Inflation, deflation, gold and currencies

[colbert]

I was having a conversation with a co-worker about wealth preservation the other day and think that staying half in cash and half in metals would be a sensible good/safe hedge near-term. I'm afraid of even the energy and PM stocks right now. I fear Xenakis may be right about a market crash at some point. It could however turn out to be a prolonged range-bound market where we see P/E ratios fall over many years through the power of flat earnings with steady high inflation. If the market stays flat (range-bound) in nominal terms with a 15% real inflation the same affect of P/E compression would be achieved over several/many years - resulting in a Dow to Gold ratio approaching 1:1. I think that the only ones left standing will be the savers who tried to preserve their wealth instead of trying to get rich off of this upcoming hyper inflationary/deflationary depression. Speculate at your own peril and only with money you can afford to lose.

[freddyv]

It's sad to see that people continue speculating right up to the end and still desire to brag about how smart they are, even here in this forum.

Isn't the message, "save, save, save and be ready to take care of those you love?"

Hoping for the best but preparing for the worst.

--Fred

[colbert]

The really sad thing, Fred, is that when you have the kind of craziness and uncertainty that is going on now even "savers" are forced to speculate into things other than money markets, bonds, and CD's because a potential looming currency and/or banking crisis in this country could wipe them out. What do you tell people retired on pensions, bonds, and social security if the U.S. Dollar gets wiped out? You were responsible and "saved" and stayed "safe" but sorry it didn't work out - you should have speculated in precious metals. It's crazy and very unfair for our Fascist banking and government elites to have put decent honest hardworking people into a position where they felt compelled to "speculate".
By the way, the people of Weimar Germany in the 1920's found themselves in the same predicament. During that time everybody from the housewife to the elevator attendant was "speculating" in the stock market due to hyper-inflation. Funny how history rhymes rather than repeats. People speculating now are not doing so out of euphoria but out of quiet desperation and confusion. Nobody really seems to know what the end result will be with this whole derivatives beast lurking around out there ready to destroy the financial world at any given moment or at the behest of whatever black swan that comes along. I have read a lot of material from the Austrian gold bug camp, but I just can't seem to fully commit to the hyper-inflationary scenario w/out worrying about hyper-deflation coming along first. As tempted as I am to put new money into commodity stocks, I just can't do it due to my fears of a complete and total stock market collapse. The increased volatility in the markets looks ominous to me.
I guess I'll just have to wait for something big to happen before I know which path to take. This is truly a fork in the road point in time for investing. I will just have to hang out at the fork before committing down the path of either road. Hoarding fiat currency cash under the mattress along with a loaded gun unfortunately sounds prudent in these uncertain times.

[John]

A message from a web site reader:

> So do you still think I'm out to lunch on Gold? guess who's
> laughing all the way to the bank? there is always a versus when
> someone else is being sold down, (as unfortunate as this is) one
> just has to understand the larger picture and if you looked hard
> enough gold and silver was the answer....as I stated numerous
> times before but you only laughed at my suggestion. Hope you're
> making money according to your analyses. I mean what good is your
> analyses if there is no pragmatism attached with it and what it
> really means to our lives. I enjoy your analyses, and in reality
> yours was one of the first websites that caught my attention to
> what was coming. My endeavour thereafter (in 2002/3) was to find
> a beneficiary vehicle to latch onto in order to profit from the
> doom.....and it's happened and will now (over the coming months)
> continue to happen in a hyperparabolic manner.

This person has previously told me that he hopes to make "untold
millions" from investing in gold. He's one of several people who
have been extremely scornful about my views about gold being in a
bubble.

John

[colbert]

Well, John, all i can say is that it sure looked like investing in gold was the thing to do (and i do believe that it will be the correct investing path in the long-run). In the short-run i'm afraid the deflation argument will win and i concede defeat on this. The contraction of this GIGANTIC credit bubble along with falling housing values screams deflation and Xanakis (is that you?) deserves the credit for making the deflation connection when just about everybody else was predicting inflation. If you do indeed turn out to be correct on this then i want to commend you for your analysis and objectivity on this matter - as you were definitely in the smaller camp.
I do have one bone to pick with you (Xanakis) and that is your stating that gold is in a "bubble". I fail to see how you could honestly arrive at that conclusion w/out taking account 1) the growth of our nations money supply since gold's previous peak of $800 (or was it $850) back in the early 80's. 2) the growth and level of our national debt since that time. 3) the growth and level of our unfunded liabilities and the massive strain the Boomers will put on medicare/medicaid and social security in the coming years. 4) the coming of peak oil which is absolutely real. . . . . . i could go on and on but i suppose these arguably are speculative factors as much as accurate metrics of gold's true theoretical price. Fine. But even inflation adjusted from it's previous levels in the mid 70's before it had it's super spike to $800 gold is under-valued (and that's using the government's contrived/false CPI inflation statistics. Silver hit it's multi-decade low around 2001 or so in the $4 per ounce range and now with everything going on it's only at $12? It spiked to $50/ounce in 1980. I'm sorry but i don't see the "bubble in gold" that you see.
I do nevertheless concede to you that gold and silver are likely going to lower levels in the near-term possible lasting a few years due to this deflation (barring some hyper-inflationary black swan event). I also believe that this deflation will be analogous to that brief period when the tied goes out just before the giant tsunami of hyper-inflation hits shore. If you have any real evidence to back-up your assertion that gold is "in a bubble" i would love to hear your thoughts as i try to be an honest truth seeking critical thinker and am generally willing to adjust my opinions on many topics when presented with new/better information. I respect your views and would love to hear your thoughts on the present prices of gold/silver as i am obviously obsessed with this topic right now and need to get a life!

[bujjai]

Colbert/John,

I wrote that....and as John stated, we've been in a debate of sorts on our views on the gold price. I will just say one thing to make my point. The markets are disconnecting. The benefactor is gold, but you wouldnt know it judging from the price....soooo, go out and try and purchase an oz of gold on comex and then do the same by purchasing an ACTUAL gold/silver coin, it turns out that physical gold is selling for a 100$ premium, and Silver at a 10$!!!! premium. The markets have already shot up. So yes, if you look at comex pricing, it's a joke, trade the actual commodity and enjoy your profits!! If you can find it. Therefore I really dont care if the price on the spot market is down or up, deflating or inflating, all I know is the price of physical metal has shot up and no one can do anything about this phenomenon and the shortage in this market is up to a month to 45days for the internationally recognized coins (krugerrands, philharmonics, eagles, maples).

[colbert]

I can't argue with you Bujjai. Lately i've been seeing 40% premiums or more over spot price for the eagles and 20% for silver rounds. I haggled a few weeks ago with a local coin dealer (the most reasonable in my city that i've been able to find) and paid 14% over spot for "junk" pre-1965 quarters. It's crazy. I wonder if the REAL market is telling us something regarding this phenomenon of the pricing of precious metals - real coinage vs. paper futures/equities. For what it's worth i think the pre-1965's offer the best overall value for the coming end of times. . . . . .i'm getting a gun probably today and going to costco to stock up.
One thing Bujjai. Just be careful what you ask for cus' you jus' might get it. This coming collapse might just hurt everybody (even us gold bugs). What i mean is that even if you were one of the lucky titanic survivors to get on a life-boat the whole experience still sucked!

[axis_of_evil]

I thought gold and silver were going to devalue?

EDIT: damn, i mean go down in price

[bujjai]

Devalue? What does that mean? Have you read the posts? the price of gold, when purchased physically from a bullion dealer is selling at a DIFFERENT MORE VALUABLE MARKET PRICE than what is being quoted to you by the lying bankers. ....oh, that's if you can find it. The US govt is apparently now hoarding gold as they've stopped selling to the public. Get ready for Gold to double.

[axis_of_evil]

Yes but people won't have money to buy gold