Monday, February 14, 2011

Gold In A Bubble? And Other Irritations - Like Obama's Budget...

By now everyone has seen the article this weekend in the Wall Street Journal about gold being in a bubble.  The media keeps rolling out these financial "experts" to explain why gold is risky now - yet not one of these experts even remotely understands what he is talking about.  Most of these "experts" are so clueless that it's beyond the proportions of Dickensian absurdity. But how come no one in the financial media is referring to Netflix stock as being in a bubble?  Here is a great analysis on gold from Victor Sperandeo, notable for having worked for George Soros, that summarizes the golden truth about gold: 
Sperandeo explained that history showed that in 30 examined cases of hyperinflation exactly this amount of capital preceded an uncontrollable inflationary development. The current situation was therefore comparable with these historic cases. The US dollar is very much threatened by this development and will become subject to an enormous devaluation. In this context gold and silver are expected to continue to develop extremely well, since investors are hedging against a bond and US dollar crash by purchasing precious metals. According to Sperandeo, the current development in the precious metals prices was nothing more than a correction in a continuing bull market. As long as policy makers do not find another solution to their dilemma than printing more and more money, things will just stay the same.
Here's the link to the article from James Turk's    LINK

As for NFLX, today it is up over 6% and trading at 83x trailing earnings.  Someone on Bloomberg TV just jubilantly proclaimed that Wall Street's new price target for NFLX is $316.  Now, without examining NFLX's earnings, let me just state that the quality of NFLX's earnings is likely very questionable.  GAAP requirements for accounting for fulfillment costs, thanks to Jeff Bezos and, are very "loose." In brief, the cost-accounting for fulfillment costs are similar to that of a ponzi scheme, and as long as revenues keep growing, a company with heavy fulfillment expenses, like NFLX, can hide the cash flow and earnings from what in effect are hidden cash expenses that don't run through the income statement.  Just ask Bezos why he's on a program to unload stock every month if he really thinks AMZN stock is cheap. Same deal in terms of the accounting with NFLX.

But the big question for me is how come Wall Street's anti-christ, gold, is continually labelled a bubble and ponzi stocks like NFLX get more adoration and cult status the more overvalued they become?  Yes, this question is strictly rhetorical in nature. But here is a daily price performance chart of NFLX vs. GLD.  You tell me which one is in an investment mania/bubble:

(click on chart to enlarge)

When I woke to the horrifying nightmare referred to as "Obama's 2012 budget," I was going to dissect and pontificate the reasons why what he has proposed is patently absurd in terms of reducing this country's absurdly tragic fiscal spending disaster.  But instead I'll just make a few general observations so I can relieve the nagging irritation I'm feeling. And I'll add that Obama has completely discredited his abilitly to lead with this budget proposal (as if he hasn't done that already...).

To begin with, for him to seriously put forth projections that show budget deficit contraction after a couple of years of even larger projected deficits is retarded.  Our Government can't even accurately report last month's economic numbers.  So to think that it can project the likelihood of reduced budget deficits 10 years from now is insane.  I truly hope Obama doesn't think any of us are stupid enough to buy into that joke he presented today.

But let me just say that trillion dollar deficits require the phase-in of $100's of billions of dollars in spending cuts.  Not the insiginficant snipping of a couple hundred million here and maybe a billion from a program that shouldn't even exist. Obama projects $1.1 trillion in deficit reduction over the next 10 years.  But this forecast relies substantially on the Government's ability to grow revenues faster than expenses grow.  And revenue growth relies on economic growth.  Obama expects to achieve this by closing tax-loopholes, letting tax benefits expire and increasing some taxes.  But to increase revenues from taxes, you need to have big growth in employment and income.  Where will that come from, Barack?  Given that the definitive trend in employment is being emasculated by a rapidly shrinking labor force, I would be a lot more curious to see how Obama would expand the labor force and enable personal income growth...

And the bulk of the spending problems in this country come from defense spending and entitlements.  Those areas of spending were largely left untouched.  Unfortunately, this country is engaged in a policy of castrophically unsustainable domestic welfare - yes, this includes social security, medicare, food stamps and unemployment benefits - and international imperialism, which together the President AND both political parties refuse to touch.  Until our Government significantly slashes and restructures the Governmental anatomies of defense spending and entitlement programs, this country is on a definitive path of collapse. In the words of Victor Sperandeo from the article linked above: 
[T]he political leadership in the United States will continue to print large amounts of fresh money until foreign investors lose their confidence in the repayment of the outstanding US debts. This would eventually lead to a panic at the bond markets. The incipient bond sales avalanche would then trigger the outbreak of a hyperinflation in the United States.
And hyperinflation precedes systemic collapse.


  1. I don't think the link works as intended.

  2. ahhhh, tu sei corretto - grazie mille, Jesse.

  3. great summary of NFLX:

  4. Dave, awesome post! One of my favorites.

  5. Budget cuts? We could start by dismantling the Department of Homeland Security and all the other secret police apparatchiks. It doesn't cost a dime if you deal with fake terrorism by ignoring it.

  6. When the dot coms were all the rage, the “experts” insisted there wasn’t any bubble.

    When real estate was the can’t miss investment all of the “experts” insisted there wasn’t any bubble.

    Now the “experts ” claim gold is a bubble- the experts will be zero for three before all is said and done.

    A surefire sign of a bubble- the buyers are not ‘smart money’ but dumb bunnies, the Johnny come lately types who rush in near the top and ride the investment all the way down.

    Another surefire sign of a bubble- the financial talking heads on MSM are singing praises for the investment-something that ain’t a happening for gold or silver.

    When the dumb bunnies crowd out the smart money and WSJ, Business week, Forbes and Time Magazine name gold the investment of the year, then it will be time to take your profits and head for the exits. We are not there yet, not by a long shot.
    Keep buying, the PM bulls ain’t dead yet.

  7. I once was starring at CNBC in 2000, when an analyst come out on live TV and said, "my new target for ABC stock is $24 for this quarters earnings." He didnt know that they had the ticker going in the background as it was printing $56 1/2 as it had gapped up on nothing but NASY momentum. I am going to start to examine new puts I will put on soon in NFLX as this is NOT 2000 again, as this irrational exuberance will end soon, I hope, maybe, please.

  8. Great post Dave.


  9. You should back that out even more...5 year chart NFLX up 2179% vs 196% for GLD. (I will point out that SLW is up over 1000% in that time, fyi)

  10. Of course they will discredit gold/silver or hard currency for that matter - because the economy is based on smoke and mirrors (debt/credit) If people get antsy and actually start saving instead of spending, and buying gold instead of all those funny stocks. It'll be an unprecedented collapse, this recession will be a picnic compared. Oh yes stop voting for the idiots who promise "low taxes" (for the über rich) and block everything else that may interfere with their benefactors agendas.

    I'm not a financial person, I don't understand stocks and bonds and all that nonsense so I invest in what I can touch and feel. Unfortunately for me in this case it was a bloody house. I've invested in property all over the world, have always thought land investment to be safe. Lesson learned...