Pessimism is down, stocks have tail winds, head lines will read “I know you schmucks got burned in the crash, but over the past 3 years, stocks have returned 20-40% per year”.
This will continue to fuel the flow of funds from bonds and into stocks.
People will start to sell gold and buy stocks (gold and bonds are usually owned for similar reasons).
Take your profits from gold before it crashes. Get in to stocks for a while. Once everyone is sleepily comfortable with their money in the market and it has gone up a couple years… consider taking your profits from that too and the cycle begins anew.
Discuss.
p.s. Krugman will get his high interest rates during this that he has been arrogantly saying won’t happen.
Well of course the market wants to raise the interest rates but it is the Fed that is restricting the market to do so by artificially decreasing the rates… if we live in the US, it wouldn’t matter what the market says the interest rates are, if we have the Fed interfering with it…
How do you track market interest rates? Is there a site that just collects up to date ARM, Mortgate, and other forms of interest?
Also you do know wikileaks is going to release a statement regarding some large bank in the US next year. I wonder if that will cause any disturbance? For now I am going to hold on to my gold silver. If interest rates shoot up and stocks start showing a very strong trend, well then perhaps I’ll sell.
They do when they are the only bank in the U.S to figure how much money we have in circulation… what good is it if the Fed buys these bonds, securities, etc. with inflated money?
@filc
You can use bankrate.com for mortgage, auto, savings, personal, credit cards. You can use various corporate bond mutual funds to track their yields such as ticker PTY, pimco corporate bond fund, currently yields 8.2% and appears to have recently topped in November.
I am not sure what impact wikileaks will have without knowing what they will say
@Isaac
I don’t think the fed would be able to buy corporate bonds politically. Though to be honest, IF the fed is going to exist in the first place and buy bonds, I think it would be less bad for them to buy corporate bonds in order to meet their stated goal of lowering unemployment. That would have a more direct effect in the short term but obviously seriously skew the market overall and probably be very bad in the long run - but maybe less bad than propping up government.
I don’t think the fed would be able to buy corporate bonds politically. Though to be honest, IF the fed is going to exist in the first place and buy bonds, I think it would be less bad for them to buy corporate bonds in order to meet their stated goal of lowering unemployment. That would have a more direct effect in the short term but obviously seriously skew the market overall and probably be very bad in the long run - but maybe less bad than propping up government.@filc
You can use bankrate.com for mortgage, auto, savings, personal, credit cards
You can use various corporate bond mutual funds to track their yields
I am not sure what impact wikileaks will have without knowing what they will say
@Isaac
I don’t think the fed would be able to buy corporate bonds politically. Though to be honest, IF the fed is going to exist in the first place and buy bonds, I think it would be less bad for them to buy corporate bonds in order to meet their stated goal of lowering unemployment. That would have a more direct effect in the short term but obviously seriously skew the market overall and probably be very bad in the long run - but maybe less bad than propping up government.
Some thoughts: Let’s assume there is inflation now, and that people are thinking it’s going to continue.
Then they will get out of bonds, because the interest is lower than the rate of inflation. But they will hang onto gold, because it retains its value.
Now, let us ask why have stocks gone up? Are companies more profitable? Is the govt kinder to business, lowering the tax rate, easing regulations, reducing the power of the unions, borrowing less money so that business has a chance to get some of the dough? Have prices of raw materials gone down, making it less expensive to produce? Have companies increased their dividend payments? None of the above. So maybe stocks prices are up because of inflation, not because people see something good about them .
If interest rates of everything else go up, then bonds will have no choice but to follow suit, or else who will buy them? The govt has to get its money from somewhere, right?
Of course stocks are raising. The exact rationale behind all that monetary inflation is exactly to drive up asset prices. But I’ve rarely owned stocks and I am not starting now. They require too much time to be followed properly. And right now we have companies whose sales have been dropping in double digits since 2008 with stocks near an all time high. This is risky business: how long are people going to buy stocks of firms with little to show to their credit? You say two years. I say probably longer. Maybe we are both dead wrong and it will end next year: bubbles are easy to spot but their behavior is damn hard to predict. You can make a ton of money or you can lose your shirt but this kind of game just ain’t for me.
I’ve read up a few analysis, mostly from mainstream economicsts, and they tend to agree that 2011 is going to be a whole lot tougher than originally predicted. High commodities prices, high unemployment, high stock prices, low interest rates, the world’s second reserve currency (euro) with an uncertain future, low consumer confidence in Europe and fiscal crises looming all over the world… this is not like anything we’ve ever seen. Gold and silver in a similar environment, uncertain to say the least, are not going down. They may have fluctuations but the trend is still upwards, at least for 2011, though in my opinion gold won’t gain as much as some of the members of this community expect. Also do not forget the political situation in Asia: with China-US relationships slowly but steadily worsening that will add to the general climate of uncertainty. And let’s hope Israel doesn’t force Iran’s hand to start something nasty in the Gulf.
Theoretically, there should be an inverse relationship between bond prices and the price of gold. One is an inflation hedge and the other is crushed by inflation/expected inflation.
Here’s an alternative theory:
Investors have been expecting future inflation (sometime in the somewhat distant future) for quite some time now but chose to stay in the bond market due to lucrative capital gains granted by the FED’s open market purchases (tripled the supply of high-powered money and even purchased mortgage bonds). At the same time, investors have allocated a portion of their financial capital into gold as a hedge against potential inflation. The fact that interest rates are rising on bonds does not mean that it’s time to get out of gold; in fact, the opposite may be true. It means that the bond bubble, that the FED has inflated, is about to pop, and investors are expecting severe inflation in the short-run, sometime in the nearer future. In other words, rising interest rates means that investors are becoming increasingly worried about inflation, and we should expect the price of gold (and silver, and palladium, and copper, etc) to rise.
This may not happen immediately, but as the perceived recovery takes hold, and as the banks begin lending again, the monetary aggregates will expand and we should see massive general price inflation and higher nominal interest rates.
@Smiling Dave
Nominally speaking, companies are definitely more profitable and I don’t think anyone would say government is being more kind to business.
Many companies are in fact increasing their dividend payments. It is actually a trend.
Regarding gold, I would suggest that most people invest to earn a return. When gold is flat while stocks are going up, the human tendency is going to be to chase the returns of stocks. That is what would prompt selling gold to buy stocks.
@Kakugo
Can you name some of these companies with sales dropping double digits while the stocks are at all time highs? Definitely hard to predict how long the bubble will go. My most common error is to be too fast. My timelines are off while the core points are right. For example, in early 2007 I saw a recession coming so I decided to buy Samuel Adams - beer stock with no debt and decent profit margins at $30. Sold it at $35. Then the recession hit. Now after the recession it is $100. Not patient enough.
Regarding the future, there is always economic uncertainty.
@Esuric
Good point about bonds vs gold. Usually I would agree with you in a text book sense. But we need to examine the demographics of who is doing this buying of gold now. It is mostly hedge funds flipping it to retail investors for a profit. The hedge fund wants to make a quick buck and the retail investor is scared from watching too much Glenn Beck. Lots of the bond buyers bought out of fear also. They were burned in stocks and rolled over to bonds and gold to be more conservative. Now they have to watch the stock market return 20% a year while their bonds are flat or down and paying 3-10% yields. Gold will probably run out of steam. The big buyers who were going to buy probably already have. Glenn Beck’s audience only makes so much money. Unless some governments or the IMF start buying gold again in significantly increasing quantities, gold just isn’t going to go up much more.
If interest rates are rising on bonds and dividend payouts in stocks continue to increase, non-industrial metal just doesn’t seem so attractive, especially if you have retirement on the horizon. You will want something that produces sustainable income.
I do think the bond bubble will pop. But I think that when it does, yields will be attractive again. Right now it is crazy to buy a government bond. It just isn’t worth it. But if you could buy bonds at nice yields… people will buy them. You know, markets clear and all.
What would stop the Fed from buying these? Please answer in the context of what the Fed bought over the last two years that they, in fact, never bought before.
I don’t think now is the time to get out of precious metals, and it certainly isn’t the time to get into the stock market. If you didn’t get into the stock market in 2009 then don’t get in it now. It’s a suckers market right now in my opinion. There are basically two sides to the story of rising yields in the bond market now. The ones who defend the Fed and their QE will tell you that rising rates is a good sign that a state of normalcy is returning to the market. After all the whole point of QE as they see it was to raise inflation expectations to keep prices up. They will tolerate some rising in bond yields, but only so much before they clamp down on rates again if they get too high. Those on the other side of the argument will agree with the former that rising yields are due to inflation expectations rising, but it’s certainly not because the economy is returning to any state of normal function. As others have said, we are likely in a bond bubble right now, and also a dollar bubble.
But for those who own or are thinking of owning precious metals I would recommend that you establish a core position that you always hang onto. Once you have that then the rest can be sold off during profit taking opportunities
filc, where/how did you buy gold and silver? There are so many advertisements and everything lately that I don’t know which companies are actually good.
If you want to be liquid, you can buy SLV or GLD etfs. If you want the physical metal, I have found bulliondirect.com to be pretty good. But keep in mind that you will be fleeced when you go to sell your gold and silver. If you are genuinely concerned about the dollar and want “real money” then buy coinage, mainly american eagles and canadian maples or south african krugerands. If you believe the financial system in general will survive and you just want to bet on gold and silver, go with the ETFs.
Thanks for the advice. I don’t know a lot about finance and what stuff to invest in. Do you personally think the USD will survive?
I truthfully don’t see how the debt can possibly be paid back without mass inflation, and I also don’t see how another currency can spring up without the Federal Reserve being taken down, which probably won’t happen because of the lack of understanding of its existence, so my optimism of the USD lasting is pretty small.