patrick.net

Though I gotta say, at times you must be making up stuff because it doesn't make sense in any model of economics.

There is a book called the Power of Gold by economist Peter Bernstein. He sorta makes the reader feel like gold is coveted by a hoarding mentality, a greedy hoarding instinct that'll always getcha in the end.

But I heard Bernstein interviewed on Money Talk last year, he actually recommended having a position in gold.

Headset, thanks for that MISH link.

Some good stuff there, though I'm not convinced when it comes to trend analysis or Elliot wave theory.

"I think gold fell from around $200 to around $100 before it went up again. That was in 1974."

I think that was '75 / '76 but no matter. I was always perplexed by that part of the chart from the 70's gold bull. What I think was related to that move back then was when they introduced futures contracts on gold in the USA on the COMEX. At best it was the wild west (as it is now again).

Probably nobody will care, but the reason I became interested in markets (any and all) goes back to this time frame (around 1980). My father said "take this $200 USD and get Canadian as we are about to go north on vacation". I as a youngster, went to multiple banks for quotes and found huge discrepancies in bid/ask. Even to the point that I was able to arbitrage between banks (walking between them buying from one selling to another) as a preteen, for a quick profit.

Almost everyone recognizes that the US dollar (like all fiat currencies) will lose purchasing power over time. Because of this, many people wrongly assume that the US dollar must decline relative to other currencies. But the exchange rate with other currencies can move in either direction depending on what is going on in those currencies/markets.

In 2007 I thought the bottom would come in 2008 for the USD, and so this summer I bet long the dollar against the Euro, Canadian, Pound, and Swissy. So far so good.

I think the dollar will continue to gain against other currencies in the next two years.

In fact, for more than a year I have felt that cash was the best investment. I think it is still a little early to bet on anything else. And the best cash is the US dollar. Most of the world agrees with this view, which is why we have seen a flight to the safety of US treasury bonds.

This type of currency volatility as witnessed now and described above can not be a good thing for international commerce. I have only heard it mentioned as a problem once or twice in the mainstream media in all of this chaos.

@ Zephry,

2 more years a dollar bull - WOW? How high you think?

Any chance someone (like China) blinks?

or Japan

or the British?

or Brazil?

etc...

I think the current bailout is mostly a terrible waste of money. It is far too expensive for the benefit we will get. And much of it will be counterproductive.

I do think that the Fed needed to take action to stabilize the financial system and the counterparty credit risk for normal commerce. But, that could have been accomplished by guaranteeing deposits, without guaranteeing the survival of the banks (and other entities). Let them fail, but cover the depositors and counterparties for normal commercial balances. As for credit default swaps let them sink – they were mostly speculator positions anyway.

Unfortunately, the fools in congress want this path, so we will have these expensive bailouts. And the spending on weak banks and other weak entities will divert resources away from the healthier parts of the economy. These programs will waste resources and stifle the normal recovery of the economy. We are starting down the policy path that Japan followed in the 1990s, and that the US followed in the 1930s. It failed both times.

The Fed caused the great depression by bad policy. And they have caused this crisis in the same manner. In both cases the policy was far too loose leading into the bubble, and then they tightened quickly precipitating a credit crunch and a financial panic.

Once the panic starts you cannot cure it with low interest rates. You have to let the speculators lose money.

I do not expect the dollar to have a dramatic rise. But the rest of the world is going into the toilet much worse than we will. And they are on a lag behind us. By 2010 we will be rising while they are still falling.

China cannot afford to blink. As I have posted for years, China is addicted to our trade. They need us - but we don't really need them. They sell stuff to us for dirt cheap prices and they even lend us the money to buy it with. So they give us real stuff now, and in exchange we give them a promise to pay them later with our paper that is declining in value.

But they are desperate and must sell their goods at any price (even at a loss) to maintain employment. Otherwise they will have civil unrest, rebellion. The economic tide is going out now and they are headed for severe trouble. Watch for increased turmoil and serious rioting in China soon.

Zephyr,

"China addicted to our trade":

In one sense, because the trade is the primary mechanism for creating the hierarchical capitalist social structure that the leadership appears to be so very much yearning for. ("I need oh-so-badly someone to be on top of").

In a practical sense, they could just as well sell their consumables domestically.
And the US consumer is quite addicted to the cheap stuff, if you ask me. They are the ones that really need to go to the dollar store and buy a tool for $1 that used to cost $10.I do think that WE are addicted.

So there is your contrarian view. Tell me where I'm wrong.

Justme, The communist structure gives them more dominance over the people. The leaders of China have been supremely on top of the people. That dominance is eroding.

Economic reforms give power to more people - diluting the concentrated power of the party elite. It is also creating a small but growing middle class.

Clearly China could consume more of their own output, but not enough to keep their factories running at their current rate. If the export market declines for them their unemployment will skyrocket. The lack of freedom in China has unrest already boiling under the surface. A rise in unemployment would be a disaster for the rulers.

We have become accustomed to cheap goods from China. But removal of that source would mean we pay more to buy those goods elsewhere. Our quantity of unnecessary stuff would decline somewhat. Americans would be annoyed by the reduced purchasing power.

However, the impact on China would be soaring unemployment, rising poverty, civil unrest and violence in the streets in protest against the government. There are already thousands of such protests each year. The Chinese rulers cannot afford to inspire greater dissatisfaction. They are sitting on a powder keg.

Paul,

My two year currency forecasts:
Euro $1.00 (if the Euro survives at all)
Pound $1.30
Canadian $0.70

Clearly China could consume more of their own output...

I think they know better than to eat their own dog food...

Patrick, that kind of loan actually pays 12% or more. There are hard money brokers I have told you about who do these loans. Yes, it is risky, you have to be very careful about the appraisal and working with a broker you trust. That is not meant to be a joke, you have to find someone reputable to work with. Also, realize that someone's residence is different than say a commercial project. I have seen people get very protective of their home and threatened to sue for such things as usury. Even if the claim is bogus it still scares people. If you have money burning a hole in your pocket and want to lend or invest in real estate get in touch with me and I'll show you how. I am working on some things on foreclosures back east that you will find interesting. You could get in with less than $15,000.