A Bubble in Gold Bubble Stories
Between this blog, Illusion of Prosperity, Bill Bonner of The Daily Reckoning, and a myriad of other sites the only thing I can say with 100% confidence is that there is a bubble in "Gold Bubble" stories! At this point I am firmly with Mr. Bonner when he says:
Too many ‘possibles.’ Too many things we know we don’t know. And too many things we don’t know we don’t know too. And too many things about which we have no clue. We’re tired of thinking about it.Sounds about right!
I have a new poll question up for a vote: Where is gold on the bubble scale?
Deflation is a Riddle Wrapped in a Mystery Inside an Enigma
Thanks to Winston Churchill! Starting off the "dazed and confused" parade is the concept of deflation. Economic Disconnect wants to be honest and admit this animal is a hard one to fully appreciate. No wonder all governments aim for inflation, it just makes more sense!
We will begin with an expansive piece my Mish Shedlock. You will need a spare half an hour to really read the entire detailed post, but it is worth it.
Now you would think that after that great primer on deflation, all would be clear. I guess I am a slow learner!
As if I needed more help, one of my favorite writers anywhere is Mr. Practical (who posts on Minyanville infrequently). Today Mr. Practical weighs in on deflation and offers this juicy nugget:
In deflation, there’s too much debt. If the economy is slowing down, it makes it more difficult to pay back that debt and you would expect more to default. The more debt that forfeits, the more dollars are destroyed. The more dollars destroyed, the more they’re worth.
Now I understand this in principle. What I am having a real issue with is this idea applied to our "printing press" gunners at the FED. Thus far we have seen zero, count them zero, limits on the US ability to print as much money as we darn well please. If dollars are destroyed, just make more. To round this out, if deflation results in a stronger currency then:
-Would it not make sense to have rampant deflation for some time, allow the dollar to rise to some obscene number on the index, then use those extremely valuable dollars to buy the entire world?
How come nobody has thought of this before? I will take full credit for the original idea here!
All kidding aside, what are the limits to what I just outlined? At some point this all gets silly (if say $10 could buy Japan) so there must be something else I am missing. Where are the traps? Where does it hit a wall? I would really like some creative ideas in the comments on this one all.
Economists Love Bubbles
Maybe I am naive, and maybe I am just so nice on the inside that I would imagine an economist would strive to find sustainable growth, a stable currency, job creation, and maintenance of a standard of living to be ideal goals. I get a bit confused when they openly are looking for some kind of bubble to achieve their goals instead of long term solutions to problems.
Today's whopper comes from a recurring contributor to this award, Economist's View. My second favorite Keynesian (gaining ground on Krugman all the time though) Mark Thoma highlights a piece by Tim Duy and just goes right out and says what we all knew anyway; these guys are praying for another bubble. Short excerpt so I do not throw up:
So, given the unemployment outlook is sad, wage growth continues to deteriorate, core inflation is falling, and we seem to lack an institutional arrangement to force higher prices, should they even emerge, into higher wages, what is the Fed thinking? Should they really be worried about winding down programs? Are they really confident enough that an inventory correction that will undoubtedly spike GDP numbers will also translate into sustainable growth? Even knowing full while that after the last recession, the US economy languished despite the inventory correction, only to be revived on the back of the housing bubble? In effect, the Fed looks to be putting much weight on the cyclical story playing out, while ignoring the structural story of the necessity of asset bubbles to fuel growth.
Advice for the economists: start using your vast superior intelligence to SOLVE problems instead of inventing ways to MASK them and I will apologise for everything I ever said about your profession. I am serious. And don't call me Shirley.
Lost in the Ether
The two following tales are so over my head I am just going to provide the links and allow you the honor of wrapping yourself around the twisted path that MBS are looking at right now:
Mortgage Bonds: It's a Trap via Accrued Interest
PPIP Get's its Debut via Rortybomb
Good Luck!
Friday Night Entertainment
After that parade of confusion, lets move on to the easy stuff!
Gift for that Special Lady
What do you get that special lady in your life to say "Thanks for tolerating me?" Diamonds are to expensive. Coach bags MUST be matched to the lady perfectly and by this I mean she has to buy it or tell you exactly which one to get, and that's no surprise! Here is a suggestion, a teddy bear jacket:
I think this could be huge this Christmas. Story and ordering information via Geekologie.
Special Delivery
Economic Disconnect is in the market for a new kitty as you know, but I was shocked that Amazon has so much confidence in their 1 day shipping policy that they would chance this kind of package:
see more Lolcats and funny pictures
I am just KIDDING!
Film Clips
I am not sure anyone really checks this section out, but I get a kick out of it and it leaves my favorite clips someplace I can easily find them, so it goes on.
A film that not many people have seen is "The Prophecy". I love the film (NOTE: I am not religious, just love the film). Here are some clips of Christopher Walken playing Archangel Gabriel:
I love the film "The Outsiders". Take a look at the opening credits and see the that this cast became the heart of Hollywood for the next era:
Rock Blogging
Ending the night with the music!
My message to the markets, provided by Hall and Oates, is "Out of Touch":
I finally found out the name and artist of a song from the film Heat that I really liked. Enjoy New Order (featuring Moby) and "New Dawn Fades":
Nice!
I have had this one before, but the piano music ran into my head this week, so enjoy "Tubular Bells" made well known in the film "The Exorcist":
Last one, I am a bit out of steam!
Closing the show with another song from a movie! At least I am consistent!
I loved the film "At Close Range" with Sean Penn and the already mentioned Christopher Walken (was he in everything??). Madonna wrote this song for the film, so try out "Live to Tell" along with plenty of cool clips from the must see film:
Have a good night.
25 comments:
Teddy bear jackets ANB Hall & Oates?
This is just too much! I've died and gone to heaven. Hahaha! :)
You're out of touch!
I'm out of time!
Woah oh oh!
I thought the Churchill quote included the word "conundrum", but I could be wrong.
One on one...you gotta play that game tonight? Yes, a play on the lyrics.
We could do this all night long. LOL.
I think I've just spent too much f-ing time worrying about money in this Toilet Bowl recovery.
Cause...I'm a rich girl, and I've gone too far cause I know it don't matter anyway...
Think I'll go out tonight. But watch out boys, I'll chew you up...I'm a maneater.
Love Hall and Oates. LOL
Mark,
never pegged you for the sentimental type!
SedState,
you know I think you are correct on that, but I am too tired to look it up.
C-T,
so glad to see you! Happy you had fun. "Maneater" is a top 10 song for me, your lyrical recollection is profound!
"So many have paid to see,
What you think you're gettin' for free,
The woman is wild, a she-cat tamed by the purr of a Jaguar"
Sooooo Nice!
GYSC
Mr Practical chimes in again on deflation:
The Lowdown on Deflation
Mr Practical Sep 25, 2009 9:50 am
http://tinyurl.com/yax3edn
He is in the deflation camp and that is the reason he is back in the US, I can't find much to argue with on his assessment. Now whether the dollar continues to collapse and drives gold to the moon or not short term before Bernanke is forced to rise rates or the market does it for him I have no idea.
Kevin
Kevin,
should you have a moment, think about my hypothetical on Mr. Practicals thesis about dollar strength. I would LOVE to have your take on that!
Great to see you long time friend!
GYSC
This is a real quick low down.
“What I am having a real issue with is this idea applied to our "printing press" gunners at the FED. Thus far we have seen zero, count them zero, limits on the US ability to print as much money as we darn well please. If dollars are destroyed, just make more.”
That's what Bernanke thinks so how's that working out?
“To round this out, if deflation results in a stronger currency then:
-Would it not make sense to have rampant deflation for some time, allow the dollar to rise to some obscene number on the index, then use those extremely valuable dollars to buy the entire world?”
That's where we were headed last year, the politicians and bankers don't like that and most of the broke impoverished population wouldn't have cared for it either.
“How come nobody has thought of this before? I will take full credit for the original idea here!”
They have and that would only leave a couple of people that would end up owning the whole world, and everyone else would be broke and that ain't gonna fly in the real world with out a hell of a fight which is what we are seeing.
“All kidding aside, what are the limits to what I just outlined? At some point this all gets silly (if say $10 could buy Japan) so there must be something else I am missing. Where are the traps? Where does it hit a wall? I would really like some creative ideas in the comments on this one all.”
I think my comments above kind of explained that.
LOL
Kevin
Kevin,
great points, thanks for the help!
Gysc
I hope I didn't come off as being kind of a smart ass on that even though I can be.
The problem in my view point is still the same one as when this mess all started and that is too much debt in the system, either incomes have to rise or prices have to fall, government is trying to hold the prices up at unfordable levels, and Bernanke is going to soon be faced with either trying to defend interest rates at to low a level or the risk of trying to stop a currency collapse, either way the result will end up being the same.
This isn't going to end well and the only thing they could do is debt forgiveness on a massive scale or force the bad debt out of the system threw default and contraction in GDP growth and that isn't politically or probably socially for that matter either going to happen.
In my view we are pretty much screwed either way, whether to be in gold bullion(not stocks or etf's IMHOP) betting on a currency collapse which is going to happen sooner or latter or be in actual paper dollars or short term treasuries outside our insolvent banking system backed by an insolvent deposit insurance scam as credit seizes up on a bond market dislocation for now might be a better place to park ones money is what this will boil down to, some of both is probably not a bad bet once on has got out of debt and taken care to stock up on necessities while the credit cards still work and thing are possibly cheap in the event of a flat out currency collapse come first.
Kevin
The optimist and the pessimist
The difference to extoll
The optimist sees the doughnut
The pessimist sees the hole
I forget who wrote that, probably Anonymous. He's the author of many a great poem. Like:
As I was walking down the stair
I met a man who wasn't there
He wasn't there again today
Oh, how I wish he'd go away
But I do know who said this, "Show me two economists that agree with each other, and I'll show you one economist standing in front of a mirror."
It was my father. He also told me he'd never met a banker who wasn't a complete idiot, and also to never buy the first generation of a new software. He was a remarkably intelligent man, and he was for the most part self-educated.
I listened to that entire debate between Mish and Amerman this morning. The salient point I got out of it was the necessity of agreeing on definitions. Absent that, all you have is gibberish. And we're all back in Wonderland.
Humpty Dumpty: A word means what I say it means, nothing more, nothing less.
Alice: But how can you make words mean so many different things?
Humpty Dumpty: The question is, who is the master? That is all.
Humpty Dumpty sat on a wall
Humpty Dumpty had a great fall
All the king's horses and all the king's men
Couldn't put Humpty together again
I wish Paul Krugman would fall off a wall, or at least his high horse, and be so broken up about it no one could put him together again. But then I wish the same for all economists and politicians.
Same thing, I know, but that's what I hope for.
This whole thing is really getting ridiculous. Inflation-deflation, recovery-depression, growth-contraction. And it's global.
I don't know what's going to happen. It could be good, it could be bad. I just know that the people in positions of power and authority are all idiots. They make decisions based on their own self-interests, as if everybody doesn't know it. So why keep electing them? Why keep praising them? Why not completely ignore them?
That's what I do, that's where I am. The problem today is not that we don't have enough information. It's that we have way too much. And nobody has the time or attention span to process it all.
Thus, I say, enjoy life while you can. Just be happy. And if it all goes to hell in a handbasket, well, stock up on ammo.
Gawains,
I would love to "completely ignore them?" when it come to the politicians unfortunately they have me by the balls when it comes to where my long term financial picture is going to look like and if I have to make some capital movements due to what these asshats do I would at least like the Chance to get as close to the exit door as I can.
As for the economist I don't pay attention to them because I know they are full of crap but they also don't pass laws, raise taxes, and throw a ton of other people's money around either.
Kevin
Kevin,
in no way did you come off badly. I really liked your point by point analysis, it helped me a ton!
Gawains,
I agree we need more information, but this stuff moves at a glacial pace.
GYSC,
"Too many ‘possibles.’ Too many things we know we don’t know. And too many things we don’t know we don’t know too. And too many things about which we have no clue. We’re tired of thinking about it."
This is a great quote and it should apply every time an investment is made. It goes hand in hand with one of my favorite Soros quotes.
"It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong." - George Soros
I love the humility. It isn't about "if" you are wrong, it is about "when" you are wrong. Nobody is always right. No matter how much you try to think an investment through, there will always be something you didn't think of that can bite you in the, well, you know.
So let's take gold.
If gold is in a bubble, then gold could easily drop to $500. This is not a risk I am currently willing to take. I'd rather pour money into other physical goods like toilet paper instead. I am MUCH more confident that toilet paper prices will not fall 50%.
$500 an ounce would still be well above the price I bought it at in 2004 and double its low just a few years prior. In 2004, I was not at all sure I was even making the right choice. Gold was at the top of its long-term trading range. In my mind, at the time, it could have simply gone right back down again.
Do I think that gold will drop to $500? Not really. I'm simply saying that it could. In my opinion, to say it can't is to be too emotionally tied to the investment. Could gold hover at $1000 for years (until inflation catches back up to it)? Possible.
If gold is not in a massive bubble (or even if it is but it continues), then gold could easily go to $2000. It's doubled twice to $1000. $2000 would simply mean it doubled one more time. Of course, this same thing is said at the gambling tables in Vegas each and every day. I'm not saying gold won't go to $2000 though. I have no idea what others think it is really worth at any given moment.
That said, I really value safety these days. If I could buy all my future needs right now, at this very minute, I would. Unfortunately, gold is not a future need to me. I'd therefore have to hope that someone else thinks it is when I went to exchange it at some point in the future. Even that is not certain though.
This leads me to the biggest risk for gold. I think gold bugs think they are planning for worst case, but are actually not.
If things got REALLY bad, I doubt the Mad Max's of the world would want gold. Gold is heavy. It would slow them down. They would most certainly take a can of chili and a roll of toilet paper though. Perhaps by force! Hahaha! I'm only half-joking of course.
Pawn shops are not seeing a wave of jewelry sellers as people lose their jobs. In other words, when times get really tough, people are selling gold to others. For now, the others want it. That might not always be the case though, especially at any price.
I'm certainly not planning for worst case by being in TIPS, but at least I know I'm not. Hyperinflation would ruin me financially. That's one reason why I also have tried to buy as many future needs as I can think of (just like the people pawning gold so that they can actually eat food). There's almost no downside risk. When I buy 45 rolls of toilet paper at Costco I don't think of it as me spending $22 (plus tax). I think of it as me buying 22 hours of Chinese Factory labor (at $1 an hour) in a world where I might someday be THAT worker.
In the grand scheme of things, I am not planning my investments around a financial apocalypse though. If society breaks down to that point it is pretty much game over.
Hey, just opinions.
Oops!
"Pawn shops are not seeing a wave of jewelry sellers as people lose their jobs."
I meant "are now seeing". Big difference!
Mark,
The 10% of my portfolio that is in physical gold and silver is a "never sell" for me. I like that both are WAY above where I bought them (like you in the 2003-2004 range; I have a small set of physical silver on hand just to look at) but I do not think one day I will be rich off them. I have about another 8% of my portfolio in some miners and ETF's. Another 20% is in various instruments (stocks, bonds, etc) and the rest is in cash. I am pretty defensive and really not much of a risk taker.
So is gold in a bubble? Maybe the first top, but surely not the blowoff top. If gold goes to $500 I am still above water on the core positions, if it goes to $0 a 10% loss on my total portfolio will not change my life at all, though at $0 I will buy all the gold in the world.
I never bought gold thinking about the end of the world, just the end of the dollar or the end of the banks. If I really thought the world was going to end, I would follow all the great information over at Survival Blog. I have an elderly mother in law with serious health issues and my own mother is having her own problems right now. Should the end of the world come, I will have to do like everyone else and do the best I can with the "baggage" I have.
I never thought this debate would keep on keeping on, but thanks for the great dialogue.
Gawains,
If you check the comments, here are my football questions for tomorrow:
-it is going to rain heavy here in NE, will the Pats be able to out run the Falcons? Surely cannot throw 40 times tomorrow
-Saints vs Bills is an important game to see where each team is
-Miami vs San Diego is a huge game
-the 49ers vs Vikings is very interesting
-can the Bengals shock the Steelers (No)
-the Titans HAVE to beat the Jets ot they are in serious trouble for a playoff spot. I think cutoff in AFC will be 5 losses for the wild card.
Just some random stuff, I fully expect the Cowboys to throttle the Panthers.
What games are you interested in?
I agree with Gawains on one thing...at some point each of us just have to stop agonizing over this financial crisis. Make your preparations and move on. Enjoy your life and don't be afraid to live.
If you live every day as if it were your last, no excuses, no disapointments, no coulda-woulda-shouldas, then you could cruise through calamity just fine. The problem is that most of us just plain don't do this. I'm coming closer than I used to...and I'm a much happier person for it. But I'm not technically there yet. Close, but no cigar.
I got a snicker out of your football projections "Get", when I read down to "can the Bengals shock the Steelers". LOL. Absolutely not.
My "winners" for tomorrow:
Falcons over Patriots
Saints over Bills
Chargers over the Dolphins
49ers over the Vikings
Steelers over Bengals
Jets over the Titans
yeah...Cowboys over Panthers.
Lets see how I do. LOL
C-T,
you failed to mention I had NOT notated on the Bengals beating the Steelers. As in NO WAY.
I love your picks, very provacative. I think many will be amused by the Patriots game plan 2 morrow. I also think Miami beats the Chargers. Sadly, as a hard core Saints fan of 16 years, I think we find a way to lose in Buffalo, but it is a non division, non conference game so ok.
Thanks for stopping in.
Hey gyc, re: your poll, you didn't offer the option of "gold is not in a bubble" or "gold is not yet in the state of being in a bubble."
Well, since I am a fanatic, I generally don't follow other teams, unless they're on the Cowboys' schedule. Then I'll study up on them. Know thy enemy, that sort of thing.
But, yeah, the Falcons are scary. I'm going to that game on Oct. 25, so I've been paying attention to them. They have a good young quarterback and are a well-coached team. The Patriots have been struggling of late, but I fully expect them to right the ship before too long, just not this weekend. The weather will be a factor, but not a determinative one. This game will come down to who runs the ball better. I'll take Atlanta.
The Saints are an offensive juggernaut putting up frightening numbers. I don't think they'll have any problem blowing out the Bills. Then the T.O. watch will commence.
San Diego shouldn't have any trouble handling Miami, but both teams are not without issues.
Singletary has turned the 49ers around, but they still have a ways to go. I never liked Favre very much, so I hope he loses.
The Steelers are a very tough team to beat, but Roethlisberger does have his flaws. And losing Polamalu hurts. Can the Bengals pull of an upset? Sure. Will they? No.
Jets vs. Titans is an interesting matchup. New York is on a roll, and Tennessee is struggling. The Titans definitely don't want to go 0-3, so they're going to play their hearts out. And I think they will win.
Now, as to the Monday Night game. It wouldn't surprise me in the least if Carolina came in and spanked Dallas hard. The Panthers are a desperate team, and, for the record, Delhomme is the first quarterback to win four consecutive road playoff games, so he can play. He just hasn't played very well lately.
The Dallas secondary is suspect, and the defense appears confused, unable to generate pressure or force turnovers. If Delhomme and Smith are on their game, it could be a long night for the Cowboys.
At this point, from what I've seen, Dallas is not a well-coached team. Wade Phillips is becoming comical, cheering a missed field goal. Jason Garrett is way too predictable. And I question whether the players are really all that talented. A few are, but most are just average. And the lack of depth is a disaster waiting to happen.
I'll take Dallas to win, naturally. But it wouldn't shock me if they don't. I believe the new stadium is cursed. The video screen is blocking God's view from the Luxury Suite in Heaven, and He's not very happy about it.
Dave,
I did not put "gold is not in a bubble" because only you and I would vote for that one!
Gawains,
Agree on the Pats-Falcons whomever runs better wins (uh oh for the Pats). I still have a bad feeling about the Saints game though. You are far too hard on the Cowboys!
Will check in later after some football.
I have a right to be hard on the Cowboys. I've been watching them play football for 42 years, since I was 5.
Here in Texas we don't have expectations. We have standards. And the only standard is winning.
Since 1996, their last playoff victory, Dallas is 106-108. This from a franchise that posted twenty consecutive winning seasons once upon a time. That is unacceptable.
I've seen the Cowboys at their best, and I've seen them at their worst. These Cowboys are mediochre, to put it mildly.
Wowza!
Today we saw the return of real Patriots football. While the team still threw the ball WAY more than I would like, we had a sound running game, solid defense, good special teams, and dominant line play. Steady if unspectacular, the Pats down one of the NFC's top teams.
The Lions won their first game since 2007! Great for them.
For what it is worth, I voted for the first top. As you know, I'm a bit bearish on gold right now. I'm not THAT bearish though. It's not like I'm thinking up ways to short gold!
I'm confident that in 1000 years that the Fed will have done its job and the gold price will be significantly higher! In today's dollars, it should even be infinitely expensive (unless our fiat currency can miraculously survive the journey).
My confidence would not even be altered if I was told that future technology can convert lead into gold efficiently (theoretically possible) or we find massive gold deposits in the asteroid belt. Hahaha!
Had to do a game wrap up post. What a wild day!
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