Where's the bottom?

Discussion in 'Economy' started by william the wie, Oct 5, 2010.

  1. william the wie
    Offline

    william the wie Gold Member

    Joined:
    Nov 18, 2009
    Messages:
    7,295
    Thanks Received:
    675
    Trophy Points:
    175
    Ratings:
    +1,614
    Fairly simple question for some things but not for others

    DJIA=1 oz of gold means that the stock market has reached bottom. The market can bottom at higher levels but has not bottomed at significantly lower levels since the DJIA was created in the late 1800s. The linkage to the explicit or implicit storage costs of gold vs. the net dividend yield of the DJIA is what causes this relationship but examining the nuts and bolts of why gets complicated. If you have a simple and easy to understand way of explaining this please post it.

    Real estate, when rents are at or above 125% mortgage payments for comparable properties then the bottom is reached because it is then cheaper to put 20% down and buy rather than rent.

    When AAA bonds pay 250% of the dividend yield of the DJIA then bonds are paying the same expected returns as stocks but with greater safety.

    That is the simple stuff but what is complicated is figuring out the bottom for unemployment, debt loads and the other things that have people scared. So what I am asking is put up your rules of thumb and see what the response is.
     
  2. Mad Scientist
    Offline

    Mad Scientist Deplorable Gold Supporting Member Supporting Member

    Joined:
    Sep 15, 2008
    Messages:
    23,940
    Thanks Received:
    5,212
    Trophy Points:
    270
    Ratings:
    +7,683
    What does "DJIA= 1oz of Gold" mean? That the price of gold equals what the Dow Jones is? Are you saying Gold could go to $10,700?

    As long as the Privately owned, Non Government run, Federal Reserve keeps printing money and calling it "monetizing the debt" then Gold has no max price I would think.

    But when everyone starts buying gold that's when the real gold bubble starts and when you should probably get out of the gold market.

    But I admit I'm a bit confused by the "gold bubble" theories. We've seen the "dot com" and "housing" bubbles but how could there really be a "gold bubble"? Gold would have actual value in a barter economy as opposed to housing and dot com stocks.

    I realize this post is all over the place, I'm just thinking out loud. Sorry!
     
  3. loosecannon
    Offline

    loosecannon Senior Member

    Joined:
    May 7, 2007
    Messages:
    4,888
    Thanks Received:
    263
    Trophy Points:
    48
    Ratings:
    +264
    good post.

    Willie, I for one place no stock in simple equations to measure bottoms. Doesn't their use rely on rational market theory?
     
  4. william the wie
    Offline

    william the wie Gold Member

    Joined:
    Nov 18, 2009
    Messages:
    7,295
    Thanks Received:
    675
    Trophy Points:
    175
    Ratings:
    +1,614
    No problem.
     
  5. uscitizen
    Offline

    uscitizen Senior Member

    Joined:
    May 6, 2007
    Messages:
    45,941
    Thanks Received:
    4,791
    Trophy Points:
    48
    Location:
    My Shack
    Ratings:
    +4,807
    We are supposed to be afraid ot terrorists, not the economy.
     
  6. william the wie
    Offline

    william the wie Gold Member

    Joined:
    Nov 18, 2009
    Messages:
    7,295
    Thanks Received:
    675
    Trophy Points:
    175
    Ratings:
    +1,614
    Actually arbitrage theory. That's why Toro and many others place the bottom at DJIA= 3 oz. which is about tangible book value whereas 1oz. is generally the net cash in the till. At those kinds of prices you can generally turn a profit by liquidating the companies. I am unaware of any case where anyone has lost money buying a company for net working capital (Roughly DJIA=1 oz.)
     
  7. Pepe
    Offline

    Pepe Senior Member

    Joined:
    Jun 3, 2010
    Messages:
    153
    Thanks Received:
    36
    Trophy Points:
    46
    Location:
    Tennessee
    Ratings:
    +36
    As one of the non- economists hereabouts, I would ask the bottom of what?

    Or perhaps where will UE top out, etc.

    UE is already at >22%. Where does it go from here?

    Housing has at minimum another 5% to 50% to fall depending on market.

    I understand that QE2 will arrive on November 3rd with the FR purchasing another 2 trillion in Bonds and Securities. Just how much lower can interest rates go?

    Foreclosures will continue.

    Personal Bankruptcies will hit another record.

    Just like the UK is learning (the hard way), the more unfriendly you are to business, the more these folks move out of your Country/State.

    Unions now want Congress to Nullify the "Right to Work" laws in 25 States.

    The Welfare State and the Military Industrial Complex still want to slop at the Gubermit trough.

    Ad nauseum
     
  8. Toro
    Offline

    Toro Diamond Member

    Joined:
    Sep 29, 2005
    Messages:
    50,767
    Thanks Received:
    11,056
    Trophy Points:
    2,030
    Location:
    The Big Bend via Riderville
    Ratings:
    +25,102
    I do not know where the bottom will be, whether it's 1x, 2x, 3x, 5x etc. But it is not unreasonable to look at prior bottoms and use that as a guide. And I use that as a guide, not a hard target, because there is nothing saying that gold cannot bottom at 4x.

    I also like to look at behavior when looking at tops and bottoms. But even then you have to be flexible. When oil topped at $147, it didn't look like a typical top.
     
  9. loosecannon
    Offline

    loosecannon Senior Member

    Joined:
    May 7, 2007
    Messages:
    4,888
    Thanks Received:
    263
    Trophy Points:
    48
    Ratings:
    +264
    a lot of the inertia for the commodities bubble of 08 was the weak dollar. But I am sure you know that. The top and the bottom were as much a function of political forces as anything else. Abstract equations played essentially no role in that event.
     
  10. uscitizen
    Offline

    uscitizen Senior Member

    Joined:
    May 6, 2007
    Messages:
    45,941
    Thanks Received:
    4,791
    Trophy Points:
    48
    Location:
    My Shack
    Ratings:
    +4,807
    We are likely to be as well off now as we will get for the next 5-10 years.
     

Share This Page