{"id":19189,"date":"2013-04-15T09:10:42","date_gmt":"2013-04-15T13:10:42","guid":{"rendered":"http:\/\/www.technologyinvestor.com\/?p=19189"},"modified":"2013-04-15T10:35:30","modified_gmt":"2013-04-15T14:35:30","slug":"gold-is-down-that-spells-good-news-heres-why","status":"publish","type":"post","link":"https:\/\/www.technologyinvestor.com\/?p=19189","title":{"rendered":"Gold is down. That spells good news, maybe. There is other good news, really."},"content":{"rendered":"
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Gold futures are down 6%+ this morning. They fell over 4% on Friday. Gold is now way low. Like the lowest in two years.<\/p>\n

\"SGOLFallsagain\"<\/a><\/p>\n

Gold is a weird “investment.” It did really well for a while — both when the economy was doing well (pre-2008)\u00a0 and when it was doing badly (post-2008).<\/p>\n

\"GLDGoingUp\"<\/a><\/p>\n

The prevailing wisdom among “investment gurus” is that everyone should own gold “as a hedge.”<\/p>\n

But it’s not a hedge. It’s simply a gamble. It has no earnings. The demand for it stems from hoarding, jewelry, central banks and how investors (including hedge funds) feel about it. I found these words in the Wall Street Journal:<\/p>\n

During its rally, gold has drawn big-name hedge-fund managers. Some reaped large gains but are stumbling now.<\/p>\n

The gold fund managed by John Paulson’s Paulson & Co. was down 28% in the first quarter, according to an investor letter. It was unclear how the Paulson & Co. fund performed on Friday. Mr. Paulson owns a majority of the gold fund, which is one of the firm’s smallest funds, at less than $900 million.<\/p>\n

The recent decline in gold prices has not changed our long-term thesis,” said John Reade, a partner and gold strategist with Paulson & Co., who noted that the fund began scooping up gold when it was trading at around $900 in April 2009. “Federal governments have been printing money at an unprecedented rate. It is this expectation of paper currency debasement which makes gold an attractive long-term investment for us.”<\/p>\n

Many investors in recent years had bought gold as a hedge against inflation. A widespread assumption by gold bulls was that the Federal Reserve’s bond-buying program, which is aimed at keeping long-term interest rates low and stimulating economic growth, would cause a broad-based increase in prices.<\/p>\n

So far it hasn’t, undercutting the case for buying gold. The U.S. producer-price index, meanwhile, fell 0.6% in March from February, the Labor Department reported.<\/p>\n

Many worry that brokers may require clients with gold holdings to post money, known as margin collateral, to keep positions open. (This could cause more selling.)<\/p>\n

There is only one way to treat an investment in gold — Rigorous, inviolate Stop Loss Orders. Down 8% and you’re out.<\/p>\n

It is probably not a brilliant idea to own gold bars or coins. I’m guessing that when you come to sell them,\u00a0 the brokerage cost will eat you alive. A better investment remains investments which earn income — like real estate or profitable companies.<\/p>\n

David Stockman’s best-selling tome. <\/strong>This is the book:<\/span><\/span>
\n\"DavidStockman\"<\/a>
\nHe’s been getting great press (and selling lots of books) for his dire predictions. I haven’t read the book. But I did enjoy this review of it in today’s New Yorker by James Surowiecki, a brilliant financial reporter:<\/p>\n

It’s been a great couple of weeks for David Stockman. Granted, he’s been called “unhinged,” “nonsensical,” and “a cranky old man,” after arguing in the Times that the current bull market is a huge bubble, and that America’s economic woes stem from the Federal Reserve’s profligacy and from F.D.R.’s taking us off the gold standard. But the controversy has made his new book, “The Great Deformation,” a best-seller-a surprising fate for a seven-hundred-page work of monetary history. All of a sudden, he’s doing “The Daily Show” and sparring with Paul Krugman on Sunday-morning television.<\/p>\n

Controversy is nothing new to Stockman-there seemed to be a new one every week during his time as Ronald Reagan’s budget chief-and when I spoke to him last week he was unfazed by the criticism, though he seemed energized by the attention. Words spilled out of him in an unstoppable torrent. “The Fed’s relentless campaign to keep interest rates artificially low may have deferred the day of reckoning,” he said. “But we cannot escape it forever.” The nub of his argument is that the “heroin” of cheap money has corrupted the U.S. economy. Politicians have piled up trillions of dollars in national debt with no thought of the future; financial markets are nothing more than debt-addicted speculation machines; and investors, as he put it in the Times, should “get out of the markets and hide” before the big crash comes.<\/p>\n

Some would say that Stockman is hardly in a position to give us a lecture on the perils of too much debt. Though he was an advocate of a balanced budget in the Reagan Administration, he later became a leveraged-buyout specialist, and you can’t do leveraged buyouts without, well, leverage: the industry depends on cheap debt for its profits. His private-equity work ended in disaster –a company that he took over went bankrupt, and he was forced to resign and was indicted for accounting fraud (the charges were dropped). But in conversation he likes to explain the failure of the business as a road-to-Damascus moment. “This was the wakeup call from the sky,” he said. “It made me realize that it was easy to think that outrageous levels of debt were totally reasonable.” In other words, Stockman, having succumbed to temptation himself, is better placed to warn the rest of us.<\/p>\n

That sounds awfully convenient. But many of the attacks in Stockman’s book are on target, and his distaste for Wall Street is genuine. He condemns the L.B.O. industry as little more than an exercise in asset-stripping and financial engineering. He’s right that the tax-deductibility of interest encourages companies to accumulate debt. And, unlike some conservative pundits — for whom attacking “crony capitalism” is a sneaky way of arguing against regulation — he is an equal-opportunity critic. He attacks President Obama’s stimulus plan, but he also believes that the government should have taken over insolvent big banks during the financial crisis. He’s an ideologue, but he’s an honest one.<\/p>\n

Still, honesty gets you only so far, and Stockman’s broader thesis is unconvincing. He thinks that, when bad times hit, the government should just let events play out, rather than use discretionary fiscal or monetary policy to combat them. In part, this is because he thinks that the government can’t do much to help a weak economy. Indeed, he believes that intervening after a crash makes the next one worse. As he sees it, the Fed has been blowing bubbles for twenty-five years — whenever one bursts, the Fed pumps money into the economy, which leads to the inflation of a new, bigger bubble. Without periodic “purges of excess and error,” the economy heads for disaster. That’s why he longs for the days of the gold standard: it kept the hands of central bankers tied.<\/p>\n

The simplicity of this idea gives it a certain visceral appeal. Yet, to believe it, you’d have to ignore the fact that, under the gold standard, bubbles and financial crises were commonplace: Britain had five between 1825 and 1866; the U.S. had crises in 1873, 1884, 1890, 1893, and 1907.<\/p>\n

Stockman told me, “Bad monetary policy is causing free markets to do bad things that they wouldn’t otherwise do.” The number of crises in the nineteenth century, however, suggests that they were not the creation of irresponsible central bankers but a phenomenon endemic to markets. On top of that, recessions in the gold-standard era tended to be longer and more severe than subsequent ones. Between 1873 and 1913, the U.S. economy was in recession for fully half the time, and the Great Depression was a far more destructive downturn than anything since. Suppose all these recessions really did purge the economy of error; they still caused an enormous amount of pain that could have been mitigated by government intervention.<\/p>\n

Clearly, though, mitigating pain is the last thing on Stockman’s mind. For him, pain is the way we learn discipline, and, the more closely you read “The Great Deformation,” the more you sense that the impulse behind it isn’t so much economic as moral. Stockman, who studied at Harvard Divinity School, favors language that is explicitly theological: Keynesian “sin,” the “demon” of debt, the “devil’s workshop” of the New Deal.<\/p>\n

“The Great Deformation” looks like monetary history, but it’s really a classic example of the American jeremiad — a twenty-first-century counterpart to Jonathan Edwards’s famous sermon “Sinners in the Hands of an Angry God.” Stockman laments our fall from the path of righteousness and foretells destruction if we do not repent. This is bad economics — the economy is not a morality play — but it is excellent preaching, which explains why this is Stockman’s moment. In times of crisis, as the Puritans knew, Americans never tire of hearing how we’ve lost our way. \u0004<\/p>\n

\u00a0James Hansen: Why I must speak out about climate change. <\/strong>Powerful, important TED talk you should watch.\u00a0Top climate scientist James Hansen tells the story of his involvement in the science of and debate over global climate change. In doing so he outlines the overwhelming evidence that change is happening and why that makes him deeply worried about the future — especially now he has grandchildren. James Hansen has made key insights into our global climate — and inspired a generation of activists and scientists. For the talk, click here.<\/a><\/strong><\/span><\/span><\/p>\n

Favorite recent New Yorker cartoons:<\/span><\/strong><\/p>\n

\"TimeOff\"<\/a><\/p>\n

\"WalkingSidewalk\"<\/a><\/p>\n

\"BodyParts\"<\/a><\/p>\n

\"Deity\"<\/a><\/p>\n

News of the day:<\/strong><\/span><\/p>\n

Afghan farmers increase opium growth. Many farmers in Helmand are growing opium again after other crops, encouraged by foreign agriculture experts, failed to sell.<\/p>\n

Of course, if there weren’t such a high demand for the stuff in Europe and the U.S., they wouldn’t be growing the stuff. Instead of attacking that demand, we focus on the supply. Clearly one of the dumbest decisions in the history of government. The war on drugs is crazy, leading to violence, etc. , as Prohibition showed us.<\/p>\n

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\nHarry Newton who remains optimistic on our stockmarket. Ask yourself, if you were a European, a Russian or a rich Chinese, where would you invest your money? The obvious answer is here. If you think we’re dead (i.e. David Stockman or our innovation) read this small piece from the latest Economist:<\/p>\n

…Rumours of the death of American innovation are exaggerated: the country is spending as much of its output on R&D as it ever has, and continues to come up with dramatic breakthroughs, such as “fracking” for oil and gas. It still towers over emerging giants like China in crucial matters such as the quality of its research universities and respect for intellectual-property rights. However, the main reason for cheer is that beyond the Beltway no one is waiting for the federal government to fix the economy. At the regional and local level America is already reforming and innovating vigorously.<\/p>\n

Local officials are competing viciously to lure migrants and investment. They are using every imaginable enticement, from scrapping income tax to building more bike paths. But they are also embarking on far-reaching reforms. Education, for example, is being turned upside down in the most comprehensive overhaul in living memory. On infrastructure, mayors and governors are grasping the nettle Congress will not, by coming up with new funding mechanisms.<\/p>\n

Washington is not completely absent from these changes (Mr Obama has made things easier for immigrants; Congress had a hand in the school reforms). But the overall picture is of revolution from the bottom up, rather than the top down. This has its advantages: the states yet again are proving themselves laboratories for experimentation. Yet its also means that America’s economic fightback is patchy and inconsistent. The United States could become far more competitive far more quickly if Congress punched its weight.<\/p>\n","protected":false},"excerpt":{"rendered":"

Gold futures are down 6%+ this morning. They fell over 4% on Friday. Gold is now way low. Like the lowest in two years. Gold is a weird “investment.” It did really well for a while — both when the economy was doing well (pre-2008)\u00a0 and when it was doing badly (post-2008). The prevailing wisdom […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-19189","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/19189","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=19189"}],"version-history":[{"count":0,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/19189\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19189"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19189"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19189"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}