huskerbob

Interview with Peter Schiff: Reflating the Bubble

Good point that the average joe cannot increase spending: decreased velocity of the money supply. However, we will definitely see price inflation in necessary commodities such as oil because we are destroying the dollar's value. Our currency will devalue because it is criminally mismanaged.
At some point, spending will pick up again because the Fed will not let savers go unpunished! This has been stated in writing time and time again. Please read Bernanke and Greenspan on this subject. The only way to spur savers to spend is to make the idea of saving dollars seem ridiculous: devalue the currency.
The public pronouncements that they will act quickly to rein in inflation is counter to everything they are attempting to accomplish. Watch what they do, not what they say.


On Apr 24 09:59 AM OperaMan wrote:

> It seems to me that the hole in this argument about inflation due
> to spending ignores the one key fact of why we are in this mess to
> begin with and that is the collapse of consumer buying power due
> to wage stagnation for at least the last decade.
>
> Unless wage earners suddenly see a vast increase in their earnings
> from labor (where most of us get our money to spend) there will be
> no increase in spending to cause the increase in the velocity of
> money to drive prices up. Given the lack of well paying jobs in
> this country, such a large increase in real wages is, to say the
> least, unlikely.
>
> Given the new realities of declining real wages, and the realities
> of the new frugality (driven by the unavailability of consumer credit
> and a real fear of not having sufficient savings to weather a continuing
> series of personal financial crisis), there will not be any major
> increases in consumer spending (except maybe for the gifted top 2%
> of wage earners) any time in the near future.

It's 'Hammer Time' for Gold

CJJ: Where do you get the idea that gold investors are all expecting the apocalypse? Do you judge all of your investments by "how easily can I exchange this for food if there is a complete breakdown of society"? Your questions are not answered because they're not important to gold investors. Why would I ever trade gold for groceries? Do you expect to trade shares of GM for groceries?
The appeal is that gold will always be worth something. I simply expect (as do most gold investors) to trade gold for fiat which I can use for other things. When I see that gold is very high relative to the price of something I want, I will sell gold and pay for that item in currency. Currency is a medium of exchange which varies in value according to politics, policy, debt, wars, etc.
Money is a store of value. Gold is money. I'm not worried about the apocalypse, I want sound money and the dollar ain't it.
Maybe I should ask you: "Do you expect to exchange those $2 for a gallon of gas in 10 years?"
You mention gold lasts. When was the last time you heard someone say "the almighty dollar"? I don't mean sarcastically.

Silver Remains an Essential Diversification with Extremely Strong Fundamentals

Another point on the cash for scrap - I have read various articles using the ubiquity of cash for scrap advertising and participation to make the point that we are near the top of the pm market. These places are offering to BUY, not sell, and they are not paying full market price. People are rushing to sell jewelry for less than the legitimate scrap value, which is a better indicator of the general sentiment towards precious metals. The buyers are a relatively miniscule segment of the overall investment universe.
At least these companies are waking up more people up to the connection between gold, silver, and money, as opposed to viewing them as merely ornamental.

It's 'Hammer Time' for Gold

More than an indicator of inflation, gold is a measure of confidence in paper money and the economy. Most were lulled into comfort by the performance of the economy after gold's peak, which became the greatest economic expansion in world history.
Now the blinders are off and people are forced to see that the economy has been built on a foundation of sand. Governments have not inspired confidence with their reactions. Gold is a an assurance of something with tangible value. Paper promises have lost the seeming solidity they had in the 90's.
Gold buyers fear inflation, but more so lack confidence in the management of our currency and the promises of the equities market.

Where Does the Gold ETF Get Its Gold?

First off, thanks for another informative article. You provide a lot of good information on Seeking Alpha.
But second, I don't think this article will reassure anyone wary of GLD. You made a phone call and they said everything was fine? OK, good enough for you. but it would probably be better if they just allowed an effective audit, which is another reason people don't trust GLD.
Please read Trace Mayer's article on GLD. A quote: "Under the GLD prospectus and latest 10-K it appears that the Trust neither needs to own actual physical gold that constitutes atomic number 79 nor allow their auditors to see and touch the undefined ‘investment in gold’."

The Economy on Dope: Investors Fear Inflation, Embrace Gold

Bravo! Excellent article. Expect a lot of vitriol from Paulson and Bernanke sycophants who somehow find genius in making our own Japanese lost decade, albeit on a scale almost unimaginable.
You made a good point that people are abandoning the twilight zone economy for things of more substance: energy, gold, medicine, food.
The lot represented by Paulson and Bernanke, alchemists who tried to make something from nothing and destroyed the economy doing it, are on their way out. Expect them to make an even bigger mess of things before they are thrown on the sh#t heap of history.

Eight Signs Gold Is Headed for a Correction

To clarify, I don't disagree with the idea of shorting gold - it's very volatile and there are lots of profit opportunities as it trades up and down.
I just don't think that we are anywhere near the mania stage of a bubble. There is much more bad news to come down the pipe, and the majority of people have no gold investments. Or savings, for that matter. Physical gold just isn't drawing that much money yet, even if you fudge and include GLD, as the World Gold Council does.
Most holders of physical gold will be content to sit on it for the foreseeable future, much like holders of cash and bonds.

Eight Signs Gold Is Headed for a Correction

The blind man feels the trunk of the elephant and thinks, "Ah! The elephant is long and round, like a snake!"
The huge increase in gold investment you are seeing is not reaching mania levels, but rather is building on the incredibly small amount of investment in gold.
As to your fifth bullet point, the world's largest refinery, Rand, had their gold blank inventory wiped out by a mere 5,000 oz order last year, per Bloomberg. So their production is not really off the charts.
Total dollar investment for gold skyrocketed last year to..... drum roll..... $29.9 billion dollars! Yes, that includes etfs, even though GLD is not required to hold physical gold.
So last year, we spent 6 times more on gold(world wide) than on chewing gum(in N America). People paid out almost twice as much for chocolate as for gold. Are we at mania levels yet? Not quite. People are just playing catch-up now that the long lull in investor gold demand is over.
You are recommending a portfolio to have at least 5% exposure to gold. the majority of investors are not there yet. You could compare the almost 30 billion in gold investment to the $36.6 trillion equities market. Or the $59.7 billion spent on gold jewelry.
Why do you have to be paranoid to take delivery of futures? It's just an attempt to sock money away relatively safely, and it's one of the only ways for an investor to get significant amounts of gold without a months long wait and huge markup. Are people paranoid to want a safe store of value for their money?
Are central banks paranoid? They seem to like to "hoard" gold. Why aren't they all dumping their gold at these ridiculous prices? Except England. Good move dumping that gold. I bet they're glad they exchanged it for trusty paper money! How's the pound doing anyway?

As for your idea of shorting gold, yes, you will still have plenty of opportunities to short gold as it continues a volatile rise.

Does Friday's CPI Report Mark an Inflection Point?

Stagflation: inflation occuring simultaneously with a recession. Inflation or deflation refers to the money supply and velocity, while price increase or decrease is a symptom of inflation or deflation.

China's Latest Hunting Trip

Mr. Mad H F T: I am just adding a qualifier to your mention of the GLD purchase: no one can be certain that GLD actually purchased any physical gold. Of course they say they did, but their prospectus makes it clear that neither they nor anyone else will ever have any clue as to how much gold is actually being held by GLD.

“The Custodian is required to use reasonable care in selecting subcustodians, but otherwise has no responsibility in relation to the subcustodians appointed by it, and the Custodian is not responsible for their selection of further subcustodians. The Custodian does not undertake to monitor the performance by subcustodians of their custody functions or their selection of additional subcustodians. The Custodian is not responsible for the actions or inactions of subcustodians” (p. 44)

“In addition, the Trustee has no right to visit the premises of any subcustodian for the purposes of examining the Trust’s gold or any records maintained by the subcustodian, and no subcustodian is obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such subcustodian.” (p.37)

To make matters worse, the Prospectus states that there will be no written contractual agreements between subcustodians and the Custodian or the Trustee (page 11-12). The Prospectus further states quite clearly that “because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may hold the Trust’s gold, failure by the subcustodians to exercise due care in the safekeeping of the Trust’s gold could result in a loss to the Trust.” (p. 12)." “Custodian and the Trustee will not require any direct or indirect subcustodians to be insured or bonded” with respect to gold held by the subcustodians on behalf of the Trust (p. 11)."
Thanks to Dave Kranzler for picking out these gems.

The End of Gold, Part Three

Bad Dog, this quote from the great Ben Bernanke should be enlightening:
"Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. "

Has Gold Appreciated Too Much to Be Inflation Protection?

The general idea of Chris B's theory makes sense. It doesn't have to work perfectly as an exact formula - who wants to do that kind of math! The idea is what matters. I would like to add that in addition to inflation concerns, the level of confidence in our government's economic policies and practices could be added to the formula.
The previous run-up in gold prices was a direct result of the mismanagement of our currency. People realized that with no direct link to the gold price, the only thing protecting the dollar was the government's self restraint. Scary!
But Volcker eventually restored confidence through severe discipline, the economy began the greatest expansion in history, and gold became an afterthought.
Now we are facing the same problems that spurred the previous flight to gold, only exponentially greater. LITERALLY exponentially greater! Inflation or deflation, the dollar is in trouble, and from the sound of things there is no political will to fix it. The upside limit for gold is unknown, but the downside for the dollar only ends at zero.

The End of Gold

Ding! I found a better deflation play. Sorry, but the fact that dollar denominated investments are imploding doesn't actually make dollars more valuable. Yes, there is a temporary demand for dollars to settle dollar denominated debts. This drives the dollar up, just as the need for cash spurred equity selling which drove the prices of even sound equities down.
When the dust settles, the dollar's problem remains. Every dollar represents a dollar of debt, and we have to service that debt, from tax revenues or just plain printing money.
What will happen to our tax base during a sustained deflationary period? If you need a clue, look at California.
And don't look now, but we have a few more retirees expecting their welfare, er, social security checks in the mail. Medicare, anyone?
The only way to save the dollar is to pay down debt. If you think that will happen, then yes! Short gold!
But if you think people will become wary of loaning our government money, you may want to go the other way.
America needs the world's savings to keep us afloat, and those savings will not be coming here for much longer.
Maybe you should go back to your barber for some sound financial advice.

How the Treasury Bubble Will Burst and Why

satur9nine - maybe you spent too much time reading "The Road". Our currency has collapsed 95% since we left the gold standard, yet you still live outside your bunker (I hope). Gold is simply a good store of value for people who are worried about investing in a stock market which seems to be plagued with con men and is distorted by the flailings of our political master's attempts to "do something".
Society won't completely collapse, it will just get more dreary for a while. In the meantime, you can exchange gold and silver for ever-increasing handfulls of paper money.
Get out of the bunker and get some sunshine. Smell the flowers! Things won't be as apocalyptic as you think.

Gold: The Next Reserve Currency Player

Dr. Jackpot: They have piles of oil now. Is it like living on a desert island with "no food and no way to get off"?
You may find this suprising, but some people will accept gold in exchange for currency, food, farmland, machinery, etc. You can exchange gold for lots of useful things. Maybe even an airplane to fly you out of the desert! So no need to worry about the Saudi's sitting on their piles of gold.
Nikhil- a comment from James Turk will help explain why many people worry that GLD exists only to soak up money that would otherwise support the physical gold market: "Thus, for example, when GLD adds a gold bar, there is no assurance that the gold bar really exists unless it is in the vault of the custodian, HSBC. But the prospectus discloses that HSBC uses subcustodians and even sub-subcustodians, and what's worse, "the Custodian is not liable for the acts or omissions of its subcustodians". In other words, if the subcustodian does not have the gold, GLD "Shareholders cannot be assured that the Trustee will be able to recover damages from subcustodians...for any losses relating to the safekeeping of gold by such subcustodian". This means that "Because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may hold the Trust's gold, failure by the subcustodians to exercise due care in the safekeeping of the Trust's gold could result in a loss to the Trust." To be blunt, these disclosures mean that there is no certainty that the gold supposedly owned by GLD really exists. After all, if there was complete certainty that the gold did exist, the objective of GLD would be to provide investors with the opportunity to own gold bullion by investing in shares of an ETF, rather than its stated objective to just track the price of gold."