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.

Whither the Dollar? Currency Trends and ETFs

Danny, there's also this thing called "ringing the register".

You're not looking to put crude oil in your pocket, but cash.

Oil is crashing. Get out.

Whither the Dollar? Currency Trends and ETFs

that's "EUR/USD" $1.30 is a mortal lock

Whither the Dollar? Currency Trends and ETFs

The dollar is experiencing the anti-bubble in the euro - and indeed in oil and the basket of world currencies.

It will rest here and then rise very quickly. A week or so from now should be a good time to go short again.

I've said it before and I'll say it again: $1.30 is a mortal lock.

Disclosure: I have no financial positions in anything.

The Great Dollar Pump of 2008: A Doomed Central Bank Intervention

HAHAHAHA!

Folks: B.U.B.B.L.E.

The Ron-Paulite/goldbug/Ol... Left consensus is dying. That's right, Ron Paulites, if you knew any old-time socialists you'd know that Ron Paul's vision of dollar inflation is straight out of Marx.

You have to realize that your models are ancient and no longer work. How fast does gold have to go down before you realize you're wrong?

Predictions (and I have been making the same one for weeks and months) EUR/USD $1.30 is a mortal lock. Oil is headed for $70 and gold is headed well-through $700.

How Much Will the Dollar 'Buck Up' from Here?

Dear Macro,

Thanks again for your work, but the only point that needs to be made here is the striking similarity point.

It's called a "BUBBLE", Macro, and now we are in an "ANTI-BUBBLE".

Most of the time, your brilliant, multi-faceted macroeconomic analysis is what's right about the market.

This time, however, the answer is a lot simpler: traders. Traders made this bubble and traders are bursting it. I thought that the euro was going to $1.85 or so, but the double-top fooled me. The trough between the two peaks came just when I thought the highest height would have come and now the euro is back on the bubble track - this time on the other side of the hill.

Euro $1.30 is a mortal lock.