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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (24113)	2/22/2005 9:16:02 PM
From: regli	Respond to of 116555

Heinz often comments on his ideas as to how gold will do in a deflationary setting. It is quite the opposite of most people's expectation. Here are his comments on the Bob Hoye interview and check out his #3. Date: Tue Feb 15 2005 10:45 trotsky ( frustrated@Hoye ) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved i don't agree with everything Hoye says, but here are a few brief comments on the snippets you posted: 1. "Following a bubble, this process can get so bad that it even pulls down the prices of long Treasuries. So once the mania ends, short rates will come down, long rates will go up." this seems actually likely, and what he doesn't say, is that it will coincide with reversal of the Fed's rate hike campaign. a liquidity crisis, which could result from general uncertainty ( with rising liquidity preference being a hallmark of such uncertainty ) may well undermine long term bond prices for a brief period, as has happened in 1931, in spite of a falling money stock and strong price deflation. essentially, in this scenario, the urge to hold cash or only the most liquid forms of money, trumps all other considerations. 2. ".....It was like pouring gasoline onto the fire. Those were some of the most insane moments in the history of policy making. " absolutely. imo more insane than the pumping and easy monetary policies that enabled the 1920's boom. 3. "“This not-widely-followed index is an indicator of gold mining profitability. Someday participants in gold will get over their fantasies about dollar depreciation and the intellectual nonsense about using macro economic modeling to forecastgold prices and look to the real price.”" while i'm also not sure how he models this, the point is a good one anyhow. as i've mentioned here before, the REAL price of gold relative to other asset classes and even an idealized aggregate general price level tends to perform best during deflationary eras, not inflationary ones as is commonly, and quite wrongly, believed. this is also why stocks in gold mining firms are a better investment than bullion during such a cycle - over the entire stretch of it, that is. there will always be phases in a long term cycle when such axioms don't apply for a brief period, during the cyclical correction iterations.