Gold Bubble?

[Magox]

Your boy Bill Gross calling the treasury worse than a Ponzi Scheme today.

He sure did... I thought it was a brilliant piece and he truly spoke his mind. I don't know if I recall ever reading or hearing him speak this way in all the years I have been following him.

 

I found this to be interesting:

 

Still, while next Wednesday’s announcement will carry our qualified endorsement, I must admit it may be similar to a Turkey looking forward to a Thanksgiving Day celebration. Bondholders, while immediate beneficiaries, will likely eventually be delivered on a platter to more fortunate celebrants, be they financial asset classes more adaptable to inflation such as stocks or commodities, or perhaps the average American on Main Street who might benefit from a hoped-for rise in job growth or simply a boost in nominal wages, however deceptive the illusion. Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme. Public debt, actually, has always had a Ponzi-like characteristic. Granted, the U.S. has, at times, paid down its national debt, but there was always the assumption that as long as creditors could be found to roll over existing loans – and buy new ones – the game could keep going forever. Sovereign countries have always implicitly acknowledged that the existing debt would never be paid off because they would “grow” their way out of the apparent predicament, allowing future’s prosperity to continually pay for today’s finance.

 

Now, however, with growth in doubt, it seems that the Fed has taken Charles Ponzi one step further. Instead of simply paying for maturing debt with receipts from financial sector creditors – banks, insurance companies, surplus reserve nations and investment managers, to name the most significant – the Fed has joined the party itself. Rather than orchestrating the game from on high, it has jumped into the pond with the other swimmers. One and one-half trillion in checks were written in 2009, and trillions more lie ahead. The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort. There is no need – as with Charles Ponzi – to find an increasing amount of future gullibles, they will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not. This one is so unique that it requires a new name. I call it a Sammy scheme, in honor of Uncle Sam and the politicians (as well as its citizens) who have brought us to this critical moment in time. It is not a Bernanke scheme, because this is his only alternative and he shares no responsibility for its origin. It is a Sammy scheme – you and I, and the politicians that we elect every two years – deserve all the blame.

 

Still, as I’ve indicated, a Sammy scheme is temporarily, but not ultimately, a bondholder’s friend. It raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead-end where those prices can no longer go up. Having arrived at its destination, the market then offers near 0% returns and a picking of the creditor’s pocket via inflation and negative real interest rates. A similar fate, by the way, awaits stockholders, although their ability to adjust somewhat to rising inflation prevents such a startling conclusion. Last month I outlined the case for low asset returns in almost all categories, in part due to the end of the 30-year bull market in interest rates, a trend accentuated by QEII in which 2- and 3-year Treasury yields approach the 0% bound. Anyone for 1.10% 5-year Treasuries? Well, the Fed will buy them, but then what, and how will PIMCO tell the 500 billion investor dollars in the Total Return strategy and our equally valued 750 billion dollars of other assets that the Thanksgiving Day axe has finally arrived?

 

Did you get that TPS? "checkwriting" in other words, "money printing" it is in fact inflationary. He doesn't say may or could be inflationary, but IS inflationary. I've been making this case to you for quite some time, but you have a hard time grasping this concept. As Milton Friedman once said

 

Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output

[TPS]

He sure did... I thought it was a brilliant piece and he truly spoke his mind. I don't know if I recall ever reading or hearing him speak this way in all the years I have been following him.

 

I found this to be interesting:

 

 

 

Did you get that TPS? "checkwriting" in other words, "money printing" it is in fact inflationary. He doesn't say may or could be inflationary, but IS inflationary. I've been making this case to you for quite some time, but you have a hard time grasping this concept. As Milton Friedman once said

OMG! There's going to be an increase in inflation? The negative TIP implies it will be about 2% over the next 5 years. OMG! Run for the hills! As I have said all along, the FED will probably try to maintain a target of 2-3%.

 

As I've also said, a bazillion times!, if the FED directly funds the treasury, it could be inflationary. If they are buying assets from investors then the impact will depend on what those portfolio holders decide to do with their printed money.

 

Milton mixed up money with effective demand. He used the old MV=PY equation, and was more often wrong in his predictions than he was right. I have 3 articles I saved from 1983, 84, and 85 from the WSJ and Business Week, and in each one he made a prediction about next year's inflation rate based on growth of the "money supply." He was wrong all 3 times. You need to work on expanding your old fashioned views about money.

[Magox]

OMG! There's going to be an increase in inflation? The negative TIP implies it will be about 2% over the next 5 years. OMG! Run for the hills! As I have said all along, the FED will probably try to maintain a target of 2-3%.

 

As I've also said, a bazillion times!, if the FED directly funds the treasury, it could be inflationary. If they are buying assets from investors then the impact will depend on what those portfolio holders decide to do with their printed money.

 

Milton mixed up money with effective demand. He used the old MV=PY equation, and was more often wrong in his predictions than he was right. I have 3 articles I saved from 1983, 84, and 85 from the WSJ and Business Week, and in each one he made a prediction about next year's inflation rate based on growth of the "money supply." He was wrong all 3 times. You need to work on expanding your old fashioned views about money.

yes yes yes, Milton was wrong, Bill Gross is wrong, the TIPS market is wrong, the record yield differentital between the 2's and 30's are wrong, the gold market is wrong, the dollar going down is wrong, everyone is wrong except you. And yet the CRB index is at an all time high, oh yeah, it's just speculation and there is no basis or solid reasoning for these occurences. You're a joke. I told over a year ago that all these things would happen and you didn't believe it. Well look who was wrong.

 

You're just unable to grasp these concepts because you are a typical inside the box thinker who see's things from your failed text book philosophies. Broaden your scope kid.

Edited October 27, 2010 by Magox

[TPS]

Get a grip dude. No one is wrong...yet. And nice cherry picking. What's the GSCI at? What's oil doing? Sure commodities have risen from post-crisis lows, but Every time I read an article on some move in a commodity there is mention of "investors" or speculation or some supply issue. I'm not saying there is no influence from demand, I just don't think it is the main driver currently. I understand the $-commodity link, but who drives that? Industrial demand? Think a little deeper.

 

Yes, Milton Friedman was wrong. Why do you think central bankers no longer have money supply targets?

I certainly respect Bill Gross, but has he made any predictions as to what the rate of inflation will be next year? 2 years? I'd be interested if you know that.