Minyan Mailbag: Sheep vs. Mover
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.
Do you have any thoughts on this column? Thanks for your time.
Minyan Mike Shedlock
Good to hear from you - very fair and reasonable comments. You have given me something to have a think about and jot down some points while we digest the "Alice in Wonderland" trade figures today.
I think we are going to get inflation and deflation at the same time (inflation of what we need and deflation of what we want). For example, we would be looking for higher priced commodities / oil / water / money / food and lower prices for discretionaries like perfume, wine, racehorses, flash cars, boats, 8 foot plasma TV screens etc.
I may have mentioned before that I reckon a sheep will be worth more than a 7speed, ride-on, 4WD, rover lawn mower in a few years or so. The sheep does exactly the same thing as the lawnmower - it keeps the grass low. But, you don't have to put another expensive commodity (oil) inside it to make it run. Its energy is provided by the work it does. You can shear the bugger every year and clothe yourself. You can get another one and make a heap more thru breeding. When it gets old you can kill it and eat it. Today a live lamb costs about A$1.60 and the mower costs about A$1600. Hmmm. You get my drift.
Prof. Succo wrote a nice article on inflation last week and hit the nail on the head. The GSE's and the banking system are and have flooded the system with liquidity. Under Austrian Economic theory, inflation is rampant, right now. It is just hidden by hedonics, selective indexation and obfuscation of reality. Inflation is only 3% or so (yeah right) - pull the other leg and it plays Watzing Matilda!
For the Amex Gold Bugs Index (HUI) to fall to $140-$150, gold must be nearer $335 than $400, IMO. That would be against everything that is happening in the "real world", as I see it. The M's are rocking again, carribean finance houses are taking much of the foreign purchases of U.S. bonds (whoever they are), real estate mess across the UK, USA, Australia etc. is topping out, consumer debt levels at astronomical levels. The list just keeps rolling on...
Sure the UK / EURO zone is in trouble and the dollar has benefitted somewhat. China's banking system is awful as you correctly point out, and there appears little likelihood (IMO) that they reval anytime soon. But that does not make the dollar the "go to currency". It may be the best of a bad bunch in some eyes, but you should be mindful that there are 2 billion people in just 2 Asian countries that would take gold over any of the aforementioned paper currencies, in a heartbeat. It is when the best of the bad bunch looks like garbage (the U.S. dollar which smells awfully like that from my position down here) then won't the run occur to the currency of the ages? GOLD AND SILVER. Bad money is bad money, so what if one is "less bad" like the U.S. dollar, it is still bad! They will ALL be shunned sometime soon in the future and then "HE WHO HAS THE GOLD-WINS" as has been the case EVERY time in history.
Mr. Prechter has been wrong on gold for 3-4 years now and each upside level he has set continues to be taken out. He takes no notice of the physical market and the physical market takes little notice of lines on charts or waves. I don't give charts that much notice, as I look rather longer term than most traders, but am aware of what is happening. The monthly charts are very powerful. I understand that markets ebb and flow but there is a distinct trend in the metals and shares that continues to look good to me. I may be wrong, but there are too many dollars out there looking to be parked in anything other than U.S. Treasury debt for the precious metals to be taken down too far. Sure the paper guys may get a roll on but the physical market is telling me it won't last and will cost the paper guys a lot of physical metal while it's down there.
A reval of the yuan (and automatically the Indian Rupee for competitiveness) will give a discounted gold price to 2 billion people in Asia, as well as what happens to other Asian currencies like Thailand and Vietnam etc. who also will reval to keep competitive. They'll get cheaper gold (in local currency terms) when they're already buying the metal like it's going out of fashion here above $420.
The physical market will rule in the end, it's gonna be a wild ride though and I think you're on the right side of it all (not advice)...
Cheers and best regards,
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