Can gold survive a Chinese bust? Strong dollar for 2011?

[Down Under]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

Does the substitution of $$/gold in place of ARS/US$ have something to do with your theory that the dollar is de facto backed by 10% gold reserves?

My take is that as the USD was/is the reserve currency for the Argentine peso, so, gold is the corresponding reserve currency for the USD. Hence why ARS/US$ is replaced by US$/gold.

[WDCRob]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

My take is that as the USD was/is the reserve currency for the Argentine peso, so, gold is the corresponding reserve currency for the USD. Hence why ARS/US$ is replaced by US$/gold.

Thanks DU... that's exactly what I was suggesting/asking.

[nero3]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

I'm pretty sure demand for credit is infinite especially if you have no intention of paying it back. How long you can borrow on those terms is what is being tested presently. Everything is as cheap as it can get already and yet the general public is still debt-ridden.

Lack of debt is what will stimulate demand not negative interest rates. "Negative" interest rates is what exists now for most people. I don't see demand, unless you count demand for gold which does well in a negative interest environment of course.

I don't know. I think Laszlo Birinyi who is comparing the market to 1982 have a valid point. The negative argument is always more compelling because it's based on concrete down to earth things visible in the here and now. I think it's in the nature of the market to make it so that it will be impossible for people to see much positive things, and still have a cheap market. I know the DOW as by CPI looks as if it's in the stratosphere, but once you look at individual blue-chip, stocks it becomes visible that they are roughly at the same level as in 1982 when looking at the standard valuation measures.

Look at the bubbles. Farmland, real estate in China and commodity producing countries, gold, silver, commodities. I'd say it's starting to become a question of relative value. In that sense it seems blue-chips are looking well.

Think of the bubble in the end of the 1960-s when Warren Buffet closed his partnership. Think about the booming stocks like Polaroid and the other high flier stocks that fell down again in 1974 similar to the Dot-com bust of the millennium in 2003 after peaking out in 1972-1973 similar to the 2000 top. This bubble is simply forgotten instead 1965 or 1929 is always used as a reference point to 2000. I think it's possible people have their timing off.

[jpatter666]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

I don't know. I think Laszlo Birinyi who is comparing the market to 1982 have a valid point. The negative argument is always more compelling because it's based on concrete down to earth things visible in the here and now. I think it's in the nature of the market to make it so that it will be impossible for people to see much positive things, and still have a cheap market. I know the DOW as by CPI looks as if it's in the stratosphere, but once you look at individual blue-chip, stocks it becomes visible that they are roughly at the same level as in 1982 when looking at the standard valuation measures.

Look at the bubbles. Farmland, real estate in China and commodity producing countries, gold, silver, commodities. I'd say it's starting to become a question of relative value. In that sense it seems blue-chips are looking well.

Think of the bubble in the end of the 1960-s when Warren Buffet closed his partnership. Think about the booming stocks like Polaroid and the other high flier stocks that fell down again in 1974 similar to the Dot-com bust of the millennium in 2003 after peaking out in 1972-1973 similar to the 2000 top. This bubble is simply forgotten instead 1965 or 1929 is always used as a reference point to 2000. I think it's possible people have their timing off.

It's an interesting thought and one I'm playing to some limited extent myself. There *are* some bargains out there, but the indexes are manipulated and overbought IMO. I wouldn't be caught dead holding SPY or any of the major indexes. The new Horsemen (Apple, Netflix, Salesforce, a few others) tell me the market is in mania mode. When those start getting cut down I'll know the end is near.

[jk]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

trust me, this is not 1982. in 1982 stocks were at lows, not highs. business week had published its "death of equities" cover, and that cover captured the ethos of the time. the fed had a stranglehold on the economy, and what triggered the surge in the market that august was that the fed FINALLY STARTED CUTTING RATES. so it was clear that the economy was going to be allowed to grow again. not exactly where we are today in any way, shape, or form.

[FRED]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

I don't know. I think Laszlo Birinyi who is comparing the market to 1982 have a valid point. The negative argument is always more compelling because it's based on concrete down to earth things visible in the here and now. I think it's in the nature of the market to make it so that it will be impossible for people to see much positive things, and still have a cheap market. I know the DOW as by CPI looks as if it's in the stratosphere, but once you look at individual blue-chip, stocks it becomes visible that they are roughly at the same level as in 1982 when looking at the standard valuation measures.

Look at the bubbles. Farmland, real estate in China and commodity producing countries, gold, silver, commodities. I'd say it's starting to become a question of relative value. In that sense it seems blue-chips are looking well.

Think of the bubble in the end of the 1960-s when Warren Buffet closed his partnership. Think about the booming stocks like Polaroid and the other high flier stocks that fell down again in 1974 similar to the Dot-com bust of the millennium in 2003 after peaking out in 1972-1973 similar to the 2000 top. This bubble is simply forgotten instead 1965 or 1929 is always used as a reference point to 2000. I think it's possible people have their timing off.

The two periods are apples and oranges.

[nero3]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

trust me, this is not 1982. in 1982 stocks were at lows, not highs. business week had published its "death of equities" cover, and that cover captured the ethos of the time. the fed had a stranglehold on the economy, and what triggered the surge in the market that august was that the fed FINALLY STARTED CUTTING RATES. so it was clear that the economy was going to be allowed to grow again. not exactly where we are today in any way, shape, or form.

You should look at the different numbers. Johnson & Johnson were more expensive in 1982 than now. The same can be said for many other companies as well. Companies as Wal-Mart have never before been trading at multiples seen in the last years. It's no longer a turbo growth company, but still. The P/E ratio was higher in 1982. Think of the Lehman collapse. I think it was not destined for the US indexes to fall as far as they did, because some of these collapses could have been handled differently. That bear-market could just as easy had been an easier correction There is some similarity to june 2008 and 1980. It seems it have taken a long long time to bring things back to a level it never had to go below.
It's hard to find a time when everything will be the same. You could look at times as 1939, and argue that Bernanke's use of QE easing is pushing it away from the double dip experienced then and directly into something like 1941-1942, with the run up in gov debt, and also a possible run up in GDP that would lower the private debt, while avoiding debt deflation (similar to during WW2), then you get lower treasury yields for a time, and afterwards they hike interest rates, and you get into a economy driven by private debt again, while taxes increase, and gov debt decrease (as in the post WW2 era up to around 1980. Then you had low interest rates as now. I think if the US took care of it's own industries and introduced a huge tax on imports, at-least from China, it could limit some of the trade imbalances. Taxes on fuel would also help. This would really do wonders for the trade balance. Where I live one gallon of gasoline costs around 7,5 dollars. The advantage of this is lower fuel usage because people drive cars that consume less, these cars are also cheaper in the tax system. The US simply lack politicians that are tough enough to get something like this through. If there was a huge import tariff on China It would not mean that the US would export that much more, but I think more products would be made domestically ,and employment would get a huge boost. Of course in 1941, there was no China in the same way, and no bubbles in the same say it is now. Still I see similarities to that era as well. I just think the failure to discount positive events is in itself a bullish indicator. In 1982 it was also comparisons to the 1930 era. Unemployment were 10 %, it was not better consumer sentiment back then compared to now. Even if there is a level of money printing going on. It dont have to be bullish for gold and negative for the dollar and US stocks. Emerging market stocks could burn out as after 1995, or in 1980. Just the boost from money coming home to the US would keep inflation down, despite a stimulative policy.

[nero3]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

Certainly the details are different, but I think some stocks like Johnson & Johnson are cheap when you look at things as P/E ratio, and also factor in stock buybacks, the AAA rating and the 48 years in a row with dividend increases and 120 years of company history. They pay out almost 3 times as much now as in year 2000. Even Bears like Grants interest rate observer are bullish. This blue-chip cheap, and gold, farmland and hot commodities situation is not new. It's like gold is frothy and getting more so, while JNJ is relatively cheap and getting cheaper.

[jk]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

so nero, are your investments deployed like it's time to party like it's 1982? i've posted my current allocation elsewhere and they do not resemble my investments in 1982. in 1982, after the market ignited in august, i went long over 200% in s&p futures.

[Milton Kuo]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

in 1982, after the market ignited in august, i went long over 200% in s&p futures.

Holy cow. Scattered across your postings where you've described past investments and economic analyses, you're the greatest investor no one's ever heard of. I mean that seriously.

[nero3]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

I don't want to discuss my investments.

As for 1982 it's clearly very different if looking at many things, however I think a similar thing is that confidence levels are low, and low confidence levels can bring cheap prices. Given a bust in China I think it's possible for the US to get a boost in the dollar and a further lowering of interest rates, at least keep the bond bear-market at hold while a stronger dollar contribute to a multiple and profit margin expansion. Many good blue-chip companies are yielding around 8 %, while the yield on the same corporate bonds are around 4-5 %. I think some people are blind for the relative change in interest rates, because it's already at such low levels. However AAA corporate interest rates are similar now to how they were in leading up to the boom in the 1920-s. In the post 1930 era interest rates on corporate debt were much lower.

[FRED]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

I don't want to discuss my investments.

As for 1982 it's clearly very different if looking at many things, however I think a similar thing is that confidence levels are low, and low confidence levels can bring cheap prices. Given a bust in China I think it's possible for the US to get a boost in the dollar and a further lowering of interest rates, at least keep the bond bear-market at hold while a stronger dollar contribute to a multiple and profit margin expansion. Many good blue-chip companies are yielding around 8 %, while the yield on the same corporate bonds are around 4-5 %. I think some people are blind for the relative change in interest rates, because it's already at such low levels. However AAA corporate interest rates are similar now to how they were in leading up to the boom in the 1920-s. In the post 1930 era interest rates on corporate debt were much lower.

We believe one of the more likely events of 2011 is a China bust, as explained in China Crash 2011 - Part I: The repetition compulsion of central bankers, probably toward the latter half of the year, resulting in a boost to confidence in the US system. We are girding for a dollar rally and a decline in commodities and gold. We also wrote that dividend yields of blue chip stocks present a good return for investors, and that foreign investors are avoiding US corporate bonds for good reason. Glad to see our old friend nero3 is in agreement with iTulip!

[raja]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

Look at the bubbles. Farmland, real estate in China and commodity producing countries, gold, silver, commodities. I'd say it's starting to become a question of relative value. In that sense it seems blue-chips are looking well.

What's your time frame?
When unemployment tops 20%, blue-chips probably wouldn't be so hot . . . .

[nero3]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

What's your time frame?
When unemployment tops 20%, blue-chips probably wouldn't be so hot . . . .

I think the US economy is slowly gaining momentum and that unemployment already have peaked. I think it's possible the dollar will strengthen and that companies such as Wal-Mart will experience increasing profit margins. I think the human capital in the US is great. The US will pull out of it.

[nero3]

Re: Can gold survive a Chinese bust? Strong dollar for 2011?

We believe one of the more likely events of 2011 is a China bust, as explained in China Crash 2011 - Part I: The repetition compulsion of central bankers, probably toward the latter half of the year, resulting in a boost to confidence in the US system. We are girding for a dollar rally and a decline in commodities and gold. We also wrote that dividend yields of blue chip stocks present a good return for investors, and that foreign investors are avoiding US corporate bonds for good reason. Glad to see our old friend nero3 is in agreement with iTulip!

I think some of the gains in the US market are special, in the sense that you have to go back to the 1990 and 1995 to see times when there were gains in 14 out of 16 trading days as we have seen now. The dollar have also shown a disconnect to earlier patterns. I also suspect emerging markets could roll over. I have only read the first part of the article so I don't know the conclusions. What I'm suspecting is that weakness in China could happen together with strength in the US economy and the dollar. And not the type of dollar strength that followed safe haven buying in 2008-2009.