I remember your comments around 1 month back where both you and I briefly commented on both macro situation and gold on the STT thread. I’ll start my comment by saying that I like your macro knowledge and research which seems very thorough and keep up the good work.
With respect to your 5 points –
Velocity affected by private sector debt -
I fully agree with you that velocity can get affected by private sector debt and household debt in particular - basically any debt. If people have to struggle to meet other expenses, they will hold on to their savings for dear life and this will affect velocity of money.
I believe that easy monetary policy is causing a stagflationary scenario of rising unemployment, unhealthy inflation and slow growth. I touched on this issue some months back in the property thread where I believed that artificially rising Aussie property should ideally be hammered on fundamentals but it can still continue to remain high but it will affect Australia adversely. I was referring to a similar stagflationary scenario. Here is that particular comment http://hotcopper.com.au/threads/overpriced-housing-hurting-australia.2463059/?post_id=14805378
I’ve done 2 other threads on property earlier where I’ve explained the property bubble in more depth but stagflation is the relevant point for our current discussion; so I'll stick to that.
Another factor especially very common in the US is an education bubble. All these bubbles are reducing disposable income in the hands of people. However those in a position to increase costs are doing it to a huge extent – education, rents, property costs, etc.
Important to note that gold rose massively in the stagflation of the 1970s
Greece –
Very true and I agree with you. I mentioned in my OP how we are moving to bigger and bigger bailouts – Long Term capital management around 15-20 years ago to banks in 2008 to countries now. No one really knows the extent of fallout. Gold’s rise today was probably because of Greece concerns but sharp rise in dollar index is capping gold for now
Very important to note that gold’s massive rise in Jan was very unique as a currency and safe haven because of Greece again, as gold rose in unison with USD and not in the usual opposite opposite direction
There are so many implications of Greece - impact on Portugal, Italy, Ireland and Spain; impact on Euro; contagion effect; starting of bail ins, worsening geopolitics, etc.
Honestly, no one knows where everything will head
China and gold backed yuan
I fully agree with you again. Obviously gold backing is just 1 area where China is focusing on. I find the QE path taken by many countries very interesting. I wonder to what extent each country creating this artificial money is investing into equities of other countries and the greater geopolitical implications of that. Eg. Can US just create a lot of artificial money through QE and invest in hard assets of other countries by investing in their shares and thus owning those companies by money created out of thin air? Are other countries doing this? What are the broader implications some years down the line where tensions will be inevitable. I believe in the 1930s there were similar currency wars, trade wars and of course the eventual world war 2. I hope it does not come to that because even if gold goes to 50,000 it is not going to help any of us.
QE4
They might not call it QE4 but I feel that that whatever they do might have a similar impact. I’m not so sure that the US wants higher rates and can handle higher rates at the corporate level, at the country debt level, with respect to corporate profits, managing unemployment, etc.. If they do attempt it, I’m not sure the markets will take it well. Either way, I don’t think the US wants a strong dollar and US in fact wants more inflation. It is too early to say anyway and nothing will happen in a straight line.
Agriculture
Like you, a lot of experts have been saying that agriculture and farm land could be great investments in the time to come. So, you could be very right on that
It is important again to note that I gave around 40 main reasons with some sub reasons and in totality, it could be around 60-70 reasons why gold could end up as a good investment. Only a handful of these need to happen for gold to be materially higher.
I mentioned a whole lot of 10-15 potential bubbles and really each of those could have been a point on its own. In just the last 15 years 2 of them have been a major point of their own (dotcom bubble of 2000 and property bubble 0f 2008) and now we once again have them besides others. So, it would really take a miracle for all 60-70 of those points to not materialize.
If gold only reaches its old high of 2000, many sound junior goldies might even be 10 baggers just at 2000. So, really, there are lots of reasons to love gold.
Gold is also the main asset which consistently performs well in all extremes - fear (safe haven), hyperinflation, stagflation, depression, etc.
Once more, some good points from you Dazedandconfused and keep up your macro work. Cheers
