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.

Gold: The Long-Run Value

If the "cumulative average" line on the chart is what it seems to be, it's very misleading.

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.

Why I Got Gold Wrong

Please note: many if by no means all Islamic jurists consider fiat money to be "haraam" if an alternative exists. The goldbug thesis is that an alternative does exist. The "gold-for-gold" section found in the Hadith and most Islamic financiers strongly promote the notion that the weight of gold should be and even is an economic constant.

Also, interestingly, Islamic law favors full-reserve banking.

Impact of Commodity ETFs on Prices: An Update

Marxbites successfully corrected my impression that the author is a lunatic by reminding me what an actual lunatic sounds like.

Here's a suggestion: learn something about the law before you opine as to what is and is not unconstitutional. Otherwise, you will continue living in darkness.

Impact of Commodity ETFs on Prices: An Update

Inflation?

Are you a lunatic?

Impact of Commodity ETFs on Prices: An Update

Your theses are silly.

First, the idea that all this is the Fed's fault because it gave "investors" low interest rates is nonsensical. If they had been real capitalists instead of charlatans they would have gone out and found investments that added value instead of finding ways to milk the last dollar out of housing.

Second, we already know what the problem was: Lemon Loans. PRIVATE banks sold loans based on inflated assessments and deliberately defrauded investors by trying to pretend they actually believed "stated income" figures - a story that doesn't pass the laugh test. They had every reason and every responsibility to know better and they chose not to because it was profitable.

If Fannie Mae was allowed to purchase assets that were too risky, crooked bankers were willing to sell them junk Alt-A paper and that - by the numbers - is what destroyed the GSE balance sheets.

Finally, commodities were clearly in a bubble and you clearly shouldn't be advising anyone on whether to buy or sell anything if you don't see that. You may think that there is no such thing as bubbles and that fundamentals always rule, but you're obviously wrong.

Gold? Gold couldn't be headed down any faster. If it takes more than a month for gold to dive through $700, I'd be stunned. Oil? If OPEC doesn't save your long positions in oil, they can't be saved. The question is not whether oil is headed to $80/$85, but whether it can even stay there for a week or so before plummeting.

Decoupling Of Physical Gold And Paper Gold Prices

Coins have always sold at a premium to bullion, the bullion premium is little compared to paper.

Gold is headed to $700 because there is a bubble in all commodities.

Gold is no better a holder of value than zinc, copper or silver and is inferior to oil, except that all commodities are busting, so gold is crap as well.

And if gold is money, go to an Apple store and try to buy a PowerBook with it.