Gold is down almost $50, silver $1, and platinum almost $70. Did some politician or central banker make a speech recently? This might be a good opportunity to buy…
Supposed to be concerns about consumption and sovereign debt and the prevalence of unemployment, etc etc. Link
Probably is a good opportunity to buy.
Job losses over the past year have been mysteriously discovered to have been higher then previously calculated by the bureaucrats. Dollar is getting stronger every time the stock market goes down typically lowering the price of commodities also.
Here’s another link
And of course the maestro:
The price of gold has been a pretty reliable economic indicator (relatively speaking of course).
The market is trying to correct itself in the face of extreme rigidity and government interventions. Investment ventures are slowly failing and this means a steady reallocation of capital and labor towards more warranted direct productions. The result of this re-ordering process is a contraction in the structure of production, higher marginal productivity of capital (higher profits), and a lower marginal productivity of labor (decline in real wages). Of course, such a condition necessarily means a high rate of interest, but the FED simply wont allow interest rates to rise towards the natural rate and purge the economy of previously accumulated malinvestments (during the inflationary boom). Thus, we should expect further malinvestments (a slight correctionary contraction may take place, but expansionary monetary policy assures that capital will still flow towards unwarranted productions), and if the FED is bent on preventing this realignment process, there will be a currency crisis–it’s unavoidable. The price of capital must fall.
Basically, this recession has entirely validated the ABCT, and it’s funny when the mainstream sits around and wonders why companies are not hiring even though their profits are rising (though most of those profits are illusory). They think profits are just some arbitrary number which is magically left over from the process of production–they don’t understand that it’s a real and independent economic phenomena.
So, essentially, a deflationary correction is on its way (most likely). Though, it may be the result of international instability, namely in Europe (Portugal, Spain, Greece, and Ireland). I’m going to buy $15,000 of silver once it reaches around $12 an ounce (this would be a very bad move if the FED allowed the market to correct itself, but it has shown that it will expand the money supply ad infinitum before it allows the malformed capital structure to repair itself).
Esuric, what do you think will be the effects of the capital flows out of the troubled countries you listed? Where do you think the money will move to? Maybe the US? If so, do you think that will have a temporary effect on asset prices and/or the value of the dollar?
I’m asking because I’ve been trying to figure this out in my head but obviously my international finance/economics skills aren’t that great so I was wondering if you could help me figure this out.
The yields in America are far too low. I can’t imagine anything but extreme capital flight out of the U.S. But who knows. Many believe that America is invincible, that is, always a safe investment–though this hallucination is quickly deteriorating. We’ve been financing this malformed capital structure with big capital account surplus’s; but if the U.S stock markets crash, then the dollar will follow. It’s hard to wrap your head around the current situation because there’s just too much unprecedented stuff going on, all of which were previously unimaginable.
Did this post answer the OP question?
Yeah, you’re right, things are crazy right now.
I don’t understand this quote either. In my mind, I’m thinking the dollar is the riskier asset and owning commodities is the better way to go. What am I missing?
I could be wrong here, but I think the difference is between short and long term. Maybe in the short term, the dollar will rally.
As usual, the confusion brought about by government intervention leaves private folk gambling on eggshells.
Why would the dollar rally in the short term or even long term at this point? The fundamentals are clearly very bad and there are no signs that these fundamentals will get any better any time soon. The only thing that I can think of is that people are holding onto their belief that the dollar will always be king and that even while all the signs are pointing to a dollar demise, if other currencies are down, the dollar is the best option.
As Esuric pointed out, there is still tremendous faith in the US government’s ability to repay its debts. Not to mention the fact that there may be capital inflows into US treasuries from abroad as foreign sovereign defaults become more of a problem. Also, China’s holding like 24 trillion dollars in reserves and it can’t exactly move that money around very quickly without taking huge capital losses. Consumption in the US still isn’t very strong so deflation is considered to still be a bigger threat than inflation (price level inflation/deflation not monetary expansion/contraction.) So there’s a lot of reasons why people are still bullish on the dollar, at least in the short term.
Thanks for clearing that up for me. I guess it makes a little more sense now.
I guess my problem is that I look at these things, sometimes, without realizing that the rest of the world doesn’t hold the same views as me. In that, they have faith in governments, when I don’t. So it only makes sense that these dollar rallies will happen, as these people feel safer holding a bunch of green paper then commodities that actually have real value.
Yeah I often tend to be the same way. But there seems to be a TON of people out there who see the world in a very different way than you or I might. This is actually a good thing because there’s got to be someone willing to sell us the gold and buy the currency or vice versa.