Questions about NewAmerica15.com...

[Predicto]

If central banks are just investing like everyone else, just trying to make some money, selling gold at multi-decade lows and buying at or near all-time highs is maybe the dumbest combination of investment strategies of all time.

Who is making the assumption that central banks are "just investing like anyone else, just trying to make some money" (other than you, perhaps)?

I already admitted that the reason central banks buy or sell gold at any particular time is not completely clear to me, but I am pretty sure that "investing to make a quick buck" is rarely high on a central bank's agenda.

What do I question is the claim (primarily by gold sellers) that the recent purchase of gold by a few smaller central banks is some huge sea change and that they know exactly what it means - the imminent death of fiat money blah blah blah.

[PeterMP]

The problem isn't the debt owned by China. It's the debt owned by banks. They can't forgive it, because doing so would instantly make them insolvent, which in turn would mean that more entities would require debt forgiveness, and round and round we go.

(Also, pension funds won't be able to fulfill their obligations if they forgive government debt, and they own a ton of it. Mutual funds would go under. Hedge funds as well. And so on.)

But if countries that hold the debt start to forgive the debt (or somehow "give" us money "back") that makes paying it to those entities a whole lot easier.

Three thoughts. One, you're getting pretty broad in your definition of inability to predict the future. I can easily predict, for example, that the rate at which the federal government is going into debt in terms of percentage of GDP is going to end. It might be voluntary and it might not, but it won't go on forever, that much is certain. Then, if I add some sort of "if-then" statement to make other conditional predictions based off of that. If the rate goes down significantly, and the rest of our current economic conditions remain the same as they are now, GDP growth will fall even further. Additionally, you're taking studies that demonstrate that on a market-wide basis, over the long term, inactive, diversified investing does better than fee-based active fund managers. This is rather different than data showing that specific predictions are impossible. I believe that at one point during the tech bubble, tech companies were, as a whole, apparently promoting business plans to investors that projected collective total annual revenues that were several times global GDP. Obviously this is beyond impossible. Now, predicting which companies would fail spectacularly based on that information alone is impossible, but predicting that there would be spectacular failures would be obvious.

Right, but you are talking about a specific prediction here, right?

You are talking about a specific prediction w/ respect to how the US is going to stop going into debt, and the effects that is going to have on the global economy w/ respect to gold.

Can the US keep spending at the % of GDP as it we have?

No.

Is the dollar going to collapse and the gold going to become the reserve currency of the world?

That's a different question.

Two, you're really stretching if you're trying to suggest that because central banks don't know for sure where the price of gold will be going, their actions therefore do not require any sort of explanation beyond, "Hey, they're just investing like everyone else." Saying that would, to me, indicate that you've taken your personal economic philosophy to the same level of absurdity as the Chicago economist I mentioned in that other thread who boldly claimed that he has no idea what causes recessions, but he's quite certain that the last recession began way before the date the NBER picked, and he's also quite certain that the recession wasn't caused by the housing bubble. Alarm bells should go off in your head when your economic philosophy leads you to say something like that. If central banks are just investing like everyone else, just trying to make some money, selling gold at multi-decade lows and buying at or near all-time highs is maybe the dumbest combination of investment strategies of all time.

But it isn't the same banks that are buying as selling. You're acting like China is buying AND selling gold. They aren't. SOME banks are selling (most notably the IMF), which has responsibilities other than making money and some countries are buying.

In addition, there countries that are producing gold have changed and that means changes in the market with respect to gold (e.g. a decrease in private entities producing gold and increase in entities essentially controlled by nations (e.g. China) producing gold). That is going to have an impact on things.

And they aren't trying to JUST make money directly off of gold, like manipulate currency values, and are also buying as a hedge in which case they NEVER might make money.

Right, people will take a position as a "hedge" against some other investment to minimize their risk even though that means if their main investment is "right" they will lose money on the "hedge".

Okay, now to the third point from above. Expanding your strategic oil reserve when prices are high makes all the sense in the world if you think about it politically. You need oil for your economy to function. When the price is really low, there isn't much political desire to expand reserves, even though it's obviously the better time to do it. But when the price of oil spikes, everyone freaks out and screams at the government, "We need oil! Do something!"

The only time you really need gold for your economy to function is when people start to lose faith in the things you've created to replace gold.

1. Creating a reserve when prices is high doesn't fix the problem. The political thing to do would be to NOT start a reserve and use that money to subsidize people's individual fuel costs somehow.

2. You forgot their actions to a certain extent drive price increases.

By the way, what in the world is this "starting to have excess money" nonsense? China has been sitting on the largest pile of foreign reserves for a long time now. Central banks, by definition, always have excess money. Sovereign wealth funds, again by definition, are made up entirely of excess money. Yet the shift towards gold has only happened in the past couple of years, during which time the price of gold has been going parabolic. Anyone who has studied parabolic moves in the market would tell you that it's a big, fat warning sign at least 95% of the time. Again, are you offering up the theory that the entire world has lost its mind?

1. Well, "extra money" is in the eye of the beholder. I'd argue the fact that China didn't try and expand its gold reserves or create an oil reserve prior to 2004 is an indication that they didn't think they had too much extra money. I'd argue the fact that they continue to have very poor environmental standards, including things like basic air quality, that they must know long term is going to cost them money in terms of health out comes is an indication that they don't think they have a large amount of extra money even NOW.

2. Actually, I'm not. I'm describing what is happening as a reasonable diversification of their portfolio potentially coupled with an attempt to manipulate the value of a resource that they have a great deal of to make more money in the short term. YOU are trying to claim that the whole world lost its mind by holding bunches of dollars and instruments of US debts (and realistically continuing to hold bunches of dollars and buy instruments of US debt).

Who is the person that says people have lost their mind?

1. Countries that have "extra" money are diversifying their portfolio to be more in line with historical holdings of other advanced economies and in the process trying to make some extra money.

2. The vast majority of even pretty well developed (so include China, India, and S. Korea along with more deveoped countries like Japan) countries in the world are doing something and have been doing something for decades that is going to essentially cause a global economic collapse.

In what scenario have people lost their minds?

What is it that makes you think we're going to "pretty rapidly" be getting off of Middle Eastern oil any time soon?

1. Even now we don't import most of our oil from the Middle East. The value of the US dollar is less important to them w/ the rise of China and India as markets for their oil.

2. Our oil consumption per capitia is down.

3. Our oil production, after having decreased for several decades, has at least leveled off and might actually be increasing.

4. Canada's oil production is also up.

5. Saudi oil production has peaked and is likely actually decreasing (the Saudi's are beyond peak oil (at least for their easily accessible and high quality oil)).

I feel like I have to be misunderstanding this part. You're saying that you think Russia and China are intentionally over-bidding for gold, while simultaneously arguing in the beginning of your post that China would rather voluntarily give up over $1 trillion in U.S. debt than move towards a new gold standard? I mean... huh?

No, I'm saying China, where most of the world's gold comes from today and owns the controls the companies that generate the gold, is simply taking some of that gold that could go onto the market and putting it in their vaults and then announcing it later as an increase in their strategic reserves.

The end result is that there is less gold for the rest of the world to buy, which inflates the value.

Which means they make more money off of the gold the do sell and drives foreign investment in their country (in terms of the gold mining industry).

There is an area to play where one can increase the value of gold and NOT undermine the value of the US dollar so much that the dollar completely collapses and the world returns to a gold standard.

I don't think the Chinese mind if they "sting" us some, but that doesn't mean they want us to keel over and die (at least not yet).

For a number of years, OPEC did artifically increase the value they got for oil w/o causing the world economies to collapse or doing serious long term damage to world dependency on oil.

I don't think it is beyond possibility that China and to a lesser extent Russia are doing the samething with gold.

[Hubbs]

Who is making the assumption that central banks are "just investing like anyone else, just trying to make some money" (other than you, perhaps)?

I already admitted that the reason central banks buy or sell gold at any particular time is not completely clear to me, but I am pretty sure that "investing to make a quick buck" is rarely high on a central bank's agenda.

What do I question is the claim (primarily by gold sellers) that the recent purchase of gold by a few smaller central banks is some huge sea change and that they know exactly what it means - the imminent death of fiat money blah blah blah.

Peter has been making an argument in multiple threads that I believe takes a bit of data and goes way, way too far with it, at least if I understand what he's saying in this thread correctly. Techboy likes to cite some studies which show that, over the long term, on average, actively managed stock accounts underperform bland, boring, inactive diversified broad market funds. (Or something along those lines.) I've never examined the methodology used in these studies, but tech's a smart guy and I'll trust him unless/until I feel motivated to dig into them to see if there are any flaws in the reasoning. Peter has been trying to use those studies to attempt to make a variety of very bold claims which essentially assert that any economic prediction that comes true is the result of sheer luck and nothing more, and that nobody can consistently make economic predictions that are correct (again, as far as I understand his claims). Thus I understood his point about central banks and predicting the future to mean that his argument is that central banks are just as incapable of predicting anything at all as the rest of us, therefore their purchases of gold don't mean anything.

[Predicto]

Oh, I understand. I am sure that the recent central bank purchases of gold mean something (although they are a very small percentage of the total world gold market and the various central banks probably all have their own motives).

I just don't know what exactly it means, or does not mean, and I'm pretty sure that you don't either (not trying to be insulting, since I don't know myself). What I AM really sure of is that no one who is trying to sell me gold is going to give me a straight answer (even if they know it, which I also doubt).

[PeterMP]

Peter has been making an argument in multiple threads that I believe takes a bit of data and goes way, way too far with it, at least if I understand what he's saying in this thread correctly. Techboy likes to cite some studies which show that, over the long term, on average, actively managed stock accounts underperform bland, boring, inactive diversified broad market funds. (Or something along those lines.) I've never examined the methodology used in these studies, but tech's a smart guy and I'll trust him unless/until I feel motivated to dig into them to see if there are any flaws in the reasoning. Peter has been trying to use those studies to attempt to make a variety of very bold claims which essentially assert that any economic prediction that comes true is the result of sheer luck and nothing more, and that nobody can consistently make economic predictions that are correct (again, as far as I understand his claims). Thus I understood his point about central banks and predicting the future to mean that his argument is that central banks are just as incapable of predicting anything at all as the rest of us, therefore their purchases of gold don't mean anything.

There are other papers out there on the effecient market hypothesis out there than what techboy cites.

The purchases by the centeral banks must mean something to them.

It might even mean they are good investors. If you are over invested in a particular thing (e.g. the US dollar/US debt) than broading your investment portfolio to include other things would be a GOOD investment. It would mean that they are less dependent on their prediction of the future being right.

That wouldn't be good evidence that the US dollar is going to collapse or that said entity doing so believes the US dollar is goign to collapse.

I recently sold some of a US based index fund that I own and put it in a fund that is heavily invested in India.

That doesn't mean that I think that the US index fund I own is going to collapse. I actually still have quite a bit of money in it. It does mean that I decided it made sense for me to diversity my holdings some based on a number of variables.

It doesn't mean I'm trying to cause the collapse of US stock prices.

**EDIT**

Are you going to argue that the world's centeral banks created a mess that has some reasonable probability (according to you) of causing a global economic collapse are NOW making good decisions by buying gold?

After DECADES of bad decisions, they are NOW making good decisions?

(according to you)

[twa]

Indeed, but if history is any guide, now looks like a good time to sell rather than buy.

But what if it is also being driven by the cultures in emerging economies with increasing disposable income?

I do agree it is nearer a peak than not, though that peak might be awhile yet

2012 here we come

[Hubbs]

Oh, I understand. I am sure that the recent central bank purchases of gold mean something (although they are a very small percentage of the total world gold market and the various central banks probably all have their own motives).

I just don't know what exactly it means, or does not mean, and I'm pretty sure that you don't either (not trying to be insulting, since I don't know myself). What I AM really sure of is that no one who is trying to sell me gold is going to give me a straight answer (even if they know it, which I also doubt).

I obviously don't know for sure, because I'm not a fly on the wall inside these central banks. In fact, their purchases and my theory are sort of symbiotic. I have a theory, and my theory, if true, would explain their actions. But their actions also bolster my theory in a way. (The way being that their actions are somewhat curious and need an explanation. Peter is also offering a form of an explanation. I just think mine sounds more logical.) There are a significant number of other things that bolster my theory, but it would take a while to explain everything.

But you're right, you shouldn't be going to people who want to sell you gold to get gold predictions.

[TD_washingtonredskins]

If anyone wants to read a fun book about the US going to **** real fast after an EMP attack I highly recommend:

<One Second After>

Due to this post, I bought this book the other day and I have had trouble turning away from it. I even read it instead of watching most of Sunday and Monday Night Football over the past couple nights. So far, it's very compelling. Thanks for the recommendation.

[Pick6]

Due to this post, I bought this book the other day and I have had trouble turning away from it. I even read it instead of watching most of Sunday and Monday Night Football over the past couple nights. So far, it's very compelling. Thanks for the recommendation.

Your welcome. It is an easy read and the author tells a great story.