Financial topics

Investments, gold, currencies, surviving after a financial meltdown
Oakwood
Posts: 54
Joined: Fri Aug 14, 2009 11:01 am

Re: Financial topics

Post by Oakwood »

From Bill Fleckenstein (5/26/10):

"It is also interesting that the lexicon is riddled with references to gold as being a very desirable asset to possess. People talk about such-and-such being "as good as gold" (never "as good as colored paper"); or they'll describe some great business as "a gold mine"; or, they'll talk about "the golden rule" as though it's an ironclad law. Yet, most people continue to treat gold like dirt, or worse.

Gold has been an asset that's helped protect and deliver gains vs. paper money for the last 10 years running, yet the popular press heaps nothing but scorn on it. Even people who own gold seem to suffer angst regularly, based on the questions I continually receive in Ask Fleck. Meanwhile, Bubblevision and other media outlets persist in telling you how great stocks are, although this asset class has cost people money for a decade.

The current level of skepticism is nicely illustrated by the recent short-interest surge in the GLD exchange-traded fund. It's now doubled, standing at about 30 million shares (around 3 million ounces). Meanwhile, when the gold market recently fell out of bed, ETF holders at the margin liquidated no ounces; and in the last couple days, they added a whopping 50 tons (a phenomenon occurring in other places around the planet as well). Thus, as a wise commodity-trading friend said many years ago, you can be with the trend and still contrary.

While I don't believe that gold is a totally contrary concept, it is contrary from the standpoint of there being so few avid believers though the list of high-quality investors who now hold gold has become quite impressive.

I keep waiting for the day when folks realize that if you invest in the shares of a goldmining company, you basically own a piece of "the money-creation machine." It's sort of like owning a central bank that isn't staffed by losers. In any case, at some point I expect to see the masses rabidly bullish about gold and goldmining companies, though obviously we're a long ways from there."

Now if I'm not mistaken John previously predicted that gold's "real" value is about $500 and that it's currently in a bubble. However, I don't believe he's provided justification for these statements, although I could very well be wrong. John, with all due respect, could you either point me to your reasoning and/or provide it here? It's estimated that the marginal cost of mining a new ounce of gold these days is about $700 an ounce and getting more expensive every day. By the way, as I've stated before, I believe gold is in the tenth year of at least a 20 year bull market. For you doubters, take a look at a 10 year chart of of GLD.
Last edited by Oakwood on Thu May 27, 2010 2:35 am, edited 1 time in total.

Oakwood
Posts: 54
Joined: Fri Aug 14, 2009 11:01 am

Re: Financial topics

Post by Oakwood »

Richard Russell (http://www.dowtheoryletters.com)

Russell's inner and unexpressed thoughts about the future -- I believe that we're living through a time of historic change for the US and the world. I believe the stock market is telling us an ominous story, but as usual, the stock market is well ahead of the story. I believe the stock market is heading into what may be the worst and most decisive bear market in history. The generations since World War II have been enjoying decades of good times with the help of fiat money and massive borrowing -- a process that has created an international house of cards. The stock market has forecast our great and "borrowed" period of the good life in its own way -- by giving us the greatest bull market in history.

Now the bull market is over, and the great correction (bear market) is upon us, but it's still in its early stages. The bear market will be hair-raising in its intensity and persistence. The bear market will produce losses that will be a wonder to behold.

The bull market was sustained by systematic inflation -- and fiat money created by the central banks of the world. Before the bear market is over, the very worth of fiat money will be in question, and the position of these central banks, including the Fed, will be in jeopardy.

The world is rushing into dollars. The world is clearly treating the US dollar as a "safe haven." As my subscribers must know by now, I view all sovereign fiat currency as questionable. As a matter of fact, I base the world disaster we're now going through on the widespread creation of fiat money. Once bankers (the Fed) realized that they could control the money of nations, they realized that they could control nations. In my own mind, I view central banks and fiat money as "against the gods."

Central banks create fiat money, denigrate gold, and try to convince the people that the money they print is wealth. That's the great lie behind fiat money. I see one facet of this bear market as the beginning of the end of fiat money. No man and no organization can create wealth with the click of a computer. That's the great immoral fraud underlying this bear market.

Smart investors, investors who know and understand history, are well aware of the fraud of fiat money. Which is why there is a bull market in intrinsic wealth today. Art dealers are amazed at the prices being paid at auction for top-tier art. Diamond dealers can't believe the prices being paid at auction for top-quality diamonds. No-nothings can't understand why gold is selling at historic highs in terms of various fiat currencies.

I view the developing primary bear market as a great moral drama. It's the market's answer to man's greed and his ability to brain-wash his fellow citizens. The gigantic fiat house of cards is slowly coming undone. Wealth is created by the sweat of man and the brain of man. To create "wealth" by fiat money is fraudulent and against both man and the gods. Great bear markets invariably uncover great crimes. This primary bear market will be of historic proportions and earth-shaking proportions.
The P&F chart below illustrates what I call, "the fatal break." Here we see the Dow plunging below the 9900 box -- with nothing but SPACE below it. The P&F projected "target" is 8600. There's no guarantee that the Dow will get there. I happen to believe it will.

Image

Based on many emails I received - there is misunderstanding regarding my position. My position is gold and cash. No bonds or stocks except for gold stocks. T-bills and CDs are good - cash must be FDIC.

Most newer investors don't understand that great killer in a bear market is the collapse of price/earnings ratios or what investors will pay for earnings. I don't care how good a company's earnings are, if its P/E heads down that stock's price will collapse.
Americans shouldn't worry about austerity, because President Obama has a great plan. What's the plan? It's a hellish plan -- tax the hell out of the "rich" and beat the hell out of Wall Street. If that doesn't work, he'll form a committee headed by top presidential advisor Larry Summers. And if that doesn't work, President Obama will go back to teaching and disappear, the way George W. Bush Jr. has disappeared. Is "W" still alive?

This may be a new trend -- "the disappearing politician."

richard5za
Posts: 893
Joined: Sun Sep 21, 2008 10:29 am
Location: South Africa

Re: Financial topics

Post by richard5za »

A sense of financial history

Dear John,

I am responding to your response to me that you wrote on 25 May. The one where you wrote this:
There was a chartist [Jeff Weiss is a Chartered Market Technician and
Chief Technical Analyst at Jesup & Lamont] on CNBC this morning just
after 7 am ET. He was talking about various support levels around
1040 or 1050, but he was silent about what would happen if the bottom
support level failed, except that the market would keep falling.
First of all only with a sense of long term financial history can you work out where you are and how you got there. In various ways this is the point you have been making with various calcs and graphs.

Stock markets go in cycles. To illustrate this point visit http://www.crestmontresearch.com - they do a good job of analysis over the past 100 years.

At your peril does one get bull and bears cycles confused. For instance 1982 to 1999 was a bull cycle; the increase over this period was 1214% !! To have sold your shares in 1982 and sat on the sidelines for 10 years would have been very silly. But to have sold all your shares in 1965 and invested in other things or just enjoyed interest would have been wise in the prior bear cycle, because from 1966 to 1981 the Dow dropped 10% for the 16 year period. Even smarter would have been to have sold out in 1929.

The worst financial crisis in recorded history was the Great Depression. The second worst so far, is the current Great Recession, and in my opinion getting worse.

Bear in mind that stock markets are strongly driven by sentiment in the short and medium term, but in the long term investment returns versus risk and inflation are important criteria for the valuation of shares. Briefly, when inflation is low but positive, PE ratios tend to be high, and when inflation is high or negative, PE ratios are low. Currently the world is either heading into high inflation, or, more likely deflation, both of which will bring the PE ratios below 10 (if we are lucky, more likely, if you look at 100 year history 6 is more likely) If you want to see the economic trouble caused by deflation have a look at Japan from 1990 to the current date.

Its with this long term sense of financial history that we look at the shorter term history, and using patterns from the last 80 years see if we can make sense of a short or medium term forecast.

My charts have the Dow heading down with another 3 significant bear market rallies to come.

But lets take the opposite: A forecast that the Dow will go back, even pass, its 2007 peak. Well, its possible I suppose, but in light of the long term history, about as likely as the government deciding we don't have to pay income tax!

What about a repeat of the end 60's and 70's where things churned sideways (down only 10%) over 16 years. Well, back then they didn't have the second worst financial crisis in recorded history and getting worse!

The debate is not about the Dow going down from here; its about how far down and in what manner. I may be wrong in my prediction that the bottom for the Dow will be between 3200 and 4800; maybe its 6500, but what about 1400 which I reckon has the same rough probability as 6500.

The issue for you and me, and presumably the readers of this website is not how far the Dow goes down, but if we are wise enough to be in cash, buying back into the market at the right time.

My final comment is that in the very short term my charts are suggesting that the Dow is over sold, and it might rally to 10300 or so. This is a time to take profits and get out, not become optimistic and buy more.

Regards
Richard

John
Posts: 11478
Joined: Sat Sep 20, 2008 12:10 pm
Location: Cambridge, MA USA
Contact:

Re: Financial topics

Post by John »

Dear Richard,
richard5za wrote: > But to have sold all your shares in 1965 and invested in other
> things or just enjoyed interest would have been wise in the prior
> bear cycle, because from 1966 to 1981 the Dow dropped 10% for the
> 16 year period. Even smarter would have been to have sold out in
> 1929.
Do you have any explanation, in either generational or
non-generational terms, why the market fell from 1966 to 1981?

John

OLD1953
Posts: 946
Joined: Tue Aug 11, 2009 11:16 pm

Re: Financial topics

Post by OLD1953 »

Oakwood, I've got a question for you here. What do you regard as fiat money and what do you consider creation of money? As most here know, I'm a firm believer in getting definitions straight before getting into anything deeply.

aedens
Posts: 4753
Joined: Tue Nov 04, 2008 4:13 pm

Re: Financial topics

Post by aedens »

http://joongangdaily.joins.com/article/ ... id=2920988

The longer their apology is delayed, the more damage they will suffer.

However, if the North dares to make another round of provocations, it will be met by a much stronger retaliatory response from our side. We have already chosen to use our right to self-defense instead of taking revenge with military action. We warn them not to provoke us again.

http://www.worldaffairsjournal.org/new/ ... ing_Powers

That the Obama administration strongly disagreed became clear within hours of the news. Secretary of State Hillary Clinton told the Senate Foreign Relations Committee that Russia and China were on board for a new sanctions package that would be taken to the UN Security Council. For Clinton this was the best answer to what Iran had been trying to do in the last few days. This not only showed that the US didn’t approve of the Tehran agreement, but that it probably had never expected the Iranians to sign it at all. That a couple of mid-level powers were taking matters into their own hands on an issue that occupied center stage in American diplomatic efforts surely added to Washington’s annoyance. Last but not least, Iran said that it would continue to enrich uranium as well.

Looking at the way the press in the US covered this story, I was deeply surprised to see pundits and other members of the American news media once again commenting on world events as if the Iraq War had never happened. Without recognizing how damaged American credibility has become as a result of the war — no less because it so egregiously abused the UN process through misinformation, bullying, and manipulation — it will be difficult for the American public to appreciate what other countries are doing.

IMO given the amount of yellow cake removed from the region and as a citizen who does remember what the democrats conveyed in the mid seventy's in the region the attention span of the public is the issue for all party's concerned. The current information age have shown nothing on the mirror of the past telling us the future developing technological carnage. In defence of the average American I must say the time we live in does not help either since the majority are not the issue since it took so few as always to get us to the proverbial point of really what is your point since we want to be left alone. I read an article which conveyed the cost of economics ignorance is a step by step process as we have always seen from any civilation bent on a debased currency which is nonproductive governmental loss of scarce capital and malinvestment. Eisenhower warned us also and also we know that its your money so why would you trust banking and Governmental for that matter in largesse anyway as a solution? The course it has not changed nor has my opinion on the certitude of economic malinvestment to date. Can we turn the corner to a viable model, I think not and will stay in the preservation of capital to date given local and moral hazzard payments. I had no recourse to prevent since who thinking and not spending other people money. I hope the voter awakes but hold no conviction of that helping either to what I see since I perceive there apathy that Uncle Sam can do it all.
Last edited by aedens on Tue Jun 01, 2010 8:35 am, edited 5 times in total.

vincecate
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Joined: Mon May 10, 2010 7:11 am
Location: Anguilla
Contact:

Re: Financial topics

Post by vincecate »

John wrote: Do you have any explanation, in either generational or
non-generational terms, why the market fell from 1966 to 1981?
Interest rates were going up during that time. You can think of it as the dividend yields on stocks have to be competitive with bonds, so P/E rates have to go down as interest rates go up. It does not matter if companies really don't pay dividends or if they buy back shares, the P/E goes down with higher interest rates. It is the same thing we are really facing now. Interest rates are at zero but they will be going up, so stocks will be going down.

vincecate
Posts: 2371
Joined: Mon May 10, 2010 7:11 am
Location: Anguilla
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Re: Financial topics

Post by vincecate »

Oakwood wrote: Now if I'm not mistaken John previously predicted that gold's "real" value is about $500 and that it's currently in a bubble. However, I don't believe he's provided justification for these statements, although I could very well be wrong. John, with all due respect, could you either point me to your reasoning and/or provide it here?
I am new here and have been reading lots of old posts to catch up. His logic was something along the lines of the average price was $300 from 1975 to 2005 and so by "regression toward the mean" it should go back to that, plus a little for inflation and he got $500.

I don't believe John groks the true extent of money printing and inflation since 1933. By similar logic one could argue that from 1800 to 1933 the average price of gold was $20 and so by regression toward the mean we have to go to negative $300 for the next 70 years to get back to the average of $20. Sort of logical, but mostly silly.

The problem is that governments are now using trillions where we had billions less than 100 years ago. Gold and silver are money that only increase in quantity by mining, not printing. So the ratio between these two types of money and paper money printed by the trillions should not be constant over the decades.

-- Vince

aedens
Posts: 4753
Joined: Tue Nov 04, 2008 4:13 pm

Re: Financial topics

Post by aedens »

[quote="Oakwood"]Richard Russell (http://www.dowtheoryletters.com)

Russell's inner and unexpressed thoughts about the future -- I believe that we're living through a time of historic change for the US and the world. I believe the stock market is telling us an ominous story, but as usual, the stock market is well ahead of the story. I believe the stock market is heading into what may be the worst and most decisive bear market in history. The generations since World War II have been enjoying decades of good times with the help of fiat money and massive borrowing -- a process that has created an international house of cards. The stock market has forecast our great and "borrowed" period of the good life in its own way -- by giving us the greatest bull market in history.

http://money.cnn.com/2010/05/13/smallbu ... /index.htm

"Big banks pulled back on everyone, but they pulled back harder on small businesses," Elizabeth Warren, the panel's chairwoman, said on a conference call with reporters ahead of the report's release.
Warren's oversight committee was established to keep tabs on the federal government's financial stabilization effort, the Troubled Asset Relief Program (TARP). The committee's May report focuses on the role TARP played in improving credit access for small companies.

The grim conclusion: It failed.
Last edited by aedens on Thu May 27, 2010 12:56 pm, edited 1 time in total.

aedens
Posts: 4753
Joined: Tue Nov 04, 2008 4:13 pm

Re: Financial topics

Post by aedens »

Oakwood wrote:Richard Russell (http://www.dowtheoryletters.com)

Russell's inner and unexpressed thoughts about the future -- I believe that we're living through a time of historic change for the US and the world. I believe the stock market is telling us an ominous story, but as usual, the stock market is well ahead of the story. I believe the stock market is heading into what may be the worst and most decisive bear market in history. The generations since World War II have been enjoying decades of good times with the help of fiat money and massive borrowing -- a process that has created an international house of cards. The stock market has forecast our great and "borrowed" period of the good life in its own way -- by giving us the greatest bull market in history.

Now the bull market is over, and the great correction (bear market) is upon us, but it's still in its early stages. The bear market will be hair-raising in its intensity and persistence. The bear market will produce losses that will be a wonder to behold.

The bull market was sustained by systematic inflation -- and fiat money created by the central banks of the world. Before the bear market is over, the very worth of fiat money will be in question, and the position of these central banks, including the Fed, will be in jeopardy.

The world is rushing into dollars. The world is clearly treating the US dollar as a "safe haven." As my subscribers must know by now, I view all sovereign fiat currency as questionable. As a matter of fact, I base the world disaster we're now going through on the widespread creation of fiat money. Once bankers (the Fed) realized that they could control the money of nations, they realized that they could control nations. In my own mind, I view central banks and fiat money as "against the gods."

Central banks create fiat money, denigrate gold, and try to convince the people that the money they print is wealth. That's the great lie behind fiat money. I see one facet of this bear market as the beginning of the end of fiat money. No man and no organization can create wealth with the click of a computer. That's the great immoral fraud underlying this bear market.

Smart investors, investors who know and understand history, are well aware of the fraud of fiat money. Which is why there is a bull market in intrinsic wealth today. Art dealers are amazed at the prices being paid at auction for top-tier art. Diamond dealers can't believe the prices being paid at auction for top-quality diamonds. No-nothings can't understand why gold is selling at historic highs in terms of various fiat currencies.

I view the developing primary bear market as a great moral drama. It's the market's answer to man's greed and his ability to brain-wash his fellow citizens. The gigantic fiat house of cards is slowly coming undone. Wealth is created by the sweat of man and the brain of man. To create "wealth" by fiat money is fraudulent and against both man and the gods. Great bear markets invariably uncover great crimes. This primary bear market will be of historic proportions and earth-shaking proportions.
The P&F chart below illustrates what I call, "the fatal break." Here we see the Dow plunging below the 9900 box -- with nothing but SPACE below it. The P&F projected "target" is 8600. There's no guarantee that the Dow will get there. I happen to believe it will.


Based on many emails I received - there is misunderstanding regarding my position. My position is gold and cash. No bonds or stocks except for gold stocks. T-bills and CDs are good - cash must be FDIC.

Most newer investors don't understand that great killer in a bear market is the collapse of price/earnings ratios or what investors will pay for earnings. I don't care how good a company's earnings are, if its P/E heads down that stock's price will collapse.
Americans shouldn't worry about austerity, because President Obama has a great plan. What's the plan? It's a hellish plan -- tax the hell out of the "rich" and beat the hell out of Wall Street. If that doesn't work, he'll form a committee headed by top presidential advisor Larry Summers. And if that doesn't work, President Obama will go back to teaching and disappear, the way George W. Bush Jr. has disappeared. Is "W" still alive?

This may be a new trend -- "the disappearing politician."
Sample:
I now highly doubt that any provision will be added. I just read an article today on the Washington Post that the Pentagon is calling for a decrease in soldier spending. Let me point out a tidbit from the article:

"In the midst of two long-running wars in Iraq and Afghanistan, defense officials are increasingly worried that the government's generosity is unsustainable and that it will leave them with less money to buy weapons and take care of equipment."

So, in essence, I believe this means soldiers and veterans are going to have to help pay for the financial incompetence of the politicians running this nation.

Another: I enjoyed my service and am proud that I served but I have told my children not to volunteer. This is because of the injustice that Chapter 61 retiree get. I would have proudly served 20+ yrs but was not able to do so. Now I have a life long disability that will effect me for the rest of my life. I do not get compensated fairly and have little faith in the VA.

That article can be found here, btw: http://www.msnbc.msn.com/id/37028501/ns ... ngton_post

Was that is....

Also, I am reading HR 5136

But it will include raises to be enacted. We are reminded of its path.
When the government wants to pay out more money than before, if it
wants to buy more commodities for some purpose or to raise the salaries
of government employees, no other way is open to it under normal conditions
than to collect more taxes and use this increased income to pay,
for instance, for the higher wages of its employees. The fact that people
have to pay higher taxes so that the government may pay higher wages to
its employees means that individual taxpayers are forced to restrict their
expenditures. This restriction of purchases on the part of the taxpayers
counteracts the expansion of purchases by those receiving the money collected
by the government. Thus, this simple contraction of spending on
the part of some, the taxpayers from whom money is taken to give to others,
does not bring about a general change in prices.

To me is curtails spending and I have no choice. Does it lead to inflation or deflation?
Well right now it is obvious the taxpayer may figure it out and for those forward
the market has it priced in are going to find out the facts the hard way.

http://www.cbo.gov/ftpdocs/115xx/doc11529/hr5136.pdf

http://thomas.loc.gov/cgi-bin/query/D?c ... c111EHF9TY::

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