10/08/10 Paris, France – Our goal every day in these Daily Reckonings is to give you your money’s worth.
That’s not hard to do, since this service is free. But our daily commentaries take time to read. And it can be very annoying – with starkly unpopular points of view…long, rambling, philosophical perambulations…personal notes of no particular interest to anyone except the author…and aggravating reflections of no interest to no one at all, including the author.
So, what makes it worthwhile?
Well, occasionally we have an insight…a little soupcon…a suspicion that turns out to be right.
Do we have one now? Don’t know. But after much thought, light meditation, praying and heavy drinking…we at least have a hunch.
Here it is: these clowns are going to screw up big time…
We’re talking about the world’s central planners and central bankers and central financial authorities. They are laying the track…they are building the train…they are about to take off…right over a cliff!
There’s a “growing consensus on the need for a new round of buying assets,” says a report in The Financial Times. The idea behind this “consensus” is breathtakingly absurd:
The economy is weak. So you print money. The money pushes up asset prices.
People think they are wealthier. They think there’s a real boom going on.
They invest. They hire. They spend.
Then, there is a real boom!
Do you believe it works like that, dear reader? If you do, you should be an economist. Or a doorstop.
There’s no doubt that printing money can create a boom. But it’s a phony boom, not a real one. And when it blows up…which it inevitably does…people are worse off than they were before.
It’s one thing to introduce small amounts of extra “money” into a growing, prosperous economy. It’s a fraud. It’s a mistake. But it doesn’t blow-up the system. It’s petty larceny; nobody cares.
It’s another thing to introduce large amounts of new currency into a funky, struggling economy.
But that’s what the markets seem to be reacting to – at least, the anticipation of QE – quantitative easing.
Some investors have bought stocks. Some have bought gold. Some have bought Treasury bonds. Those buying stocks and gold are focusing on the inflationary effects of QE. Those buying bonds are focusing on the Fed’s asset purchases themselves; after all, they’re going to be the biggest, flushest, most inebriated buyer at the auction.
But they can’t all be right. Gold buyers expect the dollar to crash. Bond buyers expect it to hold up. It can’t do both.
So who’s right?
Ah…if we knew that…we’d have to charge you for your Daily Reckoning subscription. Nobody knows the answer. But we’ll take a guess.
Stocks headed down yesterday. The Dow lost a modest 19 points. But gold lost $12. Gold is overbought, in our opinion. The dollar is oversold. And the idea of a “recovery” is oversubscribed.
We expect a correction. A great correction.
The economy is weaker and more vulnerable than people think. It is not going to bounce back. So, stock market P/Es are too high. They should sell off. The Fed’s new money will be too timid, at first, to turn it around.
As stocks fall, Treasury prices should go up. Yes, buying bonds – that is, lending to the world’s biggest debtor, who is printing money to buy his own IOUs – seems like a crazy thing to do with your money. But our guess is that crazy will get even crazier before it goes completely mad.
Gold, meanwhile, is probably not going to enter its final rocket stage until this correction is further advanced. Puffing up asset prices alone probably won’t do it.
That said, we confess…we’re no good at short-term timing. So, you want to buy gold now? Go right ahead.
Our suggestion: buy coins. Not ETFs. Not gold stocks.
Why coins? Because then you won’t be tempted to sell them when the price of gold goes down. Analysts are talking about a 10% decline over several months. It could be much worse…say 20% over several years.
Ten years ago, we urged dear readers to buy gold. The yellow metal was low-hanging fruit at $290 an ounce. But now it’s $1,335. It’s higher up on the tree. You’ve got to get on a ladder to get it. Ladders always mean risk.
Is gold going higher? Probably. Much higher. But not necessarily tomorrow, next week, or even next year.
Best advice. If you want to buy more gold, buy coins. Bury them. Forget about them.
Just don’t forget where you buried them!
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Almost certain, there will be bouts after bouts of quantitative easing. Crazy things in play dragging gold to perfection, dollar will never be oversold.
Dollar is distributed worldwide as though airdrop of propaganda or leaflet in every corner of earth surface and people hurried out of their homes to greet their airborne saviours.
When is the next wave of easing that is going to wash the 3 major ocean coast?
Isn’t it too soon to say that gold is peak?
Certainly gold and silver would not be lonely, they have long long way to go.
The East-West trading fashion of one supplies and the other reciprocates with fabulous gift of bonds, IOUs and digital figures will definitely be in the fatal blowup.
Mr. Bonner,
In this article you say to buy gold coins. How important is it to buy gold coin over gold bars?
The advantage of gold coins over gold bars: You can spin a gold coin on its rim, something you can’t do with a gold bar. And you will be amazed how long a properly spun gold coin will continue to rotate. When it’s finally near finished, as the gold coin’s rotation slows, the sound at first is a slow wha-wha-wha- that gets increasingly faster as the coins becomes more and more horizontal. Finally, with one last audible slap it comes to a rest, totally horizontal. It’s nearly as exhilirating as the fading moans at climax of… oh never mind. Just trust me, coins not bars.
Economy is a subject of not too sure, an answer of most probably, a commitment of I can’t promise you.
When my car broke down, I ask my mechanic whether he could get it fixed up. The answer was a yes cock sure promise. I believe, when economics is in play we got to rely on our inbuilt 3rd channel, simply not to the tune of the reverberating trade winds.
Whew. I need a shower.
>> Ten years ago, we urged dear readers to buy gold.
Good advice, but ten years ago I had never heard of you, Mr. Bonner. Ten years ago I bought 54 ounces of gold coins – cost basis about $351/oz. Your advice at that time may have been good, but I was following Jim Sinclair at http://jsmineset.com/ . He’s a daily read. Dare I say gold guru?
>> Gold buyers expect the dollar to crash. Bond buyers expect it to hold up. It can’t do both.
True. In this tug-of-war, debt loses and hard assets win.
The dollar is debt, so it loses buying power. Look at any greenback. It is clearly imprinted that it is a note. A note is an obligation. A debt. And citizens don’t have a clue that their economy depends on trading debts (dollars) for goods.
>> We expect a correction. A great correction.
I’d agree, if I knew the context. Gold, stock, commodities? Correction in what?
Mr. Bonner, I respect your written output, but this time you have underserved. It is unclear what you are really writing about. If I am dense, I’ll admit it. Flog me, berate me, or whatever.
“How to Protect Yourself from More Quantitative Easing” offers nothing promised by the headline quoted.
Superb. Bravo.
Witty,insightful, artistically written.
Such a deal. Well worth what I paid for it.
Bill, you said:
-Our goal every day in these Daily Reckonings is to give you your money’s worth. That’s not hard to do, since this service is free. But our daily commentaries take time to read.-
I just want to personally thank you for having come up with DR and all other Agora publications. DR’s advice is, in my opinion, without a doubt the BEST there is.
Since I live in Paris, I am also a subscriber of MoneyWeek, and find it very good as well.
Thanks Bill
Thanks Mogambo
Thanks Mayer
Thanks Fry, etc…. Wapler, etc…
QE is the medicine everywhere now, so the dollar is not going to crash.
To survive the chaos and anarchy that will inevitably be the outcome of CB’s policies, a fully self-supporting farm can help your through…Don’t forget about security, in all aspects…
There is now a significant probability that it the next two years the US and other countries will default on both their debts and currency – this will lead to gold and commodities initially rising, then crashing. For details see http://www.cmrworld.com/MCDBlog.asp
I think Maynard may have been right. Good economies run heavily on the magic elixir of confidence. Print money when in the mire -but be sure to retrieve it in taxes once the ball is rolling. Automatic stabilizers.
Taxing (progressively) in the good times builds public reserves for quality education at all levels, health services, training, R and D support- the true engines of smart growth. Progressive taxing in the good times also curbs excess and overheating.
Way to go.
Downey,
Regarding your latest blog entry.
Countries in the east in particular, and the west for that matter, won’t be buying up a newly created American currency in the hopes that the country that created the mess will fix the mess. Not just for that reason, but also for the sole reason that being overly reliant on the success of one countries currency will have been proven not to be in their interest. Countries will just diversify and hedge against the same thing happening again whilst improving apon there internal and regional supply/demand dynamics. It’s ecomomic warfare that will ensue at an even greater level, with increased protectionism, if the US and many Euro countries default on their debts. Your latest blog entry doesn’t make sense at all in this instance. The reason the US currency was so important is because of the improving reputation of the US currency over time. When the major world currency collapses, few country’s economic teams would be stupid enough to go back to a new US currency, they’ll become more reliant on themselves and the major emerging economies will attempt, or see an opportunity, to prop up there own reputations. To say that countries will just say “oh you made a mistake did you? oh and you said sorry? in that case let’s try this again” is rediculous and unrealistic. There is way to much at stake. China has 1.3 billion people to worry about. India has 1.1 billion. Combined, that’s approaching 40% (at 37%) of the world’s population.