Another fun graph I saw recently: http://www.businessinsider.com/a-long-term-look-at-stocks-vs-gold-2011-9
bchadwick Wrote: ------------------------------------------------------- > Hmm… I need to think about the Twist a little > more. My understanding is that there is no net > change in asset purchases by the Fed (hence not a > QE), but that they have shifted their attention to > the long end of the Treasury curve and will be > balancing it out by reducing their involvement on > the short end. > YOu are correct there is no net change in the assets on the FEd’s B/S. Selling the short end an and buying long term MBS not treasury. In effect the proceeds from the sale will be used so no new money being printed. The problem as I see it is. 1. Is there enough of an appetite for the short end $1 trill 2. My understanding was that it was the long end of the treasury that determined mortgage rates. If the fed bypasses that, how will they contain the long end.does it work the other way around too 3. Why would I as a holder of an MBS with an avg yield of lets say 5% agree to sell my asset to the fed only to reinvest it in long end treasuries at a lower yield. Yes, I am made whole but if I have long term liabilities then where do I go to get the yield to match those > In addition, they will reinvest maturing MBSs into > new MBSs, helping to facilitate low mortgage rates > in the hope that it will help the housing market > heal. This is not exactly part of the Twist, but > was announced at the same time, so kind of gets > lumped in there. >4. There has been talk that they are doing this because they are going to announce a massive re-fi program. To assume that lower rates will have a direct effect on the housing market is IMHO far fetched. Rather, I think this is more designed to take the worthless assets of bank B/s’s and also if ref’s go through, then this would give banks title which they do not currently have in a large number of cases. > There may be minor changes in the quantity of > Treasurys vs MBSs purchased, over and above the > simple rolling-over of maturing MBSs. I’d have to > think about that a bit, since buying more MBSs vs > Treasurys may actually be creating new base money > after all. Maybe Dwight has a clearer perspective > on that.
I forgot to add… there’s also the possibility that a major central bank or government may just have sold a bunch of gold. Although how they would hide that from view, I’m not sure. Indeed, just because European governments have ceded monetary authority to the central bank doesn’t mean that the governments can’t have asset reserves of their own. Indeed, maybe this is a reasonable reaction to the European situation.
@ Dwight Another rendition of the long term returns of the DOW - Inflation adjusted Returns abysmal !! 1% over 81 years http://www.cjr.org/the_audit/the_real_dow.php?page=all
C3Po Wrote: ------------------------------------------------------- > @ Dwight > > Another rendition of the long term returns of the > DOW - Inflation adjusted > > Returns abysmal !! 1% over 81 years > > > http://www.cjr.org/the_audit/the_real_dow.php?page > =all True inflation kills long term returns. As does buying assets at bubble prices, which the DOW was in 1929, and gold was in the late 70s and I believe is today. The 1% number is a peak to trough measure and does not include dividends. Not a very accurate picture of what investors actually got.
Wasn’t being facetious. Just trying to get out that there are a number of interpretations available and to the untrained (such as I) overlooking a few essentials can bias comparisions. BTW, to form an accurate picture of what investors really got, you would have to factor in taxes.
@bchadwick My apologies. You were right. Op Twist does refer to the fed buying 6-30 yr treasury and not MBS.
Motherfarker, it was god damn margin hikes again.
Dwight Wrote: ------------------------------------------------------- > Another fun graph I saw recently: > > http://www.businessinsider.com/a-long-term-look-at > -stocks-vs-gold-2011-9 you mean another useless graph, right?
starbuk Wrote: ------------------------------------------------------- > you mean another useless graph, right? Actually no I did not mean to say “useless”. Thanks for stopping by and adding to the conversation though.
Barry Ritholtz has a nice way of stating it: “Gold is a trade, not a religion.”
@C3PO, yeah this graph is not useful in our discussion as you must include dividend income as this is the major point of separation between gold and stocks (IMO).
Sweep the Leg Wrote: ------------------------------------------------------- > Motherfarker, it was god damn margin hikes again. I agree more with Mish, this was nothing more than a global deleveraging of the paper commodities market which results in a rollback of physicals. One huge argument against railing on paper commodities is that they, on a net basis, add nothing to the demand of physicals, thus, they cannot influence the price to a great extent. If anything, the margin hikes and such very much prove that the no-doc, option-arm world of paper commodities affects physicals greatly. I am very bearish commodities in the medium term as China and the BRICs cool further.
There’s no denying margin hikes hurt. It’s certainly something you have to consider if you’re trading for the short or medium term. Long term the hikes provide a nice buying opportunity. I’ve got a little bit of cash left to put to work. I think I’ll wait for the first sign of stability and add some AGQ for fun.
Sweep the Leg Wrote: ------------------------------------------------------- > There’s no denying margin hikes hurt. It’s > certainly something you have to consider if you’re > trading for the short or medium term. Long term > the hikes provide a nice buying opportunity. I’ve > got a little bit of cash left to put to work. I > think I’ll wait for the first sign of stability > and add some AGQ for fun. Were the Enron announcements on the way down a buying opportunity? In other words can you conceive of a world where gold is suddenly realized to be worth substantially less than $1,900/oz when it turns out it does not “always go up” and provides no “safety” in times of market turmoil like last week?
I was talking about silver in that post. I’ve made several posts on why, in my opinion, PMs are going to do well over the next several years. When those conditions break, then that’s when I see PMs going down. My thesis has very little to do with any particular “crisis” nor am I investing for “safety.” Though, while we’re on the subject, gold did fine in 2008 returning ~4%. It did well in the days following the LEH crash, then sold off when people demanded liquidity, then it rebounded nicely. If you want something that gives you immediate gratification when the market tanks, buy the VIX.
Just making an observation on the “buying opportunity” idea. Applies to both silver and gold. Many people own them because they think they are “safe” not realizing this very perception has made them a very “unsafe” investment.
Stocks don’t always go up either. Does that mean you should never own them? Dwight, this “Gold always goes up” thing is a straw man argument. No one (or at least few people) are arguing that gold always goes up. I don’t know what the “fair value” of an ounce of gold is. Actually, despite all the models that we have, I think it’s very difficult to know what the fair value of a stock is either. Particularly with commodities, we often have a better sense of where the pressures are and what direction they run, rather than what the exact equilibrium value or even equilibrium range is likely to be. This calls for a different kind of investing strategy, which is more based on trends, trades, and technicals than in the PV of future cash flows that stock and bond valuation employs in conjunction with modern portfolio theory. I think what you are arguing against are the ads you see on CNBC or whatever from the gold council and other gold brokers, advocating that everyone buy gold “because it’s the one asset everyone can count on,” or “a safe harbor in troubled times,” or “a hedge against inflation”. I completely agree with you that these don’t go through the arguments responsibly, are likely to continue to run on TV even after a massive drawdown, and I cringe when I see them. But that doesn’t mean that spineless politicians with their hands on printing presses are going to act responsibly, and gold is one of the few portable stores of wealth that is more-or-less separated from their meddling. Now, lots of *other* things can happen to make the price of gold go up or down, and so you have to treat it as a volatile asset and a trade. It’s not a substitute for cash, but it might be a substitute for (or, more likely, a complement to) long-term Treasurys.
bchadwick Wrote: ------------------------------------------------------- > Stocks don’t always go up either. Does that mean > you should never own them? No but stocks have earnings and dividends so you do not count on having a higher bidder/greater fool. Commodities are speculative zero sum investments with inflation-like returns over the long run and many boom/bust cycles in the short run. > Dwight, this “Gold always goes up” thing is a > straw man argument. No one (or at least few > people) are arguing that gold always goes up. I’m not attacking a straw man just pointing out that this is the mainstream perception and that when people realize that it is not accurate the gold bubble will collapse as the housing bubble did and as the stock market bubble did in the late 90s. It is not an attack on a specific poster as much as pointing out a feature of the psychology of the market. > I don’t know what the “fair value” of an ounce of > gold is. Actually, despite all the models that we > have, I think it’s very difficult to know what the > fair value of a stock is either. Particularly > with commodities, we often have a better sense of > where the pressures are and what direction they > run, rather than what the exact equilibrium value > or even equilibrium range is likely to be. Agreed. But sometimes assets take on a life of their own going up because people are buying them because they went up recently. This is the case with gold and silver that is now unwinding. > This calls for a different kind of investing > strategy, which is more based on trends, trades, > and technicals than in the PV of future cash flows > that stock and bond valuation employs in > conjunction with modern portfolio theory. Agreed trend following is a large and unsavory part of investing. It is human nature’s triumph over efficient markets. > I think what you are arguing against are the ads > you see on CNBC or whatever from the gold council > and other gold brokers, advocating that everyone > buy gold “because it’s the one asset everyone can > count on,” or “a safe harbor in troubled times,” > or “a hedge against inflation”. I completely > agree with you that these don’t go through the > arguments responsibly, are likely to continue to > run on TV even after a massive drawdown, and I > cringe when I see them. But that doesn’t mean > that spineless politicians with their hands on > printing presses are going to act responsibly, and > gold is one of the few portable stores of wealth > that is more-or-less separated from their > meddling. Yep. Cramer said put 20% of your assets in gold a few weeks ago. How is that working out for retires? > Now, lots of *other* things can happen to make the > price of gold go up or down, and so you have to > treat it as a volatile asset and a trade. It’s > not a substitute for cash, but it might be a > substitute for (or, more likely, a complement to) > long-term Treasurys.
Dwight Wrote: ------------------------------------------------------- > the > gold bubble will collapse as the housing bubble > did and as the stock market bubble did in the late > 90s. What makes you think gold is in a bubble? Specifically, how would you define a bubble?