Financial topics

Investments, gold, currencies, surviving after a financial meltdown
freddyv
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Re: Financial topics

Post by freddyv »

OLD1953 wrote:The fake gold scams come around every time there is a major jump in the price of gold. Gold is itself in a bubble now, and there will be major problems with the metal in the not very distant future. One huge one is that fractional reserve selling (to coin a phrase) is apparently taking place on the commodity exchanges, and there isn't enough gold available to cover the sales if everyone demanded gold. If the exchanges collapse, it will take a huge amount of the shine off gold as the "safe" store of value. Will they? Good question, wish I knew the answer.
...

Gold certainly is in a bubble but so was the stock market in the mid-eighties. My point is that bubbles can get much, much larger than you would think. I believe that Gold will eventually be higher per ounce than the DJIA.

As for "fractional reserve selling", it seems to me that this is actually a force that will raise the price of gold as it becomes apparent that there is simply not as much gold as "the market" thought.

Richard Russell recently asked the question of what would happen if the US suddenly decided to revalue its gold from $41 an ounce to say, $5500 an ounce? That might solve our debt problem and would even keep China happy. Could it be that China and the US are in collusion on this? ...just a thought, but of course they would never do something like that, why that's like suggesting they would bail out failed companies at taxpayer expense. ABSOLUTELY PREPOSTEROUS!

--Fred
http://www.acclaiminvesting.com/
freddyv
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Re: Financial topics

Post by freddyv »

John wrote:If you fit the last century's earnings into an exponential growth curve, and extrapolate that curve to 2009, then you get a trend value for about $41 for 2009. So in the absence of a bubble, you should not expect earnings per share to be above $41 for some time to come.

But it's a lot worse than that, since earnings have to fall much farther, to compensate for the bubble highs. This is the Law of Mean Reversion, which says that if a value is well above trend for many years, then it has to fall well below the trend value for roughly the same number of years. This is simple math, since it says that the average growth rate in the future will equal the average growth rate in the past.

During bubbles, there are always people who say "This time it's different." We saw this in the housing bubble, where I heard financial analysts, economists and journalists say, "Housing prices can't go down -- people have to live somewhere," and "Banks won't foreclose -- it's not in their interest to do so" and "These housing construction firms know what they're doing, and they wouldn't be building houses if it were just a bubble."

All of these arguments proved to be completely wrong, but financial analysts, economists and journalists are apparently too dumb to learn from their mistakes.

John,

The more I learn and the more I see the more I think you are right, at least in your underlying arguments. In times like these everyone will be wrong about things in the short term as "the economy" jerks us around in order to get where it needs to be but it is crystal clear to me that Generational Dynamics and our past (which is where trend reversion comes in) chart the course for the future. I believe that with a clear, unbiased view of our past misdeeds and an understanding of Generational Dynamics one can see fairly clearly where we will end up. Given how long it has taken to get where we are and our reaction to the problems we face I believe that we face a long downhill road, much like the Japanese travelled these past 20 years. But I also see the possiblilty for a complete unraveling of the world economy as all of the seemingly manageable problems coelesce into a giant spiral downward.

The big challenge for me is to practice patience and to realize that history and trend reversion will win out in the end and that they will use all the powers at their disposal - greed, fear & time - to do what they must. John Hussman is perhaps as wise as any financial advisor but he is still too close to the problem and the problem is that investors believe that since something happened in their past it must continue. In fact, it's the fact that we had bull markets in stocks and housing for 2-3 decades (or is it 5-6 decades?) that ensures that we will NOT have bull markets in stocks and housing for a very long time.

One thing I heard in 2008 as the bulls were getting pummeled and I was feeling superior was that a secular bear market eventually hurts everyone. I heard that but didn't really understand it until 2009 and the 60% retrace. I now know that I'm lucky to be just a bit worse off than 2 years ago and that my priority needs to be to protect what I have, not to outsmart the market. Luckily I started paying off a very considerable amount of debt brought about by an expansion of my business in 2006 and am now almost debt free. I am now doing everything within my power to make sure I can survive whatever the world throws at me over the next decade or two. My goal is not to beat the markets but to take care or me and mine without becoming a ward of the state.

--Fred
http://www.acclaiminvesting.com/
John
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Re: Financial topics

Post by John »

>From a web site reader:
Web site reader wrote: > When I look at the S&P 500 earnings for 2009, they have recovered
> much more than I expected. Even if the 4th quarter is zero, the
> 2009 total will be over 35.

> How is this possible? Either the changes in accounting rules of
> mark to market are preventing write-offs in the collapse, or
> financial firms are continuing to make money on junk like credit
> default swaps, or something else is going on. Help me understand
> this. I agree with almost everything you write which is very
> articulate, but I don't see S&P's earnings estimates for 2009 a
> dream since most of the actuals are already in.
Any thoughts?

John
wvbill
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Joined: Sun Oct 05, 2008 9:46 pm

Re: Financial topics

Post by wvbill »

freddyv wrote:
Richard Russell recently asked the question of what would happen if the US suddenly decided to revalue its gold from $41 an ounce to say, $5500 an ounce? That might solve our debt problem and would even keep China happy. Could it be that China and the US are in collusion on this? ...just a thought, but of course they would never do something like that, why that's like suggesting they would bail out failed companies at taxpayer expense. ABSOLUTELY PREPOSTEROUS!

--Fred
http://www.acclaiminvesting.com/
Many --for example, Bill Still -- question whether the U.S. still has any gold...

And, yes, the Banksters -- who control Gov. and Congress -- will do anything... they are fighting for there lives and must know that any real solution would mean eliminating them.

Its going to get ugly before this is all over.

Bill
Higgenbotham
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Joined: Wed Sep 24, 2008 11:28 pm

Maximum Ruin Update

Post by Higgenbotham »

Wednesday I added to my short stock futures position and am now short the same number of contracts as in September when I gave up. My loss in net worth is right around 10% from the high point it reached last summer before starting this exercise in Maximum Ruin (it had been a little more than that earlier in the week as the market made yet another high Monday and Tuesday).

I watched a little CNBC over the holidays. The commentators are clearly out of touch with reality. They are comparing this recovery to previous post recession recoveries and projecting similar stock market trajectories. This so-called recovery is based on a few trillion dollars of government money which has generated phantom earnings and GDP. In addition, short term interest rates are still at zero, which does not happen during a post recession recovery or even in a normal recession. Third, and probably most important, debt in the private sector is being liquidated with no prospects of the private sector taking on additional debt for years. And, fourth, real estate prices have fallen nationwide, which I don't believe has ever happened on a nationwide basis during a recession. None of this was discussed at all on CNBC. It reminds me of the Pink Floyd song where they say, "And the worms ate into his brain."

In addition, some of my relatives are also out of touch with reality. I heard statements like the following:
"The only problem with real estate was adjustable mortgages and that's been solved."
"SO WHAT!" (referring to my statement that a Dubai default could unwind the dollar carry trade). It reminds me of the Pink Floyd song where they say, "And the worms ate into his brain." Sorry, had to say that again.

Listening to all that makes me want to stay short.

And the beat goes on.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.
xakzen
Posts: 80
Joined: Wed Mar 25, 2009 11:59 am

Re: Financial topics

Post by xakzen »

Higgenbotham wrote:... some of my relatives are also out of touch with reality. I heard statements like the following:
"The only problem with real estate was adjustable mortgages and that's been solved."
"SO WHAT!" (referring to my statement that a Dubai default could unwind the dollar carry trade)...
I got nothing but glassy eyed looks from visiting holiday relatives on these subjects. I've stopped trying to preach to the mob. Thank God we have our modern day Cassandra in John or I might begin to think myself mad as well. But like Cassandra I'm learning that no one wants to know. The contrarian in me wonders that there was not one bear on Fox this morning, but like Maynard Keynes said, "The market can stay irrational longer than you can stay solvent”.

Good Luck with whatever your positions might be.
wvbill
Posts: 65
Joined: Sun Oct 05, 2008 9:46 pm

Re: Financial topics

Post by wvbill »

Karl Denninger commenting on his predictions for 2009:
Ok, so where did I go wrong?

That's pretty simple: I dramatically underestimated the willingness and ability of "the criminal class" (that would be those in DC and on Wall Street) to lie, cheat, steal, paper over insolvency and get away with it - at least for a while.

Will this ultimately lead to an actual recovery? No.
And his predictions for 2010 -- well worth a read -- here:

http://market-ticker.denninger.net/arch ... -2010.html

Bill
gerald
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Joined: Sat May 02, 2009 10:34 pm

Re: Financial topics

Post by gerald »

WVBill wrote

"Its going to get ugly before this is all over."

Gerald writes ---

(sorry key board problems or site problems)

The comments from "James Turk" regarding "sovereign debt default" is interesting, and yes it looks like it could get ugly.
http://www.kitco.com/ind/Turk/turk_dec212009.html
gerald
Posts: 1681
Joined: Sat May 02, 2009 10:34 pm

Re: Financial topics

Post by gerald »

Chinese debt, a problem?

http://www.forbes.com/forbes/2009/1228/ ... =dailycrux

Any comments ? which of the world's governments is dumber?
Higgenbotham
Posts: 7983
Joined: Wed Sep 24, 2008 11:28 pm

Maximum Ruin Update

Post by Higgenbotham »

Wow, the board sure seems dead. Remember how lively the discussion was here during the financial crisis? Remember how some of us (like me) here were feeling so smart and were sure the market was going to go down? Remember how some of us were talking about whether the Dow would go to 1000 or just 4000?

Well, I am still short and have now lost 13% of my money. There aren't many people who lose money on the Internet but in real life it's a common occurrence. I can't believe how things have shifted from one extreme to the other in a matter of 10 months. Seriously, I feel really stupid now, but if I ever do get my money back, I'll know forever more that I'm not as smart as I thought I was!

It does seem like some sort of silly extreme has been reached. I tried to change my name to "Wrong Way Higgy" but couldn't figure out how to do it. So I'll just sign my posts to that effect until I make my money back, if it ever happens.

Wrong Way Higgy
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.
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