C
CPA2
Guest
Greed does not and cannot cause inflation. Only governments can cause inflation. Only governments have the printing presses to create money.
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edwest2
Guest
Gold and 1933:Greed does not and cannot cause inflation. Only governments can cause inflation. Only governments have the printing presses to create money.
youtube.com/watch?v=3_ex0sTsb_I
God bless,
Ed
E
edwest2
Guest
Where did my 401(k) money go? We bailed out nobody?Greed does not and cannot cause inflation. Only governments can cause inflation. Only governments have the printing presses to create money.
God bless,
Ed
T
tjm190
Guest
Inflation and deflation predate government control of currency- for everyone’s favorite example en.wikipedia.org/wiki/Cross_of_Gold_speechGreed does not and cannot cause inflation. Only governments can cause inflation. Only governments have the printing presses to create money.
Inflation takes place when the money supply growth outpaces economic growth, deflation takes place when economic growth outpaces money supply growth- regardless of how money works.
C
CPA2
Guest
An increase in money (tobaco leaves, shells, dollars, etc.) causes inflation. Your example was true BEFORE the printing press and government’s complete control over money.Inflation and deflation predate government control of currency- for everyone’s favorite example en.wikipedia.org/wiki/Cross_of_Gold_speech
The U.S. government makes it illegal for us to write a contract in non-American gold coins or troy ounces of gold. It should be obvious to everyone that governments do not want any competition to their government money. That is why Carter sold gold when he was president, FDR made it illegal for Americans to own gold, etc.
INFLATION
Who causes inflation? “Government and the government alone is responsible for any rapid increase in the quantity of money…Businessmen do not cause inflation (Friedman).”
Why is inflation called a monetary phenomenon? “Inflation occurs when the quantity of money rises appreciably more rapidly than output, and the more rapid the rise in the quantity of money per unit of output, the greater the rate of inflation (Friedman).”
How does the government increase the quantity of money? “The U.S. Treasury, one branch of government, sells bonds to the Federal Reserve, another branch of government. The Federal Reserve pays for the bonds with freshly printed Federal Reserve Notes or by entering a deposit on its books to the credit of the U.S. Treasury. The Treasury can then pay its bills with either the cash or a check drawn on its account at the Fed. When the additional high-powered money is deposited in commercial banks by its initial recipients, it serves as reserves for them and as the basis for a much larger addition to the quantity of money (Friedman).”
Who pays for inflation? All holders of money pay for inflation.
Explain how inflation is paid. “The extra money printed is equivalent to a tax on money balances. If the extra money raises prices by 1 percent, then every holder of money has in effect paid a tax equal to 1 percent of his money holdings (Friedman).”
Is inflation serious? Inflation is a serious disease that can destroy a society. “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose (Keynes).”
What is the cure for inflation? The cure for inflation is a slower rate of increase in the quantity of money.
How long does it take to cure inflation? It takes time. It takes years for inflation to develop and it takes years to cure inflation.
What are the unpleasant side effects of the cure? There will be a long period of slow economic growth and higher than usual unemployment. There is no way to avoid these side effects.
S
Sailor_Kenshin
Guest
Probably into someone’s slush fund.Where did my 401(k) money go?
God bless,
Ed
R
Ridgerunner
Guest
Not really arguing with you. Just testing ideas.It is good to hear from you again. Your post about cattle as an investment reminds me of my courses in animal science and dairy science. What kind of cattle do you breed?
At some point you will want to sell your cattle. I hope that you are open to the possibility that at some point in the future you may not want to accept dollars, which is government monopoly money. Additionally, if no one else is accepting dollars, you definitely will not accept dollars for your cattle.
Our nation has already experienced worthless government monopoly money in 1776. All government money that is not backed by something of value, like gold, will eventually become worthless.
What kind of cattle do I breed? Herefords. Granted, they’re not as valuable as some nowadays. The reason is that while they can survive and grow on rough forage better than any bovine but perhaps a longhorn, they don’t grow as rapidly on grain as some. So, when grain is fairly cheap, which it is now, buyers prefer the “explosive growth elephants”. But, mine are big and robust as Herefords go, so I do okay.
But think about it for a minute. If grain spikes, and particularly if there is a drought in the Great Plains at the same time, the relative value of my cattle might far exceed that of, say, a “terminal cross” brangus elephant that would turn into a tall bag of bones on forage that mine would thrive on. So, what’s the inherent value of my cattle versus some others? There really isn’t any, because it depends on factors that can vary. And it depends on what I, or another, might need.
So, it’s certainly possible that a cow of mine might be worth $5,000 (would that it were so) or $250, in 2015, just depending on other things. Let’s both keep in mind for a moment that one can eat cattle, but one can’t eat gold. Just hold onto that, when we get to penicillin later.
Now, will you, in 2015, sell your gold for dollars if it reaches $5,000? Maybe. Maybe not. It will depend on things you think then, that really have nothing to do with any inherent value of gold. You can’t eat it, remember. Maybe the Fed will put interest rates at 20% and everybody will drop gold for dollars so they can earn that 20%. If inflation is then at 2% or seems likely to head in that direction, that’s exactly what they’ll do, and it would make good sense to do it. Will gold then drop to $250 because everybody is out trying to get that 20%? Probably, and it might not stop at $250. It has been there after the $1,000 spike in the early 1980s.
People don’t want gold for its own sake any more than they want dollars for their own sake. They want them because of their perceptions of what they can buy with the value; things they really can eat, or wear, or drive or live in. That 20% interest on CDs will look a lot better than gold in an evironment that appears headed for disinflation or even stability, because those with the CDs can buy (e.g.) steak with the interest and still have the CD intact. If they sell their gold to buy steak, it’s “game over”.
Will they hoard that 20% interest? Some, maybe. But they gotta eat, and they gotta put gas in their cars and they gotta wear a coat in the winter. So peoples’ perceptions of the value of dollars vs gold will depend on both their needs for things they can actually consume as well as their perceptions as to which thing will allow them to buy the greater amount of steak or coats or gasoline.
Sure, if the dollar crashes and burns totally, nobody will accept them for any purpose, and we’ll all be bartering cows for penicillin and aspirin and bullets and winter coats, but not for gold, either.Can’t eat it or wear it or shoot it or get well with it. But maybe the dollar will only partially crash and burn, and it will take $5,000 to buy a cow, and if I sell it, I can only buy what, today, is $1,000 worth of coats and gasoline and cornmeal. But if I have that $5,000 Kruegerrand, I don’t eat or keep warm or drive anywhere unless I sell it. Besides, maybe the economy is so messed up that cows look like they’re headed for $50, and gasoline is spiraling down toward 50 cents and gold is then worth $35. So, perceiving that possibility, and the further possibility that his Kruegerrand might be worth only $250 in a few months, will a guy holding a Kruegerrand sell it for $5,000 while the getting’s good, or will he hold out for $10,000.00? He’ll sell it for dollars. And if a lot of people perceive the same thing, gold will drop like a rock off a cliff, precisely because, like the dollar, it doesn’t have any significant inherent value. Its value is totally based on perception and expectation.
Is there any reason to think gold speculators today will be any more right than the house speculators of 2006? No, there isn’t. Probably some will be right who get in and get out at the right moment, and some will be very wrong.
The only sure thing is that at some point or other, the gold merry-go-round will stop. Maybe there will be a reformation of the currency. Maybe it’ll take that. But just possibly there will be a disinflationary period like there was in the early 1980s. Will it be when gold is $5,000 or $10,000 or $1500? Nobody knows.
The only “inherent value” is in the industry of human beings; the things they produce that we need. Both dollars and gold are nothing but representative of what we think others will take for their goods and services.
Having said all of this, I still wish you well with your gold.
C
CPA2
Guest
**Read This Now … **
by Larry Edelson
My apologies for being so bold in the subject line. But this is one of the most important columns I’ve ever written. Why? Because today I am going to give you a major heads up on the trends I see unfolding over the next few months.
More importantly, I am also going to show you how those short-term trends are going to set the stage for the longer-term trends that you’re going to see unfold over the next few years.
First, a warning: The forecasts you’re about to read are controversial, and many will say I have lost my mind. No problem. Many have said the same about me numerous times in the past.
But the forecasts I speak of today are based entirely upon my proprietary trading models that are unlike any other in the world.
And today is not the first time my trading models have made spectacular calls. Since I developed them in 1982, they have successfully guided me and the investors that have followed me through every twist and turn in the economy and markets:
Through the 1987 stock market collapse, the ensuing bull market, the first Gulf War, the peak in the broad markets in 1999, the crash of 2000—2003, the 2007 peak in stocks, the bull market in gold right from day one, the bear market in the dollar, and more.
My systems flagged every one of those events and major trends well in advance.
I point this out not to brag, but merely to emphasize how important it is that you read on to learn what my models are saying now, and how seriously their messages should be taken.
They are not common forecasts. They are not based on linear logic, but rather, on more dynamic processes, which is what the markets themselves are. Dynamic.
So here are the forecasts and what you should be watching …
FIRST, the broad stock markets will attempt one or two more rallies over the next three weeks. The Dow may even get back to 10,700, or even nudge out a new high near 11,000.
But don’t you dare be fooled. The broad stock markets in the U.S. are now rolling over.
At a minimum, by November, we will see the Dow plunge to at least 9,000, with a high probability of falling to the 8,700 level.
But once you see the Dow Industrials below 9,000 — start preparing for another big rally in the markets, one that could last for years and eventually see the Dow Industrials more than triple by 2015, and soar to anywhere between 27,000 and 44,000.
How could that ever happen, you ask? Call me crazy. Call me nuts. But I’ve written about it before, and that kind of stock market inflation has happened in nearly every third-world and emerging economy on the planet.
The only difference is that this time, it will happen in the FIRST world, and chiefly in the U.S. No matter what the economy does.
Because very simply …
Look for the Dow to plunge this fall … then stage a long, sustainable rally.
SECOND, as the Dow plunges going into November,
No matter how much it takes. Whether it’s another one trillion, five trillion, twenty trillion, or even thirty trillion dollars.
The Fed will do whatever it believes necessary to try and turn things around.
It will stop at nothing. The Fed, in the next round of this crisis, will even resort to more extreme measures, such as supporting the U.S. bond markets — and keeping interest rates at near zero — by forcing banks to buy U.S. bonds (like the Fed did during WWII).
By reversing the existing policy of paying banks interest on reserves parked at the Fed, and penalizing the banks instead for not lending out to the economy …
By slashing reserve requirements, by restricting foreign capital outflows, and more.
All of this will be ultimately designed with one end goal in mind: To massively DEBASE the U.S. dollar.
You see, the Fed thinks — rightly or wrongly, only time will tell — that by devaluing the dollar and eventually inflating financial assets higher, that trillions of dollars of wealth will be recreated.
Hence, from that will flow new businesses, a wave of new innovation, millions of jobs being brought back, millions more new jobs being created, real estate prices appreciating once again, and more. In short, everything will be hunky-dory once again.
As I said before, whether or not the strategy works remains to be seen. I doubt it will. But that’s not my main point.
My main point is that if you fight the Fed on this, you’re going to lose your shirt.
So once you see the Dow below 9,000, start getting ready to go LONG the market, because the Fed is determined — and does have the ability — to inflate the financial markets higher, much higher.
No matter what philosophical or political bend you come from, if you want to protect your wealth and grow it, don’t fight the Fed on the next plunge in the economy and the stock markets.
THIRD, gold will soon be giving you the ultimate opportunity to buy — before it heads to way north of $2,000 an ounce. The short-term cycles in gold point down into late August, when I expect gold to fall below $1,100 an ounce. It should, however, hold the $1,000 mark.
But no matter what, thereafter, gold should explode to new record highs, most likely by the end of the year — and then, through 2011 and 2012, march to at least $2,300 an ounce.
By 2015, I expect to see gold at near $5,000 an ounce.
The driving force will NOT be inflation. That will come later, and will show up in the CPI, but not for at least another couple of years.
The driving force instead, will be the final recognition that the U.S. is broke beyond repair … that the Fed will print however many trillions of dollars it wants to paper over the mess and retain control for as long as possible …
Don’t be surprised to see gold prices at near $5,000 an ounce by 2015.
Larry
by Larry Edelson
My apologies for being so bold in the subject line. But this is one of the most important columns I’ve ever written. Why? Because today I am going to give you a major heads up on the trends I see unfolding over the next few months.
More importantly, I am also going to show you how those short-term trends are going to set the stage for the longer-term trends that you’re going to see unfold over the next few years.
First, a warning: The forecasts you’re about to read are controversial, and many will say I have lost my mind. No problem. Many have said the same about me numerous times in the past.
But the forecasts I speak of today are based entirely upon my proprietary trading models that are unlike any other in the world.
And today is not the first time my trading models have made spectacular calls. Since I developed them in 1982, they have successfully guided me and the investors that have followed me through every twist and turn in the economy and markets:
Through the 1987 stock market collapse, the ensuing bull market, the first Gulf War, the peak in the broad markets in 1999, the crash of 2000—2003, the 2007 peak in stocks, the bull market in gold right from day one, the bear market in the dollar, and more.
My systems flagged every one of those events and major trends well in advance.
I point this out not to brag, but merely to emphasize how important it is that you read on to learn what my models are saying now, and how seriously their messages should be taken.
They are not common forecasts. They are not based on linear logic, but rather, on more dynamic processes, which is what the markets themselves are. Dynamic.
So here are the forecasts and what you should be watching …
FIRST, the broad stock markets will attempt one or two more rallies over the next three weeks. The Dow may even get back to 10,700, or even nudge out a new high near 11,000.
But don’t you dare be fooled. The broad stock markets in the U.S. are now rolling over.
At a minimum, by November, we will see the Dow plunge to at least 9,000, with a high probability of falling to the 8,700 level.
But once you see the Dow Industrials below 9,000 — start preparing for another big rally in the markets, one that could last for years and eventually see the Dow Industrials more than triple by 2015, and soar to anywhere between 27,000 and 44,000.
How could that ever happen, you ask? Call me crazy. Call me nuts. But I’ve written about it before, and that kind of stock market inflation has happened in nearly every third-world and emerging economy on the planet.
The only difference is that this time, it will happen in the FIRST world, and chiefly in the U.S. No matter what the economy does.
Because very simply …
Look for the Dow to plunge this fall … then stage a long, sustainable rally.
SECOND, as the Dow plunges going into November,
No matter how much it takes. Whether it’s another one trillion, five trillion, twenty trillion, or even thirty trillion dollars.
The Fed will do whatever it believes necessary to try and turn things around.
It will stop at nothing. The Fed, in the next round of this crisis, will even resort to more extreme measures, such as supporting the U.S. bond markets — and keeping interest rates at near zero — by forcing banks to buy U.S. bonds (like the Fed did during WWII).
By reversing the existing policy of paying banks interest on reserves parked at the Fed, and penalizing the banks instead for not lending out to the economy …
By slashing reserve requirements, by restricting foreign capital outflows, and more.
All of this will be ultimately designed with one end goal in mind: To massively DEBASE the U.S. dollar.
You see, the Fed thinks — rightly or wrongly, only time will tell — that by devaluing the dollar and eventually inflating financial assets higher, that trillions of dollars of wealth will be recreated.
Hence, from that will flow new businesses, a wave of new innovation, millions of jobs being brought back, millions more new jobs being created, real estate prices appreciating once again, and more. In short, everything will be hunky-dory once again.
As I said before, whether or not the strategy works remains to be seen. I doubt it will. But that’s not my main point.
My main point is that if you fight the Fed on this, you’re going to lose your shirt.
So once you see the Dow below 9,000, start getting ready to go LONG the market, because the Fed is determined — and does have the ability — to inflate the financial markets higher, much higher.
No matter what philosophical or political bend you come from, if you want to protect your wealth and grow it, don’t fight the Fed on the next plunge in the economy and the stock markets.
THIRD, gold will soon be giving you the ultimate opportunity to buy — before it heads to way north of $2,000 an ounce. The short-term cycles in gold point down into late August, when I expect gold to fall below $1,100 an ounce. It should, however, hold the $1,000 mark.
But no matter what, thereafter, gold should explode to new record highs, most likely by the end of the year — and then, through 2011 and 2012, march to at least $2,300 an ounce.
By 2015, I expect to see gold at near $5,000 an ounce.
The driving force will NOT be inflation. That will come later, and will show up in the CPI, but not for at least another couple of years.
The driving force instead, will be the final recognition that the U.S. is broke beyond repair … that the Fed will print however many trillions of dollars it wants to paper over the mess and retain control for as long as possible …
Don’t be surprised to see gold prices at near $5,000 an ounce by 2015.
Larry
C
CPA2
Guest
So start preparing for all of this NOW, with the following steps. I cannot overemphasize them …
**Step One: **
Minimize your exposure to the stock market, right now. Get out of all stocks with the exception of core gold shares and other select natural resource, tangible asset stocks.
Later, in a few months, when the Dow falls below 9,000 — I will tell my Real Wealth Report members exactly how and what to get positioned in to capitalize on the Fed’s next aggressive moves, and the financial and tangible asset inflation we’re going to see.
Step 2: For any liquid cash you have, not earmarked for gold, keep it in safe, liquid, short-term investments such as money markets.
Or, use the strategy I’ve outlined in some of my special reports, which involves buying the iShares Barclays TIPS Bond Fund ETF (TIPS), but hedged by investing a third of what you place in that fund into the inverse bond fund, the Direxion Daily 10-Year Treasury Bear 3X Shares (TYO).
Step 3: If you don’t use the upcoming weakness in the gold market to buy or add to positions, I think you could be making a huge mistake.
**The best way to buy gold, in my opinion, is the SPDR Gold Trust ETF (GLD). **Each share represents 1/10 of an ounce of gold. When you buy this fund, it’s like buying a mutual fund, but one that holds only physical gold. Plus, you eliminate storage and shipping worries because the gold is held in trust for you.
Or, if you’d rather buy a gold stock mutual fund, consider the Tocqueville Gold Fund (TGLDX). As an alternative, look at the Market Vectors Gold Miners ETF (AMEX: GDX). This single investment holds 10 of the largest gold miners in the world.
No matter what you do, I urge you to stay open minded and think dynamically going forward. That means not accepting the status quo, not accepting mass hysteria, not following old models and old economic rules, and using “uncommon wisdom”. Period.
That will be the only true way to both psychologically and financially survive not just the next few months, but also the next few years.
All the best,
Larry
**Step One: **
Minimize your exposure to the stock market, right now. Get out of all stocks with the exception of core gold shares and other select natural resource, tangible asset stocks.
Later, in a few months, when the Dow falls below 9,000 — I will tell my Real Wealth Report members exactly how and what to get positioned in to capitalize on the Fed’s next aggressive moves, and the financial and tangible asset inflation we’re going to see.
Step 2: For any liquid cash you have, not earmarked for gold, keep it in safe, liquid, short-term investments such as money markets.
Or, use the strategy I’ve outlined in some of my special reports, which involves buying the iShares Barclays TIPS Bond Fund ETF (TIPS), but hedged by investing a third of what you place in that fund into the inverse bond fund, the Direxion Daily 10-Year Treasury Bear 3X Shares (TYO).
Step 3: If you don’t use the upcoming weakness in the gold market to buy or add to positions, I think you could be making a huge mistake.
**The best way to buy gold, in my opinion, is the SPDR Gold Trust ETF (GLD). **Each share represents 1/10 of an ounce of gold. When you buy this fund, it’s like buying a mutual fund, but one that holds only physical gold. Plus, you eliminate storage and shipping worries because the gold is held in trust for you.
Or, if you’d rather buy a gold stock mutual fund, consider the Tocqueville Gold Fund (TGLDX). As an alternative, look at the Market Vectors Gold Miners ETF (AMEX: GDX). This single investment holds 10 of the largest gold miners in the world.
No matter what you do, I urge you to stay open minded and think dynamically going forward. That means not accepting the status quo, not accepting mass hysteria, not following old models and old economic rules, and using “uncommon wisdom”. Period.
That will be the only true way to both psychologically and financially survive not just the next few months, but also the next few years.
All the best,
Larry
C
crazzeto
Guest
I haven’t read through this in detail, I would generally agree the economy is worse than most care to admit. On the otherhand, I would contest your 22% unemployment rate, your number depends upon an equivolency between underemployment and unemployment. This is a fallocy, they are in fact two different things entirly. Beleive me, I’ve seen both in my life first hand, both with my Dad suffering both and me suffering both my self.
Underemployment is typically a better situation to be in, by a significant margine.
Underemployment is typically a better situation to be in, by a significant margine.
C
CPA2
Guest
The government lies about the unemployment rate just like it lies about the inflation rate.I haven’t read through this in detail, I would generally agree the economy is worse than most care to admit. On the otherhand, I would contest your 22% unemployment rate, your number depends upon an equivolency between underemployment and unemployment. This is a fallocy, they are in fact two different things entirly. Beleive me, I’ve seen both in my life first hand, both with my Dad suffering both and me suffering both my self.
Underemployment is typically a better situation to be in, by a significant margine.
I lost confidence in most government statistics many years ago. A prime example is the CPI. I think that the Bureau of Labor Statistics uses something called the “hedonic factor”. They actually try to calculate the increased “productivity” of computers to calculate the CPI. I call this the “fudge factor.” Beat the data until it confesses! As a consumer I only look at the price at the gas pump and at the food store. That is my CPI, or inflation rate!
The unemployment rate is your most solid warning of trouble. The government unemployment figure excludes all those people who have gotten fed up with job hunting and have dropped out of the labor force. According to the Bureau of Labor Statistics, if we add in citizens and other US residents who have stopped searching for work and include
those who have settled for part-time work because they couldn’t find full-time jobs. If you add in the figures that the government leaves out, you would come up with an unemployment rate of 22%
C
crazzeto
Guest
Yeah, again you spotlight my problem with your calculations… You’re making underemployment and unemployment equivolent. You really can’t do that, one group receives unemployment benifits creating a drag on the economy… The other may possibly (but are significantly less likely) to be receiving benifits from the government (certainly not unemployment). Under employed individuals will struggle, yes… But it’s possible to stay afloat for a long period of time that way (my family did for a year, it was hard but we did it).
Under employment and unemployment are two different things. I’m not saying this means under employment is some how good. It’s not good people are settling, but it’s also not quite as bad as a literal 22% unemployment rate.
Under employment and unemployment are two different things. I’m not saying this means under employment is some how good. It’s not good people are settling, but it’s also not quite as bad as a literal 22% unemployment rate.
R
Ridgerunner
Guest
I read stuff just like this in the early 1980s, along with urgent appeals to stock up on dehydrated food, etc.**Read This Now … **
by Larry Edelson
But once you see the Dow Industrials below 9,000 — start preparing for another big rally in the markets, one that could last for years and eventually see the Dow Industrials more than triple by 2015, and soar to anywhere between 27,000 and 44,000.
THIRD, gold will soon be giving you the ultimate opportunity to buy — before it heads to way north of $2,000 an ounce. The short-term cycles in gold point down into late August, when I expect gold to fall below $1,100 an ounce. It should, however, hold the $1,000 mark.
But no matter what, thereafter, gold should explode to new record highs, most likely by the end of the year — and then, through 2011 and 2012, march to at least $2,300 an ounce.
By 2015, I expect to see gold at near $5,000 an ounce.
But look at the above excerpts again. This guy is projecting up to a 400% increase in stocks after a fall of about 10%. He is also projecting up to a 500% increase in the price of gold after a fall of about 16%. Now, assuming there is at least some margin for error in these predictions, but assuming they’re basically true, all he’s saying is that both assets should deflate briefly about the same amount, then inflate by about the same amount.
So, assuming he’s correct (and my guess would be that he is correct in predicting inflation generally…which has always been the case… but really has no idea how extreme it will be) he has not made a case for gold in particular; but simply for the acquisition of relatively liquid assets. That’s an easy enough prediction, generally, in an economy that has invariably experienced asset appreciation following a recession.
But what he does not address is the effect of income production on decisionmaking. If, say, I am receiving a 3% dividend on an asset I think will appreciate 400%, what will make me prefer an asset that pays no dividend that I think will appreciate in about the same amount?
Answer: Nothing. I’ll opt for the asset that pays a dividend.
C
CPA2
Guest
The beauty of gold is that it does not pay a dividend or interest. Gold is not some one’s debt. Additionally, governments cannot create more gold.I read stuff just like this in the early 1980s, along with urgent appeals to stock up on dehydrated food, etc.
But look at the above excerpts again. This guy is projecting up to a 400% increase in stocks after a fall of about 10%. He is also projecting up to a 500% increase in the price of gold after a fall of about 16%. Now, assuming there is at least some margin for error in these predictions, but assuming they’re basically true, all he’s saying is that both assets should deflate briefly about the same amount, then inflate by about the same amount.
So, assuming he’s correct (and my guess would be that he is correct in predicting inflation generally…which has always been the case… but really has no idea how extreme it will be) he has not made a case for gold in particular; but simply for the acquisition of relatively liquid assets. That’s an easy enough prediction, generally, in an economy that has invariably experienced asset appreciation following a recession.
But what he does not address is the effect of income production on decisionmaking. If, say, I am receiving a 3% dividend on an asset I think will appreciate 400%, what will make me prefer an asset that pays no dividend that I think will appreciate in about the same amount?
Answer: Nothing. I’ll opt for the asset that pays a dividend.
3 month Treasury bills are where people go for safety. Think of the flight to quality as an upside-down pyramid with a golden tip. There is less and less risk as you go down the upside-down pyramid. However, the inverted pyramid also suggests that fewer and fewer people can get into safer and safer investments.
Gold represents the golden tip of the upside-down pyramid. Very few people can get into gold. Gold has 1/10 of the capitalization of Coca-Cola!
The highest risk investment might be derivatives, a bet on a bet. This is an unregulated market with very high risk. No one has a clue as to how large this market is. Put derivatives at the top of the upside-down pyramid because it has the highest risk.
We are watching the flight to quality. People got out of the NASDAQ to go into the DOW stocks. Now people are getting out of the DOW to get into bonds. However, bonds are down. Some people are even putting up to 60% of their portfolio into three-month Treasury bills. The ultimate safe haven asset is gold. A dollar is an IOU nothing. Dollars are backed by the promises of politicians.
Your dividends on your dollars do not cover inflation and taxes. Why not trade something that is going down in value (dollars) for something that is going up in value (gold)? Call your broker and buy GLD.
C
CPA2
Guest
Can Gold Glitter Amid Deflation?
In this deflationary environment, gold appears to have lost some of its luster with investors who still view the yellow metal as a one-way bet on inflation.
After soaring last year, gold has been locked in a tight trading range since mid-2010, with some commentators predicting it could slip back to $1,000 an ounce or lower.
While further correction is possible, gold has actually held up quite well year-to-date, especially when you consider that the US dollar rallied sharply early this year.
In fact, during this latest round of financial market turbulence — first as a result of the European debt crisis and more recently due to fears of a double-dip recession — **gold is being treated more as a currency in its own right, rather than just another commodity. **
Remember, as the Greek debt drama played out earlier this summer, the price of gold notched new highs against EVERY major currency including the dollar!6 That’s because gold isn’t just an inflation hedge, it’s a hedge against financial instability of ANY kind … including deflation. For example, even though the price of gold was fixed in dollar terms during the 1930s — bullion DOUBLED in sterling terms during that great deflationary period.7
So don’t think that gold can’t glitter again in this deflationary climate.
The Ultimate Uncertainty Hedge
Whenever there is unusual economic or market stress of any kind — whether generated by inflation or deflation — gold becomes more valuable as the ultimate hard currency.
Now, with deflation a growing concern, short-term interest rates have been driven toward zero, but the rate of inflation (although falling) remains positive, which means we’re in a period of negative real interest rates.
As the graph shows, whenever real interest rates (adjusted for inflation) have been negative in the past, gold and silver have performed well with gold gaining more than 30 percent year-over-year while real rates were extremely negative.8
There’s no sign that the Fed is going to raise short-term rates anytime soon. In fact, the latest Fed move (QE-lite) is an attempt to drive interest rates even lower by buying up Treasuries … the same game plan the Bank of Japan has followed over the past 15 years in its desperate battle with deflation!
As we now follow this same game plan to battle deflation, it’s quite possible that real interest rates could remain negative for an “extended period,” to borrow the Fed’s favorite phrase. This is potentially very bullish for gold!
Timing the Next Rally in Gold
Another favorable factor to consider is seasonality. Gold prices have a historical tendency to rise in September (See chart at right).9
Based on four decades of data, September has always been the best month of the year for gold prices. In fact, since 1989, the price of gold has risen in 17 of the past 21 Septembers.10
And since 1969, spot gold prices have also posted strong upside performance in the months of December (third best month) and January (second best month)!11
Historically, gold mining stocks have performed even better during these seasonally strong periods, which makes perfect sense because these stocks are really just leveraged bets on the price of gold itself.
Bottom line: Far from just a one-way bet on inflation … gold has proven to be a good investment in deflationary times. While it has been stuck within a volatile trading range recently — and could certainly correct further — gold remains a solid hedge against uncertainty of any kind.
In a world with more than its share of growing economic uncertainty, ultra-low interest rates and volatile currency markets … gold is behaving more and more like an ultimate safe-haven asset class in turbulent times.
Good investing,
Mike Burnick
Director of Research & Client Communications
In this deflationary environment, gold appears to have lost some of its luster with investors who still view the yellow metal as a one-way bet on inflation.
After soaring last year, gold has been locked in a tight trading range since mid-2010, with some commentators predicting it could slip back to $1,000 an ounce or lower.
While further correction is possible, gold has actually held up quite well year-to-date, especially when you consider that the US dollar rallied sharply early this year.
In fact, during this latest round of financial market turbulence — first as a result of the European debt crisis and more recently due to fears of a double-dip recession — **gold is being treated more as a currency in its own right, rather than just another commodity. **
Remember, as the Greek debt drama played out earlier this summer, the price of gold notched new highs against EVERY major currency including the dollar!6 That’s because gold isn’t just an inflation hedge, it’s a hedge against financial instability of ANY kind … including deflation. For example, even though the price of gold was fixed in dollar terms during the 1930s — bullion DOUBLED in sterling terms during that great deflationary period.7
So don’t think that gold can’t glitter again in this deflationary climate.
The Ultimate Uncertainty Hedge
Whenever there is unusual economic or market stress of any kind — whether generated by inflation or deflation — gold becomes more valuable as the ultimate hard currency.
Now, with deflation a growing concern, short-term interest rates have been driven toward zero, but the rate of inflation (although falling) remains positive, which means we’re in a period of negative real interest rates.
As the graph shows, whenever real interest rates (adjusted for inflation) have been negative in the past, gold and silver have performed well with gold gaining more than 30 percent year-over-year while real rates were extremely negative.8
There’s no sign that the Fed is going to raise short-term rates anytime soon. In fact, the latest Fed move (QE-lite) is an attempt to drive interest rates even lower by buying up Treasuries … the same game plan the Bank of Japan has followed over the past 15 years in its desperate battle with deflation!
As we now follow this same game plan to battle deflation, it’s quite possible that real interest rates could remain negative for an “extended period,” to borrow the Fed’s favorite phrase. This is potentially very bullish for gold!
Timing the Next Rally in Gold
Another favorable factor to consider is seasonality. Gold prices have a historical tendency to rise in September (See chart at right).9
Based on four decades of data, September has always been the best month of the year for gold prices. In fact, since 1989, the price of gold has risen in 17 of the past 21 Septembers.10
And since 1969, spot gold prices have also posted strong upside performance in the months of December (third best month) and January (second best month)!11
Historically, gold mining stocks have performed even better during these seasonally strong periods, which makes perfect sense because these stocks are really just leveraged bets on the price of gold itself.
Bottom line: Far from just a one-way bet on inflation … gold has proven to be a good investment in deflationary times. While it has been stuck within a volatile trading range recently — and could certainly correct further — gold remains a solid hedge against uncertainty of any kind.
In a world with more than its share of growing economic uncertainty, ultra-low interest rates and volatile currency markets … gold is behaving more and more like an ultimate safe-haven asset class in turbulent times.
Good investing,
Mike Burnick
Director of Research & Client Communications
R
Ridgerunner
Guest
This is beginning to sound like an informercial for gold. There might be merits to investing in gold, but lots of people have lost lots of money speculating in it. Need to put fair warning with these posts, amigo, like, oh, if we get into a deflationary cycle (which I doubt we will) gold will plummet and dollars (and government bonds) will be king.Can Gold Glitter Amid Deflation?
In this deflationary environment, gold appears to have lost some of its luster with investors who still view the yellow metal as a one-way bet on inflation.
After soaring last year, gold has been locked in a tight trading range since mid-2010, with some commentators predicting it could slip back to $1,000 an ounce or lower.
While further correction is possible, gold has actually held up quite well year-to-date, especially when you consider that the US dollar rallied sharply early this year.
In fact, during this latest round of financial market turbulence — first as a result of the European debt crisis and more recently due to fears of a double-dip recession — **gold is being treated more as a currency in its own right, rather than just another commodity. **
Remember, as the Greek debt drama played out earlier this summer, the price of gold notched new highs against EVERY major currency including the dollar!6 That’s because gold isn’t just an inflation hedge, it’s a hedge against financial instability of ANY kind … including deflation. For example, even though the price of gold was fixed in dollar terms during the 1930s — bullion DOUBLED in sterling terms during that great deflationary period.7
So don’t think that gold can’t glitter again in this deflationary climate.
The Ultimate Uncertainty Hedge
Whenever there is unusual economic or market stress of any kind — whether generated by inflation or deflation — gold becomes more valuable as the ultimate hard currency.
Now, with deflation a growing concern, short-term interest rates have been driven toward zero, but the rate of inflation (although falling) remains positive, which means we’re in a period of negative real interest rates.
As the graph shows, whenever real interest rates (adjusted for inflation) have been negative in the past, gold and silver have performed well with gold gaining more than 30 percent year-over-year while real rates were extremely negative.8
There’s no sign that the Fed is going to raise short-term rates anytime soon. In fact, the latest Fed move (QE-lite) is an attempt to drive interest rates even lower by buying up Treasuries … the same game plan the Bank of Japan has followed over the past 15 years in its desperate battle with deflation!
As we now follow this same game plan to battle deflation, it’s quite possible that real interest rates could remain negative for an “extended period,” to borrow the Fed’s favorite phrase. This is potentially very bullish for gold!
Timing the Next Rally in Gold
Another favorable factor to consider is seasonality. Gold prices have a historical tendency to rise in September (See chart at right).9
Based on four decades of data, September has always been the best month of the year for gold prices. In fact, since 1989, the price of gold has risen in 17 of the past 21 Septembers.10
And since 1969, spot gold prices have also posted strong upside performance in the months of December (third best month) and January (second best month)!11
Historically, gold mining stocks have performed even better during these seasonally strong periods, which makes perfect sense because these stocks are really just leveraged bets on the price of gold itself.
Bottom line: Far from just a one-way bet on inflation … gold has proven to be a good investment in deflationary times. While it has been stuck within a volatile trading range recently — and could certainly correct further — gold remains a solid hedge against uncertainty of any kind.
In a world with more than its share of growing economic uncertainty, ultra-low interest rates and volatile currency markets … gold is behaving more and more like an ultimate safe-haven asset class in turbulent times.
Good investing,
Mike Burnick
Director of Research & Client Communications
I’m not recommending government bonds, either, or anything else. God knows what the economy is going to do for sure, but nobody else does.
T
TenBobNote
Guest
Wise words! However if the government is going to print in the long run, inflation will happen, and gold is insurance against that.This is beginning to sound like an informercial for gold. There might be merits to investing in gold, but lots of people have lost lots of money speculating in it. Need to put fair warning with these posts, amigo, like, oh, if we get into a deflationary cycle (which I doubt we will) gold will plummet and dollars (and government bonds) will be king.
I’m not recommending government bonds, either, or anything else. God knows what the economy is going to do for sure, but nobody else does.
R
Ridgerunner
Guest
Might be. I’m guessing though (we’re all just guessing, really, not having crystal balls) that the economy will, at some point, become more productive. If it does (and it always does after recessions) and if the hard left loses enough power to be unable to foist it’s ideological changes on the society any longer, gold will head south like a scalded dog.Wise words! However if the government is going to print in the long run, inflation will happen, and gold is insurance against that.
Right now, I’m guessing that if the Fed bumps interest rates up at all, gold will go down; perhaps a lot. I don’t expect it soon, but eventually, that’s almost certain to happen.
Could be catastrophic. The “Great Gold Bubble Implosion of 20__” would happen if the hard left loses power; if business, seeing that it’s no longer a threat, starts to expand and hire, and if the Fed, anticipating potential inflationary forces somewhere into that expansion, raises interest rates. Gordon Liddy would have to find another line of work.
C
CPA2
Guest
Gold is rising much faster in other curriences, such as the euro, because of bigger problems in Europe. Bottom line: the euro is toast. The Greeks are exchanging their euros for gold. The dollar is next, thanks to socialism.Might be. I’m guessing though (we’re all just guessing, really, not having crystal balls) that the economy will, at some point, become more productive. If it does (and it always does after recessions) and if the hard left loses enough power to be unable to foist it’s ideological changes on the society any longer, gold will head south like a scalded dog.
Right now, I’m guessing that if the Fed bumps interest rates up at all, gold will go down; perhaps a lot. I don’t expect it soon, but eventually, that’s almost certain to happen.
Could be catastrophic. The “Great Gold Bubble Implosion of 20__” would happen if the hard left loses power; if business, seeing that it’s no longer a threat, starts to expand and hire, and if the Fed, anticipating potential inflationary forces somewhere into that expansion, raises interest rates. Gordon Liddy would have to find another line of work.
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as **a final and total catastrophe of the currency system **involved (von Misses).”
“Credit expansion is the governments’ foremost tool in their struggle against the market economy. In their hands it is the magic wand designed to conjure away the scarcity of capital goods, to lower the rate of interest or to abolish it altogether, to finance lavish government spending, to expropriate capitalists, to contrive everlasting booms, and to make everybody prosperous.”
“Firmly committed to the principles of interventionism, governments try to check the undesired result of their interference by reporting to those measures which are nowadays called full-employment: unemployment doles, arbitration of labor disputes, public works by means of lavish public spending, inflation, and credit expansion. All these remedies are worse than the evil they are designed to remove.”
I
ishii
Guest
Maybe we can withdraw all of our troops and bases and let the house of Saud defend itself against its neighbors. And Kuwait too. No more support from the U.S. They owe us.How much of our $13 TRILLION debt is owed to the Middle East oil rich countries?
What happens when they decide to not renew that debt and want their principal back?
?
Ishii
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