stocks, Gold

Well written. Good to see you put some real numbers to the projections. I might humbly disagree on the Dow/S&P:Gold relationship as I would guess a tripling in the stock averages would likely indicate a 10X -20X increase in gold. Of course, no one knows and it hardly matters as the direction of movement and the relationships are the key.
Considering the mass decline of commodities and commodity stocks, and the sardine like packing of investors in Treasury obligations, a massive inflation would surely be unexpected save by wild eyed bloggers.

The Shallowest Generation

Wow - author sure hit a lot of hot buttons!
A few random thoughts -
Back in the late 60's, the guys at the gas co. told me they felt sorry for me because "all those women going to work - you're gonna need 2 incomes to live on" - I guess they foresaw the inflation coming. Mrs oldGoldBug thinks a lot of Gen xers and Yers grew up on their own cause Mom and Dad were too busy working to spend much time parenting.

Its all pretty much bull**** from the "Nifty Fifty" to the "TARP". The biggest companies are WMT, XOM, MCD, KO, PEP, GE. Only XOM and GE make anything we really need and GE getting pounded as it is at least half bank. Can we live without chips and Pepsi - I sure think so. What do we really make that the rest of the world wants???? Movies and TV shows? Airplanes? We need to get relevant - solar, garbage recycling, water conservation, etc etc etc

XOM could buy GM with net income from 1 month last quarter.

Mom - member of the Greatest Generation - still going strong at 86+ - (no good genetics for me unfortunately) - has been calling for the Greater Depression for years. If someone in your life is in their 80's or older and still able to communicate - LISTEN - Hear about walking to the milk store at age 9 to buy gallon of milk for 10 cents and loaf of bread for 5 cents and having milk and bread and sugar for dessert at night. Dad working 1 day a week to feed 7. Hear about having 3 dresses for 3 girls and washing them each night so other sister could wear it the next day.
I watched Youngstown OH, Steeltown USA, crash and burn because the companies refused to reinvest in new plant and equipment, unions got unbelievably greedy, and lots of workers thought working meant a 3 hour nap after coming to work stoned, drunk or hung over. The managers who oversaw the devitalization of America were part of the Greatest Generation. Unless you were a white Anglo Saxon Protestant, you "weren't capable of running a steel mill", and they ran it right into the ground. Whenever you cut out huge amounts of talent due to gender, race, ethnicity etc., you are going to lose.

I find the Republicans disingenuous at best. Who has had the power for 6 of the last 8 years?? Nobody was watching the store, performing the duties of the Executive Branch. My gosh, you got so many scandals it boggles the mind - and those are only the ones we know about.

What do you expect from a loser coke head alkie and a couple of 70's retreads? The fact that poor John McCain is even in this race is a testament to the racist, provincial attitudes that still are maintained by almost half of the population. You Republicans probably did far more harm than good by giving us W as a choice instead of McCain back in 2000. How could you fall for the fighting gay marriage crap and the racist rumor campaigns against McCain, especially in South Carolina?

Why not give Obama a chance? At least the world will see that you don't have to have generations of Senators in your family to be President. That didn't get us too far. Maybe he will be a disaster, and maybe he'll be a new Harry Truman - wouldn't that be refreshing???

Decades of Negative Returns: A Long-Term Look at the Dow

This is a great situation: guys on Wall St. grease politicians' palms with all kinds of cash so regulators will look the other way, get to make billions upon billions of dollars then get bailed out when the other side of the leverage/marktomarket sword starts slicing them in half. Much like Sgt Schultz "I know nothing".... about CDS, subprime, Alt-A, naked shorting, etc etc etc. And Paulson didn't want to restrict compensation - I wonder where the Wall Street superstars will go now that he grudgingly has agreed. I guess they are not athletic enough to play pro ball nor handsome/beautiful enough to be movie stars - where will they go to earn that kind of cash. I know - become lobbyists or politicians!