muses of the moment

September 21, 2014

Yes, gold is getting hammered.

Filed under: Long term investing — totallygroovygirlfriday @ 7:39 am

Yep, gold is getting hammered, but we are still in the long term trend channel upward.

The more interesting thing is the continued denial by the powers-that-be that we “out of a recession”. Click here. This chart tells a different story. This chart says someone moved the Middle Class’s cheese and didn’t tell them about it. Another problem: that chart is the norm for first world countries, not just the US. And here is a short list of reasons.

Side note: groovygirl doesn’t trade gold anymore. She buys at the lows and holds long-term. The other investment class she is exploring is real estate. Interesting stuff. Looks like interest rates will start to go up in about 12 months or so. Not sure if they will do that before the election or not.  They may “test the waters” before the election to see the impact on the market.

Higher interest rates have an impact on new buys, of course, but the real killer is refinances in commercial real estate. That’s when rates go up, but we may not see the true consequences for a few years in commercial and real estate investing (which is where the real money is in real estate).

If they don’t move rates higher, we still have this same problem from the last turn down:

And as gg said before, it doesn’t matter how low interest rates are, if you have no job or only part-time work, or in commercial real estate, low revenue; you can’t afford any monthly payment or save for a future down payment. Period.

It’s all a very interesting show to watch if nothing else.

1 Comment »

  1. This is not really about precious metals. It’s about the dollar and the coming elections. The central banks are great manipulators. They can lead public relations campaigns which push the precious metals down.

    None of this changes the fundamentals; the amount of dollars at the FED as excess reserves has never been higher, as has the FED’s balance sheet of equities. Well over three trillions in dollars or US Treasury securities sit on the foreign bank’s balance sheets. The FED’s position becomes increasingly fragile.

    Does the FED have an exit strategy? Do they have a way to unwind their positions? No. Since 1971, and Nixon’s removal of gold backing for the dollar, they have played a shell game. The Keynesians in charge of the FED desperately fear a deflation of the money supply. That would render their primary bankers bankrupt. It would expose the fact that the world’s economy has not been creating wealth for decades. Wealth has been moved around in a board game. It has been this movement which has masqueraded as growth.

    Increasing the money supply has two effects: it lowers interest rates and funds the government through deficit financing. Both of these lead to ruin. We cannot know when, though.

    Easy money encourages governments to expand their activities so they can buy the votes of tax eaters. That sets up a destructive process where waste and corruption abounds. Both political parties are captured by politicians promoting welfare or warfare. Both are used to confuse the public, but a diminishing set of returns has set in. The public no longer believes. Nor, thanks to the Internet, can a politician’s promises to various groups be hidden.

    The politicians are stalemated. Incompetent people are placed in positions of power. All they know is politics, so their positions become ever short sighted. Ruthless people abroad sense weakness and indecision. They see the most powerful military in the world being squandered.

    Artificially lowering interest rates has two effects: it encourages uneconomic investment and steals savings. The government lies about ongoing price increases which are above any interest rates a prudent person can earn in the market. Anyone wanting to safeguard their assets is pushed into ever higher risk. Any illusionary profits are then taxed to fund the government. Savings are diminished; everyone becomes poorer.

    At the same time, low interest rates have encourage speculation. Business projects which don’t have the backing of real savings are promoted. This means that unwise decisions have been made which will eventually fail. Bubbles are created.

    The way the FED has been able to avoid a run on the banks or the economy has been to periodically raise interest rates to squeeze out these uneconomic projects. The economy falters and investors are chastened. The money supply temporarily declines. Government projects, opposite to the political party in power, are scrapped or put on hold until the economy improves. Eventually, the economy recovers so the game can began again.

    But this process ended in 2007. Investors no longer believe; they are not cooperating. Billions in assets are being held overseas at zero interest rates, because there are no projects to invest in at home.

    All the government can do is stave off the inevitable. The party in power can hope, when bad times come again, it will occur on the other party’s watch. They can desperately hope for a Paul Volcker to allow interest rates to rise. The Party out of power wins the election and gets the blame for the bad times. But, 2014 is too soon for this sabotage to work as it did so well for President Carter.

    What Paul Volcker, appointed by Jimmy Carter, did, cannot be done now. The National Debt is so great that if interest rate were allowed to increase above 20%, all of the taxes collected would go to cover the interest. Can the government afford to repudiate their debt in some way? Would a devaluation of the dollar succeed? If price increases were seen officially as above 10%, would that start panic buying?

    No public devaluation can be tolerated before the coming election. The Dollar must be forced up. This pushes precious metals down. Since the buzzards are circling above the American Economy, these low prices must be seen as an opportunity.

    Disaster will follow. The only question who gets the booby prize.

    Comment by LG Wheeler — September 24, 2014 @ 3:14 pm

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