Gold is a reflection that there is no other escape out of this problematic situation we are trapped in than printing money to prevent systemic collapse - Felix Zulauf, Swiss money managerEveryone else is jumping on the Jeremy Lin promotional hype...why shouldn't I? But I'll poke at it from a slightly different angle. Maybe from the perspective you might get on CNBC if it were gold instead of a New York Knick basketball player with an Ivy League degree. Is the sudden meteoric media interest in Jeremy Lin a bubble?
One bubble the Government is definitely trying desperately to re-inflate is housing. Today it was reported that new homebuilder sentiment had reached a 5-month high of 29. Anything below 50 reflects overall poor sentiment but the media was spinning it into housing market Disneyland: "Builder mood best in years" - Marketwatch. Well here's a pin to prick that bubble-attempt: "Mortgage applications down as purchase demand falls" - The Mortgage Bankers Association reported today that mortgage purchase applications tanked over 8% from week to week for the week ending Feb 10. That's a real data sample of what's going on in the real economy, as opposed to the happy prozac-induced "sentiment" reading. It's like looking outside and seeing a bright blue sky and sunshine and then stepping outside without a coat on and discovering that it's 10 degrees...Ironically, we are starting to head into the part of the housing seasonality in which purchases should be increasing, not decreasing. Call me insane, but with mortgage rates at record lows and median pricing hitting new lows every month, isn't demand supposed to be increasing?
The other bubble that is starting to lose air is the Treasury market bubble. I've been commenting for quite some time that eventually China/Asia is going to start aggressively reducing its exposure to U.S. Treasuries. Of course, like everything else I was a bit early. But over the last year China has reduced its exposure by $60 billion. This is exceeded only by Russia's dumping $63 billion. Of course, Russia has cut its exposure by nearly 50% in the last 12 months. Eventually we'll see China show a 50% reduction as well. But that would mean selling over half a trillion in Treasuries. The question is, how will the Government finance its massive projected spending deficit (i.e. the debt ceiling is already going to be breached two months earlier than originally projected back in September per Obama AND per this blog way before Obama admitted it) if China reduces its investment in Treasuries by over half a trillion? If you want that answer, see the opening quote.
A lot of analysts/bloggers have said in the past that even though China may show an occassional month to month reduction in Treasury holdings, they are likely replacing these sales by buying them through UK banks. Not to lift my leg on this view, which I never placed credence in anyway, but China unloaded a massive $30 billion in December and the UK banks unloaded another $9 billion...LINK The fact of the matter is that, given that interest rates are at historical lows and have nowhere to go but up - which means that Treasury bond prices have nowhere to go but down - the sane, rational investor would logically not want to own any Treasuries except maybe T-bills. The question is, where do you put your money? Again, see the quote at the top of the page.
Finally, I was chatting with a friend of mine yesterday evening who happens to have probably 20-30% of his net worth in physical gold/silver and GLD. He commented that it seems like "you goldbugs who have gone all-in with gold/silver/miners" are cheering for the demise of our system because you'll make a lot of money on your holdings. I almost fell of my bar stool. First and foremost, if the reasons we ultimately own physical gold and silver fully materialize, yes our "investment" portfolio will soar in value. But, quite frankly, it also means it won't do us much good because there's a "Mad Max/The Road" situation going in the world at large. It would be insane to be cheering for that.
The reason the people who "get it" have 90% of the their investibles in gold/silver/mining stocks is that our Central Banks and Government leaders have given us a "Hobson's choice." A Hobson's choice is when you are given a free choice but only one option is offered. It implies that you only have one option and that option is likely not a desired option. It's a no-opton "choice." To put that in the context of why goldbugs have chosen the optional non-option of going "all in" in the metals sector, see the opening quote. In other words, for everyone not substantially invested in physical gold and silver (not paper ETFs), the only choice is complete wealth destruction.