dlaw

The End of Money

Mad Hedge, I think this has very much a "toppy" feel.

If you look at the arguments for gold, there is no reason it should be going down. No reason it should go down in the foreseeable future. That is the stuff bubbles are made of - certainty.

Gold is going down. The federal government is doing all it can to inflate, but gold is going down. Down too much, the logic is destroyed and there may be panic selling. People paying $1000/oz for coins and certainty are not going to be happy at $700/oz.


On Feb 28 10:14 PM The Mad Hedge Fund Trader wrote:

> OP tf Panic buying of gold coins continues to overwhelm coins dealers
> around the world. According to the Financial Times, the US Mint sold
> 193,500 American eagles in the first seven weeks of this year, more
> than it sold in all of 2007 at prices 40% lower. Retail investors
> fleeing paper assets, like plummeting stocks and bonds, are paying
> 5% premiums over face values. The same phenomena is appearing in
> other countries were gold coins are available to the public. Does
> this have a toppy feel to it?

The End of Money

Mad Hedge, I think this has very much a "toppy" feel.

If you look at the arguments for gold, there is no reason it should be going down. No reason it should go down in the foreseeable future. That is the stuff bubbles are made of - certainty.

Gold is going down. The federal government is doing all it can to inflate, but gold is going down. Down too much, the logic is destroyed and there may be panic selling. People paying $1000/oz for coins and certainty are not going to be happy at $700/oz.


On Feb 28 10:14 PM The Mad Hedge Fund Trader wrote:

> OP tf Panic buying of gold coins continues to overwhelm coins dealers
> around the world. According to the Financial Times, the US Mint sold
> 193,500 American eagles in the first seven weeks of this year, more
> than it sold in all of 2007 at prices 40% lower. Retail investors
> fleeing paper assets, like plummeting stocks and bonds, are paying
> 5% premiums over face values. The same phenomena is appearing in
> other countries were gold coins are available to the public. Does
> this have a toppy feel to it?

The End of Money

Thanks for the comment - and all the capital letters.

The End of Gold, Part Three

Thanks once more for your comments.

My view is that downturns come in four varieties - slight deflation we never notice, stagflation, deflation and hyperinflation (which invariably leads to or includes severe stagnation). Certainly for the U.S. and the world, a dollar hyperinflation would be the worst and - I think - the most unlikely. So naturally I am extremely reluctant to go with the "gold or die" thesis. By the same token, I certainly recognize the validity of it in the most extreme scenario.

I think we have a lot of deflation to go through before we get to a hyperinflation but I've written before that once rates went to zero, hyperinflation was "on the table" at least in theory. And as I've written several times, even without hyperinflation, the gold market could go back into bubble mode of its own volition and there is no question that bubbles make people LOTS of money. The only thing I have trouble imagining is stable gold prices for the rest of the year. So, place your bets, I guess.

I just feel that it's no accident someone as smart as Peter Schiff has been wrong about the dollar, bonds, etc.. I think people are really underestimating the deflationary threat. The narrative for gold buyers is totally locked in at the same time the fundamentals have crumbled, in my view. It reminds me for all the world of this summer and the Chinese oil demand narrative, but that's for next time.

Finally, several people have asked when I would get in. My view is that if gold breaks out above $1200, there will be plenty of room for it to go. I'm in no hurry.

The End of Gold, Part Two

Forgot to mention: inflation in the money supply is meaningless unless it moves the demand curve. If the public sector is pushing out money and credit but the private sector is contracting at a faster rate, deflation will obtain.

In my view, fiat money is *always* inflationary - and for a very good, sound, economic reason. More on that my next post.

Again, good luck.

The End of Gold, Part Two

Thank you all for your comments.

The point of my missive was to emphasize the fact that while inflationary monetary and fiscal policies are being pursued with amazing, record-breaking vigor, a deflationary mindset has nonetheless taken hold.

We are in a battle. Strangely, the usually anti-government goldbugs are betting that the government will succeed in its quest to create inflation. I am not so hopeful. The private sector is a LOT bigger than the public sector and in the private sector, deflationary behavior and tendencies are now the rule.

But in the gold market, this is crunch time. I wrote this exactly because gold is pushing against those "breakout" price levels - exactly because the market is deciding whether these spikes in the gold price are a top or a breakout. The shorts are filled with fear. The longs have all the popular arguments on their side (if not the actual fundamentals). A bubble in gold is a distinct possibility, I just don't think the liquidity is out there to make it happen. All you hear about the gold market comes from perma-bulls, so I think it's important for people to hear another view.

While I would agree that zero interest rates and the massive government spending, lending and huge slush funds for the banks crippled by their own fraudulent lending have put dollar hyperinflation "on the table" as a real-but-extremely-rem... possibility, the idea that gold will somehow replace legal/accounting "fiat" money is, I think, so wrong that it's hard to deal with as a serious idea.

Nevertheless, I will deal with it in my final posting.

Good luck, short and long.

The End of Gold

Thanks for all your comments, as always.

Mr. "Socrateazz"'s suggested to me that it might be useful to explore the deflationary attitude that has taken hold in America. I will do so in a follow-up to this piece.

Clearly, there are many people who think that deflation is unlikely or unlikely to be of any duration. I would simply suggest that whether or not he believes there will be significant deflation, a wise investor would nevertheless have a deflation game plan, given the present economic circumstances. So far I have not read of a better deflation play than going short gold, although I'm sure they exist. If you think of one, make it. Oh, and then please write about it.

Thanks again.

The Coming Dollar Deflation

Thank you all for the comments.

First, I would remind folks that the private banking system creates a LOT more dollars than the government - or it used to.

Second, I would refer you to yesterday's limit-down in CNY/USD.

Third, I would refer you to Meredith Whitney's chilling and insightful article about the coming. planned destruction of what could be trillions more dollars in credit.

Fourth, I would refer you to your local state and county treasurers (or international equivalent). I think you'll find that "the government" has a lot less money to spend than you think.

Worldwide, we've seen - notional - what might be tens of trillions of dollars in wealth lost. Even if it that only has a probabilistic relationship with the supply of money, it still has to come from somewhere.

Could Socialism Make You a Better Capitalist?

Sorry to comment on my own post, here, but Carey - that's incredible. What you said is completely true, but that has to be the first time I have ever read somebody who knows Marx's (early) view of capitalism and the importance it had to the development of his theories.

Marx himself got very irritable, a lot more political and a lot less theoretical (and a lot less intellectually useful) in later life but he was definitely an early appreciator of capitalism. And you also note the very important fact of how much of the capitalist revolution Karl Marx missed altogether because it took place after his death. So many people forget that Marx missed the entire period between really the late 1870s (history traveled slowly back then) and the Russian Revolution and speak as though Marx was rejecting capitalism *after* that period. Most actual Marxists forget that Karl Marx was really looking at the very earliest stages of capitalism and so could not possibly appreciate how much it would change.

Wow, I'm so shocked to read anyone who knows anything about Marx on a blog like this. I'm sure a lot of people here know about Marxism and have some very negative experiences of it, but that makes me all the more surprised. 20th century Marxism did so much to dilute and wash away everything useful than can be taken from Karl Marx it's a wonder anyone knows anything about him any more.

Muddling: Yes. Agree totally. It's deflation. But deflation is just so hard for most people to understand because it destroys so many of the normal assumptions of capitalism.

Could Socialism Make You a Better Capitalist?

Thanks for the comments.

Smarty, 122 times out of 123 huge swings in any market are, as you say, just the unwinding of positions. Then there's the 123rd time.

I may be looking for a large economic trend because that's what I like to do, but when you have such a massive upswing versus such a massive government credit supply intervention, you have to come to the conclusion that something is going on.

Moon, the answer is definitely "no." I sure didn't leave all the Marxism behind. Lucky thing the European leaders didn't either or we would not have been able to save the capitalist financial system.

We have a fiat currency system with a central bank that requires (per Diamond and Dybvig) government deposit insurance. So the system pretty much rests on a "socialist" foundation - if you want to call it that. You want to go back to the private, gold-based system of the 1500? Get in line behind Osama Bin Laden.

Gold: Still Further to Drop

And judging by this site, sentiment for gold is still pretty darn positive.

But who knows?