Thanks, Gary and Buzzer, for the preceding discussions. This is enlightening.
It seems, though, that a necessary conclusions is:
We have for the last few years only been able to achieve rather modest GDP growth even though the level of debt at both the public and private level has exploded. Doesn't that mean that we've already passed the point of no return? We seem to have reached the point that implementing austerity measures only sufficient to slow the rate of debt growth to match GDP growth would be sufficient to cause GDP contraction.
Mathematically speaking, is there a solution to the current debt/GDP equation?
I think we may have passed the point of no return.
I agree, with one caveat: It's hard time time a bursting bubble. Most retail investors, won't have the discipline to get out BEFORE the top and will hold on too long. And all the way down, they'll keep hoping for a short term bump to sell into and reduce their losses, and it won't ever come.
My long view is that once we are already IN a crisis, it's too late to start accumulating a long gold position.
NOT what I'm doing. I'm trying to estimate what the peak of the current bubble might be ($850 in 1980 inflation adjusted to the present for comparison purposes) to get an idea where the top of THIS bubble might be. Then, looking at that value make an attempt to estimate how far this rally might run and where we are in relation to a future peak. Not an exact science. If this bubble inflates the way the last one did it's got a long way to run yet. But you better sell before it bursts, else you'll be trying to catch a very large, heavy falling knife.
But I actually don't think this bubble will get that big. Gold prices in 1980 were inflated at least in part by the Hunt brothers attempt to corner the silver market.
I'm "cherry picking" the most recent, in fact the only, example of the phenomenon (a gold bubble) I think I'm seeing now. I was not aware that there was a gold bubble in 1913 - in fact, there couldn't have been, since currency was tied to gold in 1913. Maybe I'm not the one cherry picking.
What will be your sell signal? or will you ride that $124,000 back down to $26,500?
"Those who fail to learn the lessons of history are doomed to repeat them."
Agreed. But can you liquidate your position when everyone else is trying to sell as well? Do you think your sell orders will get executed before the big boys?
It's like musical chairs, except you won't know when the music will stop. The big players know, becuase they'll decide when to sell and that will precipitate the crash. (just like when Goldman-Sachs hedged their longs in the mortgage market) When the bubble burst in 1980, gold fell from $850 to $738 in a day, to $481 in about 60 days. You'll have to be fast on the trigger to sell, but you'll hesitate because YOU WON'T BELIEVE ITS OVER.
You accept that gold was definitely a bad investment 30 years ago.
Continue that line of thought a little further-
The 1980 price of ~$850 an ounce was the peak of the bubble. If you move that $850/oz forward to the present, the inflation adjusted peak value of the previous bubble would be around $2200/oz. It's a big leap, but that could give you an idea where the peak of the current bubble will be. If that's the case, we should be crossing into "bubble" territory now- at about 1/2 the expected peak price.
This is PURE guesswork at this point. Bubbles are an example of mass psychosis and defy rational analysis. But I do think we're into bubble territory now, and that buying into a bubble is speculation, not investment.
Through the Looking Glass: Thursday in Wonderland [View article]
Exactly. I never meant to imply that the US was in some way different. We seem to be determined to consume the accumulated wealth of 2 centuries of hard work in less than a generation. When I look around, I see a society of people who expect every perk and privilege to be provided to them as a their birthright, from education to health care to a salary, and eventually, a pension, while contributing nothing of economic value. Hard times are in store for all, and those who currently live in the most comfort have the furthest to fall.
Through the Looking Glass: Thursday in Wonderland [View article]
Hmm... I don't usually reply to myself, but, after the weekend's and yesterday's developments it seems as if we have a better picture of which poison the EU has picked.
They seem to have decided to hang together, rather than to hang seperately.
Kudos.
But it only delays the crisis until all of the EU countries are in the same fiscal boat, which they eventually will be, as the measures proposed do nothing to address the underlying problem, to wit, that it is impossible to consume more than we produce in the long term.
Housing: Still a Drag on Economic Recovery [View article]
Low housing costs ARE good.
Declining asset values, homes included, are VERY bad.
Millions owe more on their houses than they could now sell them for. Those who don't have seen significant declines in equity. That translates directly into delaying retirement, for many, many people their home equity is their only retirement savings.
Widespred delayed retirement will make it harder to reduce unemployment, and those young people (who aren't encumbered by high debt and might be in a position to buy a house) will now be competing with those older, more experienced workers for jobs.
And higher average unemployment will stagnate wage and spending growth, thus dampening the recovery.
Is a Boom in U.S. Homebuilding Coming? [View article]
Actually, many have stayed here to ride it out and hope for the rebound. The DHS border fence project has had the effect of making it quite difficult to return the the US, so many have stayed when they might otherwise have returned to points south, to the point that a few are receiving remittances from their families in Mexico.
The National Housing Survey and the Real Estate Bear Market [View article]
". . . an expensive, high maintenance home probably being taxed higher and higher to pay for schools and a public payroll they don't need anymore . . . "
So just who do you think pays the property tax on a rental property - the landlord? No. He just passes it along to you in the rent.
". . . In the not too distant future, I can just pack up and leave and pick through the housing bargains all over the country, with no ball and chain on my ankle . . ."
IOTW, you'll own a home too eventually.
I bought in '02, before the bubble. (A 'fixer-upper', which I 'fixed up' myself. And it's still valued at something like 130% of my purchase price).
Any idiot could see that home prices were astronomically inflated by '06-'07, and should have had the sense to stay away. In fact, many did. But from '05 to now is NOT a normal housing market. But if you can purchase for less than 10x annual rent you should because the long term cost of ownership will beat renting.
Don't wait too long or the bargains will have become rentals. When the bottom is close the big real estate barracudas will snap up the deals wholesale - probably directly from the banks and completely bypassing the retail market.
The Collapse of Effective Demand [View article]
It seems, though, that a necessary conclusions is:
We have for the last few years only been able to achieve rather modest GDP growth even though the level of debt at both the public and private level has exploded. Doesn't that mean that we've already passed the point of no return? We seem to have reached the point that implementing austerity measures only sufficient to slow the rate of debt growth to match GDP growth would be sufficient to cause GDP contraction.
Mathematically speaking, is there a solution to the current debt/GDP equation?
I think we may have passed the point of no return.
Gold and the Worry Trade [View article]
My long view is that once we are already IN a crisis, it's too late to start accumulating a long gold position.
Dave
Gold and the Worry Trade [View article]
I don't buy conspiracy theories, and I'm not a gold bug.
Gold and the Worry Trade [View article]
But I actually don't think this bubble will get that big. Gold prices in 1980 were inflated at least in part by the Hunt brothers attempt to corner the silver market.
Gold and the Worry Trade [View article]
What will be your sell signal? or will you ride that $124,000 back down to $26,500?
"Those who fail to learn the lessons of history are doomed to repeat them."
Gold and the Worry Trade [View article]
It's like musical chairs, except you won't know when the music will stop. The big players know, becuase they'll decide when to sell and that will precipitate the crash. (just like when Goldman-Sachs hedged their longs in the mortgage market) When the bubble burst in 1980, gold fell from $850 to $738 in a day, to $481 in about 60 days. You'll have to be fast on the trigger to sell, but you'll hesitate because YOU WON'T BELIEVE ITS OVER.
Gold and the Worry Trade [View article]
You accept that gold was definitely a bad investment 30 years ago.
Continue that line of thought a little further-
The 1980 price of ~$850 an ounce was the peak of the bubble. If you move that $850/oz forward to the present, the inflation adjusted peak value of the previous bubble would be around $2200/oz. It's a big leap, but that could give you an idea where the peak of the current bubble will be. If that's the case, we should be crossing into "bubble" territory now- at about 1/2 the expected peak price.
This is PURE guesswork at this point. Bubbles are an example of mass psychosis and defy rational analysis. But I do think we're into bubble territory now, and that buying into a bubble is speculation, not investment.
Through the Looking Glass: Thursday in Wonderland [View article]
Through the Looking Glass: Thursday in Wonderland [View article]
They seem to have decided to hang together, rather than to hang seperately.
Kudos.
But it only delays the crisis until all of the EU countries are in the same fiscal boat, which they eventually will be, as the measures proposed do nothing to address the underlying problem, to wit, that it is impossible to consume more than we produce in the long term.
Where to Hide Now? [View article]
Goldman's CDO Troubles [View article]
Housing: Still a Drag on Economic Recovery [View article]
Declining asset values, homes included, are VERY bad.
Millions owe more on their houses than they could now sell them for. Those who don't have seen significant declines in equity. That translates directly into delaying retirement, for many, many people their home equity is their only retirement savings.
Widespred delayed retirement will make it harder to reduce unemployment, and those young people (who aren't encumbered by high debt and might be in a position to buy a house) will now be competing with those older, more experienced workers for jobs.
And higher average unemployment will stagnate wage and spending growth, thus dampening the recovery.
I'll stop now, I'm depressing myself.
Is a Boom in U.S. Homebuilding Coming? [View article]
Go figure.
The National Housing Survey and the Real Estate Bear Market [View article]
So just who do you think pays the property tax on a rental property - the landlord? No. He just passes it along to you in the rent.
". . . In the not too distant future, I can just pack up and leave and pick through the housing bargains all over the country, with no ball and chain on my ankle . . ."
IOTW, you'll own a home too eventually.
I bought in '02, before the bubble. (A 'fixer-upper', which I 'fixed up' myself. And it's still valued at something like 130% of my purchase price).
Any idiot could see that home prices were astronomically inflated by '06-'07, and should have had the sense to stay away. In fact, many did. But from '05 to now is NOT a normal housing market. But if you can purchase for less than 10x annual rent you should because the long term cost of ownership will beat renting.
Don't wait too long or the bargains will have become rentals. When the bottom is close the big real estate barracudas will snap up the deals wholesale - probably directly from the banks and completely bypassing the retail market.
Gold Demand: Not What You Think [View article]