I sit here scratching my head as the dollar rallies and gold, silver and oil take a dive. As others have pointed out, it’s nearly impossible to locate physical bullion, and even when you do you’ll end up paying a rather large premium. I’m still learning about all of this, but common sense seems to dictate two possibilities: 1) the market is being manipulated (nothing new here), or 2) there are variables in this equation that I don not understand (very likely!)
Funny that someone brought up Warren Buffet’s continued faith in the economy and recent rather large investments in equities. My dad has brought this up to me a few times when I’ve tried to warn him about the probably collapse of our economy and the dollar. His response was something to the effect of, "If that’s true, then why is Buffet investing $5 billion in Goldman Sachs?" But others have pointed out that Buffet stands to make a boatload of money on the GS deal if they are able to recover in the short-term. Perhaps Buffet thinks the "collapse" we are all predicting isn’t imminent, or perhaps his support of GS is more due to nationalism than a desire for profit. From what I know of Buffet, though, this last possibility doesn’t seem likely.
As for the rally of the dollar and the decline of PMs, I guess that was to be expected when the bailout passed. Many people are under the illusion that the bailout will somehow magically make everything right again; or, at the very least, investors on Wall Street seem to feel that way. But the dollar is also doing well vs. other currencies, which is something I hadn’t predicted. If other currencies continue to languish, is it possible for the dollar to stay strong? I know the fundamentals of the dollar are a disaster, but markets don’t seem to be paying attention to fundamentals lately.
And what about oil? If oil really has peaked, which many seem to think it has, wouldn’t a drop in supply offset the decline in demand? Or has the recent decline in demand outpaced the drop in supply?
Just when I thought I was beginning to understand… Your thoughts?
Yes I wondered about Buffet for a fleeting moment – then I thought can you imagine trying to buy $5billion of non-financial assets e.g. Precious metals, oil, realestate and then the hassles of trying to secure it.
I suggest that with that sort of money available you can safely assume that he has his practical requirements sufficiently provided for and there really isn’t a lot else he can do with the balance except "play" in a way that he believes will defer disaster or assist recovery while securing his position in the best possible way and prevent him losing everything.
In short I don’t draw a lot of comfort from the fact that Buffet has invested $5b – where he puts it does give a passing tickle to my curiosity.
The rest – bullion prices and movements against the expectations of supply/demand curve behaviour – don’t look to economics for the answer – economics deals with facts and generally rational speculation on behaviour – politics deals with posturing and manipulation – economics starts to look weird when politics starts to lose touch with the checks and balances of reality.
Note: this isn’t democrat/republican style politics this is the designing/scheming/sly meaning of the world – although sadly there are a lot of common traits
you and I investing 10 bucks in lottery tickets. In investing in GE he is simply attempting to prop up the stock market because that’s where his money is invested. He is giving the stock market believability which is sadly lacking as we speak. Lack of confidence in the market caused the 777 point drop we say a couple of days ago.
I watched the Buffet interview with Charlie Rose, linked on another page. He describes the nature of the crises fairly well, but he said two things that reveal his ignorance of where this is going. First, he said he didn’t see it coming. Second, he has faith that government will/is doing what is right thing to restore the economy back to health. He reminds me of a prominent economist of the thirties, Irving Fisher. Fisher too understimated the depth of the Depression and lost everything. I wouldn’t want to be invested in Berkshire Hathaway.
Von Mises (mises.org) had lived through currency debacles before in Europe. While his writings are ignored by mainstreamers like Buffet, Mises argued that government interventions distort market prices, making it impossible for investors and entrepeneurs to calculate future prices, thereby creating accumulating imbalances. Markets are extremely complex, too complex for government planners to asses the proper balance of supply and demand. The Federal Reserve is modeled after the Soviet System of central planning, and we all know what happened there. In fact, in Mises book, Socialism written 1922, he wrote about the failure of interventionism and predicted the Soviet Union would collapse. To those who never heard of him, he just another voice in the crowd. But I can tell you this. Most of the writers like James Turck and Peter Schiff are well versed in Austrian Theory. They saw this coming years and maybe decades ago. I know I did.
Mises tells us where this is going: "There is no means of avoiding the final collapse of a boom brought about by
credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of
further credit expansion, or later as a final and total catastrophe of the currency system involved."
— Ludwig von Mises
Buffet probably did think about the credit crisis when he invested in GE. But, it is also true that GE is the only original Dow 30 member still there. It’s business model has long been studied by business schools because of its enduring success. Perhaps Buffet actually sees value there and expects to make money. As he points out, that is his job. Buffet didn’t become one of the richest guys in the world by being stupid.
"The Federal Reserve is modeled after the Soviet System of central planning"
I suspect Bernanke, Greenspan and Volker might have some disagreement with that assertion. The Fed performs functions necessary to any economy. Controlling interest rates and money creation are fundamental. Somebody’s gotta do them.
True, the USSR collapsed due to its own failed economic model. But, there are still well functioning (at least by today’s standards) socialist economies in western Europe. They have a number of advantages over our notions of free market capitalism, not least of which is universal health care. Plus, European states have the advantage of being built on land use patterns that are much more efficient and conducive to human happiness than ours. Our reliance on automobiles is one of fundamentals of our culture that must be changed if we are to continue to function as a leading economy. We can no longer afford the waste.
Of course Bernanke, Greenspan and Volker would disagree with the assertion that the Federal Reserve is modeled afther the Soviet System of central planning. But the fact remains that controlling interest rates and the money supply is a function of central planning. As Mises argued, it is impossible to know the optimimum interest rate and money supply.It takes uncountable decisions by individuals acting in their own interest to do that.
There was a time when Greenspan didn’t agree. He wrote an essay for Ayn Rand called " Gold and Economic Freedom" (http://www.usagold.com/gildedopinion/greenspan.html) Here’s a snippet.
In the absence of the gold standard,
there is no way to protect
savings from confiscation through inflation. There is no safe store of value. If there were,
the government would have to make its holding illegal, as was
done in the case of gold. If everyone decided, for example, to
convert all his bank deposits to silver or copper or any other
good, and thereafter declined to accept checks as payment for
goods, bank deposits would lose their purchasing power and government-created
bank credit would be worthless as a claim on goods. The financial policy
of the welfare state requires that there be no way for the owners
of wealth to protect themselves.
This is the
shabby secret of the welfare statists’ tirades against gold. Deficit
spending is simply a scheme for the confiscation of wealth. Gold
stands in the way of this insidious process. It stands as a protector
of property rights. If one
grasps this, one has no difficulty in understanding the statists’
antagonism toward the gold standard.
I am fully aware of the degree free market capitalism is mistrusted, but paradoxically it is free market theory that best describes the damage interventionism does to the market. Central banking and fractional reserve banking has never worked and cannot be made to work. To those who are familar with the works of Mises, all this was foreseable.