Monday, June 27, 2011

Gold?? Ha!!! Treasuries outperforming the yellow metal!



How ironic! Most people who bought gold did so while at the same time saying that U.S. Treasury bonds were a bubble! (BTW...you didn't hear that on this blog!)

Look who's laughing now!!!

Treasuries are outperforming gold.

The chart below is spot gold divided by the 30-year Treasury price. Gold is tanking!


20 comments:

libertarian89 said...

Nonsense mike. Look at things in real terms, not just nominal. If you adjust for inflation, yields on U.S treasury debt are negative not to mention they are denominated in a currency that is losing its value.

Even though gold has no yield, at least I can hide from inflation rather than owning dollars or assets denominated in dollars whose purchasing power is being eroded by inflation. I would rather own gold than paper that can be debased by a central banker.

Gold is trending higher, going up over a 6 month, 1 year, 2 year, 5 year, and even ten year period. You have been wrong about gold in the past, saying it was in a bubble when it continued to rise.

Plus, look at the Fed’s balance sheet. What will happen when the Fed will eventually have to unload its balance sheet, start selling assets, and sent rates through the roof? Where will rates be then?

Mike Norman said...

Huh? Gold has UNDERPERORMED bonds on price and total return. How do you say it is doing better when adjsuted for inflation? It's doing worse! The bond price has appreciated more than the gold price recently AND you get some interest.

beowulf said...

"I would rather own gold than paper that can be debased by a central banker."

If Uncle Sam really cared, it could debase gold in three or four different ways. 1. The world's largest holder of gold is... Uncle Sam (261 million ounces), it could crater the gold market by offering the whole stash at market (Congress has given the President authority to step into the gold market at any time). 2. Congress could authorize Treasury to confiscate private holdings of gold again (and last time, the Supreme Court specifically ruled that Tsy could compensate owners at $42 an ounce, even if world market prices were higher). 3. Congress could assess an annual tax on the unrealized capital gains on gold holdings appreciation (just like futures contracts are already taxed). 4. If anyone has the resources to create synthetic gold, it would be the US Government, oh wait... they did that 60 years ago.
http://blog.modernmechanix.com/2007/06/16/us-alchemists-make-gold/

Its hilarious that gold bugs are so rabidly anti-government and yet put so much implicit trust in Uncle Sam's good faith and fair dealing.

Crake said...

I put all my money into gold. I decided to go out to eat . I took some of my gold. I went to three restaurants. Before I ordered, I asked the waiter at each one if they would take gold because that is all I had. Two said no, one just gave me a funny look and walked away, he never returned but right after he left, three heads popped around the kitchen door starring at me.
I then decided to go to the grocery store and take the food home to eat. After 30 minutes of shopping I went to the check-out line out but the store refused my gold – I left with nothing. Now I am trying to find someone who will sell me seeds so I can grow my own food. I am very hungry.

Red Rock said...

Mike,

Shame on you, you found one of the few six month stretches in the past five years where TLT outperformed GLD. Take a look at a 5 year comparison. It aint even close my friend:

http://finance.yahoo.com/q/bc?t=5y&s=GLD&l=on&z=l&q=l&c=tlt

Red Rock said...

Crake what's your point? If I take a Picasso into a 7/11 to buy some nachos I'd get the same puzzled looks. Does that mean my Picasso has no value because the clerk doesn't know how much change to give me for my masterpiece?

Chaos said...

Red Rock it's really simple: what's the unit of account used to price gold, oh wait, you're screwed!

Problem is gold bugs don't understand both marginalism and what money is. This is somewhat puzzling specially when they are 'austrians' (which were among the firsts to enter 'marginalism' into the economic theory, and talk about money but yet they have the missconception that money is just an evolution of bartering).

MamMoTh said...

Crake, did you try paying your groceries or your meals at a restaurant with Treasury bonds?

I don't understand how you gold and bonds can be compared. Aren't bonds just a nominal asset whose price is determined by (expected) interest rates?

libertarian89 said...

No, it’s quite simple. At the end of the day, you can print USD into perpetuity, but gold is, has been, and will always be, scarce, so it will retain its purchasing power over time much better than some green piece of paper that can be created electronically out of thin air.

Gold has performed very well over the past decade, same with silver. Uncle Sam can sell all the gold he wants, but he can’t print it out of thin air.

USD has been falling in value, against commodities and a myriad of foreign currencies. The trend is there and easy for anyone to see. Mike, the U.S treasuries are denominated in USD and as inflation continues to rise, real interest rates are negative. The bonds are denominated in a depreciating currency.

Why would anyone want to hold a bond denominated in a currency that is losing its value? With real negative interest rates? I still like gold and other commodities, and am bearish on U.S paper, especially when it has been depreciating as fast as it has been in the past decade.

Crake said...

No. I used to buy groceries with the interest payments from treasuries though. All the stores took that, so did restaurants and any store or service you could imagine. Hey, that gives me an idea. Since the treasuries produced cash flow I could use to buy stuff, maybe I can shave down some of the gold for gold flow and the stores will take that but I suspect that is going to be a no-go too and I will just get stuck with a bunch of yellow dust (and if they do take it, the gold will get smaller and smaller as I shave it down so this will not last forever even if I get lucky and they take it) but I am so hungry I will try anything now that I got stuck with all this yellow metal.

libertarian89 said...

That is assuming those pieces of paper have value and can buy things, but of course that may all change soon. Have fun when all your little green pieces of paper will be only good for wiping your ass when you do a number two, since there purchasing power is rapidly falling.

And no, you can hike taxes all you want, that sure as hell won’t cool down inflation (if it were to get out of control). Because of course, taxes have nothing to do with the level of inflation in economy, and certainly do no regulate some entity like “aggregate demand” or anything.

Heck, maybe if the government forced us to pay taxes with rocks, rocks would all of a sudden have “value” and we wouldn’t need stupid green pieces of paper anymore. We could be “monetized” if we had to pay our taxes with rocks, just like the Brittish did to those poor African villagers.

The same argument you just made against gold I could make against fiat paper if the U.S gov’t were to force us to pay taxes with rocks. But of course rocks aren’t scare, neither is paper. Gold might be though, just a little bit?

I prefer my mediums of exchange to be relativley scarce, and out of the control of central bankers, who are mere mortals after all, not angels.


MMT and the world of fiat paper is so wonderful aint it?

PEMPO said...

@libertarian says "I prefer my mediums of exchange to be relativley scarce, and out of the control of central bankers, who are mere mortals after all, not angels."

Hmmm... who are the gold holders?
The golden rule: he who has he gold gets the rule.

Matt Franko said...

lib,

" little green pieces of paper "

You may be being deceived because you are focused on physical materials in regards to "money". You for instance seem to admire gold as "money", which is a material, so you project that same paradigm onto "paper".

We dont use paper.

Paper is not used today.

Everything is on computers today, and before that on ledgers (think Scrooge & Marley), and way before that it looks like they kept coins in jars (see archaeological record in Britannia). 3 different ways to maintain information that have changed over time as information technology has progressed.

The paper notes you still see (for now) used at certain retail locations is just a portable certificate/form that represents the value of claims you have on the US Fed that the Fed simultaneously keeps track of on their computers.

Till you figure out that our "Monetary" System is really just a big information system, and not "paper", I'm afraid you will remain lost outside of reality.

Proper economies are based on managing economic flows (such as Income/Consumption, which relates to 'aggregate demand'), not measuring/managing economic stocks (such as so-called "money supply"), the Fed just found this out the hard way (see QE2) all the while we were forced to waste another year...

Resp.

beowulf said...

"think Scrooge & Marley"

versus Scrooge McDuck & Donald
http://blog.twowholecakes.com/wp-content/uploads/2011/03/scrooge-mcduck.jpg

libertarian89 said...

accounting entries on a computer can be created much easier and faster than gold can be mined out of the ground. I dont see why that is so hard to grasp.

I think I will opt with the gold, since I believe it will be more scare relative to the computer enties in the future, and thus have greater chance of retaining my purchasing power over time.

Gold is scare, pushing buttons on computers is not. But of course, having your paper and our computer entries backed by gold aint such a bad idea, since the U.S was built on that evil gold standard after all.

Matt Franko said...

lib,

"since the U.S was built on that evil gold standard after all."

Not true. Resp,

libertarian89 said...

Industrial revolution? No Fed, computers entries, or fiat paper back then. Millions of people were lifted out of poverty on a gold standard.

Good think MMT/Keynesianism diddnt exist back then to interupt the process

Crake said...

Would a gold standard, or a limited supply of money, not make it easier for the financial class to own more and more real assets over time? With interest on loans and a near fixed money supply, aggregate loans would be harder and harder to pay, therefore, over time bankers/financial class would own more and more real assets from foreclosure because there would be less money to pay all loans in an expanding economy. So basically a ~ fixed money supply would give the banking community a call option on the economy (little risk and they get the fruits of an expanding economy as overall loans to them cannot be paid because the total loans with accrued interest are more than the limited money supply.) This is why the gold standard is called banker’s money (it was fixed like a casino’s odds the bankers would win over time) and why “money changers” were always seen as society’s villains.


This is what is so crazy; these libertarians and gold standard advocates are fighting for the opposite of what they think they are championing, while fighting society’s right to issue its own money for society’s, including the gold standard advocates, benefit.

libertarian89 said...

I completely disagree. Money that can be created at will by imperfect human beings that is unbacked by a scarce commodity is undesirable because it enables government to surreptitiously steal purchasing power from its citizens by simply issuing currency in order to pay for wars, welfare, and other forms of government mischief. For me, this is a bad thing.


Unbacked fiat paper helps the wealthy and financial elite. Unbacked fiat paper allows government to funnel newly created money into the banksters and the financial elite allowing them to speculate and profit at the expense of the middle class as their money loses its purchasing power and prices rise for them.

So unbacked fiat money is a tool of the state that can enrich bankers, financial elite, and allows the government to indirectly tax its citizens through inflation in order to pay for government pet projects that usually just help politicians get reelected anyway.

Unbacked fiat money also allows government or the central bank the ability to bail out the wealthy and financial elite banksters on Wall Street. Where have we seen that before? Hmm.., talk about benefiting the elite!

No, a gold standard and hard money benefits the middle class because it puts limitations and restrictions on the ability to debase it and create it at will.

With sound money, real wages can rise as increasing productivity produces more goods and services, which puts downward pressure on prices and ultimate allows living standards to rise. This is what happened during the industrial revolution. Real wages rose which lifted millions out of poverty. This happened on a gold standard, pre fed, pre fiat money.

Real wages can rise, and standards of living can increase for everyone without issuing more currency or having a central bank.

Society should have the right to transact in any type of money they want. Unfortunately, the government makes this choice illegal with legal tender laws. They force us to use USD which allows them to steal our purchasing power through issuing more the currency.

If people had a choice, they likely would not transact in a currency that they knew could be debased at will. Legal tender laws are a tacit admission that the government knows people likely would not continue to use its notes and transact in its currency our else it would allow people to freely choose what currency to transact in.

Hard money is for the little guys and the middle class. Unbacked fiat paper money is for the wealthy, financial elite and the banksters.

Calgacus said...

Money that can be created at will by imperfect human beings That's the only way money has been or can ever be created
that is unbacked by a scarce commodity is undesirable because it enables government to surreptitiously steal purchasing power from its citizens by simply issuing currency in order to pay for wars, welfare, and other forms of government mischief. For me, this is a bad thing.
If the government uses its powers for a rare, necessary war, or the true general welfare (as the US constitution provides) it is not mischief. And if a government deficit spends, "prints money" according to functional finance and MMT, it is NOT debasing its currency or stealing purchasing power.

By the JG, MMT proposes "backing" money by a scarce "commodity", the ultimate backing of all wealth, human labor. In reality, all money has always been backed by taxation. Money has always been fiat money, a form of debt. Commodity standards are only government tools to stabilize its value.

The JG creates the least amount of money that will yield full employment. In all economic conditions which have ever existed in practice, full employment will increase everyone's welfare. Austrian/neoclassical theory, with their utterly false ideas on the nature of money, in essence assert that involuntary employment is impossible. This is enough to show that they are flat-earth theories, with only limited possible applicability to monetary economies.

Unbacked fiat paper allows government to funnel newly created money into the banksters and the financial elite Yes, this can and has happened. One of the few good things about the gold standard was that it did cause some pain at the top. After this pain under the hapless Hoover, FDR successfully fought the Depression by effective bottom-up money creation policies. In a more corrupt age, the Great Recession has been dealt with by welfare-for-the-rich. Economically much less effective, but dandy if you want to return to a slave economy.

Society should have the right to transact in any type of money they want. It does, already.

Unfortunately, the government makes this choice illegal with legal tender laws. No, that is not what legal tender laws say. Legal tender laws have essentially no meaning, and could be repealed instantly, with no effect. They don't exist in many places. The euro is not legal tender, and China has never had them. Taxes are important. Legal tender laws are museum curiosities.