Cui bono?
September 20, 2007 9:41 AM Subscribe
On Tuesday, the Federal Reserve cut interest rates by 0.5%. Wall Street aggressively demanded the cut to stop the sub-prime mortgage contagion from triggering a credit crisis among large US and foreign investment banks and the collapse of their over-leveraged hedge funds, which ultimately threatened to drag the US economy into recession. The market rallied this week in response to the Fed's move. But there is no free lunch.
Oil rallied also, to an all-time high of $81/bbl. The rate cut shattered the dollar, sending it to new lows against the Euro and to parity with the Canadian dollar. The falling dollar puts pressure on China, whose dollar-pegged currency has attracted the ire of many US politicians, causing China to threaten the US with the "nuclear option" of diversifying its foreign currency reserves away from the dollar. Meanwhile, Saudi Arabia refuses to cut its interest rates in lockstep with the US for the first time ever, signaling that it may break its long standing dollar peg as well. In other words, foreign investors who currently own roughly 50% of the publicly-owned portion of the US national debt may flee the US bond markets. Result? We'll probably slide into recession anyway.
But there is a silver lining: it turns out that many of those large investment banks and hedge funds were making far more money than anyone thought all along.
Confused? Some background:
Currency carry trade - how currencies are related to one another
How interest rates, inflation, exchange rates, and trade deficits are interrelated
How interest rates and bonds are related
Peviously 1 2 3 4
Oil rallied also, to an all-time high of $81/bbl. The rate cut shattered the dollar, sending it to new lows against the Euro and to parity with the Canadian dollar. The falling dollar puts pressure on China, whose dollar-pegged currency has attracted the ire of many US politicians, causing China to threaten the US with the "nuclear option" of diversifying its foreign currency reserves away from the dollar. Meanwhile, Saudi Arabia refuses to cut its interest rates in lockstep with the US for the first time ever, signaling that it may break its long standing dollar peg as well. In other words, foreign investors who currently own roughly 50% of the publicly-owned portion of the US national debt may flee the US bond markets. Result? We'll probably slide into recession anyway.
But there is a silver lining: it turns out that many of those large investment banks and hedge funds were making far more money than anyone thought all along.
Confused? Some background:
Currency carry trade - how currencies are related to one another
How interest rates, inflation, exchange rates, and trade deficits are interrelated
How interest rates and bonds are related
Peviously 1 2 3 4
But a weak dollar means our exports are cheaper helping the trade deficit and encourages tourism. Score!
posted by zeoslap at 9:50 AM on September 20, 2007
posted by zeoslap at 9:50 AM on September 20, 2007
We'd be in the money zeoslap if we still made anything to export.
posted by Kid Charlemagne at 9:54 AM on September 20, 2007 [4 favorites]
posted by Kid Charlemagne at 9:54 AM on September 20, 2007 [4 favorites]
Yup, seconding we're already in a recession. Kind of a doomsday feeling in the air with this comment from one of your links, Their conclusion? Head for the hills, because “The Great Unwind” is coming — and it’s going to hurt.
posted by nickyskye at 9:56 AM on September 20, 2007
posted by nickyskye at 9:56 AM on September 20, 2007
I have one word for you, Kid Charlemagne: Weapons.
posted by nightwood at 9:57 AM on September 20, 2007
posted by nightwood at 9:57 AM on September 20, 2007
zeoslap - yes, to an extent, but when the dollar plunges like it has the last 48 hours, that's-a-no-good: it signals a loss of faith.
It'll be interesting to see how things play out over the next few weeks. As I've been saying all along: this isn't a liquidity crisis, it's an *insolvency* crisis. People can't pay their bills, they can get access to plenty of credit.
We're just overextended and our "world bankers" aren't too keen on furthering our lifestyles much more.
posted by tgrundke at 9:57 AM on September 20, 2007
It'll be interesting to see how things play out over the next few weeks. As I've been saying all along: this isn't a liquidity crisis, it's an *insolvency* crisis. People can't pay their bills, they can get access to plenty of credit.
We're just overextended and our "world bankers" aren't too keen on furthering our lifestyles much more.
posted by tgrundke at 9:57 AM on September 20, 2007
Nice graph of the dollar tanking today.
posted by antipasta_explosion at 9:58 AM on September 20, 2007
posted by antipasta_explosion at 9:58 AM on September 20, 2007
zeoslap: What exports? Well, I guess we're kings of high-fructose corn syrup... anyone want any?
posted by antipasta_explosion at 10:00 AM on September 20, 2007
posted by antipasta_explosion at 10:00 AM on September 20, 2007
Lots of exports, actually. I don't have the data, but I know that in the last few days I've read quite a bit about US agricultural exports soaring, along with high-grade finished goods from the likes of Caterpillar.
I know that here in good ole' rust-belt Cleveland that a lot of our manufacturers are doing well. We may not produce a lot of raw steel anymore, but we do produce a LOT of steel byproducts that are highly refined and/or technical and they're selling in spades overseas right now.
Interestingly enough, I met a gentleman at a car show over the past weekend whose business is in producing components for handguns. Says his overseas business has never been better....
posted by tgrundke at 10:04 AM on September 20, 2007
I know that here in good ole' rust-belt Cleveland that a lot of our manufacturers are doing well. We may not produce a lot of raw steel anymore, but we do produce a LOT of steel byproducts that are highly refined and/or technical and they're selling in spades overseas right now.
Interestingly enough, I met a gentleman at a car show over the past weekend whose business is in producing components for handguns. Says his overseas business has never been better....
posted by tgrundke at 10:04 AM on September 20, 2007
I was waiting for someone to post about the US rate cut and here it with a good dose of extra information, thanks pastabagel.
In the mean time i look forward to the meta-doomsayers negative rants that usually accompany such posts.
*grabs popcorn*
posted by ItsaMario at 10:13 AM on September 20, 2007
In the mean time i look forward to the meta-doomsayers negative rants that usually accompany such posts.
*grabs popcorn*
posted by ItsaMario at 10:13 AM on September 20, 2007
I think we all know what the real solution here is: TAX CUTS!!!
posted by DU at 10:14 AM on September 20, 2007 [1 favorite]
posted by DU at 10:14 AM on September 20, 2007 [1 favorite]
...his overseas business has never been better....
Bully for him. This is a happy dance for USA manufacturers/exporters.
However, there is a wee problem: We (the US) need about 2 beeeeeeeelyun dollars a day in foreign investment to finance our deficit.
Foreign investors get a bit testy when the currency that their investment is demoninated in starts to drop in value. They do a curious thing in response: Ask for a greater return to compensate, in the form of demanding a higher interest rate.
Debtor nations do love them some inflation. "I'll gladly pay you $10 dollars next Tuesday for 5 hamburgers today (at which time those dollars will only buy 4.8 hamburgers).
posted by de void at 10:18 AM on September 20, 2007
Bully for him. This is a happy dance for USA manufacturers/exporters.
However, there is a wee problem: We (the US) need about 2 beeeeeeeelyun dollars a day in foreign investment to finance our deficit.
Foreign investors get a bit testy when the currency that their investment is demoninated in starts to drop in value. They do a curious thing in response: Ask for a greater return to compensate, in the form of demanding a higher interest rate.
Debtor nations do love them some inflation. "I'll gladly pay you $10 dollars next Tuesday for 5 hamburgers today (at which time those dollars will only buy 4.8 hamburgers).
posted by de void at 10:18 AM on September 20, 2007
If China uncouples their currency, that would make the price of Chinese exports go up, right? That would be interesting.
posted by smackfu at 10:22 AM on September 20, 2007
posted by smackfu at 10:22 AM on September 20, 2007
Psmealey...I'll take your pancake bet for Q3. I personally believe that the rate cut was a bad idea and that by easing the Fed missed an opportunity to clean up a very sloppy mess. The excesses of the liquidity glut were sort of like a demon that needed to be exorcised, and we have now missed our chance.
The the broader economy has not felt the full impact of the events rippling through the credit markets and away from businesses directly tied to the financial industries, most sectors continue to perform. The probability that we see negative growth in future quarters has gone up meaningfully but the weaker dollar could actually help slow the onset of a recession.
I'm sure the above comments on exports are an attempt at humor but we exported almost $1.5 trillion worth of goods last year or more that 11% of GDP...the highest proportion ever. A meaningful chunk of that export product is not hard goods but services benefit from favorable currency relationship just like manufactured products.
I believe the credit noise will eventually push us into slowdown...but we are not there yet.
posted by cyclopz at 10:25 AM on September 20, 2007 [3 favorites]
The the broader economy has not felt the full impact of the events rippling through the credit markets and away from businesses directly tied to the financial industries, most sectors continue to perform. The probability that we see negative growth in future quarters has gone up meaningfully but the weaker dollar could actually help slow the onset of a recession.
I'm sure the above comments on exports are an attempt at humor but we exported almost $1.5 trillion worth of goods last year or more that 11% of GDP...the highest proportion ever. A meaningful chunk of that export product is not hard goods but services benefit from favorable currency relationship just like manufactured products.
I believe the credit noise will eventually push us into slowdown...but we are not there yet.
posted by cyclopz at 10:25 AM on September 20, 2007 [3 favorites]
We'd be in the money zeoslap if we still made anything to export.
posted by Kid Charlemagne at 12:54 PM on September 20
Well, I can think of one export company that is doing well, but beyond that no, we really don't export a whole lot.
The world has changed in the last few years. Even American companies don't build in the US when they can do it in China. Furthermore, production outside of China is extremely automated, and therefore doesn't rely on as many jobs.
posted by Pastabagel at 10:32 AM on September 20, 2007
posted by Kid Charlemagne at 12:54 PM on September 20
Well, I can think of one export company that is doing well, but beyond that no, we really don't export a whole lot.
The world has changed in the last few years. Even American companies don't build in the US when they can do it in China. Furthermore, production outside of China is extremely automated, and therefore doesn't rely on as many jobs.
posted by Pastabagel at 10:32 AM on September 20, 2007
The lesson learned?
If the children on Wall Street whine loud enough, Mommy Fed will give them what they want.
I'm just amazed I haven't heard any "analysts" complain the cut wasn't large enough. Maybe in a couple of months...
posted by Thorzdad at 10:33 AM on September 20, 2007
If the children on Wall Street whine loud enough, Mommy Fed will give them what they want.
I'm just amazed I haven't heard any "analysts" complain the cut wasn't large enough. Maybe in a couple of months...
posted by Thorzdad at 10:33 AM on September 20, 2007
If China uncouples their currency, that would make the price of Chinese exports go up, right? That would be interesting.
posted by smackfu at 1:22 PM on September 20
It would make their currency go up, which theoretically would make the prices of their goods go up.
The problem is that so much of what Americans purchase is made in china that a price increase on Chinese goods would lead to inflation here, which results in fewer sales at the WalMarts, Best Buys, and Home Depots of the country. This inflation would trigger a broader economic slowdown, and a lot of the people who work at those places would lose their jobs.
posted by Pastabagel at 10:37 AM on September 20, 2007 [1 favorite]
posted by smackfu at 1:22 PM on September 20
It would make their currency go up, which theoretically would make the prices of their goods go up.
The problem is that so much of what Americans purchase is made in china that a price increase on Chinese goods would lead to inflation here, which results in fewer sales at the WalMarts, Best Buys, and Home Depots of the country. This inflation would trigger a broader economic slowdown, and a lot of the people who work at those places would lose their jobs.
posted by Pastabagel at 10:37 AM on September 20, 2007 [1 favorite]
de void writes "Foreign investors get a bit testy when the currency that their investment is demoninated in starts to drop in value. They do a curious thing in response: Ask for a greater return to compensate, in the form of demanding a higher interest rate."
That's true, but China depends on our consumption for their exports. If the US collapses economically, China gets hit pretty big. They will do whatever they can to avoid that and save face at the same time.
posted by krinklyfig at 10:38 AM on September 20, 2007
That's true, but China depends on our consumption for their exports. If the US collapses economically, China gets hit pretty big. They will do whatever they can to avoid that and save face at the same time.
posted by krinklyfig at 10:38 AM on September 20, 2007
Nothing here that another rate cut can't fix.
That's my story and I'm stickin' to it.
posted by mazola at 10:39 AM on September 20, 2007
That's my story and I'm stickin' to it.
posted by mazola at 10:39 AM on September 20, 2007
That's true, but China depends on our consumption for their exports. If the US collapses economically, China gets hit pretty big. They will do whatever they can to avoid that and save face at the same time.
Mutual economic ballsack deathgrip. Who will be the first to squeeze. Who will be the last to stop.
posted by fleetmouse at 10:50 AM on September 20, 2007 [2 favorites]
Mutual economic ballsack deathgrip. Who will be the first to squeeze. Who will be the last to stop.
posted by fleetmouse at 10:50 AM on September 20, 2007 [2 favorites]
The problem is that so much of what Americans purchase is made in china that a price increase on Chinese goods would lead to inflation here, which results in fewer sales at the WalMarts, Best Buys, and Home Depots of the country. This inflation would trigger a broader economic slowdown, and a lot of the people who work at those places would lose their jobs.
Which would in turn hit China really, really hard. And manufacturers would flee China looking for cheaper labor in SE Asia, or Africa, or Central America, or even... the United States.
If China uncouples now, all that economic growth would go by the wayside, and they'd find themselves dealing with the EU as their primary exporter, which will be less willing to look the other way about China's environmental problems.
Either way, a seizing of China's economy would cause social unrest that Beijing could only control through repression -- or a war with India.
I think the free market money people in China have looked down the dump-the-dollar hole, and they know what nightmares lay at the bottom. The only question is whether they will win the day over the hardliners in the Party looking for a saber to rattle against the US.
posted by dw at 10:55 AM on September 20, 2007
Which would in turn hit China really, really hard. And manufacturers would flee China looking for cheaper labor in SE Asia, or Africa, or Central America, or even... the United States.
If China uncouples now, all that economic growth would go by the wayside, and they'd find themselves dealing with the EU as their primary exporter, which will be less willing to look the other way about China's environmental problems.
Either way, a seizing of China's economy would cause social unrest that Beijing could only control through repression -- or a war with India.
I think the free market money people in China have looked down the dump-the-dollar hole, and they know what nightmares lay at the bottom. The only question is whether they will win the day over the hardliners in the Party looking for a saber to rattle against the US.
posted by dw at 10:55 AM on September 20, 2007
In case you all haven't connected the remaining dots:
Here's a section of the transcript of Jim Cramer's famous rant on CNBC, Friday, August 3, 2007:
From the goldman earnings link:
Either Cramer talked to GS and they lied to him about how they were doing, or Cramer lied to us about what they told him, or that he even talked to them at all. Either way, CNBC is sloppy for putting this guy on their air, and we are stupid for thinking even for a second that these people care about anything beyond their own self-interest.
posted by Pastabagel at 10:58 AM on September 20, 2007 [5 favorites]
Here's a section of the transcript of Jim Cramer's famous rant on CNBC, Friday, August 3, 2007:
CRAMER: I have talked to the heads of almost every single one of these firms in the last 72 hours, and he has no idea what it's like out there! None! And Bill Poole has no idea what it's like out there!They know nothing? Let's talk about who knows what.
My people have been in this game for 25 years and they are losing their jobs. And these firms are going to go out of business. And he's nuts! They're nuts! They know nothing!
From the goldman earnings link:
The investment bank (GS:That's 41% higher earnings than expected for the three months ended Aug. 31. So when Cramer "talked to the heads of almost every single one of these firms", did that include talking to the head of his ex-employer Goldman Sachs three weeks before their blowout quarter ended? What did Goldman, and Lehman, et al. tell him about "these firms..going to go out of business"?
Goldman Sachs Group, Inc said it earned $2.85 billion, or $6.13 a share, in the three months ended Aug. 31, compared to $1.59 billion, or $3.26 a share, in the third quarter a year ago.
Analysts polled by Thomson Financial had, on average, expected Goldman to earn $4.35 a share.
Either Cramer talked to GS and they lied to him about how they were doing, or Cramer lied to us about what they told him, or that he even talked to them at all. Either way, CNBC is sloppy for putting this guy on their air, and we are stupid for thinking even for a second that these people care about anything beyond their own self-interest.
posted by Pastabagel at 10:58 AM on September 20, 2007 [5 favorites]
Funny, on NPR yesterday I think they were saying that not cutting rates would've caused the dollar to plummet.
posted by salvia at 10:59 AM on September 20, 2007
posted by salvia at 10:59 AM on September 20, 2007
So the fed makes an extravagant cut by .25% more than anyone thought reasonable, the market goes bonkers like a meth addict that's just been given a fresh batch of credit from the dealer to get more control over his/her soul and the dollar tanks. So. Lose...lose. It begs the question: Why did they do this? Are they trying to push the recession back a bit so that W's rating's go down into the single digits before the end of this year? Are the trying to reinvigorate the manufacturing sector? Why??
posted by Skygazer at 11:05 AM on September 20, 2007
posted by Skygazer at 11:05 AM on September 20, 2007
Questions: (I'm reading American Theocracy by Kevin Phillips and he has mentioned a couple of times that there were attempts by certain parties to have OPEC oil prices expressed in euros rather than in dollars, which the US moved quickly to suppress.)
Is what he is referring to the 'dollar peg' mentioned above?
Why does it matter to us in what currency oil prices are quoted?
Or does this 'pegging' mean oil prices are somehow adjusted to US inflation?
posted by MtDewd at 11:05 AM on September 20, 2007
Is what he is referring to the 'dollar peg' mentioned above?
Why does it matter to us in what currency oil prices are quoted?
Or does this 'pegging' mean oil prices are somehow adjusted to US inflation?
posted by MtDewd at 11:05 AM on September 20, 2007
My people have been in this game for 25 years and they are losing their jobs. And these firms are going to go out of business.
When I first heard that rant, I couldn't help but think:"So? Isn't that what happens when an economy has to restructure? Why should financial services be immune?" If the problem in the economy is in the financial and loans sectors shouldn't they be the ones feeling the "creative destruction"?
It was hi-tech last time, it looks like it's the lenders' turn this time. What am I missing?
posted by bonehead at 11:11 AM on September 20, 2007
When I first heard that rant, I couldn't help but think:"So? Isn't that what happens when an economy has to restructure? Why should financial services be immune?" If the problem in the economy is in the financial and loans sectors shouldn't they be the ones feeling the "creative destruction"?
It was hi-tech last time, it looks like it's the lenders' turn this time. What am I missing?
posted by bonehead at 11:11 AM on September 20, 2007
Venezuela is dumping the dollar and moving to Yen and Euro-denominated transactions for petro-products.
posted by fet at 11:12 AM on September 20, 2007
posted by fet at 11:12 AM on September 20, 2007
Is what he is referring to the 'dollar peg' mentioned above?
Why does it matter to us in what currency oil prices are quoted?
Or does this 'pegging' mean oil prices are somehow adjusted to US inflation?
posted by MtDewd at 2:05 PM on September 20
With respect to Saudi Arabia, sort of, but indirectly. Currently the major oil markets conduct business in dollars. If you want to buy oil, you trade in dollars, no matter who you are. If you are Botswana and you want oil, you need to get some dollars first. Because everyone needs oil for basically everything this creates a nice worldwide deamdn for oil.
It also has the unique effect of flooding the middle east almost exclusively with dollars, because most of the oil comes from there, and they export nothing else. So Saudi Arabia is flooded with dollars. So many dollars that it dwarfs the size of their economy. So what do they do with these dollars? They buy US assets (stocks, bonds, real estate, race horses, companies, etc) or they trade it for some other currency (yen or euros) to buy stuff from those countries. But the person they got the europe from now has the dollars so it really makes no difference. The dollar peg is a simple way for Saudi Arabia to run its domestic finances. The local currency is the Saudi Whatever, but it is pegged to the dollar because the saudi economy is miniscule to the size of the dollar export economy. If they unpeg, then the only reason to do it would be because they expect to start getting all kinds of different currencies coming in, and for that to be true, it would mean that oil is being sold in different currencies.
The problem is that if oil was trafficked in Euros, then no one would need the dollars in the first instance, and we would be screwed. Botswana gets some euros, buys some oil, Saudi Arabia gets Euros and buys real estate in the south of France or BMWs or whatever. And the dollar tanks because no one wants it because nothing anyone wants to buy is priced in dollars.
This is called "petrodollar recycling" or the "petrobourse". The end effect is that it makes the middle east oil economy functionally and effectively a part of the US economy. The money leaves the US, goes to Saudi Arabia (or wherever) but it comes right back. It's like its part of the domestic economy. A gigantic fucking huge part, in fact. Saudi Arabia, or Iraq, or Iran deciding to switch to a eurobourse would be like the texas oilfields seceding in the 1960s.
posted by Pastabagel at 11:19 AM on September 20, 2007 [14 favorites]
Why does it matter to us in what currency oil prices are quoted?
Or does this 'pegging' mean oil prices are somehow adjusted to US inflation?
posted by MtDewd at 2:05 PM on September 20
With respect to Saudi Arabia, sort of, but indirectly. Currently the major oil markets conduct business in dollars. If you want to buy oil, you trade in dollars, no matter who you are. If you are Botswana and you want oil, you need to get some dollars first. Because everyone needs oil for basically everything this creates a nice worldwide deamdn for oil.
It also has the unique effect of flooding the middle east almost exclusively with dollars, because most of the oil comes from there, and they export nothing else. So Saudi Arabia is flooded with dollars. So many dollars that it dwarfs the size of their economy. So what do they do with these dollars? They buy US assets (stocks, bonds, real estate, race horses, companies, etc) or they trade it for some other currency (yen or euros) to buy stuff from those countries. But the person they got the europe from now has the dollars so it really makes no difference. The dollar peg is a simple way for Saudi Arabia to run its domestic finances. The local currency is the Saudi Whatever, but it is pegged to the dollar because the saudi economy is miniscule to the size of the dollar export economy. If they unpeg, then the only reason to do it would be because they expect to start getting all kinds of different currencies coming in, and for that to be true, it would mean that oil is being sold in different currencies.
The problem is that if oil was trafficked in Euros, then no one would need the dollars in the first instance, and we would be screwed. Botswana gets some euros, buys some oil, Saudi Arabia gets Euros and buys real estate in the south of France or BMWs or whatever. And the dollar tanks because no one wants it because nothing anyone wants to buy is priced in dollars.
This is called "petrodollar recycling" or the "petrobourse". The end effect is that it makes the middle east oil economy functionally and effectively a part of the US economy. The money leaves the US, goes to Saudi Arabia (or wherever) but it comes right back. It's like its part of the domestic economy. A gigantic fucking huge part, in fact. Saudi Arabia, or Iraq, or Iran deciding to switch to a eurobourse would be like the texas oilfields seceding in the 1960s.
posted by Pastabagel at 11:19 AM on September 20, 2007 [14 favorites]
But a weak dollar means our exports are cheaper helping the trade deficit and encourages tourism. Score!
Tourism is falling rapidly because of the way DHS treats visitors. We used to be able to count on shopping-tourism when the dollar was cheap, but you don't need to fly to New York to buy stuff in New York anymore.
posted by eriko at 11:19 AM on September 20, 2007 [2 favorites]
Tourism is falling rapidly because of the way DHS treats visitors. We used to be able to count on shopping-tourism when the dollar was cheap, but you don't need to fly to New York to buy stuff in New York anymore.
posted by eriko at 11:19 AM on September 20, 2007 [2 favorites]
It was hi-tech last time, it looks like it's the lenders' turn this time. What am I missing?
posted by bonehead at 2:11 PM on September 20
High tech didn't have it's own international cable television network that was shown constantly on every floor of every high tech company's office worldwide.
posted by Pastabagel at 11:21 AM on September 20, 2007 [2 favorites]
Which would in turn hit China really, really hard. And manufacturers would flee China looking for cheaper labor in SE Asia, or Africa, or Central America, or even... the United States.
It still takes time to move to a new factory or even just to retool an existing one.
posted by drezdn at 11:25 AM on September 20, 2007
I'm not trying to suggest that China will actually do anything, just that it's a complex system full of loads of uncertainty.
posted by drezdn at 11:29 AM on September 20, 2007
posted by drezdn at 11:29 AM on September 20, 2007
This is called "petrodollar recycling" or the "petrobourse". The end effect is that it makes the middle east oil economy functionally and effectively a part of the US economy. The money leaves the US, goes to Saudi Arabia (or wherever) but it comes right back.
There's even more to it that that: OPEC now sells a huge fraction of of it's total output to China (maybe 40%). China pegs it's currency to the USD. This effective makes China's enegy needs part of the US economy too, and causes a very strong demand for US dollars because China's energy needs are expanding so rapidly (10%+ growth per annum). If that vanishes, demand for the dollar will crash.
posted by bonehead at 11:32 AM on September 20, 2007
There's even more to it that that: OPEC now sells a huge fraction of of it's total output to China (maybe 40%). China pegs it's currency to the USD. This effective makes China's enegy needs part of the US economy too, and causes a very strong demand for US dollars because China's energy needs are expanding so rapidly (10%+ growth per annum). If that vanishes, demand for the dollar will crash.
posted by bonehead at 11:32 AM on September 20, 2007
Fascinating stuff. So what does all this mean to me? Let's say I owe $200k on a house worth $300k, and the dollar collapses. How does it affect me? At a basic level, I guess oil prices skyrocket and we use Euros (or whatever) to buy Saudi or Russian oil. This affects not just my tank of gas, but the cost of all goods and services, because their shipped via truck or plane, using oil.
Ultimately, if we no longer depend on foreign oil, will the collapse of the dollar have as much affect, domestically?
It's enough to make my head spin.
Can't we just bomb somebody?
posted by indigo4963 at 11:44 AM on September 20, 2007
Ultimately, if we no longer depend on foreign oil, will the collapse of the dollar have as much affect, domestically?
It's enough to make my head spin.
Can't we just bomb somebody?
posted by indigo4963 at 11:44 AM on September 20, 2007
I realize the US is a big market for China, but its not like their stuff isn't sold all around the world. Even if Americans can't afford to buy cheap Chinese goods people elsewhere, like Europe for example, can.
And hasn't Iran already said they'll only sell Oil in Euros? Ditto Russia?
posted by chunking express at 11:45 AM on September 20, 2007
And hasn't Iran already said they'll only sell Oil in Euros? Ditto Russia?
posted by chunking express at 11:45 AM on September 20, 2007
I am a US dollar.
posted by storybored at 11:48 AM on September 20, 2007
posted by storybored at 11:48 AM on September 20, 2007
Can't we just bomb somebody?
Funnily enough, that's been tried. Things did not go as planned.
posted by Kadin2048 at 12:01 PM on September 20, 2007
Funnily enough, that's been tried. Things did not go as planned.
posted by Kadin2048 at 12:01 PM on September 20, 2007
Long story, short - if foreigners curtail their purchases of US assets and US securities, it makes it much more difficult to extend credit to consumers and (bada-bing) the government.
As someone else mentioned here earlier - we need to sell around $2 BILLION dollars worth of securities/treasuries everyday just to finance our buying binge.
Your house will still be there with an outstanding balance of $200,000.00; Whether or not it is worth anywhere near the $300,000 you paid for it is another question.
posted by tgrundke at 12:09 PM on September 20, 2007
As someone else mentioned here earlier - we need to sell around $2 BILLION dollars worth of securities/treasuries everyday just to finance our buying binge.
Your house will still be there with an outstanding balance of $200,000.00; Whether or not it is worth anywhere near the $300,000 you paid for it is another question.
posted by tgrundke at 12:09 PM on September 20, 2007
So...how low does the dollar have to crash before we start stumping for a single, unified international currency? Get everyone on the same boat, so to speak? Seems like that's the obvious direction a true, borderless, global economy should head.
posted by Thorzdad at 12:17 PM on September 20, 2007
posted by Thorzdad at 12:17 PM on September 20, 2007
But a weak dollar means our exports are cheaper helping the trade deficit and encourages tourism. Score!
I like money, but I think I like a flood of cute European tourist girls even more. Bring on the recession!
posted by lekvar at 12:27 PM on September 20, 2007 [2 favorites]
I like money, but I think I like a flood of cute European tourist girls even more. Bring on the recession!
posted by lekvar at 12:27 PM on September 20, 2007 [2 favorites]
According to a BBC report, the euro is worth just slightly more than 1.40USD. Where did all the good times go?
posted by Cranberry at 12:48 PM on September 20, 2007
posted by Cranberry at 12:48 PM on September 20, 2007
So, as a twenty-two year old American, just how fucked am I? And is there I can do to become less fucked?
posted by Iridic at 12:56 PM on September 20, 2007
posted by Iridic at 12:56 PM on September 20, 2007
We'd be in the money zeoslap if we still made anything to export.
We're exporting Democracy, son. Just sit back and let the dividends roll in...
posted by mkultra at 12:58 PM on September 20, 2007 [3 favorites]
We're exporting Democracy, son. Just sit back and let the dividends roll in...
posted by mkultra at 12:58 PM on September 20, 2007 [3 favorites]
...Let's say I owe $200k on a house worth $300k, and the dollar collapses. How does it affect me?...
If we focus strictly on the dollar devaluation, it's actually groovy for your mortgage debt! With a depreciating dollar, that 200K you owe is worth less and less as times goes on (think in terms of how many barrels of oil or bottles of French wine it will buy a year from now).
If we get real inflation in the US, along with wage inflation, you may actually be making more (in dollars) while your mortgage payment stays the same. Your mortgage most likely doesn't have a clause for inflation adjustment!
Of course, this ignores the existence of a housing bubble and the effect of interest rates.
Maybe your 300k house can actually only sell for $225K a year later when mortgage interest rates are at 9% because 10 year US treasuries have to yield 8% to get anyone to buy them.
posted by de void at 1:13 PM on September 20, 2007
If we focus strictly on the dollar devaluation, it's actually groovy for your mortgage debt! With a depreciating dollar, that 200K you owe is worth less and less as times goes on (think in terms of how many barrels of oil or bottles of French wine it will buy a year from now).
If we get real inflation in the US, along with wage inflation, you may actually be making more (in dollars) while your mortgage payment stays the same. Your mortgage most likely doesn't have a clause for inflation adjustment!
Of course, this ignores the existence of a housing bubble and the effect of interest rates.
Maybe your 300k house can actually only sell for $225K a year later when mortgage interest rates are at 9% because 10 year US treasuries have to yield 8% to get anyone to buy them.
posted by de void at 1:13 PM on September 20, 2007
...And is there I can do to become less fucked?...
- Buy goods or commodities that have a limited supply like precious metals.
- Invest in foreign currencies or stocks that aren't pegged to the dollar. Super huge bonus if you can get the timing right and invest in a country with a pegged currency right before it unpegs.
- Get a job that pays in foreign currency.
- Emigrate. Do it soon, the longer you wait, the less money you leave with.
posted by de void at 1:20 PM on September 20, 2007
- Buy goods or commodities that have a limited supply like precious metals.
- Invest in foreign currencies or stocks that aren't pegged to the dollar. Super huge bonus if you can get the timing right and invest in a country with a pegged currency right before it unpegs.
- Get a job that pays in foreign currency.
- Emigrate. Do it soon, the longer you wait, the less money you leave with.
posted by de void at 1:20 PM on September 20, 2007
In other news: a family of five U.S. citizens seeks asylum from Finland
posted by Anything at 1:20 PM on September 20, 2007
posted by Anything at 1:20 PM on September 20, 2007
salvia: "Funny, on NPR yesterday I think they were saying that not cutting rates would've caused the dollar to plummet."
Actually, that's probably the case. We have been abusing our status as the world's reserve currency for upwards of two decades. We were able to get away with it because of globalization, a seemingly endless demand for dollars overseas.
But paying for everything with printed dollars 'taught' our economy to consume, not save, and that it didn't need to manufacture anything anymore. Anytime we got into a rough patch, Easy Al (this is how he got that monicker) would always cut interest rates and inject liqudiity. This was so reliable that it became known as the Greenspan Put. It appears that Bernanke (nicknamed Helicopter Ben for a remark he made a few years ago that in a deflation, it would be wise to drop dollars from helicopters) appears to have learned everything from Uncle Al.
But yeah, it probably would have gone down anyway, because we've been in a gigantic Ponzi scheme of ever-loosening credit standards driving economic growth. The more you look, the more complex it gets, like fractals, but this is my overall model:
1. Globalization is the most powerful deflationary force for the price of labor ever.
2. The Fed realized this, either directly by understanding it, or indirectly by seeing the results in the economy, and put on an inflationary money path to try to fight off the deflation.
3. Anytime there was a bad spot, more money was made available. This started a stock market bubble, which should have alerted them that this was a bad mistake. Greenspan seemed to start to realize this in 1994 with his 'irrational exuberance' speech, but he backed wayyy off that idea when people hated him for saying that. Greenspan wants to be loved and respected, which is the worst possible attribute in a central banker, whose job is to take away the punchbowl anytime a party gets started.
Just before Y2K, Greenspan injected a huge amount of money to try to settle any problems from Doomsday, and lo and behold, the market peaked about 3 months later. As the stock market bubble started to unwind, the economy started to really suffer, as it should... the aftermath of bubbles is always economic devastation, the financial equivalent of a nuclear weapon. The only good solutions to bubbles is not to have them. So Greenspan started in with the usual thing of cut rates, inject liquidity, and managed to keep the bubble from completely popping. But in the effort to keep the fallout from the nuclear weapon of the stock market bubble, he set off two fusion bombs instead; the debt and real estate bubbles. Those had been building in the background to the stock market, but new money chases inflation, so those started inflating too.
4. Those bubbles have finally reached their Widows and Orphans stages. I should have realized the housing market was done when my mother, a widow, got interested in flipping houses for profit. God, I should jumped up and down screaming about it... when my mother refused to believe me that houses were an incredibly bad investment, that bubble was done. (she believes me now... she's trying to sell her house and can't, as her buyers can't qualify for loans.)
5. The reason debt and real estate didn't blow up a lot sooner is because the Chinese and Japanese have been soaking up giant amounts of our currency for the last 4 or 5 years; China has accumulated over 1.3 trillion in dollars and dollar-denominated assets, and Japan is only a little behind. This has held their currency down, but they do this by printing their own money to buy ours. In essence, they've been 'importing' our inflation. This shocked the languishing Japanese economy (which, after something like 18 years, is STILL suffering from THEIR real estate bubble in the 1980s) into something approaching normalcy, but I think as soon as the central bank stops injecting all the currency, they'll slide back into recession again. And China has been growing at crazy rates, which is going to result in massive economic pain for them as soon as the boom slows.
6. Even if we hadn't cut rates, the dollar was ultimately headed into the toilet, because we owe more than we can pay, and our response will be to print more money, to try to inflate our way out of the debt. But that's a long-term thing. Over the short term, it would still have tanked, because modern currencies function sort of as a proxy vote on the strength of the economies underneath. If our economy is starved of credit, it will go into a death spiral of contraction, which will tank the dollar, among many, many other things. If we inject tons of money and get the credit market flowing again, the dollar will tank first, and then take the economy with it, because we're dependent on a two billion dollar a day consumption habit. Print or don't print, it makes no real difference; we end up in the same place.
There are no good solutions. We have two bubbles unwinding now, and the damage from the first bubble that we papered over in 2001. It appears we've finally reached endgame; the Fed has no more good options, and can't insulate us from the truth anymore.
They have, over the last twenty years, completely disconnected our economy from the deflationary reality of globalization, and it sure looks like we're running headfirst into the wall.
My most fundamental conclusion: central planning is always a bad idea, whether it's dressed up in free market clothing or not. The Fed and the Plunge Protection Team, by preventing market crashes, have damaged us a hundred times worse than just letting it crash.
posted by Malor at 1:29 PM on September 20, 2007 [23 favorites]
Actually, that's probably the case. We have been abusing our status as the world's reserve currency for upwards of two decades. We were able to get away with it because of globalization, a seemingly endless demand for dollars overseas.
But paying for everything with printed dollars 'taught' our economy to consume, not save, and that it didn't need to manufacture anything anymore. Anytime we got into a rough patch, Easy Al (this is how he got that monicker) would always cut interest rates and inject liqudiity. This was so reliable that it became known as the Greenspan Put. It appears that Bernanke (nicknamed Helicopter Ben for a remark he made a few years ago that in a deflation, it would be wise to drop dollars from helicopters) appears to have learned everything from Uncle Al.
But yeah, it probably would have gone down anyway, because we've been in a gigantic Ponzi scheme of ever-loosening credit standards driving economic growth. The more you look, the more complex it gets, like fractals, but this is my overall model:
1. Globalization is the most powerful deflationary force for the price of labor ever.
2. The Fed realized this, either directly by understanding it, or indirectly by seeing the results in the economy, and put on an inflationary money path to try to fight off the deflation.
3. Anytime there was a bad spot, more money was made available. This started a stock market bubble, which should have alerted them that this was a bad mistake. Greenspan seemed to start to realize this in 1994 with his 'irrational exuberance' speech, but he backed wayyy off that idea when people hated him for saying that. Greenspan wants to be loved and respected, which is the worst possible attribute in a central banker, whose job is to take away the punchbowl anytime a party gets started.
Just before Y2K, Greenspan injected a huge amount of money to try to settle any problems from Doomsday, and lo and behold, the market peaked about 3 months later. As the stock market bubble started to unwind, the economy started to really suffer, as it should... the aftermath of bubbles is always economic devastation, the financial equivalent of a nuclear weapon. The only good solutions to bubbles is not to have them. So Greenspan started in with the usual thing of cut rates, inject liquidity, and managed to keep the bubble from completely popping. But in the effort to keep the fallout from the nuclear weapon of the stock market bubble, he set off two fusion bombs instead; the debt and real estate bubbles. Those had been building in the background to the stock market, but new money chases inflation, so those started inflating too.
4. Those bubbles have finally reached their Widows and Orphans stages. I should have realized the housing market was done when my mother, a widow, got interested in flipping houses for profit. God, I should jumped up and down screaming about it... when my mother refused to believe me that houses were an incredibly bad investment, that bubble was done. (she believes me now... she's trying to sell her house and can't, as her buyers can't qualify for loans.)
5. The reason debt and real estate didn't blow up a lot sooner is because the Chinese and Japanese have been soaking up giant amounts of our currency for the last 4 or 5 years; China has accumulated over 1.3 trillion in dollars and dollar-denominated assets, and Japan is only a little behind. This has held their currency down, but they do this by printing their own money to buy ours. In essence, they've been 'importing' our inflation. This shocked the languishing Japanese economy (which, after something like 18 years, is STILL suffering from THEIR real estate bubble in the 1980s) into something approaching normalcy, but I think as soon as the central bank stops injecting all the currency, they'll slide back into recession again. And China has been growing at crazy rates, which is going to result in massive economic pain for them as soon as the boom slows.
6. Even if we hadn't cut rates, the dollar was ultimately headed into the toilet, because we owe more than we can pay, and our response will be to print more money, to try to inflate our way out of the debt. But that's a long-term thing. Over the short term, it would still have tanked, because modern currencies function sort of as a proxy vote on the strength of the economies underneath. If our economy is starved of credit, it will go into a death spiral of contraction, which will tank the dollar, among many, many other things. If we inject tons of money and get the credit market flowing again, the dollar will tank first, and then take the economy with it, because we're dependent on a two billion dollar a day consumption habit. Print or don't print, it makes no real difference; we end up in the same place.
There are no good solutions. We have two bubbles unwinding now, and the damage from the first bubble that we papered over in 2001. It appears we've finally reached endgame; the Fed has no more good options, and can't insulate us from the truth anymore.
They have, over the last twenty years, completely disconnected our economy from the deflationary reality of globalization, and it sure looks like we're running headfirst into the wall.
My most fundamental conclusion: central planning is always a bad idea, whether it's dressed up in free market clothing or not. The Fed and the Plunge Protection Team, by preventing market crashes, have damaged us a hundred times worse than just letting it crash.
posted by Malor at 1:29 PM on September 20, 2007 [23 favorites]
So...how low does the dollar have to crash before we start stumping for a single, unified international currency? Get everyone on the same boat, so to speak? Seems like that's the obvious direction a true, borderless, global economy should head.
Levelling the playing field is exactly what everyone in the developed world doesn't want. It's great if the petrodollar can make lucrative oil markets part of the US economy. It's not so great if a universal currency brings liability economies into the fold. The saying is that 20% of the world's people enjoy 80% of the worlds wealth. I believe they intend to keep it that way :-)
posted by -harlequin- at 1:31 PM on September 20, 2007
Levelling the playing field is exactly what everyone in the developed world doesn't want. It's great if the petrodollar can make lucrative oil markets part of the US economy. It's not so great if a universal currency brings liability economies into the fold. The saying is that 20% of the world's people enjoy 80% of the worlds wealth. I believe they intend to keep it that way :-)
posted by -harlequin- at 1:31 PM on September 20, 2007
So, as a twenty-two year old American, just how fucked am I?
Not particularly. Or rather, there are lots of reasons you might be fucked, but the falling dollar is small change compared to your own decisions about your own life.
And is there I can do to become less fucked?
Live your life normally. Get a job, and try to do well. Try not to spend more than you make. Increase your skill base. Save for retirement in the usual index funds. Boring shit like that.
Don't go buying gold and investing in Slobovian blozniks; or, if you do, use the money you would have spent on slot machines at Vegas.
If you just concentrate on living your life and doing good work and being generally prudent, you're in competition with other boringly normal Americans and your own bad instincts.
If you concentrate on hedging your bets with gold and buying foreign currency indexes and so on, you're in competition with shark-like financial companies who hire loads and loads of freakishly brilliant mathematicians, statisticians, and other analysts to predict what the herd of other people just like you will do and take advantage of their relative ignorance.
Your choice.
posted by ROU_Xenophobe at 2:05 PM on September 20, 2007 [25 favorites]
Not particularly. Or rather, there are lots of reasons you might be fucked, but the falling dollar is small change compared to your own decisions about your own life.
And is there I can do to become less fucked?
Live your life normally. Get a job, and try to do well. Try not to spend more than you make. Increase your skill base. Save for retirement in the usual index funds. Boring shit like that.
Don't go buying gold and investing in Slobovian blozniks; or, if you do, use the money you would have spent on slot machines at Vegas.
If you just concentrate on living your life and doing good work and being generally prudent, you're in competition with other boringly normal Americans and your own bad instincts.
If you concentrate on hedging your bets with gold and buying foreign currency indexes and so on, you're in competition with shark-like financial companies who hire loads and loads of freakishly brilliant mathematicians, statisticians, and other analysts to predict what the herd of other people just like you will do and take advantage of their relative ignorance.
Your choice.
posted by ROU_Xenophobe at 2:05 PM on September 20, 2007 [25 favorites]
Great post, ROU. Favorited.
posted by zoogleplex at 2:14 PM on September 20, 2007
posted by zoogleplex at 2:14 PM on September 20, 2007
Don't go buying gold
Someone told me that back in 2002. Glad I didn't listen.
posted by ryoshu at 2:34 PM on September 20, 2007 [1 favorite]
Someone told me that back in 2002. Glad I didn't listen.
posted by ryoshu at 2:34 PM on September 20, 2007 [1 favorite]
the problem isnt that the banks arent willing to lend $$. its that there is noone to repurchase the loans. we got to where we are today on the basis of low perceived risk in the credit market. those days are over and lowering the rate only underscores the fact that the buyers are gone and the risk is back. rate cuts arent going to bring back european investors to fund crazy no money down loans for illiterate americans who need to finance their mcmansions and lincoln navigators.
posted by mano at 3:49 PM on September 20, 2007 [1 favorite]
posted by mano at 3:49 PM on September 20, 2007 [1 favorite]
Thanks, ROU. These are worrying times; it's nice to get a bit of perspective for those of us with less macroeconomics savvy.
posted by Iridic at 4:05 PM on September 20, 2007
posted by Iridic at 4:05 PM on September 20, 2007
Save for retirement in the usual index funds. Boring shit like that. Don't go buying gold...
Well, you lost me a bit there. Why stocks and not gold? It's quite the respectable asset, you know. For every lunatic claiming that gold is the only real money in the world, there are a hundred saying equally ridiculous things about the stock market. Even the average financial advisor probably does recommend at least a little gold by now (even if only as part of some kind of commodities or precious metals ETF).
you're in competition with shark-like financial companies who hire loads and loads of freakishly brilliant mathematicians
Those would presumably be the same ones with the models that told them the optimal time to buy sub-prime mortgage-backed credit default swaps for maximum profit.
If you just concentrate on living your life and doing good work and being generally prudent, you're in competition with other boringly normal Americans
And, thanks to the globe-spanning interdependency of the world economy, with boringly normal Mexicans, Brazilians, Chinese, Arabs, and etc. Still it amounts to the same old game, like you say. Only with more global forces exerting their invisible and inexorable pressure on the structure of your daily life.
...and your own bad instincts.
Now *there* is a fearsome competitor!
posted by sfenders at 4:40 PM on September 20, 2007
Well, you lost me a bit there. Why stocks and not gold? It's quite the respectable asset, you know. For every lunatic claiming that gold is the only real money in the world, there are a hundred saying equally ridiculous things about the stock market. Even the average financial advisor probably does recommend at least a little gold by now (even if only as part of some kind of commodities or precious metals ETF).
you're in competition with shark-like financial companies who hire loads and loads of freakishly brilliant mathematicians
Those would presumably be the same ones with the models that told them the optimal time to buy sub-prime mortgage-backed credit default swaps for maximum profit.
If you just concentrate on living your life and doing good work and being generally prudent, you're in competition with other boringly normal Americans
And, thanks to the globe-spanning interdependency of the world economy, with boringly normal Mexicans, Brazilians, Chinese, Arabs, and etc. Still it amounts to the same old game, like you say. Only with more global forces exerting their invisible and inexorable pressure on the structure of your daily life.
...and your own bad instincts.
Now *there* is a fearsome competitor!
posted by sfenders at 4:40 PM on September 20, 2007
Save for retirement in the usual index funds. Boring shit like that. Don't go buying gold...
Well, you lost me a bit there. Why stocks and not gold? It's quite the respectable asset, you know. For every lunatic claiming that gold is the only real money in the world...
ROU is prescribing frugal living and sensible spending. But stocks aren't stocks. One of the best performing stocks is Freeport Macmoran (FCX) which is a huge mining company involved in copper, industrial metals, and gold. The are in fact the largest copper compny in the world, and one of the largest gold companies.
When people in finance say "buy gold," they are referring to buying gold companies like FCX, or ETFs that will own companies like this or pure play gold miners. They do not mean "buy gold bars" or coins. That is ridiculous. What they hell are you going to do with gold bars in your house?
posted by Pastabagel at 5:02 PM on September 20, 2007
Well, you lost me a bit there. Why stocks and not gold? It's quite the respectable asset, you know. For every lunatic claiming that gold is the only real money in the world...
ROU is prescribing frugal living and sensible spending. But stocks aren't stocks. One of the best performing stocks is Freeport Macmoran (FCX) which is a huge mining company involved in copper, industrial metals, and gold. The are in fact the largest copper compny in the world, and one of the largest gold companies.
When people in finance say "buy gold," they are referring to buying gold companies like FCX, or ETFs that will own companies like this or pure play gold miners. They do not mean "buy gold bars" or coins. That is ridiculous. What they hell are you going to do with gold bars in your house?
posted by Pastabagel at 5:02 PM on September 20, 2007
High tech didn't have it's own international cable television network that was shown constantly on every floor of every high tech company's office worldwide.
Yeah, but we have John Dvorak, who is crazier than Cramer.
posted by dw at 5:23 PM on September 20, 2007
Yeah, but we have John Dvorak, who is crazier than Cramer.
posted by dw at 5:23 PM on September 20, 2007
My most fundamental conclusion: central planning is always a bad idea, whether it's dressed up in free market clothing or not.
This issue has always bothered me. How "free" is the U.S. "free market"? With concepts like the SEC, tax incentives, the Federal Reserve, etc., it *seems* like a centrally planned economy with the illusion of freedom. (For example, I can't make my own currency and/or sell explosives, etc.)
Is anyone an expert on this subject? Or can point me to some reading about it? I'm curious about the definition of "free market" in the modern age. Is there such a thing in reality, when nearly every financial decision and transaction is governed by complicated laws?
As you can tell, I am the farthest thing from an economist, so please be gentle. :)
posted by mrgrimm at 5:28 PM on September 20, 2007
This issue has always bothered me. How "free" is the U.S. "free market"? With concepts like the SEC, tax incentives, the Federal Reserve, etc., it *seems* like a centrally planned economy with the illusion of freedom. (For example, I can't make my own currency and/or sell explosives, etc.)
Is anyone an expert on this subject? Or can point me to some reading about it? I'm curious about the definition of "free market" in the modern age. Is there such a thing in reality, when nearly every financial decision and transaction is governed by complicated laws?
As you can tell, I am the farthest thing from an economist, so please be gentle. :)
posted by mrgrimm at 5:28 PM on September 20, 2007
I thought they were talking about gold futures, where you buy & sell the commodity without ever handling it- like pork bellies (which are used to make bacon, which you might find in a Bacon, Lettuce & Tomato sandwich).
posted by Challahtronix at 5:35 PM on September 20, 2007
posted by Challahtronix at 5:35 PM on September 20, 2007
What they hell are you going to do with gold bars in your house?
Try telling that to an Argentinian.
posted by antipasta_explosion at 5:37 PM on September 20, 2007
Try telling that to an Argentinian.
posted by antipasta_explosion at 5:37 PM on September 20, 2007
mrgrimm: Greenspan, on The Daily Show, admitted that U.S. Americans do not have a free-market economy.
posted by Tacodog at 5:45 PM on September 20, 2007
posted by Tacodog at 5:45 PM on September 20, 2007
What they hell are you going to do with gold bars in your house?
Okay, yes. I too was referring to the more indirect ways of buying gold, and assumed the ROU was as well. Forgot that stacking gold bars in the root cellar was an option, actually. Not that there's anything wrong with that.
posted by sfenders at 5:51 PM on September 20, 2007
Okay, yes. I too was referring to the more indirect ways of buying gold, and assumed the ROU was as well. Forgot that stacking gold bars in the root cellar was an option, actually. Not that there's anything wrong with that.
posted by sfenders at 5:51 PM on September 20, 2007
Has anyone been paying attention to the "stealth inflation" going on at your grocery stores? This little anecdote illustrates:
You may be quite dismayed, as I was when I realized this.
posted by zoogleplex at 6:31 PM on September 20, 2007 [6 favorites]
"Picked up some Cottonelle t.p. yesterday, it felt light. Got home and compared it to another package from last month. The "Double Roll" has shrunk from 352 squares per roll to 308, and the squares are SMALLER also. The old rolls were 44 sq. ft. per roll, the new are 35.9 sq. ft., price unchanged. That is 18.4% shrinkage, or a stealth price increase of 18.4%. Unbelievable. 18.4%!!!!"This parallels my own experience, I've seen the same thing. Also, canned foods which used to pretty much uniformly come in 16-oz. cans are now showing "Net Wt. 15 oz" and sometimes even 14 oz - and usually for the slightly more than the can cost a year ago when it was 16 oz. Of course they can't hide the price increases of milk and beef in this way, but next time you go shopping, check out all the labels very carefully to see if the weights are slipping.
You may be quite dismayed, as I was when I realized this.
posted by zoogleplex at 6:31 PM on September 20, 2007 [6 favorites]
What they hell are you going to do with gold bars in your house?
Melt them down and form them into that 24 carat codpiece I've always wanted.
posted by ryoshu at 8:01 PM on September 20, 2007
Melt them down and form them into that 24 carat codpiece I've always wanted.
posted by ryoshu at 8:01 PM on September 20, 2007
I too was referring to the more indirect ways of buying gold, and assumed the ROU was as well.
No, I meant buying gold coins or those funds that amount to shares of bullion stored somewhere else as the crazy gold people suggest.
On the flipside, I had forgotten that people might say "buy gold" and mean "buy shares of companies that produce a product people want."
posted by ROU_Xenophobe at 8:03 PM on September 20, 2007
No, I meant buying gold coins or those funds that amount to shares of bullion stored somewhere else as the crazy gold people suggest.
On the flipside, I had forgotten that people might say "buy gold" and mean "buy shares of companies that produce a product people want."
posted by ROU_Xenophobe at 8:03 PM on September 20, 2007
Of course they can't hide the price increases of milk and beef in this way
Don't be so sure. My mother and I have discussed several times how much water cooks out of the grocery store's chicken and sirloin compared to a few years ago. They're basically injecting it with water to make it weigh more.
posted by gatorae at 8:37 PM on September 20, 2007
Don't be so sure. My mother and I have discussed several times how much water cooks out of the grocery store's chicken and sirloin compared to a few years ago. They're basically injecting it with water to make it weigh more.
posted by gatorae at 8:37 PM on September 20, 2007
Don't go buying gold and investing in Slobovian blozniks; or, if you do, use the money you would have spent on slot machines at Vegas.
Yeah, don't invest in a commodity popularly conceived of as a solid, safe haven, which has a value entirely independent of the volatility of any one company or any specific country, which has been going up like a rocket for the past six years and has only been accelerating through the recent fuckups.
It's definitely a slot machine. Who could have guessed?
posted by blacklite at 9:04 PM on September 20, 2007
Yeah, don't invest in a commodity popularly conceived of as a solid, safe haven, which has a value entirely independent of the volatility of any one company or any specific country, which has been going up like a rocket for the past six years and has only been accelerating through the recent fuckups.
It's definitely a slot machine. Who could have guessed?
posted by blacklite at 9:04 PM on September 20, 2007
Yes, exactly, but without the Comic Book Guy sarcastic voice. You sound kind of like someone talking about real estate in 2003.
posted by ROU_Xenophobe at 9:46 PM on September 20, 2007
posted by ROU_Xenophobe at 9:46 PM on September 20, 2007
When people in finance say "buy gold," they are referring to buying gold companies like FCX, or ETFs that will own companies like this or pure play gold miners.
Boy, Pastabagel, for someone that is interested in this stuff, you sure don't have a very good grasp on it. You can buy gold - physical gold - in two NYSE-traded closed-end gold depositary receipts: IAU and GLD. The gold is stored in a vault for you, its price ticks across the NYSE wire, and you pay 0.5% per annum storage fees.
They do not mean "buy gold bars" or coins. That is ridiculous. What the hell are you going to do with gold bars in your house?
Sit on top of it with my Winchester 70 in one hand and my Smith and Wesson in the other, with my cowboy hat cocked at a rakish angle and a Marlboro dangling from my lips.
Of course.
Sheesh. What are they teaching you kids in school these days?
posted by ikkyu2 at 10:08 PM on September 20, 2007 [2 favorites]
Boy, Pastabagel, for someone that is interested in this stuff, you sure don't have a very good grasp on it. You can buy gold - physical gold - in two NYSE-traded closed-end gold depositary receipts: IAU and GLD. The gold is stored in a vault for you, its price ticks across the NYSE wire, and you pay 0.5% per annum storage fees.
They do not mean "buy gold bars" or coins. That is ridiculous. What the hell are you going to do with gold bars in your house?
Sit on top of it with my Winchester 70 in one hand and my Smith and Wesson in the other, with my cowboy hat cocked at a rakish angle and a Marlboro dangling from my lips.
Of course.
Sheesh. What are they teaching you kids in school these days?
posted by ikkyu2 at 10:08 PM on September 20, 2007 [2 favorites]
No, I meant buying gold coins or those funds that amount to shares of bullion stored somewhere else as the crazy gold people suggest.
Price of gold in 2001, as the stock market bubble peaked... $275ish.
Price today, after 6 more years of monetary disorder: $735.
That's doing pretty well for something that nobody wants.
posted by Malor at 10:13 PM on September 20, 2007
Price of gold in 2001, as the stock market bubble peaked... $275ish.
Price today, after 6 more years of monetary disorder: $735.
That's doing pretty well for something that nobody wants.
posted by Malor at 10:13 PM on September 20, 2007
It's definitely a slot machine. Who could have guessed?
Those charts are almost criminally deceptive.
First of all, they start the chart just as gold is taking off. Gold sucked hard from 1980 through 2002. The charts conveniently start just at a point where things turned around.
Secondly, the y-axis is cropped hard. This is done a lot, and it's nearly always done to make growth rates look more impressive than they really are.
Thirdly, the y-axis is some lame "semi-log" format. This makes the delta in smaller values have a greater visual gap than the delta in larger values. Because gold did well at first, and has been more mediocre lately, this works out fantastically, because it makes the initial growth look huge, but also manages to downplay the lackluster performance towards the top of the graphs.
Fourthly, and most importantly, an upward trend on a graph proves nothing. I could graph the results of a day of blackjack, and a good portion of the time, I'd end up with something that looks like Gold's current price. That doesn't make it a good investment. It's results-based thinking.
If you want to speculate on Gold, have fun, but please don't pretend it's a quality investment. Some people in the forum might mistake your rude and dickish rantings as those of an intelligent contrarian, not realizing you are simply a lucky speculator who has mistook his good fortune for intelligence.
Please don't post about finance, but if you must, at least do us all the favor of never posting graphs that are designed, in almost every respect, to lie to the viewer.
posted by Tacos Are Pretty Great at 10:18 PM on September 20, 2007 [2 favorites]
Those charts are almost criminally deceptive.
First of all, they start the chart just as gold is taking off. Gold sucked hard from 1980 through 2002. The charts conveniently start just at a point where things turned around.
Secondly, the y-axis is cropped hard. This is done a lot, and it's nearly always done to make growth rates look more impressive than they really are.
Thirdly, the y-axis is some lame "semi-log" format. This makes the delta in smaller values have a greater visual gap than the delta in larger values. Because gold did well at first, and has been more mediocre lately, this works out fantastically, because it makes the initial growth look huge, but also manages to downplay the lackluster performance towards the top of the graphs.
Fourthly, and most importantly, an upward trend on a graph proves nothing. I could graph the results of a day of blackjack, and a good portion of the time, I'd end up with something that looks like Gold's current price. That doesn't make it a good investment. It's results-based thinking.
If you want to speculate on Gold, have fun, but please don't pretend it's a quality investment. Some people in the forum might mistake your rude and dickish rantings as those of an intelligent contrarian, not realizing you are simply a lucky speculator who has mistook his good fortune for intelligence.
Please don't post about finance, but if you must, at least do us all the favor of never posting graphs that are designed, in almost every respect, to lie to the viewer.
posted by Tacos Are Pretty Great at 10:18 PM on September 20, 2007 [2 favorites]
You sound kind of like someone talking about real estate in 2003.
Or dot-com stocks in 1998. Or gold in 1980.
Note: Gold, 1980, $850. Gold, today, $735.
posted by Tacos Are Pretty Great at 10:20 PM on September 20, 2007
Or dot-com stocks in 1998. Or gold in 1980.
Note: Gold, 1980, $850. Gold, today, $735.
posted by Tacos Are Pretty Great at 10:20 PM on September 20, 2007
Okay, so back to Macroeconomics 101 for one more minute. Could someone please explain to me why dropping interest rates led to the change in the dollar's value? I have read the articles linked above, but is it --
a) according to the first "basics" link above, the lower interest rate should mean that people borrow dollars and use them to buy other currencies, raising the demand for those other currencies? And/or foreign investors don't want to buy bonds because the return on them just went down. And bonds and the currency are ... one and the same?
b) a fear of inflation because more cash is being injected into the economy, so investors sell their dollars? (though why a fear of inflation given all this housing bubble crash?)
c) the move signals that the US economy is in tough shape, making it seem like "the transaction value of money" is going to go down, causing speculators to flee?
I suspect it's all explained to me in the middle paragraphs of this section in Wikipedia, but I can't quite make sense of it.
posted by salvia at 10:26 PM on September 20, 2007
a) according to the first "basics" link above, the lower interest rate should mean that people borrow dollars and use them to buy other currencies, raising the demand for those other currencies? And/or foreign investors don't want to buy bonds because the return on them just went down. And bonds and the currency are ... one and the same?
b) a fear of inflation because more cash is being injected into the economy, so investors sell their dollars? (though why a fear of inflation given all this housing bubble crash?)
c) the move signals that the US economy is in tough shape, making it seem like "the transaction value of money" is going to go down, causing speculators to flee?
I suspect it's all explained to me in the middle paragraphs of this section in Wikipedia, but I can't quite make sense of it.
posted by salvia at 10:26 PM on September 20, 2007
has anyone noticed that dubai and saudi have been buying very large amounts of us and british assets? remember when the japanese did this some years back?
does it mean anything?
posted by altman at 10:30 PM on September 20, 2007
does it mean anything?
posted by altman at 10:30 PM on September 20, 2007
salvia: This isn't a completely perfect example, but try ignoring all of those big, complex macroeconomic factors.
Now pretend you're an international investor who believes that all currencies are equally good. (Or perhaps more accurately that you aren't sure which ones will go in which direction or by how much.)
You have a basket of investments, one of which is "a low-risk, low-yield investment product." Maybe an American repo fund or something. Last week you were getting, let's say an average 5.4% return from it. This week you're getting 4.9% return on it, because the banks are lending to each other cheaper, so people are less interested in your loans.
It just so happens that you know of an investment product with similar risk and yield factors in another country, but it's getting 5.3% return. Now it's the better option, so you sell your dollars, buy some euros, and get into this new investment.
And by doing that, you've also helped to devalue the dollar.
posted by Tacos Are Pretty Great at 11:02 PM on September 20, 2007 [1 favorite]
Now pretend you're an international investor who believes that all currencies are equally good. (Or perhaps more accurately that you aren't sure which ones will go in which direction or by how much.)
You have a basket of investments, one of which is "a low-risk, low-yield investment product." Maybe an American repo fund or something. Last week you were getting, let's say an average 5.4% return from it. This week you're getting 4.9% return on it, because the banks are lending to each other cheaper, so people are less interested in your loans.
It just so happens that you know of an investment product with similar risk and yield factors in another country, but it's getting 5.3% return. Now it's the better option, so you sell your dollars, buy some euros, and get into this new investment.
And by doing that, you've also helped to devalue the dollar.
posted by Tacos Are Pretty Great at 11:02 PM on September 20, 2007 [1 favorite]
zeoslap writes "But a weak dollar means our exports are cheaper helping the trade deficit and encourages tourism. Score!"
Too bad no one wants to visit the US anymore for fear of being secreted away to some CIA black ops prison.
mazola writes "Nothing here that another rate cut can't fix."
Right up until you get to 0%.
zoogleplex writes "Has anyone been paying attention to the 'stealth inflation' going on at your grocery stores? "
This has been going on for years thanks to Walmart and their roll back policy.
posted by Mitheral at 11:24 PM on September 20, 2007
Too bad no one wants to visit the US anymore for fear of being secreted away to some CIA black ops prison.
mazola writes "Nothing here that another rate cut can't fix."
Right up until you get to 0%.
zoogleplex writes "Has anyone been paying attention to the 'stealth inflation' going on at your grocery stores? "
This has been going on for years thanks to Walmart and their roll back policy.
posted by Mitheral at 11:24 PM on September 20, 2007
You're doing the same thing you're complaining about, Tacos, cherry-picking data.
I haven't looked at the other poster's graph, and have no idea how it looks. I'm not going to argue with you about that, because I have no opinion.
Where I do have an opinion is that you're using one generation of knowledge, formed in a period of monetary disorder, as Investing Truths To Last A Lifetime. Your received wisdom has worked since 1982, but if you look back further, you will see long periods where stocks went nowhere, or down. Generally, in fact, stocks and commodities tend to move in counter-cyclical fashion. Over very long periods, they come into and go out of vogue.
By picking the 1982 value, you're choosing gold at the height of its mini-bubble, caused by the United States going off the gold standard. We went off the gold standard because we were abusing our money supply. The subsequent gold price reaction did exactly what it normally does; preserved buying power in severe economic turmoil. People were convinced that the dollar was doomed -- they were even probably right, just a generation too soon. They bid the price up to ridiculous levels, and when Volcker restored some semblance of monetary sanity by raising rates through the stratosphere, that popped its bubble. And, like all bubbles, it languished for a very long time after its peak. It is not a coincidence that it is precisely then that the huge bull market in stocks began. It was the end of the last commodities era, and the beginning of stocks ruling the world.
The fact that you're arguing so passionately against this particular commodity indicates to me that its bull market is just getting started. I suspect that it will go much higher over the next decade. Your opinion will, no doubt, be shared by many, which means that a very tiny fraction of the investing market has already bid the price up to levels we haven't seen in a generation. As the economic turmoil spreads, there's a lot of room for new buyers.
Eventually, people will be convinced that stocks and real estate are terrible investments, that it's all about commodities... and it's about then that it'll be time to sell them and get back into what worked in 1982.
There's a reason I start the price tracking in 2001: because that was the peak of the old market, and the start of the transition back to commodities as a measure of value. The transition has been delayed by the Fed's actions, but not stopped. 2001 is the inverse of 1982.
Extra support: just like gold in 1982, the Nasdaq peaked at over 5,000 in 2001. Last I checked, it wasn't even close to that value again. And, of course, the composition of the index has changed dramatically; if you owned Nasdaq in 2000, a good chunk of your holdings became worthless. Gee, stocks must be a terrible investment!
Now, I'm not saying stocks or real estate are worthless, not at all.... but I strongly suggest being most, most prudent when buying either one these days. As Buffett says, it's only when the tide goes out that you find out who's been swimming naked... so you'd better do extra due diligence before buying anything in those markets. You can absolutely still make money there. If we have ordinary inflation, in fact, stocks tend to hold value pretty well, as they can quickly adjust to the new prices of goods. Just make damn sure to buy good companies. You will no longer be able to throw darts at the newspaper and make a profit.
posted by Malor at 11:35 PM on September 20, 2007
I haven't looked at the other poster's graph, and have no idea how it looks. I'm not going to argue with you about that, because I have no opinion.
Where I do have an opinion is that you're using one generation of knowledge, formed in a period of monetary disorder, as Investing Truths To Last A Lifetime. Your received wisdom has worked since 1982, but if you look back further, you will see long periods where stocks went nowhere, or down. Generally, in fact, stocks and commodities tend to move in counter-cyclical fashion. Over very long periods, they come into and go out of vogue.
By picking the 1982 value, you're choosing gold at the height of its mini-bubble, caused by the United States going off the gold standard. We went off the gold standard because we were abusing our money supply. The subsequent gold price reaction did exactly what it normally does; preserved buying power in severe economic turmoil. People were convinced that the dollar was doomed -- they were even probably right, just a generation too soon. They bid the price up to ridiculous levels, and when Volcker restored some semblance of monetary sanity by raising rates through the stratosphere, that popped its bubble. And, like all bubbles, it languished for a very long time after its peak. It is not a coincidence that it is precisely then that the huge bull market in stocks began. It was the end of the last commodities era, and the beginning of stocks ruling the world.
The fact that you're arguing so passionately against this particular commodity indicates to me that its bull market is just getting started. I suspect that it will go much higher over the next decade. Your opinion will, no doubt, be shared by many, which means that a very tiny fraction of the investing market has already bid the price up to levels we haven't seen in a generation. As the economic turmoil spreads, there's a lot of room for new buyers.
Eventually, people will be convinced that stocks and real estate are terrible investments, that it's all about commodities... and it's about then that it'll be time to sell them and get back into what worked in 1982.
There's a reason I start the price tracking in 2001: because that was the peak of the old market, and the start of the transition back to commodities as a measure of value. The transition has been delayed by the Fed's actions, but not stopped. 2001 is the inverse of 1982.
Extra support: just like gold in 1982, the Nasdaq peaked at over 5,000 in 2001. Last I checked, it wasn't even close to that value again. And, of course, the composition of the index has changed dramatically; if you owned Nasdaq in 2000, a good chunk of your holdings became worthless. Gee, stocks must be a terrible investment!
Now, I'm not saying stocks or real estate are worthless, not at all.... but I strongly suggest being most, most prudent when buying either one these days. As Buffett says, it's only when the tide goes out that you find out who's been swimming naked... so you'd better do extra due diligence before buying anything in those markets. You can absolutely still make money there. If we have ordinary inflation, in fact, stocks tend to hold value pretty well, as they can quickly adjust to the new prices of goods. Just make damn sure to buy good companies. You will no longer be able to throw darts at the newspaper and make a profit.
posted by Malor at 11:35 PM on September 20, 2007
That last sentence may be too certain... if the Fed succeeds in reliquefication, then you might indeed be able to make a fairly consistent profit with darts, just as you have for the last umpty-odd years. But it will be a temporary fix at best; we will end up back in some other monetary crisis, because the fundamental problems will not have been addressed.
posted by Malor at 11:43 PM on September 20, 2007
posted by Malor at 11:43 PM on September 20, 2007
I doubt the sky will really fall, but it easily could, and you did a great job of describing just how that might happen Pastabagel. This is almost as good as your Sears comment, which was one of the more interesting bits of economic analysis I have read anywhere. Keep it, it is a delight for the brain. (By the way, several analysts right about that same time were touting Sears as the next Berkshire Hathaway; they may still turn out to be correct, but the stock has done nothing but auger into the ground since then.)
posted by caddis at 12:49 AM on September 21, 2007
posted by caddis at 12:49 AM on September 21, 2007
Great thread. Didn't understand much, but I ate a lot of macaroni and cheese while reading it, and I feel smarter.
posted by lazaruslong at 1:15 AM on September 21, 2007
posted by lazaruslong at 1:15 AM on September 21, 2007
Gold has been a terrible investment. If anyone else knows of some horrible investments like this, please let me know. I like, um, throwing my money away.
Back to the original post, I think watching the yen carry trade will be interesting in the near future. And here's a cheery article about the implications of all of those exotic investment instruments:
posted by ryoshu at 1:40 AM on September 21, 2007
Back to the original post, I think watching the yen carry trade will be interesting in the near future. And here's a cheery article about the implications of all of those exotic investment instruments:
When you add it all up, according to Das' research, a single dollar of "real" capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion -- or eight times total global gross domestic product of $60 trillion.Yikes.
posted by ryoshu at 1:40 AM on September 21, 2007
Part of me is pissed off that the Fed decided to bail out those who are in trouble due to greed and poor analysis. On the other hand, since greed and poor analytical skills are nearly ubiquitous, perhaps I should be happy.
posted by BrotherCaine at 2:02 AM on September 21, 2007
posted by BrotherCaine at 2:02 AM on September 21, 2007
BrotherCaine: "Part of me is pissed off that the Fed decided to bail out those who are in trouble due to greed and poor analysis. On the other hand, since greed and poor analytical skills are nearly ubiquitous, perhaps I should be happy."
Stick with your first impulse. Rewarding greed and poor analytical skills results in... even more greed and poorer analytical skills.
posted by Malor at 2:21 AM on September 21, 2007
Stick with your first impulse. Rewarding greed and poor analytical skills results in... even more greed and poorer analytical skills.
posted by Malor at 2:21 AM on September 21, 2007
When people in finance say "buy gold," they are referring to buying gold companies like FCX, or ETFs that will own companies like this or pure play gold miners.
Boy, Pastabagel, for someone that is interested in this stuff, you sure don't have a very good grasp on it. You can buy gold - physical gold - in two NYSE-traded closed-end gold depositary receipts: IAU and GLD. The gold is stored in a vault for you, its price ticks across the NYSE wire, and you pay 0.5% per annum storage fees.
Yes, I am very well aware of both of those, thanks. The point of my example was that hoarding gold in your house is just as dumb as hoarding it in someone else's vault. Holding on to the commodity in storage is expensive and pointless.
But I guess I'm not very good at "this stuff", you're right. Silly me, I thought that buying a mining company like FCX would be better than buying the actual metal, because, idiot that I am, I thought the technologically driven productivity innovations inherent in any mining company would add a superlative return to the company in addition to the underlying metal it mines. I mean, what was I thinking, in the last two years, FCX's return has only exceeded GLD's return by over 100% excluding FCX's 1.2% dividend which improves its return and excluding GLD's 0.5% annual fee which lowers GLD's return, so I guess I'm a dummy. Thanks for pointing that out.
Also, I should just be slapped in the face for ever thinking that gold, whose ten year return is roughly 230% would be an inferior investment to copper, whose ten year return is nearly 350%.
Wait, do you think maybe that this is precisely why I suggested a company like FCX, that is a huge producer of both copper and gold, as the play, rather than simply gold? Nah.
So I'll defer to your sage advice. When I liquidate my trading accounts, would you recommend I stuff the money under a Serta mattress, or a Sealy? Maybe a Simmons & Foster, or possible a Tempurpedic? All offer such great money-hiding features, so let me know.
In the meantime, I'll have my broker call 1-800-MATTRES and start the transfer. I left the last 'S' off for savings.
posted by Pastabagel at 7:28 AM on September 21, 2007 [1 favorite]
Boy, Pastabagel, for someone that is interested in this stuff, you sure don't have a very good grasp on it. You can buy gold - physical gold - in two NYSE-traded closed-end gold depositary receipts: IAU and GLD. The gold is stored in a vault for you, its price ticks across the NYSE wire, and you pay 0.5% per annum storage fees.
Yes, I am very well aware of both of those, thanks. The point of my example was that hoarding gold in your house is just as dumb as hoarding it in someone else's vault. Holding on to the commodity in storage is expensive and pointless.
But I guess I'm not very good at "this stuff", you're right. Silly me, I thought that buying a mining company like FCX would be better than buying the actual metal, because, idiot that I am, I thought the technologically driven productivity innovations inherent in any mining company would add a superlative return to the company in addition to the underlying metal it mines. I mean, what was I thinking, in the last two years, FCX's return has only exceeded GLD's return by over 100% excluding FCX's 1.2% dividend which improves its return and excluding GLD's 0.5% annual fee which lowers GLD's return, so I guess I'm a dummy. Thanks for pointing that out.
Also, I should just be slapped in the face for ever thinking that gold, whose ten year return is roughly 230% would be an inferior investment to copper, whose ten year return is nearly 350%.
Wait, do you think maybe that this is precisely why I suggested a company like FCX, that is a huge producer of both copper and gold, as the play, rather than simply gold? Nah.
So I'll defer to your sage advice. When I liquidate my trading accounts, would you recommend I stuff the money under a Serta mattress, or a Sealy? Maybe a Simmons & Foster, or possible a Tempurpedic? All offer such great money-hiding features, so let me know.
In the meantime, I'll have my broker call 1-800-MATTRES and start the transfer. I left the last 'S' off for savings.
posted by Pastabagel at 7:28 AM on September 21, 2007 [1 favorite]
FCX's return has only exceeded GLD's return by over 100%
This is getting a bit silly. Gold mining stocks tend to do better than the metal when gold is going up in price. Worse when it's going down. Check out FCX vs. GLD for 1996-2000 for example. Mining stocks also add other risks (ie. political). The point of buying the metal instead would be relative safety and diversification away from the broad stock market, which are not as well supplied by buying mining stocks instead.
The point of my example was that hoarding gold in your house is just as dumb as hoarding it in someone else's vault.
I don't know about your house, but mine is considerably less secure than the average vault full of gold. GLD has considerably better liquidity, too. It's not nearly risky enough for me, but to suggest that there aren't any reasons to prefer the relative safety of the metal seems a bit out of place in this thread full of foreshadowings of financial market chaos.
posted by sfenders at 8:26 AM on September 21, 2007
This is getting a bit silly. Gold mining stocks tend to do better than the metal when gold is going up in price. Worse when it's going down. Check out FCX vs. GLD for 1996-2000 for example. Mining stocks also add other risks (ie. political). The point of buying the metal instead would be relative safety and diversification away from the broad stock market, which are not as well supplied by buying mining stocks instead.
The point of my example was that hoarding gold in your house is just as dumb as hoarding it in someone else's vault.
I don't know about your house, but mine is considerably less secure than the average vault full of gold. GLD has considerably better liquidity, too. It's not nearly risky enough for me, but to suggest that there aren't any reasons to prefer the relative safety of the metal seems a bit out of place in this thread full of foreshadowings of financial market chaos.
posted by sfenders at 8:26 AM on September 21, 2007
Silly me, I thought that buying a mining company like FCX would be better than buying the actual metal
This actually is an interesting point to discuss, because most of these companies are so thoroughly hedged against fluctuations in the spot gold price that they can't benefit very much when the price moves up. One gold company I was reading about - I think it was Anglo-American - did a great deal of hedging in 2003 and now pretty much faces the fact that they'll have to sell their gold at a spot price of $420/oz well into the next decade.
I will not give my opinion on where you should stuff your money, but the Sealy Corporation (NYSE:ZZ) owns the Stearns and Foster brand. You might want to substitute in the Select Comfort "Sleep Number" bed, for the most flexible option for your gold-hiding needs.
posted by ikkyu2 at 8:26 AM on September 21, 2007
This actually is an interesting point to discuss, because most of these companies are so thoroughly hedged against fluctuations in the spot gold price that they can't benefit very much when the price moves up. One gold company I was reading about - I think it was Anglo-American - did a great deal of hedging in 2003 and now pretty much faces the fact that they'll have to sell their gold at a spot price of $420/oz well into the next decade.
I will not give my opinion on where you should stuff your money, but the Sealy Corporation (NYSE:ZZ) owns the Stearns and Foster brand. You might want to substitute in the Select Comfort "Sleep Number" bed, for the most flexible option for your gold-hiding needs.
posted by ikkyu2 at 8:26 AM on September 21, 2007
This actually is an interesting point to discuss, because most of these companies are so thoroughly hedged against fluctuations in the spot gold price that they can't benefit very much when the price moves up. One gold company I was reading about
This is true, and sorry about the snark, but I couldn't resist.
In any case, I think the bigger point is that the conventional wisdom of inflation = buy gold doesn't really hold anymore because the conventional wisdom was formed in a pre-China era.
Now, with china growing somewhat independently of the US, a better inflation hedge is a commodity that also has an growing demand outlook. As China (and india) industrialize and expand, copper is an essential resource, and they will consume it in increasing quantities. So independently of the dollar and inflation, that makes copper and copper miners attractive. This isn't really the case as much for gold.
On the inflation side, everyone automatically thinks gold, but the inflation hedge aspects actually hold true for other commodities as well, like other metals, and even oil (part of the increase in oil prices is due to a decline in the dollar, because oil has inherent value). You could also simply exchange dollars for Euros or yen, or GBP, etc.
I guess the bigger point is that when shifts happen like the one unfolding now, it's better to think things through systematically rather than to rely on a rule of thumb that may depend on assumptions that may no longer be true.
posted by Pastabagel at 9:06 AM on September 21, 2007
This is true, and sorry about the snark, but I couldn't resist.
In any case, I think the bigger point is that the conventional wisdom of inflation = buy gold doesn't really hold anymore because the conventional wisdom was formed in a pre-China era.
Now, with china growing somewhat independently of the US, a better inflation hedge is a commodity that also has an growing demand outlook. As China (and india) industrialize and expand, copper is an essential resource, and they will consume it in increasing quantities. So independently of the dollar and inflation, that makes copper and copper miners attractive. This isn't really the case as much for gold.
On the inflation side, everyone automatically thinks gold, but the inflation hedge aspects actually hold true for other commodities as well, like other metals, and even oil (part of the increase in oil prices is due to a decline in the dollar, because oil has inherent value). You could also simply exchange dollars for Euros or yen, or GBP, etc.
I guess the bigger point is that when shifts happen like the one unfolding now, it's better to think things through systematically rather than to rely on a rule of thumb that may depend on assumptions that may no longer be true.
posted by Pastabagel at 9:06 AM on September 21, 2007
This actually is an interesting point to discuss, because most of these companies are so thoroughly hedged against fluctuations in the spot gold price that they can't benefit very much when the price moves up.
You need to do a lot of research if you are going to play the miners, which is why I like an index like the HUI. After the dotcom crash it didn't take a genius to figure out commodities were going to be hot. That's why I have a hearty laugh every time someone pooh poohs investing in gold or other commodities.
The interesting bit is what happens when the recession hits (it's coming). Commodities will probably drop due to a lack of demand for products. Interesting times for an armchair investor.
posted by ryoshu at 12:02 PM on September 21, 2007
You need to do a lot of research if you are going to play the miners, which is why I like an index like the HUI. After the dotcom crash it didn't take a genius to figure out commodities were going to be hot. That's why I have a hearty laugh every time someone pooh poohs investing in gold or other commodities.
The interesting bit is what happens when the recession hits (it's coming). Commodities will probably drop due to a lack of demand for products. Interesting times for an armchair investor.
posted by ryoshu at 12:02 PM on September 21, 2007
the longer you wait, the less money you leave with
Or you could make sure that you can send your money out on a few days' notice (not that it would always be enough).
posted by oaf at 12:18 PM on September 21, 2007
Or you could make sure that you can send your money out on a few days' notice (not that it would always be enough).
posted by oaf at 12:18 PM on September 21, 2007
ryoshu wrote: Gold has been a terrible investment. If anyone else knows of some horrible investments like this, please let me know. I like, um, throwing my money away.
Your sarcasm is made funnier by the fact that the S&P 500, Nasdaq and DJI *all* beat your investment for the time period shown in that graph.
LOL. GOLD.
posted by Tacos Are Pretty Great at 12:53 PM on September 21, 2007
Your sarcasm is made funnier by the fact that the S&P 500, Nasdaq and DJI *all* beat your investment for the time period shown in that graph.
LOL. GOLD.
posted by Tacos Are Pretty Great at 12:53 PM on September 21, 2007
You can't just use those numbers as a straight proxy for the stock market, because their composition constantly changes. You get a survivorship bias. Dropping losing stocks from the indices and picking up winners means that they look better than the true stock market as a whole; there's a whole level of risk that's hidden.
posted by Malor at 1:19 PM on September 21, 2007
posted by Malor at 1:19 PM on September 21, 2007
Tacos Are Pretty Great - Your sarcasm is made funnier by the fact that the S&P 500, Nasdaq and DJI *all* beat your investment for the time period shown in that graph.
ryoshu - After the dotcom crash it didn't take a genius to figure out commodities were going to be hot. That's why I have a hearty laugh every time someone pooh poohs investing in gold or other commodities.
Yahoo! isn't showing the DJI chart atm, but looking at my trading account, the DJI bottomed at around 7.5k in Oct. 2002. The DJI is now topping around 14k. Great investment! Unless you compare it to the similar time period with the HUI -- which is what my experience is.
Don't invest in gold (or other commodities), they are worthless!
7k -> 14k or 107 -> 400. Which one is the better investment?
LOL indeed.
posted by ryoshu at 5:17 PM on September 21, 2007
ryoshu - After the dotcom crash it didn't take a genius to figure out commodities were going to be hot. That's why I have a hearty laugh every time someone pooh poohs investing in gold or other commodities.
Yahoo! isn't showing the DJI chart atm, but looking at my trading account, the DJI bottomed at around 7.5k in Oct. 2002. The DJI is now topping around 14k. Great investment! Unless you compare it to the similar time period with the HUI -- which is what my experience is.
Don't invest in gold (or other commodities), they are worthless!
7k -> 14k or 107 -> 400. Which one is the better investment?
LOL indeed.
posted by ryoshu at 5:17 PM on September 21, 2007
These assertions of absolute knowledge of financial markets are so funny. If anyone knew that shit they would be a billionaire. All the rest are just posers, and seriously only one consonant away from something far more demeaning.
posted by caddis at 5:25 PM on September 21, 2007
posted by caddis at 5:25 PM on September 21, 2007
ryoshu: You bought Gold in 2002, I bought AAPL.
Overall, my investment destroyed yours, but that doesn't mean it was a better pick.
Your whole "but I made slightly more than X" argument shows that you don't have a fucking clue what you're doing.
That said, gambling in the markets is like playing at a casino that's rigged in favor of the players. Even stupid strategies tend to return moderately positive long-term returns, so long as they don't get eaten up by fees, spreads or taxes.
Now please STFU about finance.
posted by Tacos Are Pretty Great at 10:26 AM on October 3, 2007
Overall, my investment destroyed yours, but that doesn't mean it was a better pick.
Your whole "but I made slightly more than X" argument shows that you don't have a fucking clue what you're doing.
That said, gambling in the markets is like playing at a casino that's rigged in favor of the players. Even stupid strategies tend to return moderately positive long-term returns, so long as they don't get eaten up by fees, spreads or taxes.
Now please STFU about finance.
posted by Tacos Are Pretty Great at 10:26 AM on October 3, 2007
caddis: your post is funny, because it shows what a fucking twit you are.
If you have $100k, and a solid plan to make 15%/year, every year, it'll still take you 65 years to be a billionaire.
And the people who actually work in Finance nearly always post arguments against any single investment, because they understand the whole "luck" factor better than some jackass who bought some Gold in 2002 and mistook himself for a genius.
posted by Tacos Are Pretty Great at 10:32 AM on October 3, 2007
If you have $100k, and a solid plan to make 15%/year, every year, it'll still take you 65 years to be a billionaire.
And the people who actually work in Finance nearly always post arguments against any single investment, because they understand the whole "luck" factor better than some jackass who bought some Gold in 2002 and mistook himself for a genius.
posted by Tacos Are Pretty Great at 10:32 AM on October 3, 2007
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posted by psmealey at 9:50 AM on September 20, 2007