Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

[raja]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

I am curious, what does he have to say on gold? Does he see a return to some sort of gold-backed currency?

Yes.

Also, regarding the fear of gold confiscation, he says that the government need not confiscate gold . . . it can simply slap a 90% windfall profit tax on gold. If that occurs, those who bought gold early hoping to cash in will lose most of their profit.

He also says he owns gold . . . so I guess he figures he'll be able to know when to sell.

On the topic of gold, I never completely understood what Volker meant when he said, "Gold is the enemy."
I understand now . . . .

The government wants to control the economy, such as manipulating the currency to boost exports by devaluing the dollar. The politician's main motives are to stay in power and enrich their friends.

Gold competes with the government's currency -- fiat -- and thereby inhibits government control.
Gold can't be manipulated directly, since its price is determined by world markets. It can only affected through confiscation or onerous taxation.

Be careful with your gold. You may not have a financial counterparty, but you have a political one -- Uncle Sam.

[gwynedd1]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

So then there will be a foreign company that sells canned squid that happens to own gold.

[vt]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

"End Of The Bond Bull Market" Jeffrey Gundlach

http://www.advisorperspectives.com/n...ull_Market.php

Take a look at the 66 page slide presentation.

[radon]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

CI: You mean de-leveraging? Isn't that good?
EJ: Not the way our economy is structured it isn't. The portion of the increase in net worth is happening on the liabilities side of the balance sheet. It's not a huge number relative to $62 trillion in total net worth. It's only about $1 trillion but again it's all about the housing market. Most of the household liabilities number is home mortgages. We are seeing an historically anomalous decline in home mortgage liabilities as home owners continue to default and repay mortgages faster than they take out new ones. The chart below shows periods of de-leveraging of liabilities since the early 1950s. You can hardly make out any decrease at all. That all changed in 2007. We cannot call what is happening to the liabilities side of the household balance sheet "de-leveraging." It's collapsing. It's collapsing because the price of the collateral that backs the mortgages -- homes -- is collapsing.

CI: That looks ominous.
EJ: But it's inevitable; as home prices fall so will mortgage debt.

The frustrating thing about this situation is that by forcing interest rates down they have removed much of the incentive to invest. Who is going to buy a CD at <1% when you are paying 6% interest on your mortgage, or a money market, or any the other "safe" investment vehicles. After having been burned twice in the stock market and saddled with low bond yields the only real investment strategy many folks are left with is paying down debt.

Is the strategy of suppressing interest rates in order to make loans more attractive paradoxically hastening the decline?

[ProdigyofZen]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Yes.

Also, regarding the fear of gold confiscation, he says that the government need not confiscate gold . . . it can simply slap a 90% windfall profit tax on gold. If that occurs, those who bought gold early hoping to cash in will lose most of their profit.

He also says he owns gold . . . so I guess he figures he'll be able to know when to sell.

On the topic of gold, I never completely understood what Volker meant when he said, "Gold is the enemy."
I understand now . . . .

The government wants to control the economy, such as manipulating the currency to boost exports by devaluing the dollar. The politician's main motives are to stay in power and enrich their friends.

Gold competes with the government's currency -- fiat -- and thereby inhibits government control.
Gold can't be manipulated directly, since its price is determined by world markets. It can only affected through confiscation or onerous taxation.

Be careful with your gold. You may not have a financial counterparty, but you have a political one -- Uncle Sam.

The prudent thing to do is sell half your gold holdings in the manic up phase that will come in gold before the linking of gold to the dollar.

[Polish_Silver]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Yes.

Also, regarding the fear of gold confiscation, he says that the government need not confiscate gold . . . it can simply slap a 90% windfall profit tax on gold. If that occurs, those who bought gold early hoping to cash in will lose most of their profit.

He also says he owns gold . . . so I guess he figures he'll be able to know when to sell.

On the topic of gold, I never completely understood what Volker meant when he said, "Gold is the enemy."
I understand now . . . .

The government wants to control the economy, such as manipulating the currency to boost exports by devaluing the dollar. The politician's main motives are to stay in power and enrich their friends.

Gold competes with the government's currency -- fiat -- and thereby inhibits government control.
Gold can't be manipulated directly, since its price is determined by world markets. It can only affected through confiscation or onerous taxation.

Be careful with your gold. You may not have a financial counterparty, but you have a political one -- Uncle Sam.

Spoken like a true Bug! Should we try to organize a "bug group" on I-tulip? Bugs need to come out of the closet.

[jiimbergin]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

The prudent thing to do is sell half your gold holdings in the manic up phase that will come in gold before the linking of gold to the dollar.

I have always planned to sell a good part of it then, assuming I am astute enough to recognize that phase. Hopefully, if I don't many of the amazing ituilpers will and clue me in.

[Chris Coles]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

But surely any government can retrospectively tax any transaction it deems fit for purpose. Heads I win, Tails you lose applies....

[radon]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

But surely any government can retrospectively tax any transaction it deems fit for purpose. Heads I win, Tails you lose applies....

That may violate article I section 9 of the US constitution - ie "No Bill of Attainder or ex post facto Law shall be passed". I'm not sure how an action like that would be interpreted in the UK.

[shiny!]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

I have always planned to sell a good part of it then, assuming I am astute enough to recognize that phase. Hopefully, if I don't many of the amazing ituilpers will and clue me in.

EJ has said he'll let people know, and that when he gives his sell recommendation it will seem like a bad time to sell because gold will appear to be doing so well...

[Onlooker]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

That may violate article I section 9 of the US constitution - ie "No Bill of Attainder or ex post facto Law shall be passed". I'm not sure how an action like that would be interpreted in the UK.

I hate to say this, but being a violation of our constitution hasn't exactly been a stopper for our government, for, well, quite some time now. They could find a way, I'm afraid. They can be quite creative when it comes to picking our pockets, eh?

[raja]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

The prudent thing to do is sell half your gold holdings in the manic up phase that will come in gold before the linking of gold to the dollar.

On first take, I thought that was a good idea.
At least one would make some good profit on 1/2 of one's gold stash.

But there are two problems:

1) What if you sell your 1/2 gold, and later in the year the gov't passes the "windfall profits gold tax"? You would still have to pay it next April 15th.

2) How do you know when the manic phase is occurring? And, how do you know how far along it is?
Say that gold goes up to $5000, and you sell. But then gold contines up to $10,000. Your prior profits are cut in half by inflation.

Still, selling 1/2 halfway up the manic phase is better than losing 90% of profits to a windfall tax.

Any thoughts?

EJ thinks he will know when to sell.
Although I don't know what's in his mind, I imagine he'll be looking at Treasury rates. If Treasury yield get very high -- like in the Volker years -- Treasuries would become a more desireable investment, and gold would fall.

By the way, when you suggest selling 1/2 of gold in the manic phase, what would you do with the other 1/2?

[Slimprofits]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

All of the forecasts were for an open-ended commitment. Everyone expected that.

$230 billion is 62% less than $600 billion.

Chicago Fed President Charles Evans says it won't stop at $230 billion:

http://www.bloomberg.com/news/2012-0...resilient.html

“We’re going to look at the labor market and the way the economy is going and also inflation pressures, and if it seems like we need to continue to do this, we’ll continue to do this next year,” Evans said in response to audience questions.

“We’re looking for stronger employment growth, some beginning declines in the unemployment rate and stronger growth,” Evans said. “I’d be surprised if we would see enough evidence of that by the end of this year. So under that conditioning, I would expect that we would continue at something like an $85 billion pace of purchases post December.”

[ProdigyofZen]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Rajesh (sorry had to bring in the Big Bang Theory name ) The thing is when you buy physical you dont have to put your name etc. When I go to sell they wont take my name either. All I have is a receipt with the price paid for my gold coins. In other words I am anonymous, how would the government know I ever owned any gold?

The windfall profit tax wouldnt apply, I presume.

I am pretty confident I will know when the manic phase is occurring. One way is to observe the individuals going into the gold shops. If suddenly for a stretch of 3 to 6 months there are lines out the door at the gold shops to buy gold then you know it is in the manic phase (ala 1980-81).

Most of the other 1/2 is in gold ETFs like IAU, PHYS and GLD or Futures. Those products are super liquid and I could dispose of them closer to the top (if i called it right).


I plan on keeping a few gold coins for sentimental reasons

On a side note here is Guggenheim talking about the Fed and their Taylor Rule. If I remember correctly EJ's own chart on the Taylor Rule said they should have raised rates back in 2010.

Once upon a time, the Federal Reserve decided to adopt the Taylor rule, named
after Stanford economist John Taylor, as its key determinant in setting the Fed
Funds rate. Then, after it realized that the original formulation of the Taylor
rule was too constricting and not as permissive to pro-inflationary policy as
the Fed's financial sector superiors demanded, it decided to adjust the Taylor
rule formulation to its own parameters so that it was always in sync with
whatever policy, monetary or as of QEterenity, pseudo-fiscal, it decided to
pursue. In the meantime, John Taylor has become one of the more vocal critics of
Ben Bernanke's printing ways if for no other reason then because the original
Taylor rule says that instead of ZIRP at least until 2015, the Fed should be
tightening right now.

Guggneheim's Scott Minerd comments:

Following the latest FOMC meeting, the committee announced a new asset
purchase program and an extension of their low rate pledge through mid 2015 in
an effort to stimulate economic growth and improve the labor market. In
addition, the FOMC also released its latest outlook on inflation and
unemployment. Based on the new estimates for inflation and unemployment, the
optimal Federal Funds Target rate suggested by the Taylor rule would suggest the
Fed funds rate should rise to over 2% by mid-2015, in contrast to the Fed’s
pledge to keep rates near zero through that time. In light of this analysis, it
appears likely that the FOMC will fall behind the curve in raising rates,
especially given its new outlook on economic growth and its pledge to keep rates
on hold through mid 2015.

What this means is that by the time 2015 rolls by, all else equal, the Fed
will be far behind on the tightening curve and when it finally does admit
tightening is overdue, it will have to scramble to not only hike
short-term rates, but promptly proceed to commence offloading its balance sheet
which as we calculated will be $5 trillion by then, or nearly
100% higher than it is now, and with a DV01 of $4 billion. Oops.

What this will mean for risk, i.e., stock prices, is self-explanatory.
Luckily for Bernanke, by then the collapse in the stock market which will
finally shift to a phase of liquidity extraction, will be some other Fed
Chairman's problem.


http://www.zerohedge.com/news/taylor...tightening-now

[Chris Coles]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

That may violate article I section 9 of the US constitution - ie "No Bill of Attainder or ex post facto Law shall be passed". I'm not sure how an action like that would be interpreted in the UK.

My thinking here has nothing to do with the UK as I have no Gold and cannot access my (perceived), value in my IP, so this is entirely a thought exercise.

My view has been for a very long time now that the very best strategy is to hold onto your Gold until some time AFTER the entire economic system has re-stabilised. My thinking goes something like this. The one thing that stands out historically, is that in ALL circumstances, Gold will hold its value. What you are not looking at is what will that value be in future years. Instead, you all seem to be content to sell your holdings for what will, at that moment of sale, (assumed to be right at the top of the market value for this debate), the highest level of expansion of the fiat currency. That what you will have in your hand, at that moment of sale, will be a vast sum of rubbish value currency that will, INEVITABLY, immediately de-value back to base.

That what you will hold at that point of sale will be EXACTLY the same value as at the moment of purchase..... in GROSSLY inflated terms. That the one thing that will hold its value regardless of the circumstances AFTER top of market, will be the Gold that you just sold.......

That if the market price of Gold is say ten times your original purchase, then your holding physical Gold will be like the Million Pound Note in the movie, where you can better carry that "Value" forward from the top of the market without selling it.

That the very best strategy is not to sell, but to hold. That in ALL circumstances, you thus retain the value.

Another point to make is that at the time of the last confiscation, (which no doubt many of you are considering the sale to avoid), the one group of holders of Gold that were not deprived of their holdings were the charitable trust funds. I do not see anyone considering confiscating Gold from any form of charitable trust fund... a very difficult move for any government.

Food for thought?