The Gold Market & World Economy

Discussion in 'Economy' started by Paulie, Jun 24, 2008.

  1. Paulie
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    Paulie Platinum Member

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    Kenneth J. Gerbino & Company

    Refute it. While you're at it, read more at the website. There's plenty to take in.
     
  2. Zoomie1980
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    Zoomie1980 Senior Member

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    This is a load of crap, basically. For the past 50 years commodities, especially metals traded on futures exchanges have been HORRIBLE investments. This site is run by those who stand to gain tremendously from high volume commodity trading, so it's bunk, anyway. We are NOT headed for long term and perpetual double digit inflation. We have had only one spell of multi year double digit inflation in the US in over 100 years, the late 70's, and that lasted only about three years.

    Gold SUCKS as a wealth building instruement, so you would be investing in something the essentially SUCKS if you trying to BUILD wealth.

    There is one and will ALWAYS be ONLY ONE vehicle for long term WEALTH ACCUMULATION.......equities, period. Any other "advice" is a FOOL's advice.

    BTW, this nutjob, Ken Gerbino is a Scientologist and widely viewed as a fraud and a crackpot.... Tom Cruise with an "investment" firm...
     
    Last edited: Jun 24, 2008
  3. Paulie
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    Paulie Platinum Member

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    Still trying to make your point about gold as a wealth accumulator, huh? You haven't gotten the message yet, over the 1693232512780 times I've said I don't view gold that way?

    I didn't post this article to make the case for gold. It was to make the case that our economic future is bleak. There was data provided, facts, etc, that you chose to ignore while you once again blasted gold.

    You view the economy as a world economy that can't possibly go bad merely BECAUSE of that. I find that to be patently ridiculous, personally.

    I love your view on inflation, too. Because double digits happened only once, it can't possibly happen again. Look around you, dude. Major banks on the brink of collapse, prices at all time highs, debt unprecedented. And the only solution thus far from our fearless leaders is PRINT MORE MONEY. But yoiu choose to view with rose colored glasses, I guess becuase it helps you sleep better at night and makes you feel secure in your investments.

    You aren't telling me SHIT about equities, brother, that's where the majority of my portfolio is allocated to. Mostly foreign currency denominated, because the dollar is rolling along towards worthlessness. We'll obviously be disagreeing about that until one of us is proven wrong, but I've yet to see you make your case for a strong Dollar. Be my guest, though.

    WTF does that have to do with the price of tea in China?

    Since when does someone's religious beliefs have anything to do with their economic opinion?
     
    Last edited: Jun 26, 2008
  4. gonegolfin
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    gonegolfin Member

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    There were several references to this in Gerbino's piece. But the above two are suitable for my response.

    In general, of course I agree with a fair amount of what Gerbino has to say. But I also think he is falling prey to what a number of sound money advocates also fall prey to with respect to Central Bank "creation of money". And it is because they "are not sophisticated in Fed policies" or the new programs instituted by the Fed (the same thing for which Gerbino is deriding others). That is, they do not fully grasp how both the Fed and these new lending programs work.

    Since the credit crisis erupted last August, the Federal Reserve has created very little new money. I have also stated that the M1 money supply figure is misleading for the exact same reason Gerbino states (I would find the post if I had the time). But the monetary base has expanded little and this is where the Fed has direct control. Fed credit is less than 3.5% above where it was at the beginning of last August. And some of this is due to seasonal variations in the injection of currency (Ex. Christmas shopping season). If you understand how the various lending and credit facilities function (TAF, TSLF, PDCF, PCF (Discount Window)), you understand that new money is not being pumped into the system (not yet) as the Fed is really just changing the composition of its balance sheet (taking on substantial amounts of credit risk). The TAF lending, for example, is being offset by sterilization operations whereby treasuries are sold from the Fed portfolio. This takes in cash and thus extinguishes it from the money supply. If the Fed does not do this, they cannot maintain the federal funds rate.

    Most of the inflation that has been created (of course I am using the classical definition of inflation) in recent years was created by the banks, not the Central Banks. Of course monetary policy put in motion by the Central Banks has been the energizing force. But it is primarily the fractional reserve lending that has taken place in recent years that is the driving force behind inflation. Not the printing of money (which in Fed terms is referred to as quantitative easing).

    Now, am I convinced that quantitative easing is not in the future of the Fed and other World Central Banks? Absolutely not. The balance sheet of the Fed is beginning to look quite rough and eventually they will run out of treasuries. But I suspect that they will enact additional measures to help spread all of this credit risk before engaging in quantitative easing. Such measures may include getting congressional approval for the payment of interest on reserves (effectively helping to put a floor under the federal funds rate). Another measure may entail engaging in reverse MBS swaps (Tri-party Fed guarantee of toxic/questionable debt).

    Brian
     
  5. Paulie
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    Paulie Platinum Member

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    Brian I don't want to get TOO far off topic, but when it comes to economics I usually don't care what's being discussed, I just enjoy it overall.

    This being said, when you say no NEW money is being created, are you saying that the rate of inflation is being caused by something else besides dollar devaluation? I mean, I don't even trust the CPI and PPI, for instance. I believe they are greatly under-reported, and derived from skewed numbers to begin with.

    Is it the price of oil that is causing most price increases, then? Why the run to commodities? Fear?

    Where do you see us in, say, 3 years, and how is the Dollar going to strengthen anytime soon? "Soon" meaning in the next few years.

    And then what's going to stop an eventual collapse? How much longer can this mess be controlled?
     
  6. gonegolfin
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    gonegolfin Member

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    I am not saying that no new money is being created by the Fed. I am saying that very little new money is being created by the Fed ... thus far. And the vast majority of the price inflation we have experienced in recent years is not due to the Fed "printing of money". The vast majority of money creation has been due to lending (which was encouraged by Fed policy). Another source of inflation (and debasement of the Dollar) has been both the dishoarding of US Dollars from foreign reserves and the deceleration of foreign accumulation of US Dollars. Dishoarding brings those Dollars back to our shores. So, some of this is (and will be) payback for decades of borrowing and trade deficits.

    BTW, I agree that the CPI and PPI under report price inflation as the formulas have been conveniently modified over the years to understate price inflation.

    Brian
     
    Last edited: Jun 26, 2008
  7. gonegolfin
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    gonegolfin Member

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    The price of oil certainly affects pricing of a multitude of essential and non-essential items. But you and I both know that the root cause of price inflation is not the price of oil (nor the price of commodities themselves). Commodities are up in price across the board, in all currencies (to varying degrees). When it comes to commodities, we simply have more money (across the world) competing for the same resources. It is a monetary phenomenon. But it is also incorrect to say that this is because of Central Bank printing of money.

    The US Dollar will be subject to periods of strengthening as financial instruments to not decline in a straight line. But the fundamentals for the Dollar are very poor. The banks are in serious trouble, the Fed has assumed a troubling amount of questionable (at best) assets on its balance sheet, the US continues to run large deficits, the trade deficit continues to be a very large number, and spending is likely to get worse with the next Administration (particularly with Obama, but McCain is not far behind). Add in that there are a number of US Dollars sitting in foreign reserves vaults around the world (that can at any time provide more competition for precious resources), we have a very troubling mix of problems.

    I cannot say where I think the Dollar will be three years from now. While my guess is that it will be lower (maybe significantly so), I do think that we run the real risk of a massive deflation (without hyperinflation). Here, asset classes would collapse, a depression would ensue, and the Dollar would actually strengthen (money supply would contract). But most of my assets are still in the inflation (and dollar devaluation) camp.

    It depends what you mean by collapse. The Dollar? Asset prices? A collapse of the Dollar can be prevented by implementing sound monetary policy. Here, the loose credit needs to stop (interest rates need to be much higher), Wall Street needs to square away their own mess (no assumption of questionable assets on the books of the Fed, no government bailouts of lenders or homeowners, no Fed guarantees of loans (Bear Stearns)), housing prices must correct appropriately (we are not close to the bottom), government needs to get its spending in order, etc. Asset prices are generally inflated and need to correct. These measures would strengthen the Dollar. Of course they would also throw the economy into a massive cleansing (depression). This is not politically palatable, so I do not expect this choice to be made explicitly. But the cleansing could still come despite their best efforts to prevent it.

    If we do not get a Fed that makes the tough choices to cleanse the problems, I expect that an attempt is made to inflate away problems while attempting to manage the currency (with the help of the world's central banks) and Gold. This will only punt the problem down then road and make the correction worse when it eventually comes. I do not worry about so much as when. I just simply follow the data and try to stay ahead of the market with my investment decisions. When the fundamentals changes, so will my investment strategy.

    Brian
     
  8. BaronVonBigmeat
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    BaronVonBigmeat Senior Member

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    Gary North was saying something about this a little while back. M1 is holding steady and M3 is growing...which if I understand correctly, kind of goes along with your statement that the central bank is not directly printing money per se, but the banking system is creating more credit.

    He said that they are trying to bail the banks out but not inflate--by swapping treasuries for junk mortgages. Just one problem as you mention--they only have a finite amount of treasuries. Once they are gone--by this fall, at current rates--the fed will face an ugly choice: big inflation, or letting the financial system collapse.
     
  9. editec
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    editec Mr. Forgot-it-All

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    I'm buying silver, fine art and real estate.

    I haven't yet decided whether or not to get into serious long term fixed rate debt, but if things keep getting wierder, (and I see very little that make me think they won't) that's where I headed.

    Gold is obviously a way to hedge against inflation.

    Likewise obviously it is not an investment, unless you buy it on margin.
     
  10. Toro
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    Toro Diamond Member

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    I sold some gold today, though I still have a lot of it.

    According to Michael Masters, the incremental demand for oil from institutional investors nearly matches that of China.

    And

    [​IMG]

    I have summarized Masters' argument here

    Toro's Running of the Bulls Market Blog: Michael Masters on Rising Commodity Prices

    But if you want to read his entire testimony to Congress, you can do so here

    http://hsgac.senate.gov/public/_files/052008Masters.pdf
     

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