Bubbles
Federal Reserve Re-Inflating Housing Bubble To Revive Economy?
I just got done reading the following by Reuters’ Jason Lange about household wealth in America:
The net wealth of U.S. households rose in the third quarter to its highest since late 2007, providing a hopeful sign for future consumer spending.
Net financial wealth grew $1.72 trillion to $64.77 trillion, the Federal Reserve said on Thursday.
That left household wealth $1.2 trillion short of where it stood in the fourth quarter of 2007, just as the economy was sinking into a severe recession. Wealth peaked at $67.3 trillion in the third quarter of that year.
Rising home prices helped drive the increase in the latest quarter. The value of real estate owned by households rose about $300 billion, the Fed said. Stock holdings climbed by about $520 billion.
Increases in wealth could make consumers feel more comfortable spending their money. Many economists think consumers spend a few cents of every dollar they gain in wealth.
(Editor’s note: Italics added for emphasis)
Seeing this reminded me of something “crash prophet” Peter Schiff said back in September about the Fed trying to re-inflate the housing bubble through QE3 in an attempt to revive the floundering U.S. economy. I wrote on September 18:
In his September 14 entry on the The Schiff Report YouTube video blog, Schiff, who correctly-predicted the bursting of the U.S. housing bubble and 2008 global economic crisis, explained to viewers what QE3 was really about:
This is the plan that Ben Bernanke has. Ben Bernanke’s plan to revive the U.S. economy, and create jobs, is to inflate another housing bubble. That’s it. That’s what the Fed’s got. That’s what it came up with. As if the last housing bubble worked out so well for the economy, that the Fed wants an encore…
How is another housing bubble going to solve anything. Now one thing that Ben Bernanke hasn’t figured out yet- it ain’t gonna work. No matter how much he tries, no matter how much air he blows in to that housing market, he’s not going to reflate that bubble. There are simply too many holes in it, and there is no precedent for relating a busted bubble. More likely, all that cheap money is going to go someplace else…
The housing Pollyannas are definitely back, as you’ll read about in a Friday post.
But is housing back?
Stay tuned…
Source:
Lange, Jason. “U.S. household wealth rises to near 2007 high.” Reuters. 6 Dec. 2012. (http://news.yahoo.com/household-wealth-increases-64-77-trillion-172821521–sector.html). 6 Dec. 2012.
Sheila Bair, Stephen Roach See Financial Crash Coming
Two notable U.S. economists- one an original “crash prophet”- are warning of a coming financial crash.
Join the club.
It’s been a while since I blogged about Yale economist Stephen Roach. From a February 27 post:
One of the handful of people to see the recent global financial crisis coming was Stephen Roach, Morgan Stanley’s chairman for Asia and chief economist, who just announced his retirement from the firm earlier this month. Roach said something very memorable back in 2004. Brett Arends wrote in the Boston Herald’s “On State Street” column on November 23, 2004:
Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.
But you should hear what he’s saying in private.
Roach met select groups of fund managers downtown last week, including a group at Fidelity.
His prediction: America has no better than a 10 percent chance of avoiding economic “armageddon.”’
Press were not allowed into the meetings. But the Herald has obtained a copy of Roach’s presentation. A stunned source who was at one meeting said, “it struck me how extreme he was – much more, it seemed to me, than in public.”
Roach sees a 30 percent chance of a slump soon and a 60 percent chance that “we’ll muddle through for a while and delay the eventual armageddon.”
The chance we’ll get through OK: one in 10. Maybe…
Last Friday, Roach was speaking at a conference on global risks sponsored by the Rand Corporation and Thomson Reuters in Santa Monica, California. Also attending was Sheila Bair, the former chairman of the Federal Deposit Insurance Corporation. Tim Reid wrote on Reuters website November 16:
Two leading U.S. economists expressed deep pessimism on Friday that politicians in Washington will be able to strike a deal to rein in America’s soaring national debt.
Sheila Bair, the former chairman of the Federal Deposit Insurance Corporation, and Stephen Roach, a veteran economist at Yale University’s School of Management, also said the Federal Reserve was creating another catastrophic financial bubble with attempts to stimulate the economy through its policy known as quantitative easing…
Bair, who stepped down as head of the FDIC in July 2011, said the Federal Reserve’s policy of pumping money into the economy, combined with an unprecedented period of historically low interest rates, was creating “the mother of all bond bubbles.”
Bair said she believed the United States was heading for a financial crash on the scale seen when the housing market collapsed six years ago, but this time because of investors who were looking for higher and riskier returns in other asset classes.
(Editor’s note: Italics added for emphasis)
I don’t recall Ms. Bair being so vocal about such things when she was FDIC Chairman. Now she can speak her mind as she’s no longer in that position, right?
Reid added:
Roach called the Federal Reserve policy of low interest rates and quantitative easing a “ticking time bomb that keeps on ticking.”
Both economists think the so-called “fiscal cliff” will be avoided by Congress electing to punt on fiscal responsibility.
As do I. Which will only make the coming pain even worse as the nation’s debt keeps piling up.
Source:
Reid, Tim. “U.S. heading for another crash, debt crisis looms: top economists.” Reuters. 16 Nov. 2012. (http://www.reuters.com/article/2012/11/16/us-usa-debt-rand-idUSBRE8AF1EF20121116). 16 Nov. 2012.
Robert Shiller: ‘I’m Not Ready Yet’ To Call U.S. Housing Bottom
The housing bulls are out in full-force these days after repeated smack-downs since the air was let out of the U.S. housing bubble (“housing’s coming back in 2007, no 2008, maybe 2009, make that 2010, 2011 anyone?”)
But one housing expert, who was out there in the mid-2000s warning anyone who would listen about the housing bubble and subsequent crash, isn’t sure residential real estate in the United States has bottomed-out just yet.
Yale University economist Robert Shiller talked to CNBC’s Scott Wapner on the TV show Fast Money earlier today. From their exchange on the “Halftime Report”:
WAPNER: You don’t think that housing is on the road to recovery?
SHILLER: I think it might be. There are a lot of positive indicators. But I think people tend to overreact to these. And if you look at the trend- which has been down since 2006- it’s a pretty strong trend that we have to see reversed. You know, maybe, you know, I might call it later this year that we’ve reached the bottom. But I’m not ready yet.
Dr. Shiller noted that there have been four attempts at a housing recovery since the subprime crisis.
“Shiller: ‘Not Ready Yet’ to Call Housing Bottom”
CNBC Video
Peter Schiff Claims QE3 Attempt To Inflate Another Housing Bubble, Shares Investment Advice
Anyone who’s visited Survival And Prosperity over the last two weeks probably noticed all the housekeeping items and other topics besides finance I’ve been blogging about. Whew! Time to move on. And who better to get back on track with as it concerns economics, finance, and investing than one of the original “crash prophets,” Peter Schiff. In his September 14 entry on the The Schiff Report YouTube video blog, Schiff, who correctly-predicted the bursting of the U.S. housing bubble and 2008 global economic crisis, explained to viewers what QE3 was really about:
This is the plan that Ben Bernanke has. Ben Bernanke’s plan to revive the U.S. economy, and create jobs, is to inflate another housing bubble. That’s it. That’s what the Fed’s got. That’s what it came up with. As if the last housing bubble worked out so well for the economy, that the Fed wants an encore…
How is another housing bubble going to solve anything. Now one thing that Ben Bernanke hasn’t figured out yet- it ain’t gonna work. No matter how much he tries, no matter how much air he blows in to that housing market, he’s not going to reflate that bubble. There are simply too many holes in it, and there is no precedent for relating a busted bubble. More likely, all that cheap money is going to go someplace else…
So where is all this money going to go? Commodities. It’s going to go to gold. It’s going to go to silver. It’s going to go into oil. It’s going to go into agriculture. It is not going to make the economy better. It’s going to make the economy worse. It’s not going to create jobs. But what it is going to create is a higher cost of living for everybody, whether you have a job or whether you’re unemployed. And believe me, if people are spending more money on food, and more money on energy, they’re not going to have any extra money left over for discretionary spending. None of this is going to work.
The President/Chief Global Strategist of Euro Pacific Capital and CEO of Euro Pacific Precious Metals shared the following investment advice:
You’ve got to look through all this smoke. You got to buy gold, buy silver. Get out of dollars. Get out while you can. Get into real things. Own stocks outside the United States, in currencies with dividends and income that are not U.S. dollars.
This is the most important thing that you can probably do. You’ve got to save yourself first if we’re going to save our country… We’re going to go over a real fiscal cliff. We have a real crisis coming because of the Fed, but we’ve got to protect ourselves.
“Operation Screw: The Fed goes all-in on QE”
YouTube Video
(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)
George Soros Has Been Buying More Gold
I’m sure many of you have heard the phrase, “do as I say, not as I do.”
How about “talking one’s book?”
Well, those two sayings come to mind whenever I scrutinize big-time investors/traders and what they tell the public, something I had quite a bit of experience with when I ran the blog Investorazzi.com, “Tracking the World’s Greatest Investors,” a few years back.
One hedge fund manager the investing community pays a lot of attention to is George Soros. And how many of you remember what Mr. Soros said about gold a few years back? Edmund Conway wrote on The Telegraph (UK) website on January 28, 2010:
Mr Soros, arguably the most famous hedge fund manager in history, warned that with interest rates low around the world, policymakers were risking generating new bubbles which could cause crashes in the future. In comments delivered on the fringe of the World Economic Forum, Mr Soros said: “When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”
(Editor’s note: Italics added for emphasis)
Spot gold ended January 28, 2010, at $1,088.
Fast forward to August 15, 2012. Debarati Roy wrote on the BloombergBusinessweek website:
Billionaire investors George Soros and John Paulson increased their stakes in the biggest exchange-traded fund backed by gold as prices posted the largest quarterly drop since 2008.
Soros Fund Management more than doubled its investment in the SPDR Gold Trust to 884,400 shares as of June 30, compared with three months earlier, a U.S. Securities and Exchange Commission filing for second-quarter holdings showed yesterday. Paulson & Co. increased its holdings by 26 percent to 21.8 million shares.
(Editor’s note: Italics added for emphasis)
The spot gold price dipped no lower than $1,540 an ounce (May 30) during that time frame.
And even though gold was $452 higher at its lowest point in the second quarter from the day the Hungarian-born investor uttered that bubble comment, he bought more of the precious metal.
And has been doing so for quite some time now, according to the financial news media.
In fact, consider what James Quinn wrote on The Telegraph website on February 17, 2010- just days after the world’s richest hedge fund manager ($22 billion) made that infamous gold bubble statement:
Mr. Soros – a legend in investing circles for his $10bn (£6.37bn) bet against the pound in 1992 which forced sterling out of the European exchange rate mechanism – increased his stake in the SPDR Gold Trust in the last quarter of 2009.
Regulatory filings show that his $8.8bn investment vehicle, Soros Fund Management, raised its stake in exchange-traded fund SPDR by 3.7m shares to 6.2m shares in the three months ending December 31, 2009…
However, the actions of the Mr Soros’s investment fund however seem to be at odds with his own viewpoint. During the World Economic Forum in Davos in late January, Mr Soros said: “When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”
(Editor’s note: Italics added for emphasis)
“Do as I say, not as I do?” “Talking one’s book?” Who knows? Maybe he’s changed his mind about the yellow metal. And, to be fair, Soros Fund Management reportedly sold almost all its shares in the SPDR Gold Trust and the iShares Gold Trust exchange-traded funds in the first quarter of 2011.
Still, that’s a year after the gold bubble statement.
All I know is this. George Soros has reportedly been acquiring gold, and has been for some time now.
Would this guru be loading up on the “ultimate asset bubble” if he really believed it were true?
Unless, perhaps, Soros thinks gold prices are still heading much higher, compensating for the risk he’s taking on in owning the “ultimate asset bubble.”
(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)
Sources:
Conway, Edmund. “Davos 2010: George Soros warns gold is now the ‘ultimate bubble’” The Telegraph. 28 Jan. 2010. (http://www.telegraph.co.uk/finance/financetopics/davos/7085504/Davos-2010-George-Soros-warns-gold-is-now-the-ultimate-bubble.html). 15 Aug. 2012.
Roy, Debarati. “Paulson, Soros Add Gold as Price Declines Most Since 2008.” BloombergBusinessweek. 15 Aug. 2012. (http://www.businessweek.com/news/2012-08-14/paulson-soros-add-to-gold-hoard-as-prices-drop-most-since-2008). 15 Aug. 2012.
Quinn, James. “George Soros buys gold despite dubbing it ‘ultimate bubble’” The Telegraph. 17 Feb. 2010. (http://www.telegraph.co.uk/finance/personalfinance/investing/gold/7259161/George-Soros-buys-gold-despite-dubbing-it-ultimate-bubble.html). 15 Aug. 2012.
Peter Schiff: Economic Recovery? Try Economic Suicide
There’s been a lot of talk lately in financial/investing circles about the U.S. economic “recovery,” the European sovereign debt crisis and the flight to the U.S. dollar as a “safe-haven,” and the bursting of the gold “bubble.” Last Friday, Peter Schiff, President and Chief Global Strategist of Euro Pacific Capital, discussed these issues in his latest entry on The Schiff Report YouTube video blog. Schiff, who correctly predicted the bursting of the U.S. housing bubble and 2008 global economic crisis, told viewers:
Of course, I don’t think the economy was ever strong. I think we’ve simply spent money that we’ve borrowed and so GDP went up as a function of spending borrowed money. But our debt went up 5 times the GDP. That’s not economic growth- I think that’s economic suicide. We’re simply trading current consumption by borrowing from the future, which means our future consumption has to fall off of a cliff to cover this. In fact, it’s this stimulus that’s wearing off, and the hangover is starting to set in- and that is the problem. Although I believe that the Federal Reserve is going to come in with another “fix.” They’re going to try to juice the economy back up with another round of quantitative easing. I don’t know how they’ll announce it or what they’ll call it, but ultimately I believe that’s going to put a floor beneath the market- at least in nominal terms. And I do expect the markets to turn up again. But I think there is some downside risk in the near-term.
All of this has benefitted the dollar. You know, the dollar hasn’t spiked, but it’s been going up, creeping up, daily. The dollar index is the highest it’s been, I think, since September 2010, something like that. I think it could go a little higher, but ultimately I think it’s going to turn around. And with the relative strength of the dollar, that’s kind of taken the luster off of gold the past several weeks. Although this week, gold was down a bit, but it erased most of its losses later in the week. Gold stocks were up strongly. I think as a group they were up about 8 percent after having been down considerably for maybe the last couple of months. This might indicate that we have a bottom in the gold stocks and maybe we’re ready to have another move up in gold. And if we are going to have another move up in gold, then maybe we are getting near the end of this dollar “rise.” Although I do think it could move a couple more points given the short term weakness I see in the stock market.
And the fact is America still benefits. Whenever people are worried, they buy the dollar. Most people don’t realize they’re jumping from the frying pan into the fire. But it’s kind of a reflexive action. And because people are pouring into the dollar, we don’t have to address our problems. We’re not having to deal with them like Europe is being confronted. We’re still able to postpone the pain because we’re borrowing all this money. But because we’re borrowing all the money, we’re making the problems bigger, which means the pain will be even more excruciating when we do have to face it.
You can watch the entire video blog post (16 minutes, 56 seconds) on YouTube here.
(Editor’s notes: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein; info added to “Crash Prophets” page)
Robert Shiller: Possible No Major Turnaround For Home Prices ‘In Our Lifetimes’
Last housing piece for today- I promise. One of those “long-time, reputable housing observers” I talked about earlier today chimed in on the latest release of data from the S&P/Case-Shiller composite index of 20 metropolitan areas.
It so happens that it’s none other than Dr. Robert Shiller himself.
And what he said is sure to anger the housing bulls- just like back in the housing bubble days. From Steven C. Johnson of Reuters on the Chicago Tribune website today:
The Housing market is likely to remain weak and may take a generation or more to rebound, Yale economics professor Robert Shiller told Reuters Insider on Tuesday.
Shiller, the co-creator of the Standard & Poor’s/Case-Shiller home price index, said a weak labor market, high gas prices and a general sense of unease among consumers was outweighing low mortgage rates and would likely keep a lid on prices for the foreseeable future.
“I worry that we might not see a really major turnaround in our lifetimes,” Shiller said…
(Editor’s note: Italics added for emphasis)
Johnson added that Dr. Shiller thought suburban areas might see further price declines due to high prices at the pump and the appeal of “walkable cities.”
Now, in case you haven’t heard of Robert Shiller, he was out there warning anyone who would listen about a U.S. housing bubble and impending crash before most. Just lucky? I think not. The Yale professor also predicted the dot-com bubble bursting as well. The last time I discussed Dr. Shiller was back on September 30 of last year, when talking about U.S. home prices with Liz Claman of the FOX Business Channel he warned viewers:
Yes, I worry about that. You know, home prices have kind of come back to a reasonable level based on long history. But, after bubbles, speculative prices sometimes overshoot. And right now we’re in a period of low confidence, and debt crises, with reduced latitude for real stimulus. So it seems to me that they might well continue to fall.
You know, the latest Case-Shiller numbers were up though, at least on a non-seasonally-adjusted basis. So it’s no so clear where they’re going.
Probably not straight back up anytime soon, according to Shiller.
Source:
Johnson, Steven C. “Maybe no housing rebound for a generation: Shiller.” Chicago Tribune. 24 Apr. 2012. (http://www.chicagotribune.com/news/sns-rt-us-usa-housing-reboundbre83n0sk-20120424,0,3106694.story). 24 Apr. 2012.
2013 Housing Recovery Could Be Dashed By Next Foreclosure Wave
Unbridled optimism about the nation’s economic health seems to be in the air these days- at least for the mainstream media and financial types. There’s no shortage of talk about a strengthening economic recovery, higher stock/401k values, peaking gas prices, and a housing market bottom and recovery.
Hey, all of that sounds good to me.
Problem is, as it concerns housing, many of those claiming home prices are close to bottoming out and recovering are the same ones who didn’t see the recent housing bubble and subsequent crash in the first place.
And, is it just me, or is that spiel about a comeback in residential real estate being played over and over like a broken record? Housing will recover in 2008. Wait, 2009. No, make that 2010. 2011. 2012. And now, Lucia Mukitani writes on the MSNBC website this morning:
The relentless decline in home prices is nearing an end and prices should rise for the first time in seven years in 2013, but a possible new wave of foreclosures could threaten the recovery, according a Reuters poll of economists.
The median forecast of 24 economists polled by Reuters was for the S&P/Case-Shiller 20-city home price index to end the year unchanged. That was the same finding back in January for this house price gauge, which covers 20 cities.
“We are expecting a gradual improvement, but if we get a big wave of new foreclosures coming to the market, price declines could be even greater,” said Yelena Shulyatyeva, an economist at BNP Paribas in New York.
The survey forecast the S&P/Case-Shiller home price index rising 2.0 percent next year, up from 1.5 percent in the January survey.
(Editor’s note: Italics added for emphasis)
Did you notice the concern about foreclosures? It’s later muted in the piece. Mukitani added:
The survey predicted about 1.5 million foreclosed properties will come on to the market this year. While there is no comparison for this figure, most analysts believe the foreclosure wave has either peaked or is close to topping out.
(Editor’s note: Italics added for emphasis)
That may be so, but it sounds like there’s enough foreclosures in the pipeline- with still more coming- to possibly lower home prices even more. From the CNBC website this morning:
More U.S. homes are entering the foreclosure process, setting the stage for a surge in properties repossessed by lenders this year.
The number of homes that received first-time foreclosure notices rose 7 percent in March from the previous month, foreclosure listing firm RealtyTrac said Thursday.
That marks the third consecutive monthly increase this year and reflects stepped-up efforts by banks to take action against homeowners who fail to keep up with mortgage payments.
“We’re not out of the woods yet with foreclosures,” said Daren Blomquist, a vice president at RealtyTrac. “There are more batches of foreclosures coming through the pipeline.”
(Editor’s note: Italics added for emphasis)
Now, foreclosure activity slowed in the first quarter. But not for reasons one might suspect. From MSNBC.com senior producer John Schoen earlier today:
Foreclosure activity fell in the first quarter to the lowest level in more than four years, but mainly because the process of removing people from their homes has slowed. The number of homes just beginning the foreclosure process rose in March for a third straight month, a sign that the nation’s housing problems are far from over, according to RealtyTrac, which tracks the figures.
“The low foreclosure numbers in the first quarter are not an indication that the massive reservoir of distressed properties built up over the past few years has somehow miraculously evaporated,” said Brandon Moore, chief executive officer of RealtyTrac.
He said a large backlog of bank-owned properties that has accumulated over the past few years will put added pressure on the housing market when banks eventually list them for sale.
“The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen,” he said in a news release.
(Editor’s note: Italics added for emphasis)
“Added pressure,” “Dam… will eventually burst.” Sounds like home prices could keep falling. Nick Carey wrote on the Reuters website back on April 4:
Real estate company Zillow Inc says more than one in four American homeowners were “under water” or owed more than their homes were worth in the fourth quarter of 2011. The crisis has wiped out some $7 trillion in U.S. household wealth…
Zillow expects the resurgence in foreclosures this year, combined with excess inventory of unsold, bank-owned homes will contribute to a 3.7 percent national decline in prices before the market hits bottom in 2013 and stays there until 2016.
“The hangover from this crisis will far outlast the party of the boom years,” said Zillow chief economist Stan Humphries.
(Editor’s note: Italics added for emphasis)
So 2013 might not be the year of housing’s recovery?
2014, anyone?
Sources:
Mukitani, Lucia. “Close to bottoming, home prices may rise in 2013.” MSNBC. 12 Apr. 2012. (http://economywatch.msnbc.msn.com/_news/2012/04/12/11161950-close-to-bottoming-home-prices-may-rise-in-2013?lite). 12 Apr. 2012.
“First-Time Foreclosure Notices Hit 6-Month High.” CNBC. 12 Apr. 2012. (http://www.cnbc.com/id/47028071). 12 Apr. 2012.
Schoen, John W. “Foreclosures slow as pipeline keeps backing up.” CNBC. 12 Apr. 2012. (http://economywatch.msnbc.msn.com/_news/2012/04/12/11145443-foreclosures-slow-as-pipeline-keeps-backing-up?lite). 12 Apr. 2012.
Carey, Nick. “Americans brace for next foreclosure wave.” Reuters. 4 Apr. 2012. (http://www.reuters.com/article/2012/04/04/us-foreclosure-idUSBRE83319E20120404). 12 Apr. 2012.
Gold Bull Market On Its Last Legs?
How much do you know about gold? I’ve been following the precious metal ever since I was in grade school. I remember going to the local public library in the mid-to-late 1980s to read up about it in books and numismatic publications. Astounded that the price of an ounce of gold was around $450 by the time I was entering my first year of high school, I remember telling myself, “One of these days I’m going to own gold.”
Now, long-time gold watchers such as myself know that gold is subject to huge price swings. Gold investors liken it to being on a roller coaster ride- definitely not for the faint of heart. Conversely, traders love that aspect of it.
But these days, there seems to be no shortage of negative material being written about the precious metal in the mainstream media. Why all the hate? Is it because gold is the proverbial “canary in the coal mine,” telling us something is wrong with the nation’s financial health? Being an optimistic people, many Americans may take exception at such a revelation (one must look beneath the surface of the “recovery” to truly understand the dilemma we’re in). By extension, is it because many Americans are jealous of their compatriots who got into gold early on, when the price was still “cheap.” As I pointed out back on February 9, the percentage of adult Americans that own investment gold is probably still less than 10 percent. Perhaps it’s because gold threatens their livelihoods (those involved with paper assets, for example).
All I know is this. Even though the fundamentals in support of a continued bull market in gold remain, with each (inevitable) significant price drop in the yellow metal there is some MSM outlet out there screaming the bull is on its last legs- if it’s not dead already. Case in point, Associated Press business writers Matthew Craft and Bernard Condon wrote on the Chicago Sun-Times website Wednesday:
Is this the end of the gold rush? Price drops along with stocks
The price of gold, which has climbed for years like a blood pressure reading for anxious investors, plunged Wednesday to its lowest level in three months.
Gold fell almost $58 to $1,614 per ounce. It has declined 15 percent since September, when it hit a peak of $1,907. It had more than doubled since the financial crisis three years earlier.
“It’s difficult to forecast, but I think the gold bull market is over,” said Cetin Ciner, a professor of finance at the University of North Carolina-Wilmington. He likened the surge in gold to dot-com stocks before they collapsed.
(Editor’s note: Italics added for emphasis)
High gold price being equated to high blood pressure. Never heard that one. Very creative.
Now, Professor Ciner “thinks gold is in a ‘bubble,’” according to an Associated Press piece from August 24, 2011. Ah yes, the notorious gold “bubble.” Remember this from all the way back on December 23, 2010?
“A gold bubble may well be coming our way”
-The Telegraph (UK), March 20, 2009“Beware the gold bubble”
-Fortune, October 6, 2009“Gold Is The Ultimate Asset Bubble”
-Forbes, March 12, 2010“Investors warn about a gold bubble burst as metal continues rally”
-The Guardian (UK), August 19, 2010“Has The Gold Bubble Burst?”
-CNBC, December 19, 2010
This bubble sure has a lot of air. Which really is quite amazing, considering, once again, the percentage of adult Americans that own investment gold is probably still less than 10 percent.
Dot-com bubble, lots of people wanted in on tech stocks. Housing bubble, lots of wannabe Donald Trumps wanted in (would rather have been a Thomas Barrack myself). Gold “bubble,” probably less than 10 percent of American adults want in on the shiny yellow metal.
Not very “bubbly,” if you ask me.
I wonder if all those gold commercials seen on FOX News and some other TV channels aren’t screwing with people’s perception of actual gold demand out there on Main Street?
I’d guess yes.
But back to my December 2010 piece. I wrote:
As shown above, there are lots of headlines these days trumpeting the coming demise of gold. Just don’t tell Euro Pacific Capital’s Peter Schiff that. Having gained notoriety for predicting the financial crisis, Schiff dismissed the idea of a gold price bubble in his Schiff Report Video Blog this past Tuesday:
I’m reading a lot again as the year’s coming to an end about “the gold bubble,” “stay away from gold,” “oh, it’s a bubble that’s going to burst,” “the small investors are going to get killed.”
Again, the people that see gold bubbles missed the housing bubble, missed the stock market bubble.
This is not a bubble. Gold’s rise is real. It reflects a permanent diminishment in the value of the dollar. Gold is just measuring the value of our money. We’re all printing money, the Fed is creating dollars, the dollar is losing value, so the price of gold has to rise to reflect that.
It has nothing to do with a bubble.
You go back to the 1970s. The price of gold went from $35 an ounce at the beginning of the decade to 800 at the end. A twenty-three fold increase. Now, 800 clearly was overvalued. And it did collapse. Gold prices dropped from 800 back- they settled into a range between 3 and 500 for about the next 20 years. So let’s call the average price after gold hit 800 350. It did go above 500 briefly, it went below 300 briefly, but most of the time it was about 350. So if you bought gold at $35, even after the bubble burst, it was still 10X where the bull market started.
But where are we now? Gold is about 1,350. The bull market started at 250. If we have a repeat of the 1970s, this market will top out around 6,000- 5,700 to 6,000- then gold will eventually fall and settle back down at around 2,500 and ounce- which is still more than twice the current price. And I believe, that the economic fundamentals are so much worse for the U.S. economy, and we’re going to debase the U.S. dollar by a much larger amount than we did in the 1970s, that we can have an even more spectacular rise in the price of gold. And yes, there’s no doubt in my mind that eventually, the rise in the price of gold will attract speculative money, and it will eventually overshoot, and then we’ll have a substantial drop.
But as far as I’m concerned, we are nowhere near that point yet, and the fact that so many people are so worried about it, and warning individual investors to stay away, this is a big sign that you keep buying, and I take comfort in the fact that the people who were so clueless, are so sure about the one thing, and that’s that gold’s a bubble that is about to burst.
Let’s move on. Here’s Agustino Fontevecchia writing on the Forbes website Thursday afternoon:
Gold’s Decade-Long Bull Run Is Dead, Gartman Says
Bernanke delivered the fatal blow to gold’s ten year bull market, according to Dennis Gartman. Gold has been in bear territory since the summer of 2011, when it topped out above $1,900 an ounce, with the latest post-FOMC sell-off inflicting irreparable technical damage, he says…
According to Gartman, gold’s latest price action confirms the trend line has clearly been broken, indicating we’ve been in a bear market for 12 months, since it peaked. In Thursday’s Gartman Letter, “in retrospect it does appear that gold has not been in a bull market but has indeed been in a bear market” since August 2011, when it peaked above $1,900.
“Since then,” he added “each new interim low has been lower and each new interim high has followed. How, we ask, had we missed that fact!”
(Editor’s note: Italics added for emphasis)
Is this the same Dennis Gartman who reportedly sold the last of his gold holdings back in December 2011? Nicholas Larkin wrote on the Bloomberg website on December 14, 2011:
Gold, in the 11th year of its longest winning streak in at least nine decades, is poised to enter a bear market, according to Dennis Gartman, who correctly predicted the slump in commodities in 2008.
The metal, which traded at $1,666.30 an ounce at 2:43 p.m. in London, may decline to as low as $1,475, the economist wrote today in his Suffolk, Virginia-based Gartman Letter. He sold the last of his gold yesterday. Bullion has already dropped 13 percent from the record $1,921.15 reached Sept. 6 and $1,475 would extend that to more than 20 percent, the common definition of a bear market.
“Since the early autumn here in the Northern Hemisphere gold has failed to make a new high,” Gartman wrote. “Each high has been progressively lower than the previous high, and now we’ve confirmation that the new interim low is lower than the previous low. We have the beginnings of a real bear market, and the death of a bull.”
(Editor’s note: Italics added for emphasis)
And, is this the same Dennis Gartman that was the focus of a January 5, 2012, piece on the Financial Post (Canada) website, in which John Shmuel wrote:
Investment letter publisher Dennis Gartman declared Thursday that he was wrong about his bearish call on gold last month.
Writing in his daily investment letter, Mr. Gartman said he was reversing his position on gold, and now views the precious metal as being in a bull market.
“Gold is chasing steadily higher; it is not correcting and we’ve not been let back in,” Mr. Gartman said.
Mr. Gartman sold much of his position in gold last month, with the intention of buying back some of it when gold prices corrected. He forecast that gold would retreat to US$1,475 an ounce — however, the precious metal is now in its strongest rally in 10 weeks, closing at US$1,620 an ounce Thursday.
“We sold gold rather properly several weeks ago; we failed miserably, however, to buy it back for although our intent was clear late last week as we said it was our intention soon to re-buy that which we had sold, we’ve failed to do so,” Mr. Gartman said.
(Editor’s note: Italics added for emphasis)
Shmuel added:
The new bullish outlook for gold follows a month where Mr. Gartman was the subject of some high-profile name calling from fellow investment letter writer, Peter Grandich.
Mr. Grandich called Mr. Gartman “one of the Three Stooges” of gold forecasting after the latter declared gold was in a bear market…
(Editor’s note: Italics added for emphasis)
Ouch.
I leave you with this. From the man who called the beginning of the commodities rally that started back in 1999. Last month, Jim Rogers told GoldSilver Radio’s Leigh Greenberg (GoldSilver Radio is operated by our advertising partner, GoldSilver.com) the following in an interview:
I’m an avid… Well, let’s say, yes, I do own gold and silver. I own precious metals because I expect the precious metals bull market to last at least for several more years.
(Editor’s notes: Italics added for emphasis; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)
Sources:
Condon, Bernard and Craft, Matthew. “Is this the end of the gold rush? Price drops along with stocks.” Chicago Sun-Times. 4 Apr. 2012. (http://www.suntimes.com/business/11720436-420/is-this-the-end-of-the-gold-rush-price-drops.html). 6. Apr. 2012.
“Plunge in gold prices could nick its safe-haven image.” Associated Press. 24 Aug. 2011. (http://www.oregonlive.com/business/index.ssf/2011/08/plunge_in_gold_prices_could_ni.html). 6 Apr. 2012.
Fontevecchia, Agustino. “Gold’s Decade-Long Bull Run Is Dead, Gartman Says.” Forbes. 5 Apr. 2012. (http://www.forbes.com/sites/afontevecchia/2012/04/05/the-death-of-golds-10-year-bull-run/). 6 Apr. 2012.
Larkin, Nicholas. “Death of Gold Bull Market Seen by Gartman.” Bloomberg. 13 Dec. 2011. (http://www.bloomberg.com/news/2011-12-13/death-of-gold-bull-market-seen-by-gartman.html). 6 Apr. 2012.
Shmuel, John. “Gartman admits he made a bad call on gold.” Financial Post. 5 Jan. 2012. (http://business.financialpost.com/2012/01/05/gartman-admits-he-made-a-blown-call-on-gold/). 6 Apr. 2012.
Peter Schiff In Rebuttal Lecture To Fed Chair Ben Bernanke
You may have heard that Federal Reserve Chairman Ben Bernanke has been on the lecture trail lately, giving a series of four public lectures at George Washington University that some think is the U.S. central bank’s latest effort to counter negative public sentiment. Truth be told, I haven’t been really following it, but a cursory glance at some of what the Fed Chair’s been saying is “interesting,” to say the least:
I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could’ve had a much worse outcome in the economy
-March 27 lecture
There’s no consensus on this, but the evidence I’ve seen suggests that monetary policy did not play an important role in raising house prices during the upswing
-March 22 lecture
I think, though, that the gold standard would not be feasible for both practical reasons and policy reasons
-March 20 lecture
While surfing the Los Angeles Times website this morning, I came upon a piece that announced “crash prophet” and Euro Pacific Capital CEO Peter Schiff would be giving a rebuttal to Chairman Bernanke’s lectures later today. From a March 26 press release on the website of Washington, D.C.-based non-profit FreedomWorks:
WHAT: FreedomWorks Foundation and Reason will co-host a special lecture by renowned economist Peter Schiff as he responds to Federal Reserve Chairman Ben Bernanke’s four-part College Lecture Series at George Washington University School of Business.
WHEN: Thursday, March 29, 2012 at 3:00pm ET, lasting approximately one hour.
An opportunity for Q&A and a reception will follow the formal response.
WHERE: Reason’s DC Headquarters, 1747 Connecticut Avenue, NW, Washington, DC 20009.
The event will also be live-streamed from the FreedomWorks Facebook page, www.facebook.com/FreedomWorks.
WHY: While Chairman Bernanke explains to students how the Federal Reserve “saved the economy,” Peter Schiff will outline the ways in which the Federal Reserve contributed to the housing crisis and current economic recession in the first place.
The Federal Reserve bears significant responsibility for every financial crisis over the past century, including the Great Depression, stagflation in the 1970’s and most recently, the 2008 economic meltdown.
A 2011 audit of the Federal Reserve found $16 trillion in secret bailouts to corporations and banks around the world in less than three years. Documents released in the same year revealed foreign banks to be one of the largest recipients of Federal Reserve money during the 2008 economic downturn.
These secret deals, bailouts, and massive expansion of the Federal Reserve’s balance sheet were all overseen by Ben Bernanke, with almost no Congressional oversight.
You can RSVP to watch the streaming video on the FreedomWorks website here.
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