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Aaron Basile's  Instablog

Aaron Basile
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Contrarian Investor, Commodities Speculator, Technical Trader.
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Aaron Basile
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  • Why Gold Isn't Your Typical Asset Bubble

    Since gold had made it up around the $950 range in 2009 some analysts started saying that gold had gotten into an asset bubble and that when the economic recovery comes it will put an end to the fear and insecurity. Admittedly, 10-20% annual gains in the last two years alone is generally enough to be concerned with how long an asset can hold its current value. However I find that there are several reasons as to why this isn't a flash in the pan asset.

    The similarities between gold and other asset bubbles like mortgage agreements is that they both have gained a lot of ground in a short period of time and they both are products of government market steering. One of the key differences however is that the government has not come out with programs for gold such as a "gold buyer tax credit". Suppose for a minute the government forces futures brokers to loan out calls on gold without requiring the buyer to put money down. Sound ridiculous? Well, you wouldn't be the only one to think that, but there are a lot of really, really brilliant people who were fooled by this in the past decade.

    So what is giving gold its value, and how can it get any bigger if it hasn't already?

    I think that gold hasn't actually increased in value recently, it's just off of it's artifical lows that it had been measured in for a long time. Remember what Keynes said about markets and irrationality? Well if you were patient enough to remain solvent during that time you got a really good deal on gold as well as probably shorting certain securites that were doomed to fail. I think the real mistake that the anti gold crowd is making when they anlayze gold is they think that it's gold thats in the bubble. The truth is, it's the dollar and US treasuries that are in the bubble. With the amount of money that is being printed to fund the "recovery" it is actually a bit of a wonder that gold isn't higher than it is now. The bottom line comes down to the fact that Fed Chairman Bernanke will do use any means necessary to fight deflation, and that includes monetizing liberal amounts of debt. When the debt monetization reaches a certain point, treasuries yields will be laughable and gold will become the unofficial reserve. For the last 40 or 50 years the dollar and US treasury have been the run to safety for messy economic and financial situations. The Euro debt crisis was an example, as will be Japan coming very soon. I believe the reason the dollar hasn't already been rendered useless is because it is measured against other fiat currencies and not in actual assets like gold, silver, and oil. When you do measure it in commodities however you see how weak the dollar actually is, and that our currency that is backed by nothing wont have any more safety nets once the rest of the world goes through their own respective debt crisis'. That will be the end of the bond market and the real reserve will be clear.

    If you're uncertain about market conditions you have to realise that treasuries are no longer the safe haven that they were years ago and I strongly advise against putting any money into the bond market unless it's a short.

     

     

    Aug 17 6:16 PM | Link | Comment!
  • Kyle Bass on CNBC

    <a href="http://www.cnbc.com/id/15840232?video=1568273859&amp;play=1">http://www.cnbc.com/id/15840232?video=1568273859&amp;play=1</a>

    <a href="http://www.cnbc.com/id/15840232?video=1568296901&amp;play=1">http://www.cnbc.com/id/15840232?video=1568296901&amp;play=1</a>


    This might be the best segment I've ever seen on this show. Bass flawlessly puts everything into perspective and honestly, makes Faber look like a rookie. This was absolutely outstanding.

    Aug 17 4:53 PM | Link | Comment!
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