Phil Berg: Both gold and the stock market have been cyclical. However due to an unprecedented confluence of factors, gold has shaken the cycle and will gain both in the short- and long-term. It's a strong investment.
Christian Wignall: Both gold and the stock market function cyclically and this reality has not been repealed. The market is a better investment since stocks gives dividends, gold does not. Save your money, invest in stocks.
So someone asked me yesterday who I thought had won
the debate. I gave it some thought and I'm not so sure
if there was a clear winner. Granted I am biased
towards gold, at least as a currency.. but the title
of the debate 'The Role of Gold In Your Investment
Portfolio' doesn't address the currency question
directly.
Some other comments to augment Michael's assessment..
- I thought Phil did a smash up job of explaining the
current and historic role of gold in the economy in
layman terms. Maybe it was a bit ambitious to expect
everyone to grasp monetary theory from a 10 minute
speech but it helped provide a foundation for the
discussion.
-I think Christian's point that Phil's argument of
investing in gold primarily to take down the US war
machine as invalid was well taken. From a debating
standpoint this stance probably undermined Phil's
other minor points of why gold might be a good
investment in its own right.
-Christian's main argument (as I remember) was that
gold was a dangerous investment due to it's
volatility. Of course I would have countered that the
volatility standard he used ($USD) is the actual
source of this perceived volatility. I know it is easy
to consider the dollar as sacrosanct and the basis for
all economic value, but if you flip the charts around
and compare the dollar in terms of gold or other
commodities, it becomes painfully obvious that it is
actually the dollar (and other fiat currencies) that
is volatile. In fact, when Christian noted that 'The
price of gold can dramatically rise or fall on a
single speech by Alan Greenspan' underscores this
point. I was disappointed we ran out of time and
couldn't discuss this issue further.
- I agreed with Christian's point that gold over long
periods of time (100 years or more) showed gold as a
poor investment, especially compared to stocks. This
makes sense since commodities are never 'improved'
through innovation into products that add value to
people's lives. (the gold itself)
However - it is this stability that makes gold a
wonderful currency and element of stored value. Had
the debate been named 'The role of gold in currency',
maybe Phil's position would have dominated. To
Christian's credit, he did state that the dollar was a
horrible instrument for saving of wealth.
Anyway, it was all great fun and I wouldn't mind
continuing this discussion online with interested
parties.
from one of my boards...A well
respected economist has come
out dishn the dollar in the
Financial Times The whole article
is only available to
subscribers, but I found a copy
available here: http://tinyurl.com/dc8mk
It is interesting to note that he's
saying the dollar needs to drop
" by at least 30 per cent just to
shrink the trade
deficit to a more sustainable level
of 3 per cent of GDP. Much larger
dollar declines are also possible..
.."
and further mentions:
"The current small interest rate
differences in favour of US bonds
are
not nearly enough to compensate
investors for the fall in the dollar
that is likely over the next few
years...."
And he believes the capital flow
numbers are totally
misunderstood
and fairly misrepresented in the
press, such that people are
probably
making decisions based on false
assumptions, with the implication
being
that when people wake up and
smell the coffee, that the bottom
may fall out. I really can't help but
agree.
The dollar move up has largely
been technical in nature, with
interest rates used as a fig leaf,
and the reason gold went up with
the dollar is that everyone 'in the
know' knew it was a total farce,
just a technical trading exercise,
perhaps driven by the PTB
while the dollar shorts were
overextended. (that, and it broke
out
in other currencies, of course.)
So as we've said for a few years
now, it doesn't much matter what
they do, gold goes up, with short
term trading tops along the way.
Feldstein was said to be in the
top three pool of candidates
considered
for the Fed Chairman, including
Glen Hubbard and Ben
Bernanke. Like them or
not, if he is speaking against the
system he would have headed,
it speaks volumes...
and phils comments...
The loss of confidence in fiat
money and its ability to store
value is the story unfolding now.
The last twenty five years were
the triumph of the delusion that
faith based paper miney can be
manged in a rational way. All of
recorded history argues to
thecontrary. The delustion was
maintained by the dehoarding of
central bank gold. Now the
situation has reversed. Central
banks are begininnig to hoard
again, starting with Korea, Russia
and now the PRC. The dollar rally
has stalled and begun to reverse.
... I am still stunned by Nancy
Pilosi's performance, especially
her closing Democratic Swan
Song, complete with a heart fealt
rendition of the tale of FDR's
funeral train, and the quoate of a
poor Negro uh uh, black man
who was asked by a reporter if
he wept because he knew Mr.
Roosevelt, and the man replied,
"No I did not know Mr. Roosevelt,
but I feal in my heart the he knew
me." ...
Mr. Roosevelt's spin is immortal.
and in a final creshendo, she
recited a litany of Democratic
dreams, including the Right to
Universal Health Care for All.
What a choice the American
people settle for.
Why just constriction? Didn't the dollar valuation of
gold leap dramatically following both the Bernanke
inflation speech as well as the M3 reporting
announcement? (notice I didn't say 'price' for
clarity)
I still stand by my position though. I've tried to
find some graphs that show a $1 dollar bill in terms
of ounces of gold for you but haven't so far. I guess
the dollar baseline is so entrenched in the psyche of
economists that all the data available is referenced
in those terms. Maybe I will come up with my own
charts. And maybe I should start selling price tag
labellers that print 'oz' as well. hmm..
Of course I'm not suggesting that gold or any other
commodity is in constant perfect supply and demand
balance. But tracing gold through the millenia shows
relative stability compared to fiat currencies. Even
oil tracks well with gold. And I quote this from safehaven.com
"According to a study by the World Gold Council, the
volatility of the DOW during the past ten years has
been 16.13 percent as compared to 12.55 percent for
gold."
I believe the gold volatility myth stems from the
short period of insanity during the 70's and early
80's when the *dollar* lost massive valuation,
directly impacting the demand for gold. It's not like
there was a sudden demand for gold chains back then,
not were there any huge mother lode finds increasing
supply. It was simply all people escaping paper....and
the same reasoning applies to the situation now. How
many billions of $$'s was it that the fed injected
into the system last month? It was massive. But we
still have very low inflation - according to the
government. Right.
This little epistle with charts demonstates
two very important facts.
The five year old gold bull market of this
century has been far less volatile than the
one in the seventies.
Inflation adjusted with the crooked lieing
governmant cpi numbers, the cpi adjusted
dollar price of gold has barely gotten off the
matt of it's twenty five year bear market.
Gold has a long long way to run, although
it's short term rise is a little long of tooth it
can continue.
My favorite vehicle remains Novagold.
Which is trading just above it's 200 day
moving average, just broke out of a two year
old cup and handle, and is priced at around
30 dollars an ounce for gold in the ground in
Alaska and British Columbia.
Obviously over the long term for a stock
such as Microsoft, earnings and the
potential for earnings drive the stock price.
However, with something as abstract as the
perceived value of faith based currencies,
mob behavior rules for the short and
intermediate term. As human behavior is
multidimensional and chaotic almost all
tools are worthless on a rational basis.
However, some Art, aided a little bit of
graphical and statistical analysis seems to
be able to tease out an attitude of
objectivity on the part of those who
participate in the exercise. By removing the
psyche of the speculator from the primary
short term determinates of euphoria or
dispair driving the market, it tends to allow
some practioners to have the psychic
discipline to buy when others are selling, to
sell when others are buying, and perhaps
to buy high and sell higher on very
powerfull moves. I am confident you are
correct, that it is hokey, but I still like it. As
for the link I showed, I believe these
multidecade trends that have been noted
numerous times in the past, give some
insight into the psychic mob behavior that
drives large mega trends.I believe for
fundamental reasons, and from historical
precedents that the cycle of declining fgaith
in paper is upon us, and that from a
practicle policy matter there is nothing the
Fed will do to stop it. The world is awash in
debt and the debt creates instability that
can be fought with massive reinflation or
deflationary collapse. Ben Bernake has
made it clear that deflationary collapse is
not an option. Inflate or die is the only policy
choice left. That is good for gold. I am not
saying any of these choices are good, they
all stink, but this is the world we find
ourselves in. I just hope someday enough
people get it, and the wretched fourth
national bank of the the United States is no
more.
1. Every trade has a counterparty. The net of buyers and sellers is zero.
2. If there really were arbitrage opportunities from "technical
analysis", wouldn't people recognize them over time and act on them
immediately, thus destroying the opportunity? How likely is it that
such opportunities would persist?