Hefaistos

Has Gold Appreciated Too Much to Be Inflation Protection?

The headline to this article is somewhat funny. Supposedly, if gold was an inflation protection, why does it then rise in times of deflation? Ah, because it will rise even more in times of inflation.
I think it's relevant to put the price of gold in relation to the Yen rate. Gold has another 10% or so upward potential in terms of the very strong yen. And japanese are big buyers of paper gold.

2009 Economy Outlook - Severe Recession, But Not a Depression

Funny piece of forecasting. First you take a blue pen and draw a line in a diagram to make a guess about a future price. Then you take a red pen and draw a couple of accompanying lines to make a second guess about the "confidence" of your first guess.
I'd say, anyone's guess is as good as anyone else's. The only thing we can be confident about with this type of guessing, is that it is just a reflection of CURRENT investor sentiment - sentiment that will change in an instant.

What's up with the Dollar and Gold?

'Everyone' seems to 'know' that the dollar is going to drop. That will make gold rise. Thus, smart investors discount this knowledge and trade the dollar up already now.
When will the dollar drop? Maybe starts already this week, if the treasury auctions have some problems. Or maybe later, when we see a pickup in economic activity.

Let's Just Say It: Print More Money

"...where's the money? Where's the quantitative easing? Not token hundreds of billions. Trillions. Dollars. Without sterilization. The kind of money that will create - no, force - inflation."
That's the spirit! Bring it on! ... if it only were so easy...
Trouble is, that as well as inviduals can be classified as 'subprime' and default on their debt, so can nations.

De-Leveraging Is Not Deflation

Consider_this gave us an example with money supply (or was it economic activity? -unclear) as a swelling balloon.
I have another metaphor regarding money supply, which is maybe more clear. Think about it as a silo with flour, being rapidly filled by the Fed. But that the silo is full, doesn't mean that people will have a lot of bread! Until the flour leaves the silo, gets baked and distributed as bread, the flour is merely hoarding.
Soon, we will start to see some major M&A activity. THere are great incentives for principal financial actors to use all this available 'flour' to pick up business at rock bottom valutations. Look out for M&A as a leading indicator of a turnaround.

De-Leveraging Is Not Deflation

Thanks for a fine article written with warmth and humour! And a good discussion.
At the heart of the matter is of course Paco's Austrian definition of inflation as increase in Money supply. "Everyone else" agrees to the conventional measure of inflation (CPI change).
And, indeed, treasuries are not a bad investment in a time deflation, even if yield iz zero. We DO get more money in real terms back when the bond matures, our purchasing power has increased. That's what driving investors, together with risk aversion in troubled times.
I think we also all agree that treasuries ARE a potential bubble, since when (not if!) CPI inflation returns, they will 'crash'.
I would suggest the Austrian definition of money supply is totally irrelevant to our understanding of all this. Maybe it contributes to the deeper understanding of some mechanisms for some people - as well as the Marxist theory of profits as the 'hidden' surplus of labour might be helpful to marxists. For the rest of us, we'll do just fine with traditional concepts.

Gold Cannot Be Inflationary, But the Dollar Sure Can

"The supply of dollars is increasing. So the dollar is losing value."
Then why has the dollar been strengthening in the latest time? Interest rates are zero, which gives really no incentive whatsoever to hold dollars. Apparently, we again see a flight to safety. Prospects are also lousy for the dollar, due to the stimulation packages due out, increasing the deficits in the balance of payments, increasing the risk of inflation. All of this should really bring the dollar down, instead we see the reverse. Supposedly we face another period of stress in the financial system, with redemptions, etc. This could of course also benefit gold.
Another thing that has to be added to the picture, is the velocity of money. As long as it stays down, all the increase in money supply might have no effect at all.
Thirdly, it's as easy for the Fed to decrease the money supply, as it is to increase it.

The Obama Inauguration Rally Begins

It's hardly a breaking news that Obama will be inaugurated, it might be futile to think that it will move the markets any more than it already has.
He is indeed a great speaker, but I believe his Words are all discounted since long.

How the Treasury Bubble Will Burst and Why

It will take a long time for the treasury bond market to crash. The Fed is already monetizing long bonds (buying them in the market), thus keeping rates down at extremely low levels, and bond prices high. This will continue as long as the housing market needs support by low rates, which most certainly is Obama policy. And that support will be needed for at least another year.
In the end, yes, there will be some inflation and maybe a crash in bond prices, but I don't see it within a year.

Crisis Strategy: Coping With Trillion Dollar Deficits

The dollar has been strengthening because of a flight into safety: Long Treasuries. Interest rates are 2-3 percent, which gives a real yield since we have deflation. However, prospects are lousy for the dollar, due to the stimulation packages, increasing the deficits in the balance of payments, increasing the risk of inflation. All of this should will eventually bring the dollar down.
But, we cannot understand the dollar's development without taking into account what's going on with the treasury bonds. Sooner or later we will see a flight from them, and a crash of prices. That will also bring the USD down from current levels. When will it happen? Whenever we see that the economy starts moving a bit, commodity prices will rise, there will be reflation. Timeframe? Maybe late this year.

Massive Inflationary Pressures Will Lead to Uptrend in Gold

All this argument is built upon the expectation that the bailouts and stimulance packages will kind of overstimulate the economy, and within a couple of years build these inflationary pressures.
I would like to take the contrarian view: What if this crisis and recession leads to much bigger losses of economic activity than any 'packages' can provide? In that case, we will have a deflationary development continuing for some time, and gold will not be a good investment. Also, long-term bonds will not be a bubble.

Gold Even More Attractive as Cash Yields Approach 0%

You say "It utterly bewilders me how educated folks have such a hard time understanding basic economics." and then you display only same in your article.

Hey, it's not very relevant to make examples about "raging inflation", when reality is that there is deflation. If you get 2-3% on a bond it clearly means you have a positive real yield. If there is deflation, bonds are an excellent investment.
From the government:
"On a seasonally adjusted basis, the CPI-U decreased 1.7 percent in November after declining 1.0 percent in October. The index for all items less food and energy was virtually unchanged (0.0 percent) in November after decreasing 0.1 percent in October."

Gold Even More Attractive as Cash Yields Approach 0%

"Guess what folks, Treasuries don't pay enough to cover the inflation rate. And yet you still have all the risk of default, inflation risk and lost opportunity cost. This argument has got absolutely no more legs to stand on. The argument is worthless."

For one thing, long bond yields definitely cover inflation.

"Guess what folks" - I don't understand how this populistic and one-sided article qualified for publication at SA? T

Stocks Churning, Commodities and Currencies Burning

Why has the dollar again been strengthening in the latest time? Interest rates are zero, which gives really no incentive whatsoever to hold dollars. Apparently, we again see a flight to safety. Prospects are also lousy for the dollar, due to the stimulation packages due out, increasing the deficits in the balance of payments, increasing the risk of inflation. All of this should really bring the dollar down, instead we see the reverse. Supposedly we face another period of stress in the financial system, with redemptions, etc.

The Market's Making Me Nervous

Nice take. The one thing you don't mention, is the dollar, which is again strengthening in the latest time. This is a bit strange to me: Interest rates are zero, which gives really no incentive whatsoever to hold dollars. Apparently, we again see a flight to safety. Prospects are also lousy for the dollar, due to the stimulation packages due out, increasing the deficits in the balance of payments, increasing the risk of inflation. All of this should really bring the dollar down, instead we see the reverse. Supposedly we face another period of stress in the financial system, with redemptions, etc.