Best of the Exchange: Corrupted Ratings, Bernanke Bullish and The Future of Gold
Minyans debate the government's role on propping up financial markets.
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(Editor's Note: Some of the following posts have been modified slightly from their original form.)
Professor Shedlock is skeptical the rating agencies are acting in good faith rating the bond insurers ... and Minyans agree.
When will the rating agency's learn their lesson?
These companies originally rated firms like Ambac (ABK) and MBIA (MBI) and continue to do so. The market has been hanging out by the edge waiting for news on whether these firms would be downgraded, when in fact they never deserved the rating they currently have.!
Now Moody's (MCO) and S&P stick with the AAA rating. That is a huge sign to me that problems in the market still have a very long journey before they are corrected if this type of corruption is continuously permitted.
The rating agencies historically have not been held liable because of their first amendment right to publish an opinion, or "fiction". My guess is the government is involved in this farce. Whether it be Spitzer or higher up the flag pole, I think they encouraged the agencies to keep the punch bowl spiked in exchange for some sort of legal immunity. Likely they want to push the problem out for whatever reason (got fear?).
This is the most irrational market with the most irrational characters I've ever seen. Who knows, maybe you have a large, sketchy Port Authority contractor that is in financial limbo with the trench coat.
Professor Depew's always thought-provoking 5 Things, examined whether Fed Chairman Bernanke flipped to Hoofy's camp in his recent trip to Capitol Hill.
I generally agree with the economic part of your analysis.
However, the notion that there is going to be a long-term shift in attitudes toward spending is appealing, but seems unlikely. It's especially hard to imagine how this would unfold among urban folks.
People who don't have can't spend. Will those people now relax their desires and console themselves by saying "I'm poor but cool?"
It's commonly said that by the time the mass media catches on to the cool new thing, it's probably on its way out. By that logic we may be almost over the trend to not spend.
Love your columns.
Joseph, thank you for the kind words.
" 'People who don't have can't spend. Will those people now relax their desires and console themselves by saying "I'm poor but cool?' "
I believe the answer to that is yes. Psychologically, people deal with deprivation in unique ways.
You make a good point about the media, but I would say that as long as we continue to have entire newspaper sections devoted to Style, for example, that we are still pretty far away from the point where the media has embraced the trend to completion.
Remember, almost all daily newspapers had Technology sections between 2000 and up until 2002 or so.
Professor Lewis has been an ardent gold bull for a long time now, and with the yellow metal approaching $1,000 per ounce, he laid out the case that we bulls should settle into the chairs and get ready for more of the same.
Prof Lewis -
I bought IAU a year ago and have enjoyed a nice 40% pop. I had been tinkering with the idea of buying gold for several years, but couldn't make a positive case for why gold would perform well. But after a lot of reading, I decided that gold performs well when the fiat monetary system is showing signs of its limitations. So while we both agree that the fiat system is failing us, I would argue like other professors here that deflation (a general decline in price levels) will most likely be our experience over the next couple of years.
The recent CPI and PPI numbers were eye opening, but the yield on the ten year treasuries barely budged. I don't see the market pricing in inflation concerns.
The gold price always looks its best closest to the top. Gold should be way higher than where it's priced in today's dollars. A lot of folks are jumping on the "buy gold" wagon right now so I'm thinking the run has another one or two hundred points of upside left before the trap door swings wide open.
The COT buildup for both gold and silver are astonishing, and this type of shorting by the bullion banks and producers has always led new longs right to the slaughterhouse. Platinum still looks like a better investment to me actually.
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