patrick.net

smaulgld says

Strategist says

Developing nations have traditionally tried to save foreign exchange and make deals using their own non convertible currencies. I would not give it any credence

You can scoff at it based on historical examples. If you watch the video I posted Stiglitz makes the point that the "developing" nations are very far along. You are underestimating the economic power of the BRICs as well as their desire to be free of the dollar. They have 40% of the world population and 25% of the economic power.

You can ignore it scoff at it, but the US and the dollar is far from what it was 30-50 years ago

Hey, I mostly agree with what you just said. That 40% will one day be the 800 pound gorilla, just not today. Their per capita standard of living is still very low. We are still decades away from a US dollar replacement.

Strategist says

Heraclitusstudent says

Strategist says

Because they are done with loosening.

How is loosening affecting the price of gold?

Too much loosening can cause inflation down the road and hence the price of gold moves up in anticipation of inflation. When tapering starts, those inflation fears subside, and speculators who bought gold start bailing.

That's all true IF the Fed stays ahead of the inflation curve.

Right now the Fed is officially and intentionally behind it.

With the CPI at 2.1% annually and over 4% in the past three months and the fed rate at 0% real interest rates are negative.

They will raise rates next year probably a 1/4 % at which time the CPI will surely be more than 2.1%- and they want higher inflation so they will get it.

They won't raise rates beyond the CPI, so gold will remain strong

smaulgld says

Negative real interest rates will always be positive for gold. even if the fed "tightens' and raise interest rates, they will only do so if there is higher inflation so the fed rate will still be lower as it is today lower than the CPI

Negative real interest rates don't last forever. For the moment we are going through the worst crisis we had in 80 years, where anything can happen, but we will return to normal times, and those abnormal negative real interest rates will disappear.

Strategist says

When tapering starts, those inflation fears subside, and speculators who bought gold start bailing.

I don't think this quite cuts it. The $trillions of printed money are still there. As this thread shows, there is plenty of inflation expectation for the future.

Strategist says

Hey, I mostly agree with what you just said. That 40% will one day be the 800 pound gorilla, just not today. Their per capita standard of living is still very low. We are still decades away from a US dollar replacement.

I think you too are behind the curve and are underestimating the progress that the BRICS HAVE made and are planning for de dollarization.
Europe is dependent on Russia for gas and oil so they are not as insignificant as you characterize them.
And again, we don't need a full scale dollar replacement to have problems, just a 5-15% drop in demand for dollars, that is in progress

Heraclitusstudent says

Strategist says

When tapering starts, those inflation fears subside, and speculators who bought gold start bailing.

I don't think this quite cuts it. The $trillions of printed money are still there. As this thread shows, there is plenty of inflation expectation for the future.

That is correct, that money eventually makes in to the systems as do the dollars that the BRICs start to trade in when they realize they need fewer of them as they increasingly trade among themselves in their own currencies

smaulgld says

That's all true IF the Fed stays ahead of the inflation curve.

Right now the Fed is officially and intentionally behind it.

With the CPI at 2.1% annually and over 4% in the past three months and the fed rate at 0% real interest rates are negative.

They will raise rates next year probably a 1/4 % at which time the CPI will surely be more than 2.1%- and they want higher inflation so they will get it.

They won't raise rates beyond the CPI, so gold will remain strong

Yellen has already indicated that rates will remain low until they are absolutely sure the economy can stand on its own 2 feet.
That is actually a positive for gold.

Strategist says

Negative real interest rates don't last forever. For the moment we are going through the worst crisis we had in 80 years, where anything can happen, but we will return to normal times, and those abnormal negative real interest rates will disappear.

The Fed made it harder to return to normal times by printing $4 trillion and keeping rates at a record low for an extended period of time. The increase in the deficits and long term unfunded obligation also make it harder to return to normal without some painful readjustment period- that should have happened in 2008-2011.

Strategist says

Yellen has already indicated that rates will remain low until they are absolutely sure the economy can stand on its own 2 feet.

That is actually a positive for gold.

Exactly- the Fed will keep rates low- even if they raise them- they will be far lower than the stated CPI -which is good for gold as is unfortunately any gains the BRICs make in lowering global demand for dollars

Heraclitusstudent says

Strategist says

When tapering starts, those inflation fears subside, and speculators who bought gold start bailing.

I don't think this quite cuts it. The $trillions of printed money are still there. As this thread shows, there is plenty of inflation expectation for the future.

If the federal reserve is not expecting high inflation, which they keep saying, then gold has a limited upside. Gold fell from the highs of $1,900 to $1,300 in spite of all that money sloshing around, because inflation is not rearing it's ugly head.

smaulgld says

Strategist says

Negative real interest rates don't last forever. For the moment we are going through the worst crisis we had in 80 years, where anything can happen, but we will return to normal times, and those abnormal negative real interest rates will disappear.

The Fed made it harder to return to normal times by printing $4 trillion and keeping rates at a record low for an extended period of time. The increase in the deficits and long term unfunded obligation also make it harder to return to normal without some painful readjustment period- that should have happened in 2008-2011.

I sadly agree. Normal times will mean tightening our belts permanently.

Strategist says

If the federal reserve is not expecting high inflation, which they keep saying, then gold has a limited upside. Gold fell from the highs of $1,900 to $1,300 in spite of all that money sloshing around, because inflation is not rearing it's ugly head.

The fed has not been a good at predicting future economic outcomes. Gold came down because it had a parabolic rise. ANY thing that goes up that high that quickly takes a dive.

You are underestimating what gold did from 2002-2012-went up each and every year. NO asset class does that. and it only did that BECAUSE of the Fed.

Gold is up again this year (12 of 13 years in a row) and will continue to rise as inflation continues to increase and the Fed stays behind the curve and the BRICS continue to reduce demand for the dollar.

Strategist says

I sadly agree. Normal times will mean tightening our belts permanently.

That's right- we dodged the bullet in 2008 but we really didn't dodge it we postponed it. We are living on borrowed time. THey forced up prices of homes and stock prices when there was no corresponding increase in jobs, wages and economic output.
That is fantasy and can't be papered over forever.

The stock market and housing markets are up by massive amounts as if the economy is doing really well and its prospects are even better.
Think for ONE MINUTE- WHY?

Strategist says

If the federal reserve is not expecting high inflation, which they keep saying, then gold has a limited upside. Gold fell from the highs of $1,900 to $1,300 in spite of all that money sloshing around, because inflation is not rearing it's ugly head.

I think gold fell because nominal rates jumped up, meaning suddenly there was a better alternative.

Now with rates going down in spite of tapering, the opposite is going on.

China to build rival to panama canal
http://www.globaltimes.cn/content/874471.shtml

Heraclitusstudent says

Strategist says

If the federal reserve is not expecting high inflation, which they keep saying, then gold has a limited upside. Gold fell from the highs of $1,900 to $1,300 in spite of all that money sloshing around, because inflation is not rearing it's ugly head.

I think gold fell because nominal rates jumped up, meaning suddenly there was a better alternative.

Now with rates going down in spite of tapering, the opposite is going on.

That's a plausible explanation. The taper threat in early 2013 set rates soaring and gold diving

smaulgld says

Strategist says

If the federal reserve is not expecting high inflation, which they keep saying, then gold has a limited upside. Gold fell from the highs of $1,900 to $1,300 in spite of all that money sloshing around, because inflation is not rearing it's ugly head.

The fed has not been a good at predicting future economic outcomes. Gold came down because it had a parabolic rise. ANY thing that goes up that high that quickly takes a dive.

You are underestimating what gold did from 2002-2012-went up each and every year. NO asset class does that. and it only did that BECAUSE of the Fed.

Gold is up again this year (12 of 13 years in a row) and will continue to rise as inflation continues to increase and the Fed stays behind the curve and the BRICS continue to reduce demand for the dollar.

Gold having a dozen positive years is not indicative of it continuing that trend. It might, but the past does not necessarily indicative of the future. From 1980 to 2002, gold was the worst investment ever, going from a high of $850 to around $300. But that did not stop it from having a dozen good years.
I'm personally not too fond of gold and never have been. I had purchased a couple of gold coins in the late 1980's and I lost them. I lose everything. I have to buy cheap sunglasses because I keep forgetting them at restaurants. Good thing I have a wife who remembers everything.

smaulgld says

The stock market and housing markets are up by massive amounts as if the economy is doing really well and its prospects are even better.

Think for ONE MINUTE- WHY?

The answer you are looking for is low rates and lots of money sloshing around. Sure that has something to do with the record breaking indexes, but the real reason is an anticipation of a full recovery sooner or later. IMHO.

Strategist says

Gold having a dozen positive years is not indicative of it continuing that trend. It might, but the past does not necessarily indicative of the future. From 1980 to 2002, gold was the worst investment ever, going from a high of $850 to around $300. But that did not stop it from having a dozen good years.

Gold is not an investment- it is an asset whose price is determined by monetary policy because it once was part of the monetary system and to a certain extent still is as most central banks hold it.
Gold went up from 71-80 because of the breach of the Bretton woods agreement
It went down from 1980-2000 because of hawkish monetary policy and a strong dollar and the internet boom.

It went up from 2000- present because of loose/reckless monetary policy that will continue.
There is a huge difference in raising rates a tad next year and pushing rates to 18% like the Fed did in 1980.

I don't particularly like gold either- I dis like monetary policy. Gold does nothing, but sometimes doing nothing is better than doing something reckless and often

Strategist says

The answer you are looking for is low rates and lots of money sloshing around. Sure that has something to do with the record breaking indexes, but the real reason is an anticipation of a full recovery sooner or later. IMHO.

Why would a sane person think that there would be a recovery based on juicing home prices and the stock market if the underlying fundamentals, infrastructure, labor market have not improved in any where near corresponding rates other than faith in central planners. All that can happen is asset prices can come down making the situation worse.

Almost like trusting the drug dealer because he makes you feel better

smaulgld says

Strategist says

The answer you are looking for is low rates and lots of money sloshing around. Sure that has something to do with the record breaking indexes, but the real reason is an anticipation of a full recovery sooner or later. IMHO.

Why would a sane person think that there would be a recovery based on juicing home prices and the stock market if the underlying fundamentals, infrastructure, labor market have not improved in any where near corresponding rates other than faith in central planners. All that can happen is asset prices can come down making the situation worse.

Almost like trusting the drug dealer because he makes you feel better

The investors of real estate and Wall Street believe the recovery is coming, which is why they started buying real estate and stocks, which led to the huge jumps.
America always recovers. These crashes that we saw in 2008 and following years were the greatest buying opportunities ever.

Strategist says

The investors of real estate and Wall Street believe the recovery is coming, which is why they started buying real estate and stocks, which led to the huge jumps.

America always recovers

I think they bought because they knew the prices would go higher because the fed was printing money not because of an underlying belief that the economy was improving

smaulgld says

Strategist says

The investors of real estate and Wall Street believe the recovery is coming, which is why they started buying real estate and stocks, which led to the huge jumps.

America always recovers

I think they bought because they knew the prices would go higher because the fed was printing money not because of an underlying belief that the economy was improving

I believe you are way off here.
The value of stocks is ultimately determined by the earnings the corporations generate. It's the expectations of future profits that drove the stocks higher.

smaulgld says

GDP Tables

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

US $16 Trillion

China $9 trillion

Manufacturing as a % of GDP

http://data.worldbank.org/indicator/NV.IND.MANF.ZS

China 32% of $9 trillion = $3 trillion +

USA 13% of $16.8 trillion = $2.1 trillion

American Manufacturing.org web site

"Manufacturing in the United States generates about $1.6 trillion, or 12 percent of our Gross Domestic Product"

http://www.americanmanufacturing.org/category/issues/jobs-and-economy/manufacturing-jobs-and-us-economy

China $3+ trillion US $1.6-$2.1 trillion in manufacturing

Ryan

What you are missing is that the GDP does not include the production of Capital Goods.

This stems from the Keynesian fallacy that consumption is the most important number. We as Austrians realize that this is specious, as the important number is what was produced as per Says law.

Capital Goods are covered under Gross Output. So items like Airplanes, Tractors, Turbines are not included in GDP. But G.O. is about 50% of economic production. They say 70% of the economy is consumer spending which is not true.

China's GDP numbers are dubious. When you have empty cities you have to question their GDP numbers as the local apparatchik is more interested in his bonus than value.

Additionally you would have to look at the quality of US products verses Chinese products. I doubt very much they could build an equal quality 747 or earth mover or ... of course that will change over time but that knowledge is accumulated over a long period of time.

This show explains what I'm talking about:

The Fallacies of GDP - June 04, 2014
Mark Skousen and Jeff Herbener explain the problems with GDP as a measurement of the health of an economy.

http://www.schiffradio.com/pg/jsp/verticals/archive.jsp

Strategist says

smaulgld says

Strategist says

The investors of real estate and Wall Street believe the recovery is coming, which is why they started buying real estate and stocks, which led to the huge jumps.

America always recovers

I think they bought because they knew the prices would go higher because the fed was printing money not because of an underlying belief that the economy was improving

I believe you are way off here.

The value of stocks is ultimately determined by the earnings the corporations generate. It's the expectations of future profits that drove the stocks higher.

Those profits have been manipulated by two factors that have nothing to do with real growth
-companies buying back their own shares with cheap borrowed money to reduce the share prices - s&p companies themselves are the largest buyers of s&p shares
-cost cutting

Russia bans meat fish dairy and fruit imports from the U.S., EU, Canada and Norway http://news.yahoo.com/russia-extends-import-ban-over-ukraine-sanctions-084346655--finance.html

Putin has seriously miscalculated his citizens' need for the Big Mac. His days are numbered.

indigenous says

The Fallacies of GDP - June 04, 2014

Mark Skousen and Jeff Herbener explain the problems with GDP as a measurement of the health of an economy.

I heard that show a while back.

Clearly the US GDP is a farce especially the new way they calculate it -including intellectual property.

But that has little to do with the United States' loss of significant manufacturing capacity for white goods(washing machines, refrigerators, toasters, air conditioners), electronics- most of that is no longer made in the US but now in China.

All the stuff Mark Skousen mentioned that we buy-eye glasses,shoes iphones, are all made in China-that is manufacturing in China not in US, irrespective of the impact on GDP

Here more on China's bogus GDP. http://www.stlouisfed.org/on-the-economy/why-news-of-chinas-economy-surpassing-the-u-s-s-should-be-met-with-caution/

Still there is no denying that China has built massive factories to make up for the capacity lost in the US.

China manufactures more shoes, radios, tvs, phones, DVD players, eye glasses, refrigerators, washing machines, lawn mowers, toaster ovens, furniture, air conditioners coffee makers, printers, computers than the US does.

To deny this fact with an interview about how GDP is calculated is not at all convincing that the US is "BY FAR the biggest manufacturing country in the world" .

smaulgld says

To deny this fact with an interview about how GDP is calculated is not at all convincing that the US is "BY FAR the biggest manufacturing country in the world" .

You are entitled to your own opinion, but not your own facts.

Comparatively speaking China manufacturers trinkets. Building a Boeing airplane is not in the same league as what they do.

Yet all Boeing's domestic production is not included in the GDP as it is a capital goods producer. This is around one half of all the production in the US.

The US had the industrial revolution over 100 yr ago we have some knowledge that is not acquired in 20 yr... With manufacturing you have to walk the walk which means the knowledge is real.

To me that is very convincing and makes the US the biggest manufacturing country by far.

Obviously that will change and my money is on China. After that maybe India or Africa as demographics favor them and help create economic growth and China is going to hit a demographic wall because of the one child law.

indigenous says

You are entitled to your own opinion, but not your own facts.

Comparatively speaking China manufacturers trinkets. Building a Boeing airplane is not in the same league as what they do.

Yet all Boeing's domestic production is not included in the GDP as it is a capital goods producer. This is around one half of all the production in the US.

You just invented facts! Boeing's annual revenues are abut $80-$100 billion
If that is half of the manufacturing production of the US, the US is in a very sad state.

The fact remain-china manufactures FAR more than the US does, even when you include Boeing's production of advance jet planes

smaulgld says

You just invented facts! Boeing's annual revenues are abut $80-$100 billion

If that is half of the manufacturing production of the US, the US is in a very sad state.

Boeing is just one example, of many that manufacturer capital goods. The Fact remains that China does not manufacturer Far more than the US does.

indigenous says

smaulgld says

You just invented facts! Boeing's annual revenues are abut $80-$100 billion

If that is half of the manufacturing production of the US, the US is in a very sad state.

Boeing is just one example, of many that manufacturer capital goods. The Fact remains that China does not manufacturer Far more than the US does.

You didn't say Boeing was "one example" you said Boeing was HALF-invented fact?

Ok keep buying "American"

smaulgld says

You didn't say Boeing was "one example" you said Boeing was HALF-invented fact?

The statement was:

"This is around one half of all the production in the US."

The antecedent for "this" is not Boeing.

I will agree to disagree China is not in the same league as the US in manufacturing for quality or dollar volume, except in commodity goods.

I wonder how you figure in the fact that their goods have to replaced so often because they are defective?

indigenous says

I wonder how you figure in the fact that their goods have to replaced so often because they are defective?

They would probably double count the new production of the replacement.

Anecdotally, I would say there are far fewer returns on the "trinkets" that China makes (electronics, refrigerators) than the GM cars that the US manufactures.

smaulgld says

Almost like trusting the drug dealer because he makes you feel better

Denial provides many a false sense of security. And while I am optimistic that sanity and logic will eventually prevail, I am not so foolish to believe there have not been forces at work who have created an economy built on sand.

Diva24 says

And while I am optimistic that sanity and logic will eventually prevail,

unfortunately logic can only be forced on the central planners when they stop making money through their manipulations and start losing money can can't patch things up with printing more money

smaulgld says

GM cars that the US manufactures.

Not that counts as a free market product, it would be fairer to compare GM to Travant

Otherwise compare them to Toyota or Honda

indigenous says

Boeing is just one example, of many that manufacturer capital goods.

The US does not have many Boeings. A good portion of Boeing is government orders