Reasoning:
- Currency is evaporating at a dangerous clip, as banks pull back lending and/or go bust. Remember that banks were lending with 40:1 leverage at the height of the subprime/phony credit boom, a pull back to 20:1 leverage, still twice the historical maximum, has the same effect as half the world's banks going bust. Without that explosion of spending cash, asset prices have one way to go.
- Gold is experiencing some of the lowest overall trading volume in several years, meaning only a few people are willing to pay current prices (similar to loads of real estate rotting on the market sporting yesterday's price tags).
- Gold is all over the news as a great buy. This confirms the large money, those able to influence the news, want to sell their gold to you.
- The dollar is tracing out the completion of a large C wave with approx a .618 retrace (Wave 2/Wave 1).
USDEUR:
But to reiterate - no risk is required to get rich during the coming mega deflation, all that is required is a 100% cash position. Hoard inflated cash; it will buy more every passing day for the next 20 years, or so.
"But to reiterate - no risk is required to get rich during the coming mega deflation, all that is required is a 100% cash position. Hoard inflated cash; it will buy more every passing day for the next 20 years, or so."
ReplyDeleteHi FDR,
I picked you up through some old MarketWatch comment posts.
You have a rather interesting position to this gold jump.
1) How do you feel about China telling their citizens to go out and buy gold and PMs in general and the fact that they are requesting delivery of their physical gold?
2) On the topic of your quote above. Which is the best strategy for the average American 20-40k in debt:
a) Pay down debt as fast as possible (accelerated) while paying yourself first and buying only what you need.
b) Pay down debt normally (non- accelerated) while paying yourself first and buying only what you need.
Obviously, in short, I am asking if there is any advantage to paying off debt faster in the current economic situation.
Also, when you talk about hoarding inflated cash, are you talking about storing it in a bank or our own secret hiding place?
what do you think about hedge fund managers such as paulson and einhorn buying GLD (in einhorn's case he then switched to physical from GLD, so it doesn't appear to be a short-term trade)? those are tough guys to fade.
ReplyDeleteFDR you have been bang on target on DOW and Oil.Whats your dow and oil target now for the next 6 months or so? Gold has time and again tested patience and just refuses to go down.What would your likely targets for gold be in the short term?
ReplyDeleteFDR
ReplyDeleteGood to see you back. I think the deflation playing out is better than hyper-inflation. It is better for the average Joe, other than one wanting to sell their house for retirement reasons.
Russ Wraith
What do you think about the recent high vol in "GLD"?
ReplyDelete"Obviously, in short, I am asking if there is any advantage to paying off debt faster in the current economic situation.
ReplyDeleteAlso, when you talk about hoarding inflated cash, are you talking about storing it in a bank or our own secret hiding place?"
The best use of cash is to put it on debt. Consider the following thought experiment:
Q) Prices fall 40%, who is richer?
a) A homeless person who owns a red shirt and a pair of jean shorts, but has no debt.
b) A real estate tycoon with 26 properties valued in 2006 at 15 Million with over $5M in equity.
Answer: (a) is $1M wealthier.
Why? Debt kills in a deflation. Better to own nothing at all than to have debt against assets. Collateral prices evaporate; debt does not.
"similar to loads of real estate rotting on the market sporting yesterday's price tags"
ReplyDeleteWhether you agree with FDR or not you have to admire his dry sense of humor....I'm still laughing.
What about the gold to silver ratio? Seems a little extreme.
ReplyDeleteIs it odd that oil has stuck around $70 lately, but gold and silver are at all time highs?
ReplyDeleteWho has more input on how things are run? The homeless person or real estate tycoon?
ReplyDeleteSorry, you can forget my question about who has more input. It won't last forever. Once the homeless become so large, the tides will turn.
ReplyDelete"Who has more input on how things are run? The homeless person or real estate tycoon?"
ReplyDeleteThe homeless and downtrodden are the only ones currently getting help besides plugged in bankers. Anyone else that owns property is being taxed at 2006 price tags despite the fact they're most likely underwater. There are probably many tycoons that wish they could sleep as well as the homeless right now.
"...during the opening act of the greatest depression the world has ever known."
ReplyDeleteYet the market keeps going up like everything is peachy keechy keen!
Question: is it possible to suffer a massive, deflationary credit collapse while at the same time the currency is nearly destroyed by Fed actions? Do gold and the $ necessarily have an inverse relationship when everything goes to hell? Is it possible the dollar won't survive, especially if the Fed keeps buying it's own auctions?
ReplyDelete"Question: is it possible to suffer a massive, deflationary credit collapse while at the same time the currency is nearly destroyed by Fed actions? Do gold and the $ necessarily have an inverse relationship when everything goes to hell? Is it possible the dollar won't survive, especially if the Fed keeps buying it's own auctions?"
ReplyDelete1st Q - Yes, they are the same thing
2nd Q - Yes, gold is money priced in $'s
3rd Q - Dollars are more likely to survive in lesser amounts, because each gets stronger
Hi FDR.
ReplyDeleteSorry but you have the gold trade dead wrong. Gold is real money not a commodity. In a deflation scenario money becomes scarce.
Consequence is Gold will go sky high. Any argument that Gold is a commodity and that India is somehow an important player as a buyer of a jewellery commodity is dead wrong.
The best advice to give is to hoard money, which is Gold. Do not advise people to hoard dollars printed by a corrupt Federal Reserve Institution. Many people will become seriously hurt in this way. Also, please dont write an emotional-charged response. Fact is gold is money, period. The bankers know it and want to sucker people into giving up their gold, just like the 1930s.
"Gold is real money not a commodity."
ReplyDeleteCommodities are all various forms of money.
You don't want to hold real money during a deflation, as it all gets priced lower by a lack of currency.
Same reason (inverted) you do want to hold money, like gold, during inflation. Gold went from $20 to $1040 during the great Inflation from 1932 to 2007 for a good reason: declining dollar value.
No. All commodities are not a form of money.
ReplyDeleteGold is not a commodity. It is a portable, in your house storable, fungible asset.
It is money.
Oil is not, wheat is not, diamonds are not.
"No. All commodities are not a form of money. Gold is not a commodity. It is a portable, in your house storable, fungible asset. It is money. Oil is not, wheat is not, diamonds are not."
ReplyDeleteOk, so....
1) All commodities are not a form of money.
2) Gold is not a commodity so #1 doesn't matter or apply
3) Therefore, gold is money.
Sorry, I don't follow you.