Gold update: Gold over $1000 and still no gold bubble - Eric Janszen

[Verdred]

Last hurrah?

Thanks to the itulip team (and expert participants),

Its always hard in the trenches.

Question:

It seems to me, based of the Goldman Sachs report and your own analysis that QE will have the highest impact in Q3.

Goldman Sachs just revised their estimate from 3% to 2.7%. I've also been seeing "analysts predicting 2.5%" flying around.

It seems like you've been looking at these impacts pretty closely, and I wondered if you had an opinion:

1) Can they reasonably make this estimate?

2) In your long experience, will they "manipulate" the "first read" due tomorrow in order to get a one-time pop, last hurrah, in equities?

I'm mainly asking because I think it will directly effect the "greatest impact in Q3" call (if I can call it as such).

potential examples of the effect: if the Q3 growth is on target and/or greater, can we feel more certain that the QE impact was the last gasp. Or, perhaps, ironically, if Q3 is less than expected, can we start leaning more towards a "Grantham slow dribble" theory.

I know this seems very short term, but I was wondering if anyone is banal enough here to estimate Q3 GDP. This is an open-ended question to any and all.

Disclaimer: I become more convinced by the day that eerie things are in the air. The last week has only confirmed this. The "credit runs out before self-sustaining takes hold" is gaining in probability, and as soon as the little money-spirits, computer programs, or who/whatever is running this thing realizes this, I think EJ's prescience will become more apparent.

Thanks.

[halcyon]

Re: Gold update: Gold over $1000 and still no gold bubble - Eric Janszen

halcyon, I remember FRED saying that shorting UST Bonds is a very risky endeavour since the Gosvernment can always take your money and them some.

Not an expert on this. Julian Robertson (Tiger Managament) explains it like this (using his technique).

FACTS:
1) US public debt and fiscal gap is unsustainable at current levels for very long
2) Real economy is recovering very slowly, it is still in dire straits, in some areas worsening (employment)

REASONING:
1) Treasury has to sell more debt to finance fiscal gap, resulting in higher rates on the long end (remember, markets dictate this in the end)

2) Chinese *may* be force under specific circumstance to reduce UST bond buying or even stopping buying completely

3) If economic depression risks continue, additional stimulus is required, thus more bond sales

4) Markets are getting jittery about USD valuation and inflation, hence they will ask for higher rates on the BONDS

=> IF much more bond sales, bond rates will go up. If credibility collapse, bond rates will go up even more. If Chinese reduce buying considerably, well... a lottery win

TECHNIQUE
- Curve cap : basically a put on long term bonds 5 years from now
- risk is limited in this bet (doesn't explain how)
- leverage is very high (5x or more)

How can tight monetary policy be reinstated with that much debt still in the system both private and public?

You're right, they may not want to do it. However, they have to fund the stimulus. This means bond sales. Even if Fed buys them, the rates will rise, because buyers will want higher yields due to the stimulus raising inflation concerns.

And FED can't and won't monetize government money endlessly. Remember, they are private bank, they won't give money free to a dead-beat forever, if they think it'll kill them. And even if they did, they'd be killed by the rest of the world's bond market vigilantes, who outnumber the total combined ammo of UST+FED by a couple of orders of magnitude.

Also, my point was that at the very time when markets dictate how much you can stimulate/monetize is the moment of truth.

At the moment you either reinstate sound monetary/fiscal policy and start regaining the trust of the markets.

OR you go on foolishly and destroy the country, resulting in a collapse, currency replacement, writing down debt, maybe even war.

After that, the new government has to start from a clean slate - with sound fiscal and monetary policy.

So one way or the other, in the end - sound policy always wins. It just might takes us through a few rough spots

I believe the name of the game is real negative rates for a long long time all over the world, which is bullish for precious metals.

This is in fact, what FED is saying (although starting to get divided) and what Julian Robertson expects to happen for his bet to work on the bond shorting.

However, they are NOT buying gold, but gold miners - and they are not stupid men w/ 40+ years of experience in the market. They were making millions when most of us were still playing with stick figures on the playground. They've seen the previous gold bubble also and learned a lesson.

This is *not* to say gold can't go up, considerably. Some use it as an inflation hedge. Some as a deflationary collapse hedge. Some as a fiat currency credibility collapse hedge. Some combination of these. We've yet to see the mania phase for gold, imho.

However, I'm not sure myself that:

1) It is guaranteed to go up with 100% certainty
2) It will be a better bet than other inflation/bond-rate bets, like the curve cap Robertson is employing
3) it has the best risk adjusted return.

That's my 2cents, for free and I'm not a gold analyst, nor an expert, so I recommend everybody take it with a hefty dosage of salt.

And this doesn't mean I'm against gold myself. I've held gold, but as I operate from a non-USD currency and gold hasn't risen against it in the last 7 months, I'm not now holding gold. I'll buy it again, if it gets to what I consider oversold levels or my currency of choice starts to crumble. And it likely will, it's just a matter of time

Just playing the conter contra here. ;)

That's always a very wise thing to do. Think for yourself.

[FRED]

Re: Last hurrah?

Thanks to the itulip team (and expert participants),

Its always hard in the trenches.

Question:

It seems to me, based of the Goldman Sachs report and your own analysis that QE will have the highest impact in Q3.

Goldman Sachs just revised their estimate from 3% to 2.7%. I've also been seeing "analysts predicting 2.5%" flying around.

It seems like you've been looking at these impacts pretty closely, and I wondered if you had an opinion:

1) Can they reasonably make this estimate?

2) In your long experience, will they "manipulate" the "first read" due tomorrow in order to get a one-time pop, last hurrah, in equities?

I'm mainly asking because I think it will directly effect the "greatest impact in Q3" call (if I can call it as such).

potential examples of the effect: if the Q3 growth is on target and/or greater, can we feel more certain that the QE impact was the last gasp. Or, perhaps, ironically, if Q3 is less than expected, can we start leaning more towards a "Grantham slow dribble" theory.

I know this seems very short term, but I was wondering if anyone is banal enough here to estimate Q3 GDP. This is an open-ended question to any and all.

Disclaimer: I become more convinced by the day that eerie things are in the air. The last week has only confirmed this. The "credit runs out before self-sustaining takes hold" is gaining in probability, and as soon as the little money-spirits, computer programs, or who/whatever is running this thing realizes this, I think EJ's prescience will become more apparent.

Thanks.

Goldman's economic forecasts are remarkably good, vampire squid issues aside.

The economic analysis that you are referring to came out in April 2009. We agreed with the forecast that the economic contraction phase of the FIRE Economy Depression was to end in Q3 2009 with the peak impact of monetary and fiscal policy.

Note that Goldman forecasts that the stimulus will begin to exert a negative impact in Q3 2010.

We presume that the 2% projected Q3 2010 growth includes the 0.4% drag caused by the side-effects of fiscal stimulus.

The jury will be in by Q2 2010 on whether growth is self-sustaining of not.

We made up our minds long ago: we think not. But we are in a minority.

Here's a chart that Richard Koo published in 2003. It shows the money supply supported entirely by government spending; private credit shrinks while the money supply grows and hot money grows rapidly. We warned our deflationist friends at the time: this is our future.

Here's a chart we call "Richard Koo was Right."

How fiscal stimulus combats a balance sheet recession:

Every time they tried to take away the stimulus, the economy and money supply shrank.

Can we do this for 20 years the way Japan did, while maintaining a large net capital inflow? We think not.

[dummass]

Re: Last hurrah?

Gold Forecast -- Fibonacci Chart Video

http://broadcast.ino.com/education/gold1027

[Verdred]

Re: Last hurrah?

Great response thanks.

Observation/question on the charts. Given, "1. US Real GDP growth forecasts" f/ GS says 1.0% for Q3 2009 and assuming this includes the 3.4% "2. Expected Contribution from Fiscal Stimulus" from Q3 2009.

THEN:

Isn't the 2.5 - 3% expected GDP number tomorrow even better than GS was expecting back in April?

Cash for clunkers? Housing credit (even my sister bought a house)? Either way, that is interesting news if I'm reading that correctly. Possibilities 1) The stimulus is having a QUICKER impact than prevoiusly imagined, 2) businesses are putting capital investments thinking this will be a quick turnaround (for instance there a couple of huge players in the valley of california building new houses again. Its all vertical: owners, contractors all in the same building with the financers down the block.) Maybe some businesses are banking on a recovery.), 3) stimulus is having a decent impact.

I think all three might be involved. The market is "getting more perfect" every day. It does assimilate data very quickly even if its psychological.

In conclusion: it seems that we are expecting them to be able to hit those estimates.

Which I'm assuming even with high jobless claims data ("lagging indicator" don'tchyaknow) will be seen as a definitive turn-around. The kool-aid tends to settle there at the bottom so it can pack an extra punch! Puns I guess intended.

[Down Under]

Re: Gold update: Gold over $1000 and still no gold bubble - Eric Janszen

Not an expert on this. Julian Robertson (Tiger Managament) explains it like this (using his technique).

TECHNIQUE
- Curve cap : basically a put on long term bonds 5 years from now
- risk is limited in this bet (doesn't explain how)
- leverage is very high (5x or more)

Whenever one buys an option, put or call, the risk is always limited to the premium paid. So, the big plus is you precisely know the premium paid & hence, can decide how much you're prepared to risk.

Downside, of course, is that the option may well expire worthless.

I also listened to Julian Robertson and I didn't pick up that he was buying puts 5 years out. Did he explicitly state that? I thought he just said long dated puts.

And this doesn't mean I'm against gold myself. I've held gold, but as I operate from a non-USD currency and gold hasn't risen against it in the last 7 months, I'm not now holding gold. I'll buy it again, if it gets to what I consider oversold levels or my currency of choice starts to crumble. And it likely will, it's just a matter of time

That wouldn't happen to be AUD, by any chance?

[goadam1]

Re: Last hurrah?

Looks like GS should have stuck with their original position instead of the revised one they put out. Hey, did they try to suck in some shorts?

Now you are putting out this forecast and it seems like a good one. But today you call the 6 month fire depression as spot on to your own work. When I came here a year ago you were talking about fire depression going into 2011 and 2012. I took it to heart. Seems like it was a chance blown at picking up some value. Plus, you guys seem to be betting the farm on a government credit collapse. Seems probable in some form. But even I can come up with several scenarios of how that plays out, along with some surprises. Betting that the powers that be let the US collapse is pretty extreme. I think all of us should be thinking of a spectrum of probabilities.

Goldman's economic forecasts are remarkably good, vampire squid issues aside.

The economic analysis that you are referring to came out in April 2009. We agreed with the forecast that the economic contraction phase of the FIRE Economy Depression was to end in Q3 2009 with the peak impact of monetary and fiscal policy.

Note that Goldman forecasts that the stimulus will begin to exert a negative impact in Q3 2010.

We presume that the 2% projected Q3 2010 growth includes the 0.4% drag caused by the side-effects of fiscal stimulus.

The jury will be in by Q2 2010 on whether growth is self-sustaining of not.

We made up our minds long ago: we think not. But we are in a minority.

Here's a chart that Richard Koo published in 2003. It shows the money supply supported entirely by government spending; private credit shrinks while the money supply grows and hot money grows rapidly. We warned our deflationist friends at the time: this is our future.

Here's a chart we call "Richard Koo was Right."

How fiscal stimulus combats a balance sheet recession:

Every time they tried to take away the stimulus, the economy and money supply shrank.

Can we do this for 20 years the way Japan did, while maintaining a large net capital inflow? We think not.

[FRED]

Re: Last hurrah?

A "recession" means a negative reading of a made-up government number called GDP.

We agreed with Goldman in April that the government was able to pump enough "G" to get a positive Q3 reading. We also agree with Goldman that the very Q4 2008 to Q1 2009 "G" pump will be negative by Q3 2010, which means we'll get more "G" in 2010, probably in Q2.

See FIRE Economy Fallout -- Part I: Recession ends, depression begins - Eric Janszen

[goadam1]

Re: Last hurrah?

A "recession" means a negative reading of a made-up government number called GDP.

We agreed with Goldman in April that the government was able to pump enough "G" to get a positive Q3 reading. We also agree with Goldman that the very Q4 2008 to Q1 2009 "G" pump will be negative by Q3 2010, which means we'll get more "G" in 2010, probably in Q2.

See FIRE Economy Fallout -- Part I: Recession ends, depression begins - Eric Janszen

Here we are back arguing terms. I have little doubt that the "G" is like G in Government. But the "fire depression" sure felt like a depression for those 6 months or so. So whatever the case, this part sure feels better. Plus, the perma-bears around here seem to get confused by your use of the term depression. It's a neither/nor situation. It's a bubble!

A government bubble is sure hard to short or invest in.

[bill]

Re: Last hurrah?

, which means we'll get more "G" in 2010, probably in Q2.

Approval to extend credit should be in place and ready to go.

http://www.house.gov/apps/list/press...raft_final.pdf

15

SEC. 1109. EMERGENCY FINANCIAL STABILIZATION

16 (a) I

N GENERAL.— Upon the written approval of the Board of Governors of the Federal
17 Reserve System (which approval shall be made upon a vote of not less than two-thirds of the
18 members of such Board then serving) and the Board of Directors of the Corporation (which
19 approval shall be made upon a vote of not less than two-thirds of the members of such Board
20 then serving), and with the written consent of the Secretary of the Treasury (after consulting with
21 the President), the Corporation may extend credit to or guarantee obligations of solvent insured
22 depository institutions or other solvent companies that are predominantly engaged in activities
23 that are financial in nature, if necessary to prevent financial instability during times of severe

DISCUSSION DRAFT – 10/27/2009

page 44
1 economic distress, provided that a credit extension or guarantee of obligations under this section
2 shall not include provision of equity in any form.
3 (b) P

OLICIES AND PROCEDURES.—Prior to exercising any authority under this section, the
4 Corporation shall establish policies and procedures governing the extension of credit and the
5 issuance of guarantees. The terms and conditions of any extensions of credit or guarantees
6 issued shall be established by the Corporation with the approval of the Secretary of the Treasury

7 and the Board of Governors of the Federal Reserve System.

[halcyon]

Re: Last hurrah?

But even I can come up with several scenarios of how that plays out, along with some surprises. Betting that the powers that be let the US collapse is pretty extreme. I think all of us should be thinking of a spectrum of probabilities.

A beacon of light in the midst of dark chaos.

Yes - any sane investment (excluding gambling) is about multiple scenarios, varying degrees of probability and robustness of decisions made.

With that said, and with no intention to hanging people up to dry for their "false forecasts" what are your scenarios and probabilities?

Sharing these can sharpen the mind and broaden the horizon.

And talking about horizon, I think one should include time horizons. I claim that much of the disagreement stems from people misunderstanding each others horizons.

To me 1-6 mo is trade-worthy stuff, 3-5+ years is investing worthy. The stuff in between is the hard part.

[tallone]

Re: Gold update: Gold over $1000 and still no gold bubble - Eric Janszen

Thanks for removing the comma for me. I get it, now. EJ was, in fact, saying what the graph was showing.

[Slimprofits]

Re: Last hurrah?

We agreed with Goldman in April that the government was able to pump enough "G" to get a positive Q3 reading. We also agree with Goldman that the very Q4 2008 to Q1 2009 "G" pump will be negative by Q3 2010, which means we'll get more "G" in 2010, probably in Q2.

See FIRE Economy Fallout -- Part I: Recession ends, depression begins - Eric Janszen

Christina Romer - Witness Statement - Joint Economic Committee Hearing - October 22, 2009:

Table 2 reports our estimates of the impact of the ARRA on real GDP growth in the second and third quarters of 2009, along with estimates from a number of government and private forecasters.



These estimates suggest that the ARRA added two to three percentage points to real GDP growth in the second quarter and three to four percentage points to growth in the third quarter. This implies that much of the moderation of the decline in GDP growth in the second quarter and the anticipated rise in the third quarter is directly attributable to the ARRA.

[..]

First, there are reasons to think that GDP growth could be either weaker or stronger than the consensus forecast. On the weaker side, one concern is the leveling out of fiscal stimulus. Fiscal stimulus has its greatest impact on growth around the quarters when it is increasing most strongly. When spending and tax cuts reach their maximum and level off, the contribution to growth returns to roughly zero. This does not mean that stimulus is no longer having an effect. Rather, it means that the effect is to keep GDP above the level it would be at in the absence of stimulus, not to raise growth further. Most analysts predict that the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009.8 By mid-2010, fiscal stimulus will likely be contributing little to growth.

cont.

[goadam1]

Re: Last hurrah?

A beacon of light in the midst of dark chaos.

Yes - any sane investment (excluding gambling) is about multiple scenarios, varying degrees of probability and robustness of decisions made.

With that said, and with no intention to hanging people up to dry for their "false forecasts" what are your scenarios and probabilities?

Sharing these can sharpen the mind and broaden the horizon.

And talking about horizon, I think one should include time horizons. I claim that much of the disagreement stems from people misunderstanding each others horizons.

To me 1-6 mo is trade-worthy stuff, 3-5+ years is investing worthy. The stuff in between is the hard part.

I don't want to make predictions. I think stimulus will wear off and a whole other round will begin. Just look at extending housing credits since this posting.

Sure you can bet on cycles. Or buy at low points of cycles. But two things have become clear. One is that the strong get stronger. Number two is there is a put under assets.

[LargoWinch]

Re: Last hurrah?

Gartman: Don't Be Naive, Gold Is A Bubble

Mr. Gartman: you are wrong and as I said it many times; the $CAD is not a safe-haven against USD-based inflation.

Also, any supporter of bank bailouts such as yourself is naive at best.