Is GOLD still a good choice?

[touchring]

Re: Is GOLD still a good choice?

Interesting point because of what I have learned from iTulip and Michael Hudson's commentary. I have learned that even if someone (a SWF say) makes money through the miracle of interest compounding, then someone else (producers and consumers) must earn enough surplus to pay that interest and also to make a profit. A real 10% profit per year is pretty tough today, impossible, when you consider that a profit must be made above and beyond.

What is the rate of return of Warren Buffet's fund over the last 20 years?

[GRG55]

Re: Is GOLD still a good choice?

What is the rate of return of Warren Buffet's fund over the last 20 years?

Buffett runs a US publicly listed company, not a fund. It's called Berkshire Hathaway and you can download his latest letter to shareholders here.

http://www.berkshirehathaway.com/letters/2006.html

Page 1 shows the annual returns for each year from 1965 to 2006.

[Mega]

Re: Is GOLD still a good choice?

Hey, 21 %....were do i sign on!
Mega

[Guest]

Re: Is GOLD still a good choice?

Thanks all , for your various clarifications. However, I respectfully submit for your further consideration, that your currency anchored conceptions of petroleum's pricing power are too narrow, insofar as chronic energy shortage in an industrial society really does lead, directly or indirectly, to inflation.

Yes, technically there is possibly no such thing as inflation anywhere without enlargement of the money supply - although we might note every industrial economy on earth in the past 30+ years exists in a condition where all factors of the economy arguably affect the (very fluid) monetary aggregates anyway. It would be simplistic to suggest all economic factors are inert properties which do not influence the issuance of fresh money.

Also we might note iTulip is full of references to inflation expanding via expansion of credit, (credit as money, or debt as money) which is not technically money anyway. Therefore to insist on a rigid Misesian definition of inflation as being merely a narrowly defined currency attribute for the sake of this one argument ignores "monetary aggregates" are being routinely defined as something a good deal wider and more complex in other posts on these pages.

Here is what I understand I am being reminded of here: Given a fixed pool of money, the scarcity of any essential material will cause more money to flow to it but that money must necessarily flow away from other goods? This is what iTulipers here are pointing out invalidates the "notion" of cost-push inflation deriving from petroleum scarcity?

Yes, of course, if increasingly "expensive" petroleum is sucking up ever larger amounts of available liquidity in a fiat currency world, this requires the banking system to replace that liquidity within the system to keep various other components of global economies sufficiently "oiled".

This is what I referred to above as "currency acting like a shock absorber" for increasing tightness in energy markets. Available money gets soaked up by the petroleum producers, and translated into rising prices for 70% of global commercial activity via those distributed energy inputs, therefore to prevent a shock to other sectors of the economy, this pressures central banks to keep the global economy sufficiently liquid via an expanding money supply. Remove the petroleum tightness, and you remove a significant pressure to increase monetary aggregates!

Incidentally, weren't these sources of global moneatary liquidity already manifestly responding to myriad other economic stimuli the same way, long before tight oil markets even appeared? In other words, everything exerts varying pressures upon monetary aggregates, not just petroleum. It is quite manifestly a "two way street", no?

Monetary inflation is not a one way street - it can be interpreted not only as central banks fiendishly inflating money just for the hell of it, but rather, as "responses" and "coercions" upon the issuance of fresh currency money in response to myriad economic events of varying urgency.

The fact that central banks are goosing the monetary aggregates the world over does not in the slightest subtract from the significant insight, that increasingly large rivers of money are accruing to petroleum producers.

Anyone here suggesting that petroleum producers are gaining the lion's share of global liquidity because the mere issuance of currency is "creating their own market for consumption of petroleum" is indulging an academic solipsism. Mere global liquidity does not create the kind of competitive consumption dynamics around petroleum which exist today - not by a mile.

This "novel perspective" regarding petroleum's rising pricing power, resolves the conundrum of why UAE, a desert confederation of kingdoms with no exports worth the mention other than petroleum, disposes of the largest SWF in the world at present. Anyone suggesting the UAE's present cash horde, very modest a mere ten - fifteen years ago, suddenly compounded to become the largest in the world by a massive factor is being perhaps either ingenuous, or disingenuous?

You skeptics about petroleum's potential to cause inflation need to regard the inflationary interaction of petroleum with monetary aggregates in a slightly less dry and academic fashion. Petroleum has quite obviously "redirected" a vast pool of wealth to a select small group of producer economies in an astonishingly short space of time.

Parallel to the above simple factual observation, petroleum is manifestly entering a "period of scarcity", and how anyone here could conclude that this is "just a phase", while all the global super major fields are tipping into decline, escapes me. That this "period of scarcity" is open ended on a forward basis is writ upon a barn door in dayglo paint, in letters five yards high.

This would appear to clearly suggest, that the "flow of limited global funds" being redirected to the producers of that petroleum, to "induce them to part with the stuff at any price" is creating a "currency dearth" in other areas, and forcing the emitters of currencies to emit the equivalent (or more) currency as these oil producers are soaking up, to keep global liquidity well "oiled".

We could shed a good deal of quite pragmatic light on this issue, by taking careful note that the growing urgency to "buy oil at any price" to maintain economic growth is a powerful contributing factor which is causing an additional emission of money. And that dynamic would not accrue to petroleum, were that petroleum not going into scarcity. This is the difference between a fundamental and a technical read on the interaction between currencies and petroleum, but it's an interpretation curiously missing from these pages.

Petroleum is probably the single most thoroughly distributed commodity servicing global GDP. If it's market gets tight, this creates a "feedback loop" between issuance of fresh liquidity, and petroleum's scarcity factor soaking much of that fresh liquidity all over again. We read of the "giant tax" which soaring petroleum prices impose upon the global economy - yet no-one here regards the dynamic response this imposes upon currencies to carry it's own an inflationary implication?

According to you, if the extra liquidity were not there from central banks we'd simply have "demand destruction" in energy consumption, and the world would carry on pretty much with business as usual? I have a different take on this than apparently several of you, who I would note, also seem inordinately well schooled in economics. My sense here is that your "read" on the interaction between genuine scarcity in petroleum and global liquidity is technical to the exclusion of a broader understanding of the mechanims.

If that "demand destruction" in petroleum consumption, which is so casually referred to here as the "market adjustment mechanism" were permitted, you'd see negative 1% or negative 2% global GDP! Who could "afford" to let that happen?? Central banks faced with growing energy tightness will have no choice but to respond with ever loosening monetary aggregates.

Bottom line: Petroleum is going into scarcity, and this will act powerfully to further distort monetary aggregates, and the routing of further large amounts of those monetary aggregates to the already cash engorged producer nations, who will take those gobs of further cash and go on hugely inflationary spending sprees buying hard assets worldwide. I'll say it again. The arguments here that the issuance of cash is "the root cause of it all" seem to me to verge upon solipsism.

Realworld petroleum shortage, if it emerges and deepens, and persist over extended time frames, can manifestly cause immense pressures upon all energy inputs, putting immense pressure upon industrial societies to contain it's adverse effects. Please note, my entire thesis in the above posts was expressly to point out that "oil shocks" cause governments to use currencies as "shock absorbers".

If one gets stuck in the rigid concept that issuance of fiat money can expand or choke off growing pricing power of petroleum, one overlooks that petroleum is like oxygen to industrial economies in the process of globalizing, and WE HAVE NO ALTERNATIVES. In this context, oil rules the monetary aggregates, not the other way around as many of you surmise.

This simple fact, oil shortages uultimately ruling monetary aggregates, has massive inflationary implications directly correlated to the price of gold - which is what I was trying to illustrate in the first place. Seems that conveying this more "interactive" idea of the relationship between petroleum and currency money is somewhat of a slog uphill on iTulip.

[c1ue]

Re: Is GOLD still a good choice?

Lukester,

Large numbers themselves don't necessarily convey meaning.

You'll note that Singapore has $430B scattered in a couple of funds, plus at least another $150B in direct investments made by the government.

Singapore is not an oil producer, they simply have chosen the SWF as their primary mode of government fund storage/growth.

Certainly the GCCs and OOPs are making money as an economy, but an SWF is a choice - not a requirement.

Nor am I particularly sanguine about SWFs making money more than 'expert' investors; the SWFs have the twin handicaps of being beholden to a government (with all of its political and social baggage) and the lack of vigor in not having to compete for funds.

There will be better SWFs, but in general I'd expect less from them than a top 10 US fund manager.

The key is that these funds are intended to carry out their sovereign governments policies - the policies could be for investment growth or could be any number of other geo-political purpose.

[touchring]

Re: Is GOLD still a good choice?

One more plus idea for gold. If litigation for subprime/mbs proceeds ahead and it can be proven that there is misrep or fraud, subprime bankers will be dumping their properties and converting to gold! Gold can be hidden in the garden or underneath the bed. That's billions of money for gold. :eek:

[Andreuccio]

Re: Is GOLD still a good choice?

Hey, 21 %....were do i sign on!
Mega

Talk to your broker. Berkshire trades under the symbol BRK. There are two classes of shares: BRK-A and BRK-B. BRK-B is trading now at a little over $5,000, and the A shares are a shade over $150,000. There are a few differences in rights between the two share classes, but basically the B shares are for those of us that can't afford the A shares.

[Tulpen]

Re: Is GOLD still a good choice?

After the confetti party from Ben's helicopter is over I will make a heavy short bet on gold (miners) and oil.

[Guest]

Re: Is GOLD still a good choice?

Tulpen -

That's fine. All your observation is noting is that you are a trader. I'm more on the investor side. I long ago concluded I was not smart enough to trade positions for consistent profits (or to consistently avoid losses).

I'll take the low "gear" on my metaphorical "investment bicycle" and ease on up the hill at a slower pace than you, but with less timing risk. My expectation of a simple double, by holding an oversize position in precious metal bullion (no shares or equities of any kind at this time) is a very cautious bet, which I have a reasonable expectation to see realised, if I give it a little time.

I sleep really well at night.

[Andreuccio]

Re: Is GOLD still a good choice?

After the confetti party from Ben's helicopter is over I will make a heavy short bet on gold (miners) and oil.

How soon after the meeting do you see the party ending? Today? Tomorrow?

[Finster]

Re: Is GOLD still a good choice?

Is Gold still THE choice for beating inflation or is it now past its best?
Mega

In general, stocks are the best choice out there for beating inflation. But gold responds to inflation at a different point in the cycle than stocks do. Stocks rise most early in the inflation cycle, especially before inflation has started to become obvious in consumer prices. But as time goes on, stock prices become too rich to be sustained, and at that point further inflation shows up most clearly in the prices of gold and other commodities.

What about now? Clear as could be. We are in that latter phase of the inflationary cycle.

[touchring]

Re: Is GOLD still a good choice?

In other words, gold shall now suffer from inflation?

We are in that latter phase of the inflationary cycle.

[Tulpen]

Re: Is GOLD still a good choice?

How soon after the meeting do you see the party ending? Today? Tomorrow?

Looks like there was no party at all today. It means that Ben needs more confetti.

Regardless, even if Ben makes rates negative the US will go into a deep recession.
Interest rates can solve liquidity not solvency problems.

[Andreuccio]

Re: Is GOLD still a good choice?

Looks like there was no party at all today. It means that Ben needs more confetti.

Or more helicopters. I was hoping the festivities would last until at least the end of the day. I was going to trim my sails in the mining stocks. I still will, but for a bit less, it looks like.

[Finster]

Re: Is GOLD still a good choice?

In other words, gold shall now suffer from inflation?

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