The Golden Truth: Comment Of The Year Candidate

Tuesday, November 10, 2009

Comment Of The Year Candidate

From my colleague, "Jesse," who authors the Jesse's Cafe Americain blog linked in the "My Blog List" down below:

"I don't think we have to worry too much about Bernanke destroying the value of gold, but he is doing a great job on the dollar"

8 comments:

EconomicDisconnectTuesday, 10 November, 2009
Try to remember that the dollar at 40 on the index should mean S&P 500 at 2500, so it is all good no matter what.

Rough game last night, those Steelers are cagey!
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Dave in DenverTuesday, 10 November, 2009
Hey gyc,

Denver was simply out-physicaled and out-executed. Denver's defense once again was very stingy in the 1st half. I think they only allowed 60 yds in the 1st half. In the second half they couldn't stop that stupid run over the right side.

The bottom line is that McD has to make some adjustments on offense in order to generate more points. I think he's going to have to start letting Orton go downfield with the ball.

You're probably right about the SPX going to 2500 when the dollar goes below 50. That puts the Dow around 20,000, and if gold starts to regress closer to a 1:1 dow/gold ratio, where will gold be? and if silver moves closer to a 15:1 ratio, where will silver be?
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EdwardoTuesday, 10 November, 2009
The SPX may be at 2500, but I doubt it. In fact, I think things will get more than a little chaotic if the dollar loses half its trade weighted value in a year or two.

Ask yourself where fuel prices will be in such a scenario, and also be aware that the the planned slow drip currency depreciation to reduce debts gambit could get very much out of control such that the dollar at 40 might only rest there for a few days before something breaks and it goes to 30, 20, the following week. Hyper-inflation becomes a greater and greater threat as this process of controlled currency demolition continues. Put another way, the flock of black swans that flew over last year are set to fly by again anytime. $10,000 dollar an ounce gold and $200 dollar an ounce silver may not be as far fetched as some would like to imagine.
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Dave in DenverTuesday, 10 November, 2009
Agree Edwardo, however, a drastic deval of the dollar will send everything to the stratosphere -in dollar terms. That means the stock market too. Oil could easily go to $300 or $400 per barrel and stay unchanged in euros. But the same thing goes for the price of a share of stock.

The scenario to takes gold to $10,000 - or even higher - means either that the dollar was systematically devalued and the dow/gold go much higher and the dow/gold ratio converges down towardn 1 OR gold is revalued substantially higher in a few other currencies in order to facilitate a gold-backed reserve currency that's not the dollar, and the price of gold in dollars goes much much higher because everyone holding dollars scrambles to buy gold because no one will take dollars.

Those are 2 possibilities I see as being very real.
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EdwardoTuesday, 10 November, 2009
Dave, don't you think that oil at $300 or $400 dollars a barrel, which may simply occur as a result of oil falling faster off its peak more rapidly than anticipated, would pulverize the U.S. economy? When I think of how many business failures there would be in such a scenario, I can only imagine a very few select companies thriving. What's more one would have to expect that their would be a massive shift out of most equity sectors into commodity plays of one sort or another.

Having said that, mining operation would, once again, be up against it with such enormous energy costs. Anyone with physical would be golden, but paper shares...not so much.
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EdwardoTuesday, 10 November, 2009
Let me correct that first sentence.

Dave, don't you think that oil at $300 or $400 dollars a barrel, which may simply occur as a result of oil falling off its peak more rapidly than anticipated, would pulverize the U.S. economy?

There, that's better.
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Dave in DenverTuesday, 10 November, 2009
Edwardo - I'm not sure how much more the U.S. economy can be pulvarized before it shuts down. But here's the thing, there is a point at which there will be a complete disconnect between the real economy and the paper economy. We're already seeing that. The SPX is trading at something like 150x "as reported" earnings. "As reported" means "the closest thing to traditional GAAP earnings, even though it's still not really traditional GAAP."

As the Fed hyperprints the currency, the money has nowhere to go but into the stock market and real assets like gold and hard commodities. The stock market will keep going up even though the economy is in the toilet. This is what happened, broadly speaking, in Weimar Germany.

I'm a peak oil believer, but I think the price of oil over the next couple years will go up a lot more quickly in US dollar terms than it will priced in terms of gold. I'd watch the gold/oil ratio to see what is really happening to price of oil in an "economic rent" sense. Not US$/oil.
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EconomicDisconnectWednesday, 11 November, 2009
If you have ever seen the film "The Running Man" you may get a kick out of tonights post.
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Add comment

Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Here is the link to his entire commentary, well worth a read:

http://jessescrossroadscafe.blogspot.com/2010/07/gold-daily-chart-shock-and-awe-for.html

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie?

JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

source: www.clusterstock.com

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.