A not very long time ago, in a galaxy known as the Milky Way, the member of an occult group of sinister individuals warned that should this group ever get to a point where it believed it could fix fiscal problems through printing money, this would present "a paramount risk to the long-term welfare of the U.S. economy." The group is better known as the Federal Reserve and the individual was Dallas Fed president Richard Fisher. The same Richard Fisher, who recently wrote about the FinReg unaddressed concept of how Too Big To Fail will lead to another massive systemic crash, went as far as saying that "even the perception that the Fed is pursuing a cheap-money strategy to accommodate fiscal burdens" would be disastrous, and that "the Federal Reserve will never let this happen. It is not an option. Ever. Period."
With observations such as that "we know from centuries of evidence in countless economies, from ancient Rome to today’s Zimbabwe, that running the printing press to pay off today’s bills leads to much worse problems later on", one may only hope that all those who advocate even more rampant spending and irresponsible money printing to "fix" the economy, will finally see the light. Alas, mired in their own stupidity, they won't. And Fisher's words, so prescient in 2008, yet so ignored, will suffer the same fate today, and the Fed will continue on its way to singlehandedly destroying this once great country.
Wednesday, June 16, 2010
Federal Reserve Governor Fisher warns against Federal Reserve
http://www.zerohedge.com/article/federal-reserve-warns-about-dangers-federal-reserve
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Well, its a shame to see the good name of the United States Federal Reserve Bank used for partisan purposes. I guess the thoroughly debated and widely accepted notion of the "politically neutral Fed" has not yet reached the frontiers of Texas, where partisan winds whip through the population like a prairie wind whips across the plains.
ReplyDeleteWith unemployment at the highest level in decades, capacity utilization at less than 75%, interest rates also at historically low levels, excess housing stock as far as the eye can see, and the China-WalMart connection keeping prices low, inflation is the last thing that we should be worried about in the 2-3 year horizon.
True, Gold prices are rallying.
Some might argue that rallying gold prices are a sign of impending inflation, but I beg to do differ.
Rallying gold prices simply reflect a short term Wall Street trend in a market where there is no other game in town. Yes, Wall Street analysts (not know for intellectual honesty, and tending towards the Republican side of the partisan rancor) can make a reasonable, but superficial, case that current federal policies will lead to inflation. But, that case is weak and superficial, as belied by the aforementioned indicators.
Sure, "the trend is your friend". By all means, take advantage of it. Go ahead and trade Gold on the long side, if you are a short term trader. But, don't view it as anything more than a short term trade, guided by Wall Street manipulators. It will blow off shortly.
And, by the way, since we are using Star Wars as our new moral benchmark, let's not forget that the evil Death-Star was an instrument of "The Republic", not "The Democracy"
ReplyDeleteThe Money Supply Growth is the more important inflation indicator. Gold prices ... not so much.
ReplyDeleteJGTex, I agree deflation is a risk, but so is hyperinflation, as central bankers will try to fight deflation. The only question in my mind is which will occur first in the event of a currency crisis. And I disagree with your premise that gold is a short-term trade--it's been a stealthy bull market for 10 years, and if you take a long enough perspective, the bull market has been intact since 1971 when Nixon took us off the gold standard. Sure, gold had a terrible stretch from 1980 to 2001, but as long as paper currencies continue to be debased, gold will resume its long-term trend. In fact, it is much harder to predict gold's short-term swings.
ReplyDeleteI also disagree with your view that gold is only an inflation hedge. It is also a hedge against financial and currency crises--see Greece and the Euro zone. They are facing deflationary austerity, yet the black market price for gold is over $2000/oz.
And finally, the same people who are calling a bubble in gold prices today are also the same people who were long internet stocks in 2000 and sunbelt real estate in 2005.
I agree money supply growth is an important inflation indicator, but then again, gold isn't rising due to threats of inflation alone.
Well, we are going to have to agree to disagree.
ReplyDeleteLook at the Money Supply chart, capacity utilization, and unemployment.
Real inflation is about as much of a risk to the world's economy right now as a fly is to the US Military!
Gold is rising because some analysts are making that case. It is a case that can be made, based primarily on the rising debt levels.
ReplyDeleteBut, it won't hold up for very long, because the true, underlying economic situation is simply not inflationary.
Like many Wall Street trends, this one is a short term trend. It won't last any longer than Christmas at the most.
You may well see a dramatic spike upwards in Gold prices sometime between now and Christmas, but when you do .... dump every ounce you own, because next year's trend in Gold will be down.
Next year, the big story will be rebounding economic growth.
You're right. Its not rising due to "threats of inflation, alone" .... it is rising, due to Wall Street analysts talking it up!
ReplyDeleteThe actual, underlying inflation threat is negligible.
It is a "sucker's rally".
JGTEX, like I said, it's got nothing to do with inflation--there is deflation in Greece, yet gold is soaring vs. the Euro. And besides, if you believe the CPI is an accurate barometer of inflation, I've got some beachfront property in Vegas I'd like to sell ya. Visit shadowstats.com for real inflation and unemployment numbers. And you haven't studied your history--look at shares of Homestake Mining during the Great Depression (which was a deflationary period)--it was up six-fold.
ReplyDeleteYou think Wall St. analysts are talking up gold? lol! Most of them shun and talk down gold, and only a few big big hedge funds went long in 2009. 95% of the American investing public don't own precious metals--that is not a sign of a bubble. Like I said, the same experts who talked up internet stocks in 2000 and real estate in 2005 believe gold is in a bubble today. Guess what? Analysts having been calling a top in gold since it was $300. Meanwhile, gold has appreciated 5 x since its lows, and what have equities done since then? lol Keep buying into the recovery, we always need optimists. But please don't call gold bugs suckers, because our portfolios are up triple digits in the last 1.5 years.
Here's the sequence: the smart money gets in early,(1999 - 2008), the big money moves in later (2009 - 2010), and the dumb money gets in the elevator last (2011 - later). See ya at $1500--at least. We may see $1000 before $2000, but we will see $5000 before it ever drops to $500.
OK, I see your point ... more of a 'store of value against deflation', than an 'inflation hedge'.
ReplyDeleteEither way, when the next economic cycle really kicks into gear and starts creating jobs in earnest, gold will tank.
In fact, looking at the chart of gold prices from 2005 - 2010 reminds me almost exactly of the charts of the housing stocks from 2003 - 2008.
And, I expect Gold will tank like the housing stocks did. It is nearing the end of a 5 year rally, which is about how long the housing rally lasted.
The fact that 95% of the American investing public doesn't own gold stocks has nothing to do with the merits of Gold stocks as investments.
ReplyDeleteRather, it reflects that fact that 95% of the investing public is more worried about jobs and homes than about collecting fancy investments like Gold.
What has to happen for the lion's share of the investing public to feel good about stocks again is two things...
ReplyDelete(1) Solid, consistent economic growth with 150,000+ per month job creation for at least 6 straight months.
(2) Passage of hard-nosed financial reform regulations that reassures the general public that Wall Street is not just a bunch of crooks selling hot air.
(3) Accompanying rally in equity indices.
And, even then, they won't go into Gold. They will go into blue chip stocks & bonds, and growth stocks.
Gold is kind of store during times of uncertainty, be it either inflation or deflation. Once the uncertainty passes, growth stocks will come back into favor.
Your premises use faulty logic. I have convinced you that gold performs well if not better during deflationary periods than during inflation. In fact, many respectable economists (normally an oxymoron) and macro hedge fund traders have reinforced my thesis. See George Soros, John Paulson, David Einhorn, Kyle Bass, Eric Sprott et al. They are all billionaires, which in and of itself doesn't make them prescient, but they also happened to bet against the subprime mortgage industry, so they not only have credibility, but also a contrarian track record to back up said credibility. Did you see the housing industry and financial systems cratering before it happened? I didn't think so. And if you did, did you do anything about it?
ReplyDeleteSecondly, you are assuming the global economy is recovering, as the official government statistics want you to believe. After all, double dip recessions are indeed very rare. But what we are experiencing is not an economic recovery at all, despite faulty calculations of GDP. I won't go into it, but housing is about to tank again, while sovereign debt concerns roil markets globally--in equities and fixed-income.
You're assuming bubbles only last 5 years. Again, there's not enough time and space to debunk that myth, but this secular bull market in gold has been in place for 10 or 40 years, and either assessment would be valid.
You're talking like someone who has missed the train for 10 years, and looking at merely at price and not value. Based on purely monetary metrics, gold should be valued north of $5500. And if every single USDollar were backed by gold, including all debts and unfunded liabilities, some have calculated gold should be valued at $46,000. I'm not saying gold will reach either level in the foreseeable future, but I'm not going to discount the possibility in the event of a currency crisis.
http://www.pinnacledigest.com/blog/fastfoot/gold-no-longer-fringe-now-mainstream?#comment-47178
JGTEX,
ReplyDelete"The fact that 95% of the American investing public doesn't own gold stocks has nothing to do with the merits of Gold stocks as investments.
Rather, it reflects that fact that 95% of the investing public is more worried about jobs and homes than about collecting fancy investments like Gold."
These statements alone indicate you know very little about asset classes, trading and investor sentiment.
I'll admit gold and silver are volatile asset classes, and the mining shares even more so, and I will openly acknowledge they all got clobbered in late 2008. But they also recovered the quickest and the most since the liquidation event. They will also get clobbered again in the next great liquidation event, but their roles as safety havens will be restored quickly again.
It sounds to me like you believe this Great Recession is a garden variety one with its accompanying recovery. Let me close with a few quotes for some possible enlightenment.
"While the crash only took place six months ago, I am convinced we have now passed through the worst - and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us." - Herbert Hoover, President of the United States, May 1, 1930
"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..." - Harvard Economic Society [HES] May 17, 1930
"Gentleman, you have come sixty days too late. The depression is over." - Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930
"...irregular and conflicting movements of business should soon give way to a sustained recovery..." - HES June 28, 1930
"...the present depression has about spent its force..." - HES, Aug 30,1930
"We are now near the end of the declining phase of the depression." - HES Nov 15, 1930
"Stabilization at [present] levels is clearly possible." - HES Oct 31, 1931
"All safe deposit boxes in banks or financial institutions have been sealed...and may only be opened in the presence of an agent of the IRS." - President F.D. Roosevelt, 1933
JGTEX,
ReplyDelete"Rather, it reflects that fact that 95% of the investing public is more worried about jobs and homes than about collecting fancy investments like Gold."
Do you really believe Greeks and Germans (who are bailing out Greece) are pouring into gold because it is a "fancy" investment? It's panic buying against a financial crisis and currency debasement, because the plunge of the euro is plummeting their purchasing power.
How's that recovery in housing going? http://gregnguyen.blogspot.com/2010/06/new-home-sales-plunge-33-in-may.html
ReplyDeleteThese were my exact words several days ago (see comments above): "After all, double dip recessions are indeed very rare. But what we are experiencing is not an economic recovery at all, despite faulty calculations of GDP. I won't go into it, but housing is about to tank again, while sovereign debt concerns roil markets globally..."