Other than a quick book review, I’ve been negligent in my posting duties lately. Consider this one an effort to get current on what’s happening.
-From our original note on August 8th, when the price of gold was $1,312, the yellow metal has gone up 8.2%, in the face of declining markets everywhere else. And it seems that the momentum is back with the bulls. Not that we ever had any doubts, right?
-Syria appears to be a fiasco in the making. Stratfor offers a decent explanation when they write that Obama has to respond, since chemical weapons represented his “red line” when it comes to U.S. intervention. So, if he does nothing, it encourages bad behavior from folks all over the world. But, let’s be honest, the rebels are just as brutal as Bashir al-Assad’s crew and are aligned with Al Qaeda. Why would we want them to win? And why does the U.S. have to be the global enforcer? It never turns out well. So, looking for more, the conspiracy theorist in me thinks it’s about economics. The budget deficit is smaller this year than expected, and military spending is the easiest way to goose the fiscal side and engender GDP.
-The stock market looks extremely vulnerable, with the head (of a proposed head-and-shoulders) coming together very nicely. In fact, it looks to be happening even faster than I thought. I am waiting on any short plays until the right shoulder is mature.
-As for bonds, between the war talk and a weak stock market, we should expect some useful information to be revealed on where we are in the transition from a secular bull to a secular bear – or put differently, where we are on the road to a funding crisis.
I think that hits on a lot of it.
Tuesday, August 27, 2013
Sunday, August 25, 2013
The Snowball
The subtitle is Warren Buffett and the Business of Life and the author is Alice Schroeder (2008).
I think that reading about successful people can be accretive to one’s own understanding of the world – even if that person has become something of a government mouthpiece over the past few years. But, whether propagandist or not, Buffett has been an investor without equal for many decades.
What’s clear is that Buffett had a singular focus from a young age to make a lot of money, and adopted the Benjamin Graham approach of finding a margin of safety to achieve that end. He appreciated the concept of compounding and enforced a frugality on his family, since any dollar saved stood to become multiples on itself if he could invest successfully. He understood the value of “float” and thus targeted companies where it existed. The other interesting fact was that Berkshire Hathaway was a floundering textile company in New Bedford, MA that he took a large position in way back when. Even though the underlying business was underwhelming, the company ended up becoming the entity that he used going forward.
The mystique of Warren Buffett has been somewhat undermined in the last few years. The book makes clear that he has always taken a very negative view of Wall Street firms, believing that the employees should not have outsized salaries if the shareholders are taking a bath. Yet, he continues to invest in these firms and was only too happy to lobby for bailout funds in 2008, which strikes me as a bit of hypocrisy – there is a risk to investing which he was not prepared to accept.
I think that reading about successful people can be accretive to one’s own understanding of the world – even if that person has become something of a government mouthpiece over the past few years. But, whether propagandist or not, Buffett has been an investor without equal for many decades.
What’s clear is that Buffett had a singular focus from a young age to make a lot of money, and adopted the Benjamin Graham approach of finding a margin of safety to achieve that end. He appreciated the concept of compounding and enforced a frugality on his family, since any dollar saved stood to become multiples on itself if he could invest successfully. He understood the value of “float” and thus targeted companies where it existed. The other interesting fact was that Berkshire Hathaway was a floundering textile company in New Bedford, MA that he took a large position in way back when. Even though the underlying business was underwhelming, the company ended up becoming the entity that he used going forward.
The mystique of Warren Buffett has been somewhat undermined in the last few years. The book makes clear that he has always taken a very negative view of Wall Street firms, believing that the employees should not have outsized salaries if the shareholders are taking a bath. Yet, he continues to invest in these firms and was only too happy to lobby for bailout funds in 2008, which strikes me as a bit of hypocrisy – there is a risk to investing which he was not prepared to accept.
Wednesday, August 14, 2013
“What do you want it to be?”
I have been around real estate long enough to know that the process of underwriting a property is about 99 parts art to one part science. In fact, the title refers to the old joke about what to say if someone asks you what the cap rate is on a deal. In any event, in the process of looking at something at work, I came across a situation where total return was going down as the hold period got longer. And there are really only a handful of explanations for why it should happen:
-Expenses are growing at a faster rate than revenues (i.e., shrinking margins)
-Debt is floating rate
-Debt transitions from interest only at the beginning of the hold period to amortizing later on
-There is capex as the hold period gets longer in the tooth that causes the denominator to increase
That’s it. No real reason for the post other than to memorialize a thought process.
-Expenses are growing at a faster rate than revenues (i.e., shrinking margins)
-Debt is floating rate
-Debt transitions from interest only at the beginning of the hold period to amortizing later on
-There is capex as the hold period gets longer in the tooth that causes the denominator to increase
That’s it. No real reason for the post other than to memorialize a thought process.
Tuesday, August 13, 2013
Someone agrees...
Given my post yesterday, I thought this article on Zero Hedge today was interesting. It also includes the following chart:
Monday, August 12, 2013
“I see dead people…”
“Walking around like regular people…They don’t know they’re dead.”
What, oh what could I possibly be talking about?
Here is a daily chart of the S&P 500 over the last 5 months.
(Giving everyone a minute to let it sink in.)
We talk about the basics of chart formations enough at this site, so hopefully you see what I do – the makings of a head-and-shoulders formation. The left shoulder extends from late April to late June, while the head is in the process of topping off and beginning a move back down towards the neckline at around 1,580. Not a slam dunk yet, but it definitely should cause a shiver down the spine of any equity investor.
Now, let me remind you of something else. Back in mid-April, I observed that the market seemed to be running into a topping pattern reminiscent of 2000 and 2007. I noted that the process could play out over 7 months or so, putting us in September or October before it would be confirmed. So let’s do some simple math. The left shoulder took two months, the head probably has another 4 or so weeks to complete, tack on another 6 weeks for the right shoulder…and you’re right in there at the end of October.
Let me offer a story for how it all evolves. There has been much talk about a taper in September – let’s assume that the Fed tries it out, only to see the markets take a dive, completing the head pattern. So, realizing the problem, the Fed backtracks and re-institutes QE at its full payload. But, the bloom is now off the rose, so the market doesn’t take us as high before the upside momentum is lost. And there is a right shoulder. All in time for an October confirmation of an impending bear market.
I may be wrong. But you’ve been warned.
What, oh what could I possibly be talking about?
Here is a daily chart of the S&P 500 over the last 5 months.
(Giving everyone a minute to let it sink in.)
We talk about the basics of chart formations enough at this site, so hopefully you see what I do – the makings of a head-and-shoulders formation. The left shoulder extends from late April to late June, while the head is in the process of topping off and beginning a move back down towards the neckline at around 1,580. Not a slam dunk yet, but it definitely should cause a shiver down the spine of any equity investor.
Now, let me remind you of something else. Back in mid-April, I observed that the market seemed to be running into a topping pattern reminiscent of 2000 and 2007. I noted that the process could play out over 7 months or so, putting us in September or October before it would be confirmed. So let’s do some simple math. The left shoulder took two months, the head probably has another 4 or so weeks to complete, tack on another 6 weeks for the right shoulder…and you’re right in there at the end of October.
Let me offer a story for how it all evolves. There has been much talk about a taper in September – let’s assume that the Fed tries it out, only to see the markets take a dive, completing the head pattern. So, realizing the problem, the Fed backtracks and re-institutes QE at its full payload. But, the bloom is now off the rose, so the market doesn’t take us as high before the upside momentum is lost. And there is a right shoulder. All in time for an October confirmation of an impending bear market.
I may be wrong. But you’ve been warned.
Thursday, August 8, 2013
Optimism?
Here I am, back to tempting fate.
I sat down with the gold chart today because I thought I saw something. And, upon further review, there might be reason for optimism.
If you'll recall, back in mid-June, I identified a bearish cup-and-handle formation that projected the gold price to about $1,200. Soon afterwards, gold was smashed down to around $1,180.
Well, it would appear that a bullish cup-and-handle may be on the horizon. I have provided a chart below, identifying the bearish formation from a couple of months back, and now updating it to include a bullish cup-and-(half a) handle. If I'm right, the projection is to at least $1,500 - the support level in June, which is now overhead resistance, is about $1,340. Given the low at $1,180, add that $160 spread to the resistance price and, voila, you have a target.
I am somewhat skeptical of technical analysis, but there have been enough occasions over time where I see a chart's pattern resolve itself right at the moment that some other news headline ends up encouraging the anticipated move. Currently, we have low gold inventories at the Comex, tensions between Russia and the U.S., concerns about the solvency of Europe, violence in the Middle East, a more shaky Chinese economy that has been hinting at some new form of Bretton Woods, and money-printing worldwide. The point being, that something could happen that's bullish for gold in the next few weeks, right as the handle portion is completed, suggesting that maybe it's worth keeping an eye on.
I sat down with the gold chart today because I thought I saw something. And, upon further review, there might be reason for optimism.
If you'll recall, back in mid-June, I identified a bearish cup-and-handle formation that projected the gold price to about $1,200. Soon afterwards, gold was smashed down to around $1,180.
Well, it would appear that a bullish cup-and-handle may be on the horizon. I have provided a chart below, identifying the bearish formation from a couple of months back, and now updating it to include a bullish cup-and-(half a) handle. If I'm right, the projection is to at least $1,500 - the support level in June, which is now overhead resistance, is about $1,340. Given the low at $1,180, add that $160 spread to the resistance price and, voila, you have a target.
I am somewhat skeptical of technical analysis, but there have been enough occasions over time where I see a chart's pattern resolve itself right at the moment that some other news headline ends up encouraging the anticipated move. Currently, we have low gold inventories at the Comex, tensions between Russia and the U.S., concerns about the solvency of Europe, violence in the Middle East, a more shaky Chinese economy that has been hinting at some new form of Bretton Woods, and money-printing worldwide. The point being, that something could happen that's bullish for gold in the next few weeks, right as the handle portion is completed, suggesting that maybe it's worth keeping an eye on.
Wednesday, August 7, 2013
China
Much of the attention paid to China lately is negative. People are expecting a hard landing for its economy, and the notion that it will dominate the 21st century is paid little attention anymore. Today's Daily Dispatch from Casey Research was a nice deviation from that trend.
When Slowing Growth Is a Good Thing
How long have we been asking if China will have a hard or a soft landing after the Great Recession? If growth in the Far East will really dry up, or just experience a temporary blip?
Cases for both sides have been made, with pictures of empty malls and apartment buildings contrasted with massive—and much needed—infrastructure projects.
Here's the bottom line…
Growth in China has been slowing.
But this is a good thing, and it should have been expected.
One of my favorite books on the subject is Michael Spence's The Next Convergence: The Future of Economic Growth in a Multispeed World. In it, Spence talks about what happens when a developing economy transitions to a middle-income economy:
Spence says that most countries try to hold on to the old ways they've done business, and governments throw subsidies and tariffs at the problem in an effort to remain competitive. We've done that here in the US with a lot of our agricultural commodities.
Nearly all manufacturing-based economies that transitioned into modern economies experienced slowing or even halted growth for a period of time.
These growing pains are part of the process of becoming an advanced economy. Low-wage industrial manufacturing gives way to technologically advanced research and education, as well as a larger service industry that will accompany a boom in domestic consumption.
And that domestic consumption is going to be huge.
It's a numbers game, and China's population is still growing.
It has the largest population in the world, with more than 1.349 billion people.
Here's how that figure breaks down:
Leith van Onselen, chief economist of Macro Investor, writes:
That's just where China is sitting… right in the middle.
And this middle-income transition means there will be fewer labor-intensive jobs and more knowledge-intensive jobs. This is important because people who work in knowledge-intensive jobs live longer, contribute more to the economy, and are generally more active later in life than those who spent their working lives doing hard labor.
So as China's population ages—and it already is, due to the country's one-child policy—its workforce will contribute more years of employment to the economy.
That adds up to a lot of consumption. In the past two decades, 380 million Chinese people have flocked to urban areas. GDP in cities has quadrupled.
But spending is climbing even faster. From McKinsey Global Institute:
Would you bet against those numbers? I sure wouldn't.
I said it's a numbers game, and it is… but it's also all about timing. We all know that China is slowing. But how quickly and how steeply will its economy fall? There is no one answer.
China's transition will hit manufacturing and exports first. If you're brave enough to short China, these sectors are your best bets. At the same time, consumer-based companies and services should ramp up as GDP per capita increases.
So slow growth won't be hitting all areas at once. You'll have to pick and choose your battles.
But for me, I'm not going to stand in front of the demographic train that's boosting population in China's six megacities by 34.37 million people by 2025. That's a jump of nearly 38.5%. In that same timeframe, GDP per capita for these megacities will jump by 134%.
Choose your battles wisely…
When Slowing Growth Is a Good Thing
By Sara Nunnally, Editor, Macro Trader, Contributing Editor for Inside Investing Daily
How long have we been asking if China will have a hard or a soft landing after the Great Recession? If growth in the Far East will really dry up, or just experience a temporary blip?
Cases for both sides have been made, with pictures of empty malls and apartment buildings contrasted with massive—and much needed—infrastructure projects.
Here's the bottom line…
Growth in China has been slowing.
But this is a good thing, and it should have been expected.
One of my favorite books on the subject is Michael Spence's The Next Convergence: The Future of Economic Growth in a Multispeed World. In it, Spence talks about what happens when a developing economy transitions to a middle-income economy:
"Middle-income transition refers to that part of the growth process that occurs when a country's per capita income gets into the range of $5,000-10,000. At this point, the industries that drove the growth in the early period start to become globally uncompetitive due to rising wages. These labor-intensive sectors move to lower-wage countries and are replaced by a new set of industries that are more capital-, human capital-, and knowledge-intensive in the way they create value."
Spence says that most countries try to hold on to the old ways they've done business, and governments throw subsidies and tariffs at the problem in an effort to remain competitive. We've done that here in the US with a lot of our agricultural commodities.
Nearly all manufacturing-based economies that transitioned into modern economies experienced slowing or even halted growth for a period of time.
These growing pains are part of the process of becoming an advanced economy. Low-wage industrial manufacturing gives way to technologically advanced research and education, as well as a larger service industry that will accompany a boom in domestic consumption.
And that domestic consumption is going to be huge.
It's a numbers game, and China's population is still growing.
It has the largest population in the world, with more than 1.349 billion people.
Here's how that figure breaks down:
- 0-14 years: 17.2%
- 15-24 years: 15.4%
- 25-54 years: 46.7%
- 55-64 years: 11.3%
- 65 years and over: 9.4%
Leith van Onselen, chief economist of Macro Investor, writes:
"Such an advantageous age structure has effected almost all of the world's major economies and produced a population structure optimal to economic growth—that is, where the largest segments of the population were neither young nor old, but in the middle (i.e., working age)."
That's just where China is sitting… right in the middle.
And this middle-income transition means there will be fewer labor-intensive jobs and more knowledge-intensive jobs. This is important because people who work in knowledge-intensive jobs live longer, contribute more to the economy, and are generally more active later in life than those who spent their working lives doing hard labor.
So as China's population ages—and it already is, due to the country's one-child policy—its workforce will contribute more years of employment to the economy.
That adds up to a lot of consumption. In the past two decades, 380 million Chinese people have flocked to urban areas. GDP in cities has quadrupled.
But spending is climbing even faster. From McKinsey Global Institute:
"In China, for instance, spending on dining out starts to take off at annual incomes of around $3,000 per household and, by about $9,000, is on a firm and steep upward trajectory. Spending on transport and communications starts increasing strongly as incomes reach around $6,000 per annum. The recent growth in Chinese consumer markets reflects these inflection points. Between 2004 and 2011, per capita sales of electronics and video appliances rose fourfold and clothing and shoes rose fivefold in real terms, outpacing a 3.4 times increase in per capita income during that period."
Would you bet against those numbers? I sure wouldn't.
I said it's a numbers game, and it is… but it's also all about timing. We all know that China is slowing. But how quickly and how steeply will its economy fall? There is no one answer.
China's transition will hit manufacturing and exports first. If you're brave enough to short China, these sectors are your best bets. At the same time, consumer-based companies and services should ramp up as GDP per capita increases.
So slow growth won't be hitting all areas at once. You'll have to pick and choose your battles.
But for me, I'm not going to stand in front of the demographic train that's boosting population in China's six megacities by 34.37 million people by 2025. That's a jump of nearly 38.5%. In that same timeframe, GDP per capita for these megacities will jump by 134%.
Choose your battles wisely…
Tuesday, August 6, 2013
The Plumbing of a Tinfoil Story
Recently, Turd Ferguson noticed a pattern where gold would get smacked down in each delivery month. Today, he expounded on what he thinks is happening - since it seems to be happening again, right on schedule. As has been pointed out recently, GOFO rates are negative and inventories at the Comex are low, all as we hear about ravenous demand for the physical stuff.
So, the theory goes like this...
The takedowns around this time are intentional. The bullion banks put on big naked shorts to drive the price down. Simultaneously, as Authorized Participants, the bullion banks are able to make withdrawals of actual metal from GLD (the gold ETF) timed to coincide with the heavy selling, thereby enabling them to make good on delivery to contract holders who want to take possession.
I don't know if that's true, and there are plenty of guys who I respect who say that it isn't. Still, even if it is, this too shall pass. The fundamental story to drive gold higher is very compelling. What's working against it is just the chart and crowd psychology.
So, the theory goes like this...
The takedowns around this time are intentional. The bullion banks put on big naked shorts to drive the price down. Simultaneously, as Authorized Participants, the bullion banks are able to make withdrawals of actual metal from GLD (the gold ETF) timed to coincide with the heavy selling, thereby enabling them to make good on delivery to contract holders who want to take possession.
I don't know if that's true, and there are plenty of guys who I respect who say that it isn't. Still, even if it is, this too shall pass. The fundamental story to drive gold higher is very compelling. What's working against it is just the chart and crowd psychology.
Interesting Reads
Every day I get emails with interesting stuff to read, most of it comes courtesy of Ed Steers at Casey Research, who does his own aggregation that I sometimes borrow from. Here’s what hit my inbox today…
-An article about the capital losses that the Fed would incur if it had to mark its Treasury portfolio to market. Of course, it’s an academic exercise since the Fed can just print more money…until it isn’t. And the notion that it would ever unwind its balance sheet seems like a laughable proposition anyway.
-The NY Times reports on the precarious fiscal situation in Chicago as a result of underfunded public pension plans. Again, why does GDP focus on the promise?
-You’ve heard about the strikes and violence in South Africa by mine workers and unions. This article details the recent move in Kenya to revoke certain licenses so the government can get a bigger piece of the revenue stream. All of which is to say that more regulation and red tape and lower grades are going to increase the cash cost to extract minerals – if they get extracted at all. How is that bad prospectively for commodity prices?
-Zero Hedge presents data on the decrease in exercise amongst Americans this year versus last. They take it in a different direction from where my head went. My interest relates to the general thesis that we will need more and more “health care” over time.
-The weekly commentary from John Hussman does not provide any astounding revelations, but it does offer a good explanation of the dynamics at play, all while invoking Hyman Minsky. Here is a good excerpt: “The central effect of QE is not on the real economy, but on financial speculation. The Fed purchases Treasury and mortgage securities, and creates new base money (currency and bank reserves) as payment. This results in a huge pool of zero-interest assets that someone in the economy has to hold at any given point in time. This zero-interest money is a “hot potato” that creates discomfort and encourages a tendency to “reach for yield” in more speculative assets. Undoubtedly, the universal attention to Fed actions has already created a mob psychology where, to use Kindleberger’s words, ‘virtually each of the participants in the market changes his or her views at the same time and moves as a herd.’”
-An article about the capital losses that the Fed would incur if it had to mark its Treasury portfolio to market. Of course, it’s an academic exercise since the Fed can just print more money…until it isn’t. And the notion that it would ever unwind its balance sheet seems like a laughable proposition anyway.
-The NY Times reports on the precarious fiscal situation in Chicago as a result of underfunded public pension plans. Again, why does GDP focus on the promise?
-You’ve heard about the strikes and violence in South Africa by mine workers and unions. This article details the recent move in Kenya to revoke certain licenses so the government can get a bigger piece of the revenue stream. All of which is to say that more regulation and red tape and lower grades are going to increase the cash cost to extract minerals – if they get extracted at all. How is that bad prospectively for commodity prices?
-Zero Hedge presents data on the decrease in exercise amongst Americans this year versus last. They take it in a different direction from where my head went. My interest relates to the general thesis that we will need more and more “health care” over time.
-The weekly commentary from John Hussman does not provide any astounding revelations, but it does offer a good explanation of the dynamics at play, all while invoking Hyman Minsky. Here is a good excerpt: “The central effect of QE is not on the real economy, but on financial speculation. The Fed purchases Treasury and mortgage securities, and creates new base money (currency and bank reserves) as payment. This results in a huge pool of zero-interest assets that someone in the economy has to hold at any given point in time. This zero-interest money is a “hot potato” that creates discomfort and encourages a tendency to “reach for yield” in more speculative assets. Undoubtedly, the universal attention to Fed actions has already created a mob psychology where, to use Kindleberger’s words, ‘virtually each of the participants in the market changes his or her views at the same time and moves as a herd.’”
Saturday, August 3, 2013
Japan's Inflation
Over at one of the blogs I follow on Japan, they put out a piece today looking at the inflation numbers for that country that were released on July 26th. Much was made about the +0.2% increase YoY (the first such increase in many months), signalling perhaps that Abenomics is getting its desired result. But, digging into the numbers a bit, if you back out energy and food, the number becomes -0.2% - in other words, the inflation that is happening is more of the cost push variety (i.e., the weaker yen is causing manufacturing costs to go up) rather than demand pull (i.e., consumers are becoming more active). They want the latter, which is somehow considered the good type because it implies higher wages, but are setting themselves up for a whole lot of the former, which correlates to stagflation or something worse.
More Parlor Tricks
The GDP number came out this week - the first iteration since certain changes were made to how it would be calculated. It's all about goosing the outcome. Take one shining example that seems particularly absurd given recent events.
Pension fund benefits are now classified as investments rather than as an expense. Moreover, the value to be attributed for GDP is the future proposed benefit, not just today's cash outlay. What does that mean? So, let's assume that Microsoft has some sort of pension plan. The company contributes $10 today with the expectation that the money can earn 8% per year, so that in 20 years the employee stands to get something like $40. That future benefit of $40 is now what the GDP number will incorporate.
That decision takes ridiculousness to another level.
All you have to do is occasionally read some financial papers or websites to get smacked upside the head with an article about how practically every corporate and government pension plan is underfunded. Which means they are not hitting their return targets such that they will be able to pay out the expected benefit. Which makes the choice of promise over actual contribution silly.
And, if you don't believe me, just ask Detroit.
Pension fund benefits are now classified as investments rather than as an expense. Moreover, the value to be attributed for GDP is the future proposed benefit, not just today's cash outlay. What does that mean? So, let's assume that Microsoft has some sort of pension plan. The company contributes $10 today with the expectation that the money can earn 8% per year, so that in 20 years the employee stands to get something like $40. That future benefit of $40 is now what the GDP number will incorporate.
That decision takes ridiculousness to another level.
All you have to do is occasionally read some financial papers or websites to get smacked upside the head with an article about how practically every corporate and government pension plan is underfunded. Which means they are not hitting their return targets such that they will be able to pay out the expected benefit. Which makes the choice of promise over actual contribution silly.
And, if you don't believe me, just ask Detroit.
Friday, August 2, 2013
July Jobs
Not much to be excited about…
-162,000 jobs came in below expectations of 185,000
-The May and June numbers were revised down by a combined 26,000 jobs
-Average hourly wages ticked down by .1%
-Weekly hours worked ticked down by .1 hours
-The Participation Rate was down by .1% to 63.4%
-The Employment to Population ratio was unchanged at 58.7% (it is often considered the best measure of what to expect when it comes to future government transfer payments – needless to say, it is not very promising)
-Full-time jobs actually ticked up this month by 92,000, but part-timers continue to be the lion’s share with 174,000 added
But, hey, not all is lost – at least the unemployment rate went from 7.6% to 7.4% (sigh).
-162,000 jobs came in below expectations of 185,000
-The May and June numbers were revised down by a combined 26,000 jobs
-Average hourly wages ticked down by .1%
-Weekly hours worked ticked down by .1 hours
-The Participation Rate was down by .1% to 63.4%
-The Employment to Population ratio was unchanged at 58.7% (it is often considered the best measure of what to expect when it comes to future government transfer payments – needless to say, it is not very promising)
-Full-time jobs actually ticked up this month by 92,000, but part-timers continue to be the lion’s share with 174,000 added
But, hey, not all is lost – at least the unemployment rate went from 7.6% to 7.4% (sigh).
Thursday, August 1, 2013
Discussing Bernanke
A little more from his testimony. Bernanke also said that the gold price is not a good predictor of inflation. I’m not sure what he’s basing that on. It’s only been unpegged from the dollar for 40 years, and it did well in the ‘70s (a period of acknowledged inflation) and over the past 15 years (a period of multiple bubbles, high financial asset inflation, and significant money-printing).
But, when you marry that comment with the subject of my last post, his premise makes a bit more sense (at least, from the convenience it provides him). If, by seeming stipulation, gold doesn’t track inflation well, it would also imply that it does not tell us much about deflation either. Therefore, by process of elimination, a lower gold price can only mean one thing – less fear. And at a moment where it is critical to control the narrative and maintain the confidence level, who wants to imagine that the other possibility of a lower gold price is a deflationary crash?
Anyway, whatever the motives, I think the Fed is hoping for an outcome without any idea of whether it will come.
But, when you marry that comment with the subject of my last post, his premise makes a bit more sense (at least, from the convenience it provides him). If, by seeming stipulation, gold doesn’t track inflation well, it would also imply that it does not tell us much about deflation either. Therefore, by process of elimination, a lower gold price can only mean one thing – less fear. And at a moment where it is critical to control the narrative and maintain the confidence level, who wants to imagine that the other possibility of a lower gold price is a deflationary crash?
Anyway, whatever the motives, I think the Fed is hoping for an outcome without any idea of whether it will come.
Tinfoil Musings
It happened two weeks ago, but I still want to comment on it belatedly. As you’ll recall, Bernanke testified before Congress and the topic of gold came up. The gist was that he doesn’t, nor does anyone else really, understand the gold price. Fine. But, within that larger point, he also said something else which I think is worth quoting directly:
“I suppose that one reason gold prices are lower is that people are less concerned about extreme outcomes, particularly negative outcomes and therefore they feel less need for whatever protection gold affords...Gold price going down is not necessarily a bad thing from that perspective. It suggests people have somewhat more confidence, and are less concerned about really bad outcomes.”
Now, generally, I am not one who falls into the conspiratorial camp when it comes to precious metals. But, since the April takedown, there have too many anecdotes and data points that have to leave you scratching your head. And commentary like that from the Fed Chairman only feeds the beast in my opinion. It’s fine to be confused by gold (even though the U.S. is largest sovereign holder of the barbarous relic as a reserve asset, and Mr. Bernanke knows that), but then to impute some logic from a lower price at the same time, and to suggest a preference for that outcome, strikes me as something of a reveal. This whole “recovery” concept is about smoke and mirrors and convincing people to maintain confidence in the system and political leaders. But the jobs numbers are weak, the GDP numbers are weak, trillions of monetary units have been created without a satisfactory result – but, gold is down, so no need to worry.
Maybe holding the price down does serve a political end. Just a thought.
“I suppose that one reason gold prices are lower is that people are less concerned about extreme outcomes, particularly negative outcomes and therefore they feel less need for whatever protection gold affords...Gold price going down is not necessarily a bad thing from that perspective. It suggests people have somewhat more confidence, and are less concerned about really bad outcomes.”
Now, generally, I am not one who falls into the conspiratorial camp when it comes to precious metals. But, since the April takedown, there have too many anecdotes and data points that have to leave you scratching your head. And commentary like that from the Fed Chairman only feeds the beast in my opinion. It’s fine to be confused by gold (even though the U.S. is largest sovereign holder of the barbarous relic as a reserve asset, and Mr. Bernanke knows that), but then to impute some logic from a lower price at the same time, and to suggest a preference for that outcome, strikes me as something of a reveal. This whole “recovery” concept is about smoke and mirrors and convincing people to maintain confidence in the system and political leaders. But the jobs numbers are weak, the GDP numbers are weak, trillions of monetary units have been created without a satisfactory result – but, gold is down, so no need to worry.
Maybe holding the price down does serve a political end. Just a thought.
The Red Pill
I find it difficult to watch financial television any more because practically every commentator is a cheerleader. Well, that's why this recent interview with Lakshman Achuthan on Bloomberg was so much fun. He performs an absolute ass-whooping on Tom Keene and Sara Eisen as they try to spin every data point to the most bullish case.
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