Commodity Bubble Proponent

What's in Store for 2009? Gold, Metals and Other Markets

Interest piece...just a quick comment.

One of the big things you (and most of the inflation proponents) are missing is that we have a massive delevering going on right now in the system. The trillions of dollars of asset backed securities, derivatives, bad commodity investment instruments, stock market and real estate declines are far outweighing the stimulus that the Fed is putting into the system. Much of the run-up in a lot of the investment ideas you have up here was based on being able to leverage 20-30 to 1 with tons of hedge fund money.

My take is that there is going to be a massive shortage of dollars in the system because the Feds are not going to be able to paper over the trillions of dollars of losses. I expect alot of the fear in the system to continue for the foreseeable future.

That being said, I'm not sure how you would take these points into account in your analysis. I guess you would almost have to look at total losses v. new money inserted into the system to really get a good sense of whether or not inflation is really occuring or about to occur.

People are taking a too simplistic approach to analyzing the issue. Its too easy just to point at the fed's money pumping and not look at the other side of the equation

Despite Economic Headwinds, Gold Will Outperform

Your chart right there shows that Gold is a bubble. Investors are buying it like candy.

Look out below once the fun ends

Gold Poised to Move Higher

The secular commodity bull is over. Oil down 70%, Copper down 70%, corn down 65%, silver down 50%, steel down 70%, etc.

Gold's turn is coming. In past historical commodity downturns, gold is usually the last commodity to crack. For instance, in the 1980s commodity price runup, gold peaked after all of the other commodities did. Same thing happened in the 1970s.

I expect another run up of 30-40% in the next 6-9 months, followed by a horrific collapse once investors cannot borrow money to buy gold.

Commodities are cyclical and will not be the first to come back once the market economy improves. The next significant rally will be late 2010s when no one is looking.

Enjoy the ride boys

Peter Schiff: Outlook for the Gold Market

Just to quickly illustrate my points from some of the comments I see up here.

As to point 5, "middle class" in China means that you make more than $2,000 per year. To put that in comparison, even at today's prices, $2,000 per year is the average fuel expenditure for the typical American for the year. Chinese demand is really a big myth if you look at the demographic figures

As to the guy who wants to know whats happening to the money that the fed is printing, it is going to replace the depleted capital from all of the bank writedowns. This is not new money that will lead to new lending.

For the gold bugs, the inflationary spike is OVER. The inflation and big spike in asset values occurred with the total relaxation of credit standards globally. Between 2001-2007, if you take into account subprime loans, derivatives, etc., there was tens of trillions of dollars of new money "created" by banks. The fed is a small party in this game with its 2 trillion in new money. As a result, the inflationary boom that Mr. Schiff preaches about endlessly actually died with the collapse of endless credit where people could spend without any regard for their income.

All the Fed's quantitative easing will do is simply slow down the deflationary forces (i.e. imagine what would have happened to oil prices had Goldman/Morgan been allowed to fail in October).

Peter Schiff: Outlook for the Gold Market

Anyone who buys Schiff's arguments is a moron for a couple of reasons:

1. The deflationary forces from the current de-leveraging are far larger than the quantative easing that the Fed can do. In the last year, we've lost nearly 20 trillion in global equity valuations, not counting the several trillion in global real estate assets, corporate bonds, municipal bonds, etc etc etc. The fed even on its best days may be able to only inject 2-3 trillion/yr into the system. what they are doing is basically trying to fill a bathtub with a squirt gun.

2. Gold investing has been a leveraged activity over the past 18-24 months. Look at all of the Gold ETFs. They basically allow investors who never buy a single ounce of gold to partake in the price action. ETFs are now the fourth largest holder of gold supplies. If there is any serious hiccup in these entities, forced liquidations could cause the ETFs to flood the market with gold.

3. There is no replacement currency for the dollar. The ECB has proven that they are ass backwards in their thinking, the Japanese are still having problems with deflation, the Chinese are corrupt as hell and their banks are burdened with trillions of dollars of non-performing loans from the communist days, and we've all seen what's happened to Russia lately.

4. The Chinese consumer is not powerful enough to rescue the world economy. The average Chinese person earns roughly $2,100/yr and the average American earns $50,000. This means that the Chinese guy must increase his marginal income nearly 24x to hit the same level that the American guy is at. In order to get there, either that guy needs to earn 24x as much or the dollar needs to depreciate 97-99%. None of those things are likely to happen.

5. COMMODITIES were all a bubble and are not likely to reflate anytime soon. I'd expect this to happen only when all of the commodity bulls give up and go play somewhere else (which given the current CNBC offerings of advice will be a while).