Smarty_Pants

Winmill: Don't Be Surprised By $2,400/oz Gold

"Buy gold and silver and take delivery while you still can."
- SW Richmond


Good advice, which I'll point out many of us have been giving for more than a year. If you can't get gold or silver, then start looking for miners, or miner ETFs, or even GLD ETF if you must.

The dollar is a dangerous place to be. One day it will take a terrible beating in a very short period of time. Convert some of your paper dollars to tangible assets so you can maintain the value of your wealth when the music stops (as it must).

25 Reasons We Will Not Have a Depression

"-- Price earnings ratios of large cap stocks are at a discount" (original article)

"Large caps are cheap now though." (author's response to joeflynn)

According to the Standard & Poors website, on 9/30/2009 the PE of the S&P 500 was 140.76. The highest PE ever recorded for the index.

That's a "discount"?! Everyone is entitled to their opinion, but I don't think it would qualify as a value play in my book nor to most others. What basis does the author use for determining that large caps are 'discounted'?

Here's a chart to look at the history of the S&P 500 PE ratio:

www.ritholtz.com/blog/.../

The last time you could say that the S&P 500 was 'discounted' would be nearly 20 years ago in the early 1990s.


As a secondary note, apparently the S&P folks are under so much pressure to downplay the PE ratio for the index that they have removed it from their website.

See Gary North's article on that very issue here:

www.garynorth.com/publ...

25 Reasons We Will Not Have a Depression

"- Increasing federal debt (not so much now, but later with health care)
- High federal budget deficit (now is not bad as a percentage of GDP, compared with some other nations. Its the future we need to watch.)"

One item that is usually overlooked in this area is the size of the present value of future gub'mint payments for "promised" benefits such as Social Security, Medicare, prescription drugs, disability, etc. Reported gub'mint debt only includes money borrowed for spending during the current year, not promises for payments in future years.

When you include the amount of money necessary (in hand now) to pay for these obligations in the future you will find our debt is closer to $70 Trillion. (Various parties have made estimates ranging from $56 Trillion to $100 Trillion, depending on assumed rates of return and interest rates.)

Using those figures as our official debt, the debt to GDP ratio would be closer to 500%, just for federal gub'mint IOUs. Pile state obligations on top and it's much higher than that. Those who rely on gub'mint reported numbers and claim "debt to GDP isn't that bad" are ignoring the 800 lb. gorilla hiding under the bed.


"- Impending collapse of commercial mortgage real estate (This has been hearlded for some time, but seems to me to be slow getting started so I wonder.)"

Nothing personal, but when did "I wonder" become a fact to base an argument upon?

If it were an honestly reported statistic, commercial foreclosures would be a lagging indicator during recessions/depressions. The businesses occupying the strip malls have to fail after consumer spending dries up, then the property owner has to burn through his bank account paying the mortgage on an empty property before he goes under and the bank forecloses (which is likely to be delayed in today's climate so the bank can avoid writing down the loan and taking the loss on their balance sheet). This whole process can drag on for some time, so the fact that it hasn't happened yet doesn't mean it's unlikely in the future.

The gub'mint is printing and spending faster than ever before in the history of the planet and all we have to show for it is a 'slowing' recession. That's not the sort of 'good' news that makes for healthy economic growth.

You can't solve a problem caused by excessive debt by borrowing ever more money at ever increasing rates. It's not sustainable, yet that's the gub'mint's plan for fixing things.

Congress and the Fed: An Epic Game of Chicken

Ummm, the only way the FED can raise interest rates over the long term is to start selling assets currently on the FED's balance sheet. The majority of those assets are toxic debt related crapola purchased/loaned in order to keep the big Wall Street banks/GSEs afloat.

Who do you forsee as being the buyer of all that toxic junk when the time comes to raise interest rates???

Ain't gonna happen, I'm a-thinkin'.

Holiday Shopping Tips for Gold Stocks

There's a simple approach that works. Hold gold stocks and cash in whatever proportion you feel comfortable with.

When the prices on your stocks go up, sell a few shares. When the price goes down, buy a few shares. Over time you will build the number of shares you own and if the stock is in an uptrend your account balance will grow too.

What price change you use is your choice, as is the amount you buy/sell each time. There are many different ways to proceed and none of them are 'wrong'.

Inflation Under Control, Despite the Rise in Gold

The gub'mint is borrowing money hand over fist so they can give/lend it to the big, insolvent Wall Street banksters for use in patching bottomless holes in their balance sheets. The only collateral the gub'mint can point at backing these loans/purchases to/of the big banks is an enormous pile of toxic assets whose true market values (approaching zero) are being ignored in favor of 'guesstimates'.

The giant swirling black hole of bank insolvency is swallowing every dollar the gub'mint can borrow or print. That's why price inflation is minimal. All that extra money is given to the banks who in turn give it back to the FED as 'excess reserves'. That money is the only "asset" the banks can point at in order to maintain the minimum reserve levels required by law.

Does anyone actually think that it's simply a coincidence that the increase in the Adjusted Monetary Base is almost exactly matched by the increase in excess reserves? Check out the graphs from the St. Louis FED and see.

Adjusted Monetary Base:
research.stlouisfed.or...

Excess Reserves:
research.stlouisfed.or...

The true reality is that the FED is the "Bailer-Outer of Last Resort" for the insolvent big banks.

Economics or Politics?

"Great minds discuss ideas. Average minds discuss events. Small minds discuss people." - Eleanor Roosevelt

Sadly a great majority of the American populace places more importance on college football scores and the latest Hollywood starlets than the destruction of their freedom by the political class.

It is for this reason that civilization cycles through its eight stages:

1. From bondage to spiritual faith;
2. From spiritual faith to great courage;
3. From courage to liberty;
4. From liberty to abundance;
5. From abundance to complacency;
6. From complacency to apathy;
7. From apathy to dependence; (Our current state)
8. From dependence back into bondage

For those who care enough to consider the effect of ideas on the world around us, it would seem the future doesn't paint a pretty picture.

How and When Will the Fed Reverse the Huge Addition to Bank Reserves?

"Who the hell is going to buy?" - Dave Wrixon

This is the dirty little secret of the Keynesian camp. The only way the FED can really reduce their balance sheet now is to start writing the toxic MBS assets off as total losses.

Naturally the odds of the gub'mint bailing them out at that point are pretty good, so Joe Sixpack will be the one whose standard of living suffers as a result.

How to Play the Gold / Silver Ratio

The simple way to play the gold:silver ratio is to buy equal dollar amounts of each and rebalance periodically (monthly, quarterly, semi-annually, or annually as you desire).

When precious metals (PM) rise, silver usually gains more percentage-wise so you wind up selling silver and buying gold to rebalance. When PM prices fall, silver usually falls more so you wind up selling gold to buy silver.

Over time the number of ounces of both gold and silver you own increases.

What Would GDP Be Without the Fed?

Cash for Clunkers (CFC) - loose translation: "Destroy perfectly good used vehicles so GM can build new replacement vehicles."

Anyone remember the book "Brave New World"?

"Ending is better than mending.* "

* A government slogan encouraging people to throw away old possessions and buy new ones, thus theoretically keeping the global economy strong.

Reality is even worse than the book. The gub'mint only handed out slogans in the book, not the money to spend like we with CFC.

If you want a forecast for future GDP try reading some predictions by Gerald Celente of the Trends Research Institute:

trendsresearch.com/for...

Look over his past predictions and see how amazingly well he has done at hitting the nail on the head, then read what he thinks about the near future.

www.infowars.com/celen...

The gub'mint can massage the numbers all they want. Until and unless they stop printing money to prevent failing businesses to go under, things will continue to worsen over time.

Count on it.

Gold: How the Mainstream Gets It So Wrong

Many good points in both the article and responses.

Anyone who wants to point out the "if you bought gold in 1979" argument should also be giving fair play to the "if you bought the Nasdaq/Dow in 2000" or "if you bought the Nikkei in 1989" arguments.

Nasdaq peaked at 5048, currently trades at 2154 (down 57.4% after 9+ years).

Dow peaked at 11,727 in 2000, currently at 9,972, (down 15% in 9+ years.)

Nikkei peaked at 38,915, currently trades at 10,355 (down 73.4% after 20 years).

Also, if you want to compound dividends, don't forget to 'uncompound' the dividends you sent to Uncle Sam with your 1040 forms all those years. Dividends are taxed as regular income, so recalculate those gains assuming that 25% of the dividends issued aren't reinvested because the taxman took them.

It's not my intent to bash the gold nay-sayers or dividend re-investors. They make valid points. Not all investments are the same, nor are all investors the same.

Let's all try to learn something useful from what others know, even if we don't think it's our first choice for our own funds.

The one point the author makes that's carved in stone is that paper money will always lose value over time as more of it is printed.

"Paper money eventually returns to its intrinsic value - zero."
-- Voltaire (1694-1778)

We're Living Through the Best of Times

"My argument will be, when I am with them in Dallas in December at their conference, "Where are we going to get business-investment spending when banks aren't lending and capacity utilization is at an all-time low?""

It's called SAVINGS. We won't be seeing sizeable amounts of it for quite some time as the public needs to pay down their personal debt first, as the article notes.

Which leads to:
"Lending to small business, the real engine of job creation, is sadly decreasing each month."

At what point in recent history did growth of small business become dependent on borrowing?

There are other options for growing your business, like using profits or selling a piece of the business to someone with savings. These are the businesses forming the backbone of the economy. Profitable and debt free. Any business which REQUIRES borrowing to operate is probably going to have a tough row to hoe for quite some time.

"The psyche of the American consumer has been permanently seared. Consumption and savings habits are being changed as I write."

Or stated another way, 'sanity returns'.


"I can't imagine these people will recklessly monetize US debt."

And thus, the author undermines his own basis of authority. Did you ever imagine that they would run a $1.42 Trillion annual Federal deficit at any time before 2007 with an estimated additional $7.6 Trillion in deficits to follow over the next decade? Probably not.


"even so, the world will be better, far better, in 20 years, with far more opportunities than today."

I'll bet Roman Emperor Arcadius thought along similar lines in 390 AD., a mere 20 years before the Visigoths sacked Rome in 410 AD. After that things were so 'good' that the next 1100 years (ie. the Middle Ages) are widely known for their improved standard of living compared to the Romans (NOT).

Read history. Whenever the ruling class abandons equality before the law and respect for individual rights in order to sustain their rule, you can bet that it won't be long before society's standard of living starts slumping.

The last decade has seen America's rule of law dismantled piece by piece. Until that fact is reversed, the decline will continue.

Ethics Laws Can't Work

"Painter’s essay is excellent, and highly recommended, precisely because he offers no solutions to what is an intractable problem."

Here's a solution:
LET THEM FAIL!!!

Financial ruin and a lifetime of penury for the banksters will set the example for the rest of the 'too big to fail' crowd in DC and on Wall Street.

How Will the U.S. Recover from the Debt Crisis?

"We're freakin' doomed."
- Mogambo Guru

The Power of Unintended Consequences: SuperFreakonomics, by Steven D. Levitt and Stephen J. Dubner

"The economic approach “is a systematic means of describing how people make decisions and how they change their minds;"

As wyvern noted, the Austrian School of economics has utilized this approach for many decades. Those who are familiar with Austrian School economic thought are indeed thinking "nothing new here".

The term used in von Mises' book Human Action was "Praxeology", which was coined over a century ago.

From Wikipedia: en.wikipedia.org/wiki/...

"Praxeology is a framework for modeling human action. The term was coined and defined as "The science of human action" in 1890 by Alfred Espinas in the Revue Philosophique, but the most common use of the term is in connection with the work of Ludwig von Mises and the Austrian School of economics."

If you want to get a good understanding of economics, get a copy of von Mises' book Human Action and slug your way through it.

mises.org/resources/3250 (The Human Action homepage. It's FREE.)