Thesis change time? Gold approaching $760

[phirang]

Re: Thesis change time? Gold approaching $760

gold's flat yoy, basically.

it also paid 0 interest.

crap trade imho.

[WDCRob]

Re: Thesis change time? Gold approaching $760

crap trade imho.

Unless you're looking at it as an insurance policy.

[phirang]

Re: Thesis change time? Gold approaching $760

Unless you're looking at it as an insurance policy.

If you understood the implications of this crisis, you'd have purchased 1mth t-bills and made bank when yield went -ive.

[serge_oc]

Re: Thesis change time? Gold approaching $760

I guess there is some confusion as to the difference between investing and day trading.

Right now, huge deleveraging is taking place, where good investments are eaten to pay for bad bets. If you follow the herd, everything looks bad: bad investments (such as overvalued stocks and houses) - because they are bad, and good investments (such as gold, commodities) - because they are eaten to cover the bad.

If you understand that, you don't follow the herd, but the shepherd.

Only a few months ago nobody (as in general population nobody) would have dreamed of Dow 9000, yet here it is.

Gold may fall even further, but it's nothing other than good buying opportunity. After that paper covering will recede and gold will rise above all time highs.

I think it's best to think of dollar, euro, yen, loaf of bread, your rent etc in terms of how much it costs in gold - not the other way around. That's the real economic process and a measure of value. Again, it's not if you sit all day and watch the charts zigzag.

I think that valuing everything in gold will get more prevalent in the coming years, even if gold doesn't become official tender for debts.

[due_indigence]

Re: Thesis change time? Gold approaching $760

LIBOR is thawing. Good news of a sort? Now maybe all that new money can get to work creating inflation.

"Short-Term Libors Collapse as Money Markets Thaw" CNBC

http://www.cnbc.com/id/27236827

[grapejelly]

Re: Thesis change time? Gold approaching $760

I guess there is some confusion as to the difference between investing and day trading.

Right now, huge deleveraging is taking place, where good investments are eaten to pay for bad bets. If you follow the herd, everything looks bad: bad investments (such as overvalued stocks and houses) - because they are bad, and good investments (such as gold, commodities) - because they are eaten to cover the bad.

If you understand that, you don't follow the herd, but the shepherd.

Only a few months ago nobody (as in general population nobody) would have dreamed of Dow 9000, yet here it is.

Gold may fall even further, but it's nothing other than good buying opportunity. After that paper covering will recede and gold will rise above all time highs.

I think it's best to think of dollar, euro, yen, loaf of bread, your rent etc in terms of how much it costs in gold - not the other way around. That's the real economic process and a measure of value. Again, it's not if you sit all day and watch the charts zigzag.

I think that valuing everything in gold will get more prevalent in the coming years, even if gold doesn't become official tender for debts.

I believe the miners are going to have an historic rally at some point also...not too distant future. I have never seen any investment do more horribly and relentlessly fall than my miners...and not just gold and silver, everything, the good and the really good...uranium, oil, natgas...

If I had cash I would be buying right and left. Even so, I don't think I bought at a horrible time. So I think it will come back. I suppose that is stupid thinking but there it is...I am heavily invested but don't think it's thesis change time.

[Starving Steve]

Re: Thesis change time? Gold approaching $760

I have no problem with losing money on investments and losing money on everything provided that prices for most everything FALL. However, it is when the Fed takes it upon itself to prop-up prices and re-inflate markets that I have an issue.

And this problem of the Fed mickey-mousing markets is even worse: The Bush cronies on Wall Street are given information in secret from the Fed before that information is made public. For example, if the Fed is going to lower interest rates or bail-out a company, the action is already priced into the markets before the Fed announces the news....... If I were to run a business this way, I would end-up in jail.

[EJ]

Re: Thesis change time? Gold approaching $760

I will take this moment to remind readers about iTulip's philosophy on gold because it is not like other sites' and readers may have forgotten it.

1. Going back to 2001, you will never see the phrase "gold investment" used on iTulip. That's because we view gold as insurance not as an investment. Like insurance you do not want the loss producing event to occur against which your insurance has been taken out. You do not buy fire insurance on your house then hope your house burns down so you can collect, unless the policy exceeds the value of the property, in which case a fire is fortuitous. That's why arson laws exist.

In this case my "house" is the money that I have worked all my life to save and the "fire" is the inflation that my government has set our nation up for by increments of error and folly over decades.

If my gold falls in price that may mean that I am wrong to buy this insurance, that my government is doing a fine job allowing the economy to operate without interference that produces inflation. But that is too much to ask for. That is not why the gold price is falling now. Instead gold is falling in price because the latest government manufactured bubble economy–based on inflated real estate, said asset price inflation financed by goofy credit inventions–is collapsing. During this phase holding short term treasuries is a good idea, and we have directed readers to Treasury Direct out of the stock market in Dec. 2007 for this reason. No fees, except for the taxes you have already paid to employ the good people who work there.

During the next phase, when your Wile E Coyote government bails itself out with the now very, very limited set of tools left at its disposal, inflation will inevitably follow. This recession has barely started, interest rates are already at 1.5%, the dollar was depreciated to historical lows in the previous reflation, our federal budget is already in deficit–an incredible feat given that in 2001 it started off with the first annual surplus since 1980–and both domestic and foreign investors are fleeing the US markets like rats off a sinking ship. What levers does our government have left to pull? Only two: print and depreciate. Charts showing the details here for subscribers.

2. My views on gold are based on my personal experience. I tell readers that I bought gold in 2001 and none since. "Should" I have sold at $1040 and bought back in at whatever price this disinflationary period takes it?

I'm not that smart. If I don't I know if my house will burn down, I certainly have no idea when, either. Sadly, my belief that my government will burn it down is growing.

For example, as the economy goes into recession, shouldn't mortgage rates be falling? We're in a deflation, right?

Mortgage rates exploded this week in their biggest weekly rise in the Bankrate.com index in more than 21 years

The average 30-year fixed-rate jumped 54 basis points, to 6.74 percent. A basis point is one-hundredth of a percentage point.

The average 15-year fixed -- a popular option for refinancing -- soared 45 basis points, to 6.4 percent. The average jumbo 30-year fixed jumped 26 basis points, to 7.87 percent.

The one-year adjustable-rate mortgage increased by 43 basis points, to 6.32 percent. The popular 5/1 ARM moved up 40 basis points, to 6.61 percent.

If we are in a deflation spiral then why on earth are mortgage rates rising never mind "explodiing"? The reason mortgage rates are rising instead of falling is, as we warned in Ka-Poom Theory so many years ago–eight to be precise–that a reversal in capital flows–from outside the US in and inside the US out–is inevitable when a bubble economy collapses. It looks like this.

Short term the rush to liquidity will produce disintlfationary and dollar positive surge. Again, I'm not smart enough to know when it ends. I have guessed two to six months.

3. There are many excellent sites that discuss gold investing and trading. This is not one of them. We are a macro-economics site. We study the political economy. Our idea of a trade is out of stocks and into gold in 1971, out of gold and into stocks in 1980, out of stocks and into cash in 2000, and take out some gold insurance against dollar depreciation in 2001.

If you are uncomfortable with the inevitable declines in the gold price that occurs during the disinflationary part of the cycle, you may want to consider hedging your holdings by shorting gold ETFs. I have no ideas on that. I'm sure there are very capable traders here who know how one can trade in and out of a gold insurance policy and make money net of transaction costs.

4. I get several calls a day from hedge funds looking for advice on how to structure trades around the rise in long term treasury bond yields and mortgage rates and commodities and so on. Forget it. From now on, until some semblance of a "market" in anything–stocks, bonds, commodities–is restored, it's all politics. I'm no Kremlinologist. I don't know what the government is going to do next. Nothing good, I'd guess. But the Boyz are out of the game.

Ka-Poom Theory told you to expect a period of disinflation. But on the other side of this disinflation is the great unknown, and the timing a political not a market event. I offer no guarantees that it will produce a mere 20% or 30% inflation as Ka-Poom Theory, probably optimistically, projects. But the idea that the US can experience a deflation spiral ala 1930s, when the dollar strengthened against gold because the US stuck to the gold standard while other nations abandoned it to inflate, testifies to the low state of financial and monetary education in this country.

The US government will fight deflation with the limited tools left at its disposal.

Watch capital flows. Watch long bond rates. Watch mortgage rates.

I leave you with one final note. Remember our dark forecast years ago that the solution to the mortgage crisis was going to degenerate into Japan style offerings of 50 year mortgage loans as the "cure" for the mortgage crisis?

Should you consider a 50-year-mortgage?

You can reduce your monthly payment with a 50-year-mortgage but it's important to weigh the pros and cons.

One of the latest mortgage products to come out is a 50-year-mortgage. That’s a home loan that stretches the payments out over fifty years -- twenty years more than the typical 30-year-mortgage. The advantage is that this enables your monthly payments to be reduced. The disadvantage is that it adds on an extra two decades of interest payments.

As I said, Japan but without the deflation.

[Supercilious]

Re: Thesis change time? Gold approaching $760

For example, as the economy goes into recession, shouldn't mortgage rates be falling? We're in a deflation, right?

Mortgage rates exploded this week in their biggest weekly rise in the Bankrate.com index in more than 21 years

The average 30-year fixed-rate jumped 54 basis points, to 6.74 percent. A basis point is one-hundredth of a percentage point.

The average 15-year fixed -- a popular option for refinancing -- soared 45 basis points, to 6.4 percent. The average jumbo 30-year fixed jumped 26 basis points, to 7.87 percent.

The one-year adjustable-rate mortgage increased by 43 basis points, to 6.32 percent. The popular 5/1 ARM moved up 40 basis points, to 6.61 percent.

If we are in a deflation spiral then why on earth are mortgage rates rising never mind "explodiing"? The reason mortgage rates are rising instead of falling is, as we warned in Ka-Poom Theory so many years ago–eight to be precise–that a reversal in capital flows–from outside the US in and inside the US out–is inevitable when a bubble economy collapses. It looks like this.

I'm not sure the explanation you provided is correct. Here is an alternate view:

http://www.nakedcapitalism.com/2008/...age-rates.html

Is there any data available to substantiate the claim that there is a reversal of capital flow (capital flight from US)?

[Chris]

Re: Thesis change time? Gold approaching $760

EJ, what is the likelihood that they will just take your house away from you like they did in the 1930s?

[Chris]

Re: Thesis change time? Gold approaching $760

I'm not sure the explanation you provided is correct. Here is an alternate view:

http://www.nakedcapitalism.com/2008/...age-rates.html

Is there any data available to substantiate the claim that there is a reversal of capital flow (capital flight from US)?

$#, it's in the chart EJ just provided in his post.

[Supercilious]

Re: Thesis change time? Gold approaching $760

$#, it's in the chart EJ just provided in his post.

Is it ? I didn't realize that.

[Chris]

Re: Thesis change time? Gold approaching $760

Look at the blue line BOPI. Capital inflows are negative.

[Supercilious]

Re: Thesis change time? Gold approaching $760

Look at the blue line BOPI. Capital inflows are negative.

Hmmm... Then I guess these guys are wrong:

http://www.marketwatch.com/news/story/us-net-capital-outflows-slowed/story.aspx?guid={FB720AC3-1253-4BE5-A8B9-30CF0832B194}&dist=msr_1

WASHINGTON (MarketWatch) - Net overall capital outflows from the United States slowed to $400 million in August, the Treasury Department said Thursday. Outflows in July were $74.8 billion. The data showed net long-term capital inflows totaled $14.0 billion in August, compared with $6.1 billion in July. Net private inflows totaled $3.5 billion, compared with an outflow of $92.9 billion in July.

(Please remember we were discussing the mortgage rate raise after the bailout.)

[Guest]

Re: Thesis change time? Gold approaching $760

And what do these currencies actions relative to gold spell meanwhile for a "global deflation" thesis? Somehow "increasing purchasing power for the US dollar rings a little tinny here relative to what is occurring at a global level. This action relative to gold in all currencies ex-USD would suggest the bid underlying the USD is indeed synthetic, no?

GOLD IN EX-USD CURRENCIES - MID OCTOBER 2008 - IMG 01.jpg

GOLD IN EX-USD CURRENCIES - MID OCTOBER 2008 - IMG 02.jpg