New Asian Union Means The Fall Of The Dollar

[coolhand]

Re: New Asian Union Means The Fall Of The Dollar

The best way "preserve your purchasing power" is to have 82% more money in your bank account. I am sick of waiting for a Comex default or an "October Surprise" or what ever the latest scam out of the gold to infinity camp is promoting. I got caught up in "Gold Fever" and I got hurt by it. Some people are stupid and they don't learn from experience. If you are not going to follow the advice from The Man, why do you pay for the subscription?

-G

It's not that I don't follow the advice...I started buying gold in fall 08; i doubt very much Treasuries are up as much as gold measured from Nov-08 till now, given the 10-year was at 2% then. Furthermore, I'd rather borrow money (short treasuries) to buy farmland...seems like a much better long-term victory, given farmland rose 30% this year.

Finally - I pay for the subscription b/c I think EJ is one of the most brilliant thinkers I have read, & importantly, he is uncorrupted by either the MSM or corporate interests.

And I did follow his advice on silver - brilliant call!

[coolhand]

Re: New Asian Union Means The Fall Of The Dollar

I agree that a stronger currency is vital for an energy importer. But what happens when the strong currency creates such a deflationary environment that due to soaring unemployment, oil demand drops? It's a catch 22.

The strong currency is irrelevant anyway. I am of the opinion that you play the game that exists. Right now, we have electronic fiat, so you print. There is no first place award for destroying your economy before others destroy their currency.

And so, when (IMO) the global monetary system collapses and we revert to a gold system of sorts - the strong/weak currency issue becomes moot. You know what is important at that point?

Where's your gold?

If the bulk of it is in London or New York, and you're a European country. Guess what? You're SOL.

As for the US being in a stronger position - that's relative, IMO - but I do agree with most of what you say.

I live in Greece now - but I have lived in the US all my life (NJ). Guess what? The quality of life here, for me, is much higher. I'm not talking dollars and cents here. I'm talking about family values, a sense of community, small farms spread all over the place, a strong historical culture full of holidays that are not based around shopping - but sharing a meal with people - and real food at that, not frankenfood. Food here in Greece tastes spectacular. The crime rate is rising, but it is no where near as it is in the US - and I'm talking violent crime and suicides.

If the US were to go through what Greece is going through now - I just don't see US society (generally speaking) responding in the same way. I'm not saying Greece is some sort of nirvana - Athens is the exception, not the rule though. The rest of Greece is mostly small to medium size cities surrounded by villages. Everyone knows everyone. Whereas in the US, and I'm speaking generally here - if the US were to go through a Greek type economic meltdown - life for most would be miserable.

Just my opinion. I don't mean to offend anyone - and I'm sure there are others with different opinions - after all I'm speaking from anecdotal evidence - what I have seen firsthand. But if I have learned anything about this crisis it is what I value most in life. And what I found out was the things I value can not be charted in dollars or Euros. They are not components of GDP. It's people, music, food, local customs, etc... In that regard, Greece will be fine. I lowered my standard of living and increased my quality of life.

Greece may be going thru hell, but I remember how Greece was 30 years ago when there was barely a middle class. The people still lived well - and I'm not speaking from a consumption/consumer viewpoint. I'm talking about humanity, about life. (Sorry to get off topic)

I think this could be said for many European countries. I bring this up because EJ recently mentioned that the US will be better off than the EU and China. I agree to an extent, when you look at certain metrics. But who will be better off in the US? What of the US middle class? What will happen to American society in general? We can talk about innovation and gdp etc... But for many reasons, the quality of life in the US has suffered socially due to mass consumerism, suburban planning, and I'll even blame the "American Dream." The "American Dream" to me is that the next generation will live materialistically better than their parents did. But what happens to a society that bases their success on that when it no longer holds true?

What's left?

You don't see that in Europe as much. Don't get me wrong, people are materialistic here too - just not on the same scale, IMO. There are no $10K engagement rings here, McMansion suburban developments, etc... Unfortunately there are a lot of SUVs, though - but at least here in Greece, there is a large tax for larger engines. And that's a tax that cannot be avoided. (LOL)

Again, sorry for the rant. I think all too often we focus on this global economic meltdown in monetary/economic terms and neglect it's impact on society in general. That's where the real test lies, in my opinion - how will various societies react as the wealth evaporates?

This was a very thoughtful rant, no need to apologize! I think you make a very good point about possession 9/10 of the law re: where is your gold at? I agree also with your general impressions of what would occur in the US were it to have a Greece moment...particularly in the inner cities. I do think you underestimate the rural folks of America - both their knowledge base & their caring for one another.

My thought is that sometime before 2015, it is highly likely that the American populace will find out either slowly or all at once, exactly how far above their means we have all been living...that is really the only outcome to this all. Either the wheels come off the global ponzi scheme, or the they don't & the rising powers want something more closely approximating their fair share of the spoils, which by definition would have to come out of our hide.

[btattoo]

Re: New Asian Union Means The Fall Of The Dollar

People that put 70% of their money into treasuries as is recommended on this site, saw their investment go up 82% this year. If you went full retard and bought gold as I did you saw a 12% return.

Apologize for the basic question, but how is this return of 82% calculated?

[gnk]

Re: New Asian Union Means The Fall Of The Dollar

I agree, I probably have underestimated rural America - purely due to my lack of first-hand knowledge.

[globaleconomicollaps]

Re: New Asian Union Means The Fall Of The Dollar

Apologize for the basic question, but how is this return of 82% calculated?

http://ichart.finance.yahoo.com/tabl...=d&ignore=.csv

(3.42 - 1.9 )/ 1.9 = 0.821

clear?

[davidstvz]

Re: New Asian Union Means The Fall Of The Dollar

How do you prepare for and profit from the capsize of the boat you are riding in? I think we are all asking the wrong questions.

People that put 70% of their money into treasuries as is recommended on this site, saw their investment go up 82% this year. If you went full retard and bought gold as I did you saw a 12% return.

I'm only 31 and I've just started developing some savings this year after paying off my first car. I went ahead and put it all in gold because I hadn't discovered this site yet. Within 2 years I could easily have the 70/30 that EJ recommends and I am quite happy to follow his advice.

That said, I really don't know anything about treasuries. Can someone give me (or point me to) a brief primer on buying and selling treasuries (where/how should I do it)? Also, how does a treasury/bond work exactly. It's a an IOU from the government to the bond holder, but when does the government pay? What does it mean for it to be "expensive" as someone said above? I glanced at Wikipedia, and they listed 4 types of treasury that are legal to trade. Are any of those off-limits according to EJ, or would you have some of each? I am reading the Wikipedia page, but often there is too much information and the forest gets lost for the trees.

[jpatter666]

Re: New Asian Union Means The Fall Of The Dollar

I'm only 31 and I've just started developing some savings this year after paying off my first car. I went ahead and put it all in gold because I hadn't discovered this site yet. Within 2 years I could easily have the 70/30 that EJ recommends and I am quite happy to follow his advice.

That said, I really don't know anything about treasuries. Can someone give me (or point me to) a brief primer on buying and selling treasuries (where/how should I do it)? Also, how does a treasury/bond work exactly. It's a an IOU from the government to the bond holder, but when does the government pay? What does it mean for it to be "expensive" as someone said above? I glanced at Wikipedia, and they listed 4 types of treasury that are legal to trade. Are any of those off-limits according to EJ, or would you have some of each? I am reading the Wikipedia page, but often there is too much information and the forest gets lost for the trees.

Well, this isn't brief, but I'd recommend "The Ascent of Money" by Ferguson. Helps put it all in perspective.

[jiimbergin]

Re: New Asian Union Means The Fall Of The Dollar

http://ichart.finance.yahoo.com/tabl...=d&ignore=.csv

(3.42 - 1.9 )/ 1.9 = 0.821

clear?

no if those are interest rates, that does not seem to translate into an 82% return on Long term US Treasuries.

[jk]

Re: New Asian Union Means The Fall Of The Dollar

using tlt as a proxy for a portfolio of long dated treasuries, it returned 28.4% in appreciation + over 3% in yield.

[globaleconomicollaps]

Re: New Asian Union Means The Fall Of The Dollar

using tlt as a proxy for a portfolio of long dated treasuries, it returned 28.4% in appreciation + over 3% in yield.

Never having bought a bond in my life, I am probably grossly misunderstanding the whole thing, but as I understand it yields move inversely to price.

At any rate this is TMF executing a clean double with a perfect landing:

http://www.google.com/finance?chdnp=...RCA:TMF&ntsp=0

[jk]

Re: New Asian Union Means The Fall Of The Dollar

Never having bought a bond in my life, I am probably grossly misunderstanding the whole thing, but as I understand it yields move inversely to price.

At any rate this is TMF executing a clean double with a perfect landing:

http://www.google.com/finance?chdnp=...RCA:TMF&ntsp=0

that's a 3x levered trading-vehicle etf. not a good way to hold bonds imho, unless you own a functioning crystal ball. but a homerun, indeed, albeit in retrospect. tlt is a non-levered portfolio of long-dated treasury bonds. surely that's approximately what we mean when we talk of owning bonds, non? otherwise, why not skip the tmf and just talk about what you could have made by owning tbond futures with minimal margin? [a lot more than 100%]

it would be helpful for you to know what you're talking about before you make statements like: "People that put 70% of their money into treasuries as is recommended on this site, saw their investment go up 82% this year." bringing up tmf just compounds the confusion. if you don't understand bond pricing, no harm. but then don't post statements as if you do, as it will just further confuse people who also don't understand.

[globaleconomicollaps]

Re: New Asian Union Means The Fall Of The Dollar

it would be helpful for you to know what you're talking about before you make statements like: "People that put 70% of their money into treasuries as is recommended on this site, saw their investment go up 82% this year." bringing up tmf just compounds the confusion. if you don't understand bond pricing, no harm. but then don't post statements as if you do, as it will just further confuse people who also don't understand.

Sorry. I thought I understood something about the bond market, but I evidently do not. I will keep my mouth shut from here on in.

-G

[davidstvz]

Re: New Asian Union Means The Fall Of The Dollar

Well, this isn't brief, but I'd recommend "The Ascent of Money" by Ferguson. Helps put it all in perspective.

Well... so much for the easy way out

On a good note, I won't have any money to invest in treasuries (whatever they are) until another solid year passes anyway, so I have plenty of time to figure it out.

[jiimbergin]

Re: New Asian Union Means The Fall Of The Dollar

Never having bought a bond in my life, I am probably grossly misunderstanding the whole thing, but as I understand it yields move inversely to price.

At any rate this is TMF executing a clean double with a perfect landing:

http://www.google.com/finance?chdnp=...RCA:TMF&ntsp=0

You are right about value moving inversely to the interest rate, but it is far from a direct relationship. For a simple example, suppose you have a bond that will pay you 5% of its face value at the end of each year for the next n years. If the current market rate for a "n" year investment is 5% then the value of your bond is 100. However, if the current market rate for an "n" year investment is only 3% then since your bond will pay anyone who buys the bond from you $5 each year, then they will be happy to pay you more than $100. So the value of your bond has increased as the going interest rate has decreased, but it is based on the future cash flow discounted by the going interest rate. I hope I have not caused you more confusion.

[cobben]

Re: New Asian Union Means The Fall Of The Dollar

Sorry. I thought I understood something about the bond market, but I evidently do not. I will keep my mouth shut from here on in.

-G

Here is a effective "bond nerd" looking at gold through his "bond spectacles".
Working through his reasoning will give you not only a decent understanding of the imho really weird bond world, but also an outsider's informed view of the relic.

What's the Duration of Gold?

You might think I would learn my lesson about writing columns concerning the barbarous relic[1] after my experience last month. But today I wanted to consider briefly not the level of gold nor the value of gold, but rather a secondary investment characteristic of the metal: its duration.

An aside is warranted for those readers who are not familiar with the concept of duration. There are two types of duration we who focus on fixed-income markets are typically concerned with. One, called Macaulay Duration, is a measure of the average time to cash flows. Specifically, it is a weighted average time to receipt of the cash flows, where the weight is given by the present value of the cash flow in question.[2] Gold obviously has no cash flows, and an effectively unlimited life, so it makes no sense to talk about its Macaulay Duration.

The other sort of duration is called “modified” duration. The formula happens to look very similar to the one for Macaulay Duration, which is comforting, but the significance of the calculation is that it gives the percentage change in the bond’s price for a percentage change in yield (and as traders, we multiply by the full price and divide by 100 to get the dollar value of an .01). In other words, it is the answer to the question “if this bond’s yield declines by 1%, by about how much should the price of the security rise?” It is a measure of the sensitivity of the bond’s price to changes in yield, which is useful for calculating the portfolio’s sensitivity and for matching the sensitivity of the portfolio to the sensitivity of the liability mix (or the risk tolerance of the entity).

Of course, the sensitivity of the price of the bond to its yield-to-maturity turns out to be importantly related to the structure and timing of the cash flows, so it isn’t surprising that the two formulas look similar. But when we look at the second concept, we can see other ways to achieve a reasonably-close answer. We can perturb the bond’s yield slightly, recalculate the price, and observe the difference in price. Or, if we didn’t have a bond calculator, in theory we could look at a series of observations of price and yield and run a regression to find out how price responds to a change in yield.

We could take this latter approach to evaluate gold’s “duration” with respect to interest rates or inflation. Why might we want to do this? . . .