Gold bubble goes pop!

[metalman]

Re: Gold bubble goes pop!

Don't you mean parabolic rise? and I wouldn't call a rise from $650 to $970 that kind of rise. it's only 49%. NOW, if gold shot up to $2500, then, I'd consider calling it something depending on the M3, etc. Just my 2 cents.

agreed. this chart is still instructive... from what gold bubble oct. 2006



wonder how many didn't read it... were scared out of the market in 2006 by idiots calling the gold market a bubble then.

[Starving Steve]

Re: Gold bubble goes pop!

agreed. this chart is still instructive... from what gold bubble oct. 2006



wonder how many didn't read it... were scared out of the market in 2006 by idiots calling the gold market a bubble then.

Here are my 2cents worth from Starving Steve:

First, when my income goes up in an inflation-adjusted manner, then I will accept inflation-adjusted accounting for the prices around me. Until that time, such inflation accounting is nonsense. And that is why I sold gold at $907, but then, I am always early out of parabolic moves in markets.

Isn't it Howard Ruff who said in his book, "Never catch a boat that might sink," ?

Second, gold was not a market in early 1980. It was a joke because Bunker Hunt had cornered the silver market, and gold was riding coat-tail on that market. Comparing to-day's gold market to that market and then drawing inflation adjustments to the numbers is nonsense.

Third, I smell a wiff of DE-flation around me to-day in California: The roads are empty. The people are gone, or going. The jobs are going or gone. The wages are falling. The house prices are falling. The for sale signs are up. The mortgage rates are rising. People are not quite as smug as before.

But what do I know?:confused: I am just a Joe Sixpack ( Starving Steve ).

[EJ]

Re: Gold bubble goes pop!

Here are my 2cents worth from Starving Steve:

First, when my income goes up in an inflation-adjusted manner, then I will accept inflation-adjusted accounting for the prices around me. Until that time, such inflation accounting is nonsense. And that is why I sold gold at $907, but then, I am always early out of parabolic moves in markets.

Isn't it Howard Ruff who said in his book, "Never catch a boat that might sink," ?

Second, gold was not a market in early 1980. It was a joke because Bunker Hunt had cornered the silver market, and gold was riding coat-tail on that market. Comparing to-day's gold market to that market and then drawing inflation adjustments to the numbers is nonsense.

Third, I smell a wiff of DE-flation around me to-day in California: The roads are empty. The people are gone, or going. The jobs are going or gone. The wages are falling. The house prices are falling. The for sale signs are up. The mortgage rates are rising. People are not quite as smug as before.

But what do I know?:confused: I am just a Joe Sixpack ( Starving Steve ).

Steve,

Thank you for your note. We make a habit of inflation adjusting incomes, the stock market (see the iTulip Real DOW), gold and all prices. The reason is that only by inflation adjustment can we gain an accurate view of purchasing power of income and wealth.

You are not seeing deflation. You are seeing the early innings of a series of deep recessions. The Fed sees only the first and hopes that it results in a reduction in inflation as the labor markets weaken. However, the source of the inflation we have seen over the past few years is not wage pressures due to tight labor markets. The source of this inflation is rising import costs, especially energy, as a result of the dollar deflating against other currencies. As long as the dollar continues to fall, inflation will continue to rise.

We have a county by county analysis of changes in unemployment rates in your state California from the BLS, below. Each map shows change for the period shown from the year before.

As of Dec. 2007, 50 of 58 counties in CA were experiencing rising unemployment. We expect that as of March 2008 all counties are experiencing rising unemployment.

You are correct that wages are not rising. They are, in real terms, falling.

However, wages are rising for the top 10% of wage earners.

We find that it has been difficult for our readers to understand how inflation can continue to rise if wages are not also rising for the majority of wage earners.

Nominal wages have been flat for years and real wages have been declining for years while inflation has increased. The reason for the flat wages is immigration and outsourcing policy which allowed wages to deflate against foreign and imported labor; inflation increased markedly even as wages did not.

Clearly the idea that all-goods inflation cannot rise in the absence of wage inflation is a fallacy, contradicted by the events of the past few years. A recent report by the Fed made the case that wage inflation tends to lag all-goods price inflation.

The question is, if all-goods inflation increased even as foreign and imported wage pressures held down wages why is inflation expected to decline just because domestic wage pressures are increasing as a recession weakens the domestic labor market?

The answer is: in the absence of a strengthening dollar a US recession at this time will not on its own reduce inflation; the way the dollar can strengthen is for the US economy to improve relative to US trade partners' economies. Raising US interest rates will not strengthen the dollar at this time because high interest rates will further weaken the economy.

Regards,

Eric

[Starving Steve]

Re: Gold bubble goes pop!

Hi Eric:

Just before running off to substitute teach this morning, I heard Dr. Marc Faber speak on TV. ( I think it was on Bloomberg. )

Dr. Faber said that the Fed now is following the wrong policy by lowering interest rates because low interest rates reward consumption and penalize investment. He said the U.S. now needs investment, NOT more consumption to grow out of this mess. As such, he said that the Fed should be raising interest rates, NOT lowering them, and that by lowering interest rates, the Fed was deepening the downturn in the economy.

So when I read your note, your remarks in the last paragraph seemed to run counter to the remarks by Dr. Faber. Could you comment on this?

What should the Fed be doing now, raising interest rates or lowering interest rates?

All day I have been thinking about Dr. Faber's remarks. I think he hit the nail on the head: the Fed is deepening the recession by lowering interest rates.

Trying to think of a good name for this economic downturn, perhaps "the bone-grinder" might be the right name.

[EJ]

Re: Gold bubble goes pop!

Hi Eric:

Just before running off to substitute teach this morning, I heard Dr. Marc Faber speak on TV. ( I think it was on Bloomberg. )

Dr. Faber said that the Fed now is following the wrong policy by lowering interest rates because low interest rates reward consumption and penalize investment. He said the U.S. now needs investment, NOT more consumption to grow out of this mess. As such, he said that the Fed should be raising interest rates, NOT lowering them, and that by lowering interest rates, the Fed was deepening the downturn in the economy.

So when I read your note, your remarks in the last paragraph seemed to run counter to the remarks by Dr. Faber. Could you comment on this?

What should the Fed be doing now, raising interest rates or lowering interest rates?

All day I have been thinking about Dr. Faber's remarks. I think he hit the nail on the head: the Fed is deepening the recession by lowering interest rates.

Trying to think of a good name for this economic downturn, perhaps "the bone-grinder" might be the right name.

Steve,

I have tremendous respect for Marc Faber and I understand his point. My background in management makes it hard for me to not sympathize with anyone in a decision making position with accountability and I try to avoid making armchair assessments.

The fair way to judge Bernanke's behavior is to ask, What would you do if you were in his shoes? I answer that question from a reader here:

I’d hold rates where they are and allow the recession to take its course. I’d take only the best credits at the discount window. Insolvent banks will fail and solvent banks will pick up the good assets. I’d write off the FIRE Economy. The real estate industry will revert to being the ancillary industry it is in other countries. The insurance and finance industries will revert to their pre-1980s role of supporting industrial development versus replacing it. I’d focus all of our monetary policy firepower on those sectors of the economy that can allow the US to develop into sustainable economic growth at a 1:1 ratio of debt to GDP growth versus a multiple; industries like biotech, health care, agriculture, energy, technology, and public infrastructure will lead the way.

Now you’re probably wondering, what about all of the unemployed? I expect unemployment to rise well into the double digits. The fact is they are going to be a lot of unemployed sooner or later anyway. For every job created since 2001 combined public and private sector debt has increased by $1.8 million. Did anyone seriously think that could go on forever without the dollar falling and inflation rising? The ill-conceived finance-based economy is destined to wind down in any case.

This is no great mystery. We all know what needs to happen. The US economy needs to restructure to look more like the Germany’s, with a focus on modern industry, production, and saving and less on finance and debt. It is from these new industries that the new jobs will come.

[GRG55]

Re: Gold bubble goes pop!

...You are not seeing deflation. You are seeing the early innings of a series of deep recessions. The Fed sees only the first and hopes that it results in a reduction in inflation as the labor markets weaken. However, the source of the inflation we have seen over the past few years is not wage pressures due to tight labor markets. The source of this inflation is rising import costs, especially energy, as a result of the dollar deflating against other currencies. As long as the dollar continues to fall, inflation will continue to rise.

Clearly the idea that all-goods inflation cannot rise in the absence of wage inflation is a fallacy, contradicted by the events of the past few years. A recent report by the Fed made the case that wage inflation tends to lag all-goods price inflation...

In other words the USA attempts to export its recession to the rest of the world by depreciating the US Dollar, and imports the consequent Asian/OPEC inflation through higher imported goods and energy prices???

(The Fed keeps cutting interest rates prompting further falls in the US $, at the same time exporters to the USA are busy raising rates and repegging their currencies upward, in a desperate effort to stem their own rising inflation rates -without cratering their production and, generally fragile (?), domestic consumption)

...Dr. Faber said that the Fed now is following the wrong policy by lowering interest rates because low interest rates reward consumption and penalize investment. He said the U.S. now needs investment, NOT more consumption to grow out of this mess. As such, he said that the Fed should be raising interest rates, NOT lowering them, and that by lowering interest rates, the Fed was deepening the downturn in the economy...

...What should the Fed be doing now, raising interest rates or lowering interest rates?...

Current interest rates policy is one instrument that needs to be reconsidered. Beyond interest rates alone, Finster's prior commentary about the tax system favouring consumption over capital formation/investment would also seem relevant in any reform.

[Mega]

Re: Gold bubble goes pop!

Am just the half wit here, but i think a VERY valuable 1st stage would be to get PEOPLE to S A V E money again. This means 2 things:-

Tax FREE savings
Good rate of return.

These i feel are the building blocks to a strong furture.
mega

[Jim Nickerson]

Re: Gold bubble goes pop!

Am just the half wit here, but i think a VERY valuable 1st stage would be to get PEOPLE to S A V E money again. This means 2 things:-

Tax FREE savings
Good rate of return.

These i feel are the building blocks to a strong furture.
mega

Mike, you are far from the least valuable contributor here, think of all those who read and never write any comments.

I agree with you. Individuals need to stop buying "wants" and begin savings--which right now I guess pays a bit more to save in the UK. Bananake and team have us on the way to useless rates for savers--making cash trash for regular people.

[metalman]

Re: Gold bubble goes pop!

Mike, you are far from the least valuable contributor here, think of all those who read and never write any comments.

I agree with you. Individuals need to stop buying "wants" and begin savings--which right now I guess pays a bit more to save in the UK. Bananake and team have us on the way to useless rates for savers--making cash trash for regular people.

and the RRE industry said and the gummit did not correct them: "you don't need to save. your house is an investment. it will keep going up forever. sell it and retire rich".

they lied.

[Guest]

Re: Gold bubble goes pop!

Yeah, I thought that as I typed it!

But from what i hear on some financial news shows and in columns, I'm starting to think that a whole lot of economically more well educated people than myself may not really understand what's happening at all. So there are still a lot of those people (who have or manage money for others) left to jump on the gold/commodity/foreign currency bandwagons.

From the Dave Ramseys (still telling callers to invest in stock mutual funds and real estate today on the radio) to others who write that high prices cause inflation (David Schoen from MSNBC and numerous others) and all we have to do is wait for the recession to cool down inflation.

When I read a Peter Schiff's arguments, I understand them and agree with most. When I read some of the more mainstream folks, I get a lot of "trust me, that's how it is" or "the stock market has done xyz in the past, so it will again" or "those bears are stupid, they've been saying this for 10 years now" and very very very little logic that ever makes convincing sense.

PS I found it funny that Dave Ramsey spent half an hour telling people to save for the future and not waste money, then ran a commercial where he touted buying expensive jewelry for your family that "may one day become a cherished heirloom". Unless his audience is something quite different than his callers, he appears quite morally "flexible" when it comes to selling an ad.

[metalman]

Re: Gold bubble goes pop!

Yeah, I thought that as I typed it!

But from what i hear on some financial news shows and in columns, I'm starting to think that a whole lot of economically more well educated people than myself may not really understand what's happening at all. So there are still a lot of those people (who have or manage money for others) left to jump on the gold/commodity/foreign currency bandwagons.

From the Dave Ramseys (still telling callers to invest in stock mutual funds and real estate today on the radio) to others who write that high prices cause inflation (David Schoen from MSNBC and numerous others) and all we have to do is wait for the recession to cool down inflation.

When I read a Peter Schiff's arguments, I understand them and agree with most. When I read some of the more mainstream folks, I get a lot of "trust me, that's how it is" or "the stock market has done xyz in the past, so it will again" or "those bears are stupid, they've been saying this for 10 years now" and very very very little logic that ever makes convincing sense.

PS I found it funny that Dave Ramsey spent half an hour telling people to save for the future and not waste money, then ran a commercial where he touted buying expensive jewelry for your family that "may one day become a cherished heirloom". Unless his audience is something quite different than his callers, he appears quite morally "flexible" when it comes to selling an ad.

Schoen: asshat, shill, moron

Ramsey: asshat, shill, scumbag

Schiff: good guy but selling a product so take it with a grain of salt.

[DemonD]

Re: Gold bubble goes pop!

If we're creating/printing money at rate X, wouldn't it just be logical that commodities rise roughly proportionally to that?

Last year gold was up something around 31%. How much did the money supply increase globally? In the US?

I'm sure much of it is speculative, but isn't this primarily just a reaction to the lower value of a dollar, plus the flight of wealth to something that isn't eroding away? Seems logical to me, and I'm curious what would, in the medium term of a few years, stop this trend?

Keep in mind that interest rates in the early 00's were kept very low for too long and gold did not appreciate as fast then, so there was "pent up" money supply that our creditors now own - china, japan, et al - and this money has no where to go except into real assets.

hence the rise in all commodities, not just gold.

Maybe this is just my impression, but gold appears to be trading more like a regular commodity than as a reserve currency.

anyway i hope that answers your question.

[GRG55]

Re: Gold bubble goes pop!

Keep in mind that interest rates in the early 00's were kept very low for too long and gold did not appreciate as fast then, so there was "pent up" money supply that our creditors now own - china, japan, et al - and this money has no where to go except into real assets.

hence the rise in all commodities, not just gold.

Maybe this is just my impression, but gold appears to be trading more like a regular commodity than as a reserve currency.

anyway i hope that answers your question.

I hear what you are saying, and certainly the chart action suggests exactly that.

However, it could be that gold is not alone, and some of the other commodities are starting to trade like "money" - insofar as "cash" is searching for a store of value, any store of value...

[jk]

Re: Gold bubble goes pop!

However, it could be that gold is not alone, and some of the other commodities are starting to trade like "money" - insofar as "cash" is searching for a store of value, any store of value...

this was precisely my thinking a few wks ago when i decided to buy some agricultural commodities. i had too many u.s. dollars of evaporating value, and felt fully allocated to pm's and currencies. what could i buy to get out of dollars?

[raja]

Re: Gold bubble goes pop!

My concern is that if the stock markets plummet, commodity stocks will go down with other stocks, and money will flood into Treasuries. Perhaps the only things that would escape that would be gold and other precious metal ETFs that are thought of as money.

This may be a novice question . . . but as far as investing, it seems to me there is a difference between a value of a stock and the commodity itself. For example, if the price of oil goes up, does that necessarily mean that stock in an oil company will rise? The price of the stock is determined by the demand for the stock, and in a stock market crash, couldn't the oil stocks go down even while the price of oil rises?

What will happen to ETFs directly holding commodities. Would they rise with the cost of the commodities, since the value of ETF share may be tied to the price of the commodity and not determined by demand for shares?

I would really like to invest in commodities now (other than gold and silver), but I'm waiting for the market crash before I do so. Is this a mistake?