phillips49

Defining a Depression

Thoughtful article, but it seems to me that comparing Credit Market Debt to GDP is a very narrow parameter to evaluate our current condition. Considered by itself, it would be a little scary, especially since there is an implied comparison to the 20's and 30's.

But, comparing debt to GDP is really more like measuring debt to cash flow. OK, so we owe 3.56 times our current income. Is that really bad? If an individual makes $50K per year and has total debt including mortage, cars, loans and credit cards of $178K, is that really bad? Well, it really depends on the maturity of the debt. If it was all due today, it would be a big problem. But if it is spread out over 20 years, it might not be.

Another way of looking at our current financial condition might be to look at our debt to equity ratio. We would look at debt to equity ratios to examine the financial condition of a company that we where considering buying stock in.

In 2005, the per capita wealth of the the US was $513,000 against a population of 296 million making our equity worth $151 trillion. That yields a debt to equity ratio of 0.3. Not to shabby

You could also look at debt as "the price" and GDP as "earnings" which would yield a P/E of 3.5, again not to shabby.

That we have had a succession of bubbles is undeniable. The bubbles are now deflating. What happens during the bubble building and deflating process? If one bought at the beginning of the bubble and held until the bubble deflated, there would be zero gain. If one bought at the beginning of the bubble and sold at the top, one would have a gain. If one bought at the top of the bubble and sold at the end, one would have a loss. So it appears to me that bubbles do not create or destroy wealth, they simply transfer wealth.

Is Gold A Sucker's Bet?

The real estate bubble burst, the financial market bubble burst, the credit market bubble burst, the energy bubble burst, the commodity bubble burst, the stock market bubble burst. Money moved from asset class to asset class along the way.
The next and final bubble to burst will be gold. History says it will. Gold is neat but you can't do anything with it except cash it in for money to do something else with. When people start to head for the cash register, the price will plummet as viciously as the stock market . It always has. It always will. The slower ones will be left holding the losses and the gold bug rhetoric. I'd rather take my chances with inflation.

The Bedrock Case for the Return of the Gold Bull

The is no arguement that the US financial system is stressed. However, this does not mean that gold is a safe haven either. There are those that would say, it's different this time, but looking at the history of gold prices though booms and busts over the last 30 years, gold is a lousy investment and certainly not a hedge against inflation. Gold was flat from 1981 to the end of 2004. (23 very long years) It lost ground against inflation all during that time. If you bought gold at $400/oz in 1981, then to have just even purchasing parity today, gold would have to be $1,150/oz. In 2005, gold began to climb. So what happened ?....A period of enlightenment? ....No, actually, the introduction of gold ETF's happened in the 4th quarter of 2004. Everyman suddenly had access to gold if they wanted to play. The ETF itself actually created an artificial demand for the metal that wasn't there before. The current price is sustainable only if sellers don't out number buyers. In other words you are dependent on the guy next to you to hold and not sell. Until of course you get scared and decide to sell yours first. Investors have been fleeing all asset classes, including gold.
It is also a mistake to liken gold to currency. The governments of the world won't let that happen. And they will conspire together to make sure it doesn't happen. Gold will never be accpted as legal tender in the grocery store. It will always have to be converted into paper. They own enough gold, that if even partially sold, would drop the price of gold into the last century. If you bought a 1000 shares of GLD, this summer when the hype was high, say at $90.00, then you're out a lot of money in a very short period of time. What has inflation done in the last one month? It sure didn't rise 14%. I'm not anti gold or a nay sayer. It just is what it is!

Has Gold Fallen in a Secular Bear Trend?

Let us not forget that gold traded pretty flat for the 22 year period from 1982 to 2004, regardless of inflation, economies and currency exchange rates. The creation of gold ETF's in late 2004 really created an artifical market for gold where everyman could participate without taking physical possession. Click I'm, click I'm out. This in itself drove gold prices up by creating new demand. Check the charts yourself. Soooooo, if everyman decides to head for the hills and stash his cash, gold will collaspe as the ETF's sell off their holdings. Investors have been bailing out of all asset classes due lack of confidence and fear. Since everything is only worth what someone else will pay for it, we really depend on the guy next to us to hold or buy to preserve our own investment. If he gets scared and pulls out, then the value of what we hold falls until we get scared and pull the plug as well. The last one out the door is left holding the bag.

The Herd of Lemmings, Part II

The dollar's movement Friday does not explain gold's 15% decline from it's July's highs. Gold like other commodities is supply/demand driven. Investors are bailing out of all asset classes including gold. Many don't trust anything at the moment. Reduced demand will yield reduced prices on gold as well. Gold has no particular value of it's own, it is only worth what someone else is willing to pay for it at a particular time.

Interview with Nick Barisheff: Gold is Money

Beware of this type seductive thinking. Do your homework. Get your facts and data. The author contends that gold is not a commodity. Well if it walks like a duck and quacks like a duck........ Gold price follows the same supply and demand principles that commodities follow. The more that is available the lower the price. It is only worth what someone else is willing to pay for it at a particular time. You can not take gold to the grocery store and exchange it for food. Gold is not legal tender, it must be converted to legal tender. Look and see how gold's purchasing parity has performed the last 30 years. In 1980 gold peaked at $850/oz. If an investor bought into the sky is falling and world is going to end hype and bought gold at that time ,then to have purchasing parity, gold would have to be worth $2,200/oz today. By December 1984, gold had dropped to $331/oz. Eighteen years later in 2002 gold closed the year at $346/oz. During that time bread doubled in price. Gold didn't. Even The $300/oz gold of that time didn't achieve purchasing parity until this year. 24 years is a long time to wait to get even. Never accept that gold is currency. The governments of the world will not let that happen. They have enough gold to flood the market and drop the price of gold into the last century.

Where Are Precious Metals Heading?

Bearfund:

If cash is a lousy investment and gold = cash, then gold must be lousy investment. Because gold is a commodity it is an unreliable proxy for cash. It is subject to supply and demand and is only worth what someone is willing to pay for it at a particular time. It is highly volatile over short periods of time and unrelaible over long periods of time. Yes, the example posed is extreme, but it is also real. By 1984 gold had declined to $331/oz. In December, 2002, gold was still only $346/oz. Cash invested at 4% interest would have yielded $668 in that time frame. Bread doubled in price in that same time frame. If bread could have been preserved, bread would have been a better investment than gold for those 18 years. A buyer of gold in 1984 would not have had parity purchasing power until 2007. 23 years is a long time to wait to get even. Neither the dollar, nor gold has any particular value except what it can be exchanged for. Money can be made in gold by some, by just plain luck in timing and by some pros with a good timing system and instant information. For the average person cash is a safer, more reliable position in a bear market. Gold today is 4.4% lower than it was on July the 15th. Cash is still the same value.

Where Are Precious Metals Heading?

Ownership of gold as an inflation hedge has everthing to do with timing, hype and fear and little to do with reality. Let me explain. My dad bought into the the sky is falling, everything is failing in 1979. He bought gold at $750 an ounce. ( I inherted it ) To have the same buying power today, gold would have to be 312% more than what he paid for it, assuming 4% compounded inflation a year. (1.04) to the 30th power, or $2340 per ounce. It hasn't even come close. In the same time frame the Dow Jones industial average has risen from 830 to 11000 or 13 times. The same investment in the Dow would be worth $9,750. The Dow may be ugly at the moment, and it has certainly been ugly in the past, but the history of sound investing is on it's side.

Black Gold or Yellow Gold?

It is interesting to note that Saudi's are investing heavily in heavy, sour crude refining. Wonder why? Peak in light sweet crude maybe?

The G8 meeting this weekend did not offer much hope of near term relief. They didn't blame speculators or big oil for the rise in the price of crude. They seemed to accept the supply/demand argument as the primary cause of the rise in oil. Their focus was on conservation and alternative energy. Wonder why? Maybe they know that we are reaching or are at the peak in economically available petrol.

Visit americansolutions.com to promote development domestic exploration for oil. If we don't tend to our own business on energy, we'll be out of business!!

In Light of Peak Oil, Financial Diversification Is a Bad Idea

Someone really ought to speak to T.Boone Pickens about diverification. I mean really his hedge fund is very unbalanced. I mean he's only turned a $1 in $28 in last 7 years. He really should have stuck with the S&P and made 3.5% like smart money does!

In Light of Peak Oil, Financial Diversification Is a Bad Idea

pearl2k,

I doubt that military consumption of fuel in support of IRAQ will make much of a difference in global supply/demand.

On a different note. The problems in this region go back 1000's of years. In my opinion, when America leaves, (if we can ever make a gracefull exit) the entire region will once again de-stablize into fighting factions and civil war. History is on the side of my opinion in that regard. Any de-stabilization in this region will push the price of oil out of sight. Dissidents believe in reign or ruin. This is demonstarated on a smaller scale in Nigeria and it's problems with rebels. The US gets about 10% of it's imported oil from Nigeria.

In Light of Peak Oil, Financial Diversification Is a Bad Idea

WOW!!! Good article!!! It is almost like talking to myself, (not that I'm that smart) except written much better. To me investing 101 says invest in companies that:
1. Have product that is demand
2. Have high long term growth potential
3. Have high profit potential
4. Have the ability to pass along cost of business increases
5. Have great cash flow
6. Have a moat such as high cost of entry into the business segment

For the last several years, natural resources and energy have met these criteria because a growing world NEEDS these things.

Coal needs to be added to the list of investment considerations along with the miners, mining equipment, infrastructure and ag. It's all good!!!

Some say these companies are high risk because of the link to commodities. Right now though Financials, Consumer and Tech are all looking higher risk to me. I add Tech because it is consumer driven and the consumer is at risk.