The Gold Bubble Is Leaking: First Quarter Supply And Demand Update [View article]
If I may comment on the options: 1) This is likely to play out over time. Nobody knows exactly how that will be but one thing is for sure - this will decimate the middle classes. 2) This is unlikely in my view. CB cannot refuse to print money because the politicians finally control them. Check out what is going on in Japan where the politicians are forcing the BOJ to print money and monetize debt. The US did the same when Truman forced the FED to print money. Desperate times require desperate measures. Eventually we are likely to see both inflation and some sort of defaults as you can't print it all and sometimes it is better to just default. But I don't think that is going to be deflationary. 3) No chance. Take Japan for example. How could they possibly get out of the hole that they've dug for themselves? There is just no way. I think that the so called deflationists are just on drugs.
Nobody can beat America if America gets its act together ... that much is clear. The question is if it will get its act together. Nobody really knows the answer at this point.
Japan reports holding a net $3.19T in foreign assets at the end of 2011, hanging on to its position as the world's top creditor nation. The position marks a rise from 2010, which may also dampen expectations on China overtaking the Japanese as the number one creditor anytime soon. [View news story]
But ask Krugman & co and they will tell you that THIS TIME IT IS DIFFERENT. Wow, when Japan blows up, it will blow up like there is no tomorrow. Timing is uncertain and maybe it will be gradual and not a dramatic blow up but nobody knows.
Not so much a Grexit as a Geuro, Deutsche Bank head of research Thomas Mayer says Greece's best chance of survival may be to stay in the eurozone but opt for its own parallel currency. The Geuro would help Greece balance its budget without Troika help, which means Greece could jettison the strict austerity conditions attached to the aid money. [View news story]
I've had the same idea for some time. They should allow Greece to ''temporarily'' have a local currency as well and they should use that money to pay salaries and pensions. This is really the only way.
Oil is not a good store of value because oil goes bad. You need to use it pretty quickly. Of course, you can use it while replenishing your reserves (governments do that) but you can't do that at the level of an individual, unless you pull a FB first.
I think this is the only reason to be negative on gold. Still, these countries are actually growing. Most importantly salaries in China have gone up a lot, like 10%-15% per year in local currency and the local currency has actually strengthened substantially vs. the dollar. This is why the population can afford to buy things they like, one of which is gold. They don't buy $ or EUR's as these currencies have underperformed their own CNY. CNY is still not a great store of value for them as inflation is high. Where do they put their money? The stock market in China is crazy and has done badly, housing is mega volatile and still a bubble. In fact, for the Chinese it is only precious metals that makes sense as long as financial assets are concerned. This is why the Chinese demand is so high and has probably propelled China to become the biggest gold buyer, even surpassing India. The case in India is more tricky as their currency has done badly. It has done badly because the printing presses at the Bank of India run 24/7. India is a mega big money printer and they have a huge inflation problem as a result. Given their history, I think they will still buy gold even if they have to smuggle it in the country (like they used to) in order to avoid taxes. Like in the case of China, the rich and the middle classes in India have more money than before and the capacity to buy gold has not diminished for these classes. The poor ones are screwed but I don't believe they were ever able to buy much anyway. My thinking is that even if their economies slow down, the governments will just print money and consumers will still have the paper ''firepower'' to buy gold but that remains to be seen.
There is no worship or mysticism. Compare gold to meat in the following way: you offer meat to a vegetarian and he/she is not willing to buy it at any price. The same goes for gold as some people are just not interested in it, while others like it. Asians love it. They have the money and buy. The supply of gold is limited while the supply of $, EUR's and other currencies has gone through the roof. The US has an annual current account deficit of ~600 billion and ~$1.3 trillion of budget deficit and gold's annual mining output is worth ~$140 billion at current prices. The price of gold is a simple demand/supply situation like described in ECO 101 but for some reason in this case supply/demand are rejected as irrelevant. This is why gold has gone up in price. It doesn't matter what you, I or any relatively small group of people think about gold as long as Asia has all the money and the Developed World has all the debts.
The comment on inflation is correct to some extent. If you think in a simplistic way that there are two types of assets and goods: leveraged and not leveraged, you get something like this: - Leveraged assets and businesses like housing, new construction, banks are likely to shrink both in value and size. This has been observed and is still going on. - The large amount of money printed around the world (and China and India have printed more than all other big countries) creates inflation in food, energy, medical help, farmland, etc. This line of thinking implies that one should be more negative on base metals like financial derivatives, iron and cement and related businesses that are used to produce ''leveraged'' assets but bullish on prices of meat, rice, oil and actually gold. The reason why meat, rice and gold are likely to go up is that Asians have a lot more money than before, including dollars (there are ~ $8 trillion in foreign hands) and they buy more food, energy and gold. The other positive for gold is EM Central Banks that buy to diversify their vast FX reserves and gold is a part of their FX reserves. Gold is not an emotional or fear asset at all. Of course, it trades on opinions and views, just like everything else. Gold's only financial quality is its ability to preserve value over very long periods of time. Of course, short term it is very volatile, partly due to Western Central Bank's interventions meant to make it volatile. The talk of a bubble is incorrect as hardly anybody invests in gold or pays any attention to it. For a bubble, like housing or tech stocks, you need the average person to have invested quite a bit which is not the case here.
i think maybe only china although they don't admit it as the usa is likely to have a lot less. officially the us reserves are more than 8000 tons but that was audited in the 50's for the last time.
"Spain is the battleground," says Michael Platt, pretty much writing off Greece. "A euro in a Spanish bank is not worth as much as a euro in a German bank," he points out, explaining why the slow-motion bank run will continue. The range of outcomes - from utter disaster to the EU printing it all away - is so wide, he suggests owning still-cheap volatility, whether it be in rates, currencies, or stocks. (complete video a must watch) [View news story]
Well, the $ is not a pretty picture either. The US has a bigger budget deficit than the Eurozone and a large current account deficit. The Eurozone's CA is balanced, more or less. Both look ugly.
Trying to keep its biggest client happy, Treasury has allowed the PBOC a direct link to the U.S. bond auction system, reports Reuters, making the Chinese central bank the only one on the planet that can bypass primary dealers and buy U.S. paper directly. The move should allow China to keep its bidding habits quite a bit more secretive. [View news story]
I wonder what is the average maturity of the bonds that the Chinese hold. Have they moved into shorter dated bonds? I don't know but would be useful to know that.
France and Germany fail to move the ball forward on the prospect of eurobond issuance at a meeting of their respective finmins today ahead of a EU leader summit on Wednesday. The Germans remain adamant against such a move, and it remains to be seen if Hollande, along with Monti and Rajoy, can shift the center of EU power out of Berlin. [View news story]
I don't see the Germans losing that one but who knows. Basically all these bankrupt nations go to the Germans and ask for subsidies. The Germans already pay subsidies but it is never enough.They have limits as well after all.
It is short given that gold has ~ 6000 years of history as a store of value and ~ 2600 years of history as money. The first coins were minted in Asia by King Croesus before the time of the Persian Empire. Before the FED got involved, 1 ounce of gold was $20.67. The point is really not what is going to happen to gold as nothing happens to gold - this is its strength. The point is that there is great uncertainty about the future of all currencies: JPY, USD, EUR and more.
The Gold Bubble Is Leaking: First Quarter Supply And Demand Update [View article]
There are a couple of things: - In addition to ''We'll see'' we can also check what has happened so far. 10 years ago oil prices were in the mid $20's. Essentials like food, energy and medical costs have skyrocketed. Prices have been volatile but all these things have gone up a lot. - The fancy economic theories about inflation and deflation are just talk. The way to understand what is likely to happen is to look at history and I mean history from the time of the Roman Empire (or even before) to today. In every single case, without an exception, large debts, money printing and large current account deficits resulted in financial crises and very high inflation. There is absolutely no exception. Not sure why people think that it would be different this time. Some people think that because our modern financial system is so complicated we can avoid the above problems. Actually, the sophistication of the financial system is a weakness and not strength in my mind as sophisticated systems are more vulnerable to shocks. The world is not in a liquidity trap. The problem is that there is too much debt, the developed countries have lost their competitive edge and governments have become much bigger part of the economy by successfully copying the Soviet model down to the war in Afghanistan.
The Gold Bubble Is Leaking: First Quarter Supply And Demand Update [View article]
1) This is likely to play out over time. Nobody knows exactly how that will be but one thing is for sure - this will decimate the middle classes.
2) This is unlikely in my view. CB cannot refuse to print money because the politicians finally control them. Check out what is going on in Japan where the politicians are forcing the BOJ to print money and monetize debt. The US did the same when Truman forced the FED to print money. Desperate times require desperate measures. Eventually we are likely to see both inflation and some sort of defaults as you can't print it all and sometimes it is better to just default. But I don't think that is going to be deflationary.
3) No chance. Take Japan for example. How could they possibly get out of the hole that they've dug for themselves? There is just no way.
I think that the so called deflationists are just on drugs.
Why I Am Short Gold: 5 Reasons [View article]
Japan reports holding a net $3.19T in foreign assets at the end of 2011, hanging on to its position as the world's top creditor nation. The position marks a rise from 2010, which may also dampen expectations on China overtaking the Japanese as the number one creditor anytime soon. [View news story]
Not so much a Grexit as a Geuro, Deutsche Bank head of research Thomas Mayer says Greece's best chance of survival may be to stay in the eurozone but opt for its own parallel currency. The Geuro would help Greece balance its budget without Troika help, which means Greece could jettison the strict austerity conditions attached to the aid money. [View news story]
Why I Am Short Gold: 5 Reasons [View article]
Why I Am Short Gold: 5 Reasons [View article]
The case in India is more tricky as their currency has done badly. It has done badly because the printing presses at the Bank of India run 24/7. India is a mega big money printer and they have a huge inflation problem as a result. Given their history, I think they will still buy gold even if they have to smuggle it in the country (like they used to) in order to avoid taxes. Like in the case of China, the rich and the middle classes in India have more money than before and the capacity to buy gold has not diminished for these classes. The poor ones are screwed but I don't believe they were ever able to buy much anyway.
My thinking is that even if their economies slow down, the governments will just print money and consumers will still have the paper ''firepower'' to buy gold but that remains to be seen.
Why I Am Short Gold: 5 Reasons [View article]
Why I Am Short Gold: 5 Reasons [View article]
Why I Am Short Gold: 5 Reasons [View article]
- Leveraged assets and businesses like housing, new construction, banks are likely to shrink both in value and size. This has been observed and is still going on.
- The large amount of money printed around the world (and China and India have printed more than all other big countries) creates inflation in food, energy, medical help, farmland, etc.
This line of thinking implies that one should be more negative on base metals like financial derivatives, iron and cement and related businesses that are used to produce ''leveraged'' assets but bullish on prices of meat, rice, oil and actually gold.
The reason why meat, rice and gold are likely to go up is that Asians have a lot more money than before, including dollars (there are ~ $8 trillion in foreign hands) and they buy more food, energy and gold. The other positive for gold is EM Central Banks that buy to diversify their vast FX reserves and gold is a part of their FX reserves.
Gold is not an emotional or fear asset at all. Of course, it trades on opinions and views, just like everything else. Gold's only financial quality is its ability to preserve value over very long periods of time. Of course, short term it is very volatile, partly due to Western Central Bank's interventions meant to make it volatile. The talk of a bubble is incorrect as hardly anybody invests in gold or pays any attention to it. For a bubble, like housing or tech stocks, you need the average person to have invested quite a bit which is not the case here.
Why I Am Short Gold: 5 Reasons [View article]
"Spain is the battleground," says Michael Platt, pretty much writing off Greece. "A euro in a Spanish bank is not worth as much as a euro in a German bank," he points out, explaining why the slow-motion bank run will continue. The range of outcomes - from utter disaster to the EU printing it all away - is so wide, he suggests owning still-cheap volatility, whether it be in rates, currencies, or stocks. (complete video a must watch) [View news story]
Trying to keep its biggest client happy, Treasury has allowed the PBOC a direct link to the U.S. bond auction system, reports Reuters, making the Chinese central bank the only one on the planet that can bypass primary dealers and buy U.S. paper directly. The move should allow China to keep its bidding habits quite a bit more secretive. [View news story]
France and Germany fail to move the ball forward on the prospect of eurobond issuance at a meeting of their respective finmins today ahead of a EU leader summit on Wednesday. The Germans remain adamant against such a move, and it remains to be seen if Hollande, along with Monti and Rajoy, can shift the center of EU power out of Berlin. [View news story]
Why I Am Short Gold: 5 Reasons [View article]
Before the FED got involved, 1 ounce of gold was $20.67.
The point is really not what is going to happen to gold as nothing happens to gold - this is its strength. The point is that there is great uncertainty about the future of all currencies: JPY, USD, EUR and more.
The Gold Bubble Is Leaking: First Quarter Supply And Demand Update [View article]
- In addition to ''We'll see'' we can also check what has happened so far. 10 years ago oil prices were in the mid $20's. Essentials like food, energy and medical costs have skyrocketed. Prices have been volatile but all these things have gone up a lot.
- The fancy economic theories about inflation and deflation are just talk. The way to understand what is likely to happen is to look at history and I mean history from the time of the Roman Empire (or even before) to today. In every single case, without an exception, large debts, money printing and large current account deficits resulted in financial crises and very high inflation. There is absolutely no exception. Not sure why people think that it would be different this time. Some people think that because our modern financial system is so complicated we can avoid the above problems. Actually, the sophistication of the financial system is a weakness and not strength in my mind as sophisticated systems are more vulnerable to shocks.
The world is not in a liquidity trap. The problem is that there is too much debt, the developed countries have lost their competitive edge and governments have become much bigger part of the economy by successfully copying the Soviet model down to the war in Afghanistan.