The Gold and Silver Thread

[Trajan]

when will it wear off? when the sugar runs out? or we crash?

 

[Toro]

when will it wear off? when the sugar runs out? or we crash?

I'm exaggerating somewhat. The economy appears to be getting better, so some of this rally is based on improving fundamentals.

 

[editec]

The only money they're inventing is the money going to the BANKSTERS to help them shore up their outstanding-debt-to-cash-position ratios.

Thus far, although the experts cannot seem to agree on the totals -- the amount of new money invented is either $16 TRILLION to estimates as high as $26 TRILLION bucks.

When (if) the economy starts to recover THEN I'd expect to see real inflation kick in.

Not before.

But the disasterous effects of the crashing EURO (and sovereign debt crises associated with that) means that enormous amounts of (perceived) cash make it rather difficult to determine whether the money supply (world wide, in this case) will be greater than or less than it was when the world's economies were humming.

There's a gigantic CONFIDENCE hole where the perceived wealth used to be, kiddies.

For example, in my case my perceived wealth (wealth in value that is not really capitalized until I sell a real asset) has dropped by about $50,000 in the last three years. Now to me that's a lot of dough I no longer have access to.

When you multiply my confidence eroding experience times millions of homeowners and investors, then the actual perception of money is WAAAAAAAAAAAAAAAAAAAAAAAY down.

And it is the perception of LOST wealth that is NOT being counted in most of our Monetary equasions because there is NO WAY to put that into our economic MODELS.

Frankly, I have no idea how we could count this, but I know perfectly well that the perception of our wealth plays as larger a role in the economy than the amount of cash actually in circulation.

PUBLIC CONFIDENCE about perceieve wealth plays a greater role in economic health than any monetary metric that we can easily compute.

 

[Mad Scientist]

I just shake my head at what a damning indictment this is of the utter failure of the economics profession. Monetary policy has become a complete joke.

Both the Fed and the ECB are engaged in QE, so the capital markets are experiencing a sugar high.

The questions is where does gold peak? $2000? $3000? $4000? I don't know, but I can't imagine that it has peaked, given how the monetary authorities are doing their best to wreck their currencies and punish savers at the expense of reckless debtors.

Wait a minute, hold yer horses there Toro!

Didn't you admonish me a while back when I said the economy is in the sh*tter, won't recover and that we should be buying gold and silver? Did you not say "Don't underestimate The US Economy"?

Is this a sign that you've thrown in the towel?

 

[Toro]

I just shake my head at what a damning indictment this is of the utter failure of the economics profession. Monetary policy has become a complete joke.

Both the Fed and the ECB are engaged in QE, so the capital markets are experiencing a sugar high.

The questions is where does gold peak? $2000? $3000? $4000? I don't know, but I can't imagine that it has peaked, given how the monetary authorities are doing their best to wreck their currencies and punish savers at the expense of reckless debtors.

Wait a minute, hold yer horses there Toro!

Didn't you admonish me a while back when I said the economy is in the sh*tter, won't recover and that we should be buying gold and silver? Did you not say "Don't underestimate The US Economy"?

Is this a sign that you've thrown in the towel?

I can't remember TBH but it has been a losing bet to underestimate the US economy over the long run. But our monetary authorities are doing their best to wreck fiat currencies.

 

[TakeAStepBack]

Rethinking the Gold Bubble
Not current, but an interesting read about Operation Twist, QE2 and gold stability if you're interested.

 

[Trajan]

Rethinking the Gold Bubble

Not current, but an interest read about Operation Twist, QE2 and gold stability if you're interested.

the link doesn't work.

 

[TakeAStepBack]

Sorry about that. It works now...

 

[TakeAStepBack]

Federal Reserve Ignites Gold Price Rally

01/26/12 - 03:13 PM EST

NEW YORK (TheStreet ) -- Gold prices climbed higher Thursday, still bathed in the afterglow of the Federal Reserve's commitment to cheap money through late 2014.
Gold for February delivery added $26.60 to close at $1,726.70 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,731.50 and as low as $1,703 an ounce while the spot price was adding $13, according to Kitco's gold index.

Gold's rally was three fold. The first leg of the move was rapid short covering. Many traders had been selling positions and/or shorting gold headed into today's options expiration, and the Fed's announcement forced them to quickly buy back positions. That move pulled gold prices to the $1,700 an ounce level, which then triggered buy orders, where traders previously committed to buying gold at that price. A close at $1,700 also then triggered buy orders internationally. The SPDR Gold Shares(GLD_) added 9 tons of gold yesterday. "We will move gently back to the $1,900 level over the next few months," says Norman, "but won't happen rapidly."
Norman thinks the Fed in essence squashed gold's recent period of price consolidation, but that a huge spike up isn't in the cards. One of the biggest drags on gold will be the situation in Europe and a better economy in the U.S. "I do think one of the big drags is that the U.S. is placed to make a recovery better than others," argues Norman, which might at some point help support the dollar and weigh on the euro especially if questions remain over the solvency of the southern Eurozone nations.
Gold should be seen as a safe haven asset, the worse off Europe gets the more investors should buy gold as protection, but that hasn't been happening as a stronger dollar has trumped as the safe haven of choice. Norman thinks there are four or five years left in this bull-run and that the gold price could double from current levels at its peak. GFMS, an independent research consultancy, on the other hand, thinks that the bull-run could end in 2013.
GFMS, in its 2011 Gold Survey report, forecasts a volatile year for gold prices with gold sinking as low as $1,600-$1,550 an ounce, averaging out at $1,760 and perhaps spiking to $2,000 an ounce. But then the party is over.
"We think the peak would be towards the end of this year or maybe in the first half of next year," says Neil Meader, research director at Thomson Reuters GFMS. The main end to gold's 10 year bull run would come with a renewed faith in currencies as the structural imbalances that have impeded paper money slowly start to fade. So far there have been no revisions made to this forecast since the Fed's announcement.

I'm betting against that prediction. The illusion of a strengthening dollar could have a short term effect, but in the long run the bull will rage on.

 

[KissMy]

when will it wear off? when the sugar runs out? or we crash?

I'm exaggerating somewhat. The economy appears to be getting better, so some of this rally is based on improving fundamentals.

This current fake Wallstreet rally was driven by FDIC Bank Reserve Releases. These FDIC bank reserve releases are driving bank profits, not revenue or earnings.

 

[Toro]

The rally is being driven by better economic data and the LTRO.

Hiring has been strong.

 

[KissMy]

Employment was down. That headline was only seasonally adjusted BS. Gold shot up $40 yesterday off the morning lows after Bernanke spoke.

Ben Bernanke says the job market isn't as strong as the steadily declining unemployment rate might suggest. He noted that the unemployment rate doesn't capture the plight of millions of people who have stopped looking for work or part-timers who can't find full-time jobs.

Bernanke agreed that an unemployment rate of 8.3 percent is understating the jobs problem. "It's very important to look not just at the unemployment rate, which reflects only people who are actively seeking work."..."There are also a lot of people who are either out of the labor force because they don't think they can find work."..."There are also a lot of people who are working part-time, and they'd like to be working full-time but they can't find full-time work."

Another Brokerage Bites the Dust: Is Wall Street In Trouble?

Over the past couple of weeks, quietly and with little fanfare, three separate small brokerages bit the dust. In January WJB Capital Group and Ticonderoga Securities both announced that lack of trading activity on the stock markets and a lack of capital in-house required them to close their doors and cease operations. Last week, we lost a third broker when Kaufman Bros., a highly regarded, minority-owned firm that played a key role in helping the U.S. government liquidate its stakes in the banks bailed out during Troubled Asset Relief Program, would also turn out the lights.

Previously, the failures of tiny brokers like Soleil Securities (absorbed by Ticonderoga last summer) and Gleacher & Co. might have been written off as aberrations. Now it looks like they were harbingers of doom -- and the failures of WJB, Ticonderoga, and Kaufman could be just the leading edge of "a wave of closures among brokers that rely on trading volume to generate revenue."

When the Journal first caught wind of this story, at the time of the Ticonderoga and WJB closures last month, the newspaper warned that "two other firms" -- unnamed at the time -- appeared to also be in peril. It would now appear that Kaufman was one of the imminent victims. The other may or may not be Susquehanna Financial Group, which last month laid off 15% of its stock traders, citing a lack of trading volume in the markets.

Even Larger Problems Loom: For the time being, it appears the tremors on Wall Street are taking down mainly the small fry. But bigger names in the industry, including Morgan Stanley (MS) and Goldman Sachs (GS), have also warned of weak revenues, and responded by laying off staff and cutting compensation for the brokers who remain.

It may not end even there. According to the Journal, a lot of these little firms, and Ticonderoga in particular, have historically specialized in placing trades for the hedge fund industry. If the brokers who handle their business are in trouble, therefore, it stands to reason that the customers who place the trades with these brokers may not be in the finest fiscal health, either.

Green is Good, Right? - Down here on Main Street, we're for the most part oblivious to the goings-on up in the rarefied air of Wall Street finance. We see the Dow Jones Industrial Average going up -- as it's done for most of this year so far -- and think everything must be going fine and dandy with the stock markets.

It's not. Indeed, according to Businessweek, "trading volumes on major U.S. exchanges fell 20 percent last year from 2009." That's bad news for brokerage firms like WJB, Ticonderoga, Kaufman, and all the rest, which depend on the commissions they collect from placing trades, to pay their workers and stay in business. But if trading volumes are down enough to put these firms out of business, what does this imply for the gains we're seeing on the Dow?

 

[Toro]

Companies are telling us the economy is getting better. Nonfarm payrolls have added 500k jobs over the past two months. ADP jobs are about the same. New unemployment and continuing claims are falling. The household survey is showing growing employment. And I can tell you anecdotally here in Florida, things are picking up.

Maybe this isn't sustainable, but I believe the bears who have been bearish for a long time will disbelieve data which contradicts their thesis, and that is happening now with all the perma-bears I follow.

 

[KissMy]

I would be cautious about believing those employment numbers.

Allen West: 'Is Someone Playing with Unemployment Numbers?' - New numbers on the economy came out today, revealing some seemingly positive trends, such as a drop in the unemployment rate. One of these numbers is a major drop in black unemployment, from 15.8% to 13.6%, a huge jump. On the surface, it's good news.

Allen West, however, isn't having it -- he thinks someone may have tampered with the figures.

"Can someone tell me how employment in the black community has improved at a rate three times the national average in just a few months?? With numbers like today, urban communities should be well on their way to economic recovery then! There is something suspicious about the job numbers released today and it has me very concerned," West wondered Friday. "Is this dramatic supposed decrease in black unemployment a result of job creation or is someone playing around with the census numbers??"

The numbers presented indicate a massive drop, one that we've never seen before -- and one that doesn't seem to reflect actual experience. Even economists are questioning the numbers:

Bill Clinton has done this trick to the BLS numbers before. He excluded the inner cities from the survey where high concentrations of unemployed & black people live. I guess Hillary has shared this secret with Barack.

Clintons Unemployment Numbers Trick - The Clinton administration also reduced monthly household sampling from 60,000 to about 50,000, eliminating significant surveying in the inner cities. Despite claims of corrective statistical adjustments, reported unemployment among people of color declined sharply, and the piggybacked poverty survey showed a remarkable reversal in decades of worsening poverty trends.

 

[Toro]

I would be cautious about believing those employment numbers.

Allen West: 'Is Someone Playing with Unemployment Numbers?' - New numbers on the economy came out today, revealing some seemingly positive trends, such as a drop in the unemployment rate. One of these numbers is a major drop in black unemployment, from 15.8% to 13.6%, a huge jump. On the surface, it's good news.

Allen West, however, isn't having it -- he thinks someone may have tampered with the figures.

"Can someone tell me how employment in the black community has improved at a rate three times the national average in just a few months?? With numbers like today, urban communities should be well on their way to economic recovery then! There is something suspicious about the job numbers released today and it has me very concerned," West wondered Friday. "Is this dramatic supposed decrease in black unemployment a result of job creation or is someone playing around with the census numbers??"

The numbers presented indicate a massive drop, one that we've never seen before -- and one that doesn't seem to reflect actual experience. Even economists are questioning the numbers:

Bill Clinton has done this trick to the BLS numbers before. He excluded the inner cities from the survey where high concentrations of unemployed & black people live. I guess Hillary has shared this secret with Barack.

Clintons Unemployment Numbers Trick - The Clinton administration also reduced monthly household sampling from 60,000 to about 50,000, eliminating significant surveying in the inner cities. Despite claims of corrective statistical adjustments, reported unemployment among people of color declined sharply, and the piggybacked poverty survey showed a remarkable reversal in decades of worsening poverty trends.

Triangulate the data and the info. These are the sources telling us employment is improving.

- the household survey
- the establishment survey
- weekly claims
- ADP
- ISM
- companies

Again, this might be a false dawn, I don't know, but also consider these truisms

- perma bulls and bears are always the last to identify turns
- at some point, this will end
- the trajectory of the recovery is remarkably following the typical roadmap of the aftermath of asset bubble collapses as detailed by Reinhardt and Rogoff, which means we are not far from the end

I think we have one more leg down at some point but intellectual flexibility and not being dogmatic has served me well for many years.

If the economy really is getting better, stocks have a long way to go on the upside and shorts are going to get their faces ripped off.

 

[KissMy]

Triangulate the data and the info. These are the sources telling us employment is improving.

- the household survey
- the establishment survey
- weekly claims
- ADP
- ISM
- companies

Again, this might be a false dawn, I don't know, but also consider these truisms

- perma bulls and bears are always the last to identify turns
- at some point, this will end
- the trajectory of the recovery is remarkably following the typical roadmap of the aftermath of asset bubble collapses as detailed by Reinhardt and Rogoff, which means we are not far from the end

I think we have one more leg down at some point but intellectual flexibility and not being dogmatic has served me well for many years.

If the economy really is getting better, stocks have a long way to go on the upside and shorts are going to get their faces ripped off.

If there is growth it certainly is not organic or sustainable given the rising national debt & unfunded liabilities. We are certainly in a Japanese style bear market. Just because it appears like people are just perma bears, they may just be practical. We have had a 20+ year bull market & only 10 year bear market. Japan is 21+ years now on a bear market.

 

[Toro]

Triangulate the data and the info. These are the sources telling us employment is improving.

- the household survey
- the establishment survey
- weekly claims
- ADP
- ISM
- companies

Again, this might be a false dawn, I don't know, but also consider these truisms

- perma bulls and bears are always the last to identify turns
- at some point, this will end
- the trajectory of the recovery is remarkably following the typical roadmap of the aftermath of asset bubble collapses as detailed by Reinhardt and Rogoff, which means we are not far from the end

I think we have one more leg down at some point but intellectual flexibility and not being dogmatic has served me well for many years.

If the economy really is getting better, stocks have a long way to go on the upside and shorts are going to get their faces ripped off.

If there is growth it certainly is not organic or sustainable given the rising national debt & unfunded liabilities. We are certainly in a Japanese style bear market. Just because it appears like people are just perma bears, they may just be practical. We have had a 20+ year bull market & only 10 year bear market. Japan is 21+ years now on a bear market.

We've had rising national debt and unfunded liabilities for the better part of the last 50 years and that hasn't stopped growth. Now I do think that if something isn't done about both, we will have real problems eventually. But we can have many years of organic fundamental growth before it becomes a problem. I remember all sorts of apocalyptic predictions about imminent collapse because of debt and deficits in the 80s and it's hard to argue that growth wasn't organic over the next generation. Now maybe we are nearing The Reckoning, I don't know. We will be one day if we don't get this under control. But the reason why we are growing now is because we have been wiping out the excesses in the housing and financial systems, and people are growing more confident. All economic growth is a function of productivity growth over the long-term. Productivity is the foundation for rising wealth. Asset bubbles and too much debt only matter in the short and intermediate term. They only matter if they affect productivity. Otherwise, they are sideshows in the grand scheme of things.

 

[Wiseacre]

" Asset bubbles and too much debt only matter in the short and intermediate term. They only matter if they affect productivity. "


Not understanding why debt in particular doesn't matter long term if it continues to grow. Right now interest rates are near zero and so the interest payment on the debt isn't that bad. But we're raising the debt principle by a trillion bucks or more a year, and eventually those rates have to start going up. On a macro level that has to negatively affect productivity and it'll get worse as time goes on.

 

[KissMy]

You have a better chance of being right being bullish now than bearish. According to the Dow vs Gold chart we are closer to the bottom than the top. But I think we still have more to go on the Dow PE/Ratio & Dow vs Gold Ratio. I think 2013 will be the year of the Bull. Elections will bring optimism, the health-care law will start paying out instead of just taxing & we will be past the mortgage resets, defaults & foreclosure hump.

 

[Toro]

" Asset bubbles and too much debt only matter in the short and intermediate term. They only matter if they affect productivity. "


Not understanding why debt in particular doesn't matter long term if it continues to grow. Right now interest rates are near zero and so the interest payment on the debt isn't that bad. But we're raising the debt principle by a trillion bucks or more a year, and eventually those rates have to start going up. On a macro level that has to negatively affect productivity and it'll get worse as time goes on.

Sure. Cash flows that get diverted from productive uses - i.e. investment - to unproductive uses - i.e. interest payments - will weigh on productivity over time. But if you take it to the logical end game, you will get a default and interest will no longer get paid and cash flows will no longer be diverted into interest. Of course, though, we don't want that, because in the intermediate term, that will be enormously disruptive and bad, and we should have a plan to slash spending so we can avoid it. But it doesn't change the structural foundation of this country's economy long-term.

I don't think KissMy is correct in saying that there is "artificial growth" right now because of the debt. The truth is that debt relative to GDP isn't particularly high. What matters is publicly traded debt, which is about 80%-85% of GDP at the moment. Canada was 100% in the 90s. Italy and Belgium are at 120%. And the US is a far more important, vibrant and deeper economy than any of them. Plus, it possesses the world's reserve currency, so it can print away the debt.

Don't get me wrong. We have to have a plan to start cutting spending, if not now, then within the next five years. The Obama administration has failed miserably in this regard. But as it pertains to the economy right now, the deficit and the debt are not creating artificial growth.