Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : At a bottom now for gold? -- Ignore unavailable to you. Want to Upgrade?

To: Gabriela Neri who wrote (1182)	6/20/1998 1:14:00 PM
From: ahhaha	Read Replies (1) \| Respond to of 1911

The upside gap in commodity gold, say basis September that occurred the trading day after the Treasury through the NyFED entered the Forex. Only short covering as you observed but it did cut through the steep downtrend in some series charts. Once the officials are finished telling Japan how to solve some problem by saying, "you should do something", the market will see nothing has changed so they presumably will test the conviction level of bilateral intervention. Then we enter a period of cat-and-mouse which should last a few months. I believe gold will establish a bottom during this period. The core fundamental that is working in gold's favor is the change in attitude among American and foreign middle class. The previous state of affairs was intrinsic deflation which started around '85 and lasted until '95. It should have started in '79, but inflationary psychology was so entrenched then that not even 21% interest rates could break it. By '85 though the situation was clear that the foreigners, Japan in particular, were competing us into the Stone Age. Many smokestack industries fought against this reality by self-destruction, permanent strike. The outcome of the FED's erring on the side of restraint and the persistence of competitive alternative sources of labor, coupled with Republican refusal to hike trade barriers, forced American labor to bite the bullet. The outcome has been prosperity for everyone. Prosperity sews the seeds of its own destruction. The FED has made a quiet change in policy although they stated five years ago they would be targeting everything(hitting nothing) to fine tuning rate management. Right now they have the fed fund rate fixed. They supply reserves when it rises and reduce reserves when it falls. The problem with this approach is that the price never discovers where equilibrium is. During periods of growth if the rate is allowed to rise to reflect demand for money, the effect is to create an environment of persistent money growth and good economic times. This combo creates confidence and confidence leads to over-extension. The form of over-extension we are seeing only the beginning is labor strikes and compensation packages that are exceeding 4% when the labor productivity is falling to 0%. During wealth periods the difference, 4%, is the intrinsic inflation rate, but people don't mind it. They are making more and more so a little inflation is tolerable. The FED has stated those very words through all of its spokespersons including Greenspan. He is on record having said 8 years ago that the purpose of the Central Bank was to create an environment of 0 inflation. He was so emphatic about this that he even admitted that when the FED pursues such policy the result is to even refute the demand management school which believes such a policy causes unemployment to rise. He asserted that the strategy not only doesn't do that, but actually lowers unemployment. That was his finest hour. It is no longer operational. The corner has been turned. The bad old days are now in flower. All else effecting the price of gold is irrelevant including the buying and selling of gold between Central Banks, the advent of the EU, and other short run supply/demand factors. That isn't what makes gold glow. The debasement of the nominal return on effort is. This Asia thing is just a smokescreen. The reality is that the dollar represents non-competitive labor and the degree of that non-competitiveness is rising. The only issue in Japan and the reason for yen weakness is that Japan has become like us. They are being Japanned by China and the other tigers. For the 100th time I state that Japan's banking situation is nothing in comparison to the loss of their competitive position. To the extent that traders, economists, officials, don't understand this, to that extent you'll see confusion in markets including that of gold. You have to stay out of the gold market until the the smoke has cleared. Japn's build-up of debt didn't finance inefficient production. How quickly we all forget that Japan wrote the book in efficient production. The bad loans are just a name game. Japanese had tremendous capital flows from abroad and still have which had the effect of over-extension. All that wealth enabled the bidding up real estate because real estate is limited in Japan. Real estate is not a true capital asset because it doesn't generate a future stream of wealth. It doesn't add value. It subtracts value because it is a wasting asset. That is where the inefficient pouring of their hard work went, the bidding up beyond reason of wasting assets. If there is a problem in Japan about that it is only that they refuse to acknowledge that you can't keep something that you didn't earn. Sound familiar? When the land is revalued, there is no material consequence. It astounds me how the entire globe of experts think otherwise. It shouldn't astound me since the same proportion thought deficit spending causes interest rates to rise even though for a decade the opposite occurred. Now, none of that is operational, but the people that put out such poor opinion have all had their salaries tripled for their brilliance. I ask you what happened to the Latin American debt crisis? It just evaporated. Was it solved? No. It's still there, but it's hard to find any evidence of the tremendous calamity that was predicted when the press declared the sky was falling. All Brady did was to tell them, "if you get in trouble, we'll loan you a few billion". They went to the well once or twice but for 10 years all of that is no longer operational. Economics both in practice and theory is nothing but trash.