The Smartest Man in Europe Is Very Cautious
blackstone.com
blackstone.com
What I have read is a collection of pop fearmongering. Basically his stance is the prevalent position among people out there today. Thus it reeks of manipulation. It is a piece meant to evoke a specific emotional response. That it is written by a hedge fund executive only reinforces the stench.
Thus I mark this piece as hedge fund propaganda. True meaning is a feint within feint.
Edit: I suspect that Blackstone is trying to unload its gold and trying to create a market. Gold is probably in the last phase of bubble. Why do I think so? Only one reason. In my country there is a vocal MLM type gold investment operation going on. Very similar to what was going on with stocks and derivatives in the 2006/2007 era. If there is one fundamental truth about markets, it is that when your hairdresser and butcher start giving investment advice it is time to get out. There is no more bigger fools out there. Gold is going down.
But the other reason is we haven't seen gold take leave of the fundamentals. The financial crisis that has been unfolding since 2008 has revealed that the only response governments seem willing to take is ever more monetary inflation. The more money out there, the higher the price of gold. Secondly, most gold trading is at the level of very sophisticated people, not the average joe. When average joes start piling in and blowing up the price, then gold may take leave of its fundamentals and we'll have a bubble.
The thing is, in bubbles, supply rushes in to meet demand-- but you cant' scale up supply of gold like you can dotcoms or houses. Environemntal regulations and kleptocratic governments keep new mine production opportunities limited.
Finally, mining companies-- which should be the darlings of the gold bubble if there is one-- are trading sympathetic with the rest of the stock market, not contrary to it. If we were in a gold bubble, then good news for gold (eg: bad financial news) would cause those prices to go up-- but they don't they go down now. This indicates that they are not seen as an alternative, but as being subject to the bad news the same way General Electric, et. al. are.
We won't enter a bubble phase until that has changed. When people start seeing gold as a safer asset (or as a bull market "you just gotta get into!") then we'll have entered a bubble. At that point, when there's bad news for General Electric, you'll see a bump in the price of GoldCorp. We saw this in the dotcom bubble-- a big IPO for a tech company would cause a decline in General Electric or Gold for that matter.
All of these are subjective observations, so neither of us can really prove the other wrong of course. I found it interesting is that we use the same signal to detect a bubble-- the hair dressers and MLM schemes. I'm impressed to see how much more popular gold is outside the USA than it is inside the USA. I take that as a sign that it is heading towards a bull market.
However, if you're right and I'm wrong, I will be very severely punished by the markets. I'm not too worried, though. I got punished by the dotcoms. I played the housing bubble successfully going up and going down and got out a bit early, but am happy with the result.
I remember being told I was crazy on forums because I said there was a bubble in housing. So, you're not crazy, I just think you're too early.
Can someone else from the US confirm or deny econgeeker's claim?
This is the specific scheme I was invited to: http://www.securitas-aurum.com/
But its hard for me to believe that Slovenia (where I am from) is ahead of US on this one. We usually lag a year or two in such phenomena.
So I can explain it in 2 ways -> You are either a nugget of gold, if your statements are legit, then there is still money to be made from this one.
The other explanation is that you are one of the team doing the pumping.
What does the hive mind have to say?
This makes sense to me -- conservatives in America seem far more alarmed about the size of the debt and its impact on the dollar than liberals.
My guess is the level of gold hype in America varies dramatically from region to region.
All around Europe, eastern and western europe, I've seen lots of signs at money changers and some banks who are happy to sell you gold. These signs are generally posters in the windows, not metal signs or painted, so this gives me the impression this is a new phenomena. I was very happy to see these signs, given my experience in the USA.
In the USA, if you want to buy gold, you can spend way too much to buy it on the TV. Or you can go to one of the few local retailers who sell bullion - but generally their primary business is either selling collectable coins or selling jewelry. The bullion is a side business. Unless things have changed in the last year, it is a pain in the ass to buy gold in the USA. There may be one or two of these bullion dealers in a larger sized town. You can't just go to the money changer or the bank.
I gave you several reasons for my perspective. Consider them critically. But if you're looking for someone to agree with you, and tell you I'm a dirty rotten capitalist who is full of it, you'll have no trouble finding that.
I would strongly recommend that you not rely on my opinion, or that of the "hive mind" or anyone else to make any sort of financial decisions. You have to use your own judgement and you have to learn what you can about the subject. This is why I said, "If I'm wrong, I'll be punished"-- the market will take one action or the other, long after this conversation is finished.
I would suggest reading economics books such as "Economics in one lesson" by Henry Hazlitt Free here: http://www.hacer.org/pdf/Hazlitt00.pdf
By all means, keep a critical eye on anything anyone says in favor -- or opposed-- to gold. That is why I read what you said and considered it seriously. I'm keenly looking for evidence of a bubble, and you referenced a metric I use.
I'd also recommend looking a bit into the history of gold, preferably by reading articles here: http://mises.org
Here's the short summary, see if this fits with what you know of the world: Gold is historically been the best form of money because it was difficult to counterfeit, had reasonable value per given weight, was malleable, didn't degrade, etc. But governments want to spend more than they have, so they choose paper currencies over gold. The nice thing about paper is that they can make it "money" by passing a law, forcing people to use it... and they can print as much as they want. The downside is, they get addicted to this spending, and in doing so, they always need to spend more and more. The more paper there is in circulation the more pieces of paper it takes to buy anything tangible, and prices rise, which means costs rise for the governments and they need to print paper at an even faster rate.
These effects take a very long time to play out. They ultimately result in a currency crisis, however. Gold is merely something that is difficult to counterfeit, and it is difficult to bring new mines into production. So it serves as a hedge against currencies.
I don't think there's ever been a gold bubble. When gold has gone up in response to a currency, really it is the value of the currency declining with respect to gold. The amount of gold in the world doesn't change very fast- it can't- at least in terms of currencies, and thus really the "gold price" is the "price of the currency in units of gold." $1,580 is not a gold price, it is a measure of the value of the dollar.
Id just like to clarify that I am not looking for investment advice I am merely collecting opinions. It just so happens that opinions of this community are more valuable since on average members of this community are the very intellectual elite of the world - as far as communities go.
Nah. Most people have an unsophisticated financial perspective, including loads of smart people. I have had many, many quite smart people I know (who aren't in finance) tell me about how they're buying gold or silver at the moment. Why?
"It's safe and it has real value. You can't eat dollar bills [sic]"
These people know what gold is, and have ultra simplistic views on why they should buy it, as well as the means.
The genuinely unsophisticated have a negative net worth, and they're not holding gold. They haven't dug themselves out of the hole they got into during the housing bubble.
Do you know where we can find statistics of financial holdings by households in the USA? I'm sure it will show an increase in gold holdings, but the vast majority of people who have any savings at all have them in naive instruments like mutual funds. Even holding individual stocks is a level of sophistication that puts you above probably %80 of the population.
Holding gold is probably at the level of holding stocks in terms of sophistication right now... to do so you have to recognize the fundamental error in the worldview held by essentially the entire media-- and that takes a lot of thinking.
I do see a lot of people who aren't completely unsophisticated, but not very sophisticated who bash gold. These are the people who hold mutual funds and don't understand why paying %1 of your total assets to a mutual fund in order to underperform the market (which they think they're not doing because they have an "index" fund) is a bad idea, even after you try to explain it to them. ("Stocks are too risky, that's gambling" they say).
For the past 10 years, I've been seeing the same arguments, mostly ideological, against owning gold. I won't call these people unsophisticated, as it take some sophistication to understand why gold is a threat to their ideology.
> The genuinely unsophisticated have a negative net worth, and they're not holding gold.
Perhaps I'm misunderstanding, but if I take both of these seriously then it sounds as if your criterion for a bubble is that most of the money sunk into something comes from people with negative net worth. By that criterion, I'm not sure that there has ever been a bubble in anything.
(Maaaaaaybe houses in the recent property bubble, but (1) I very much doubt it and (2) in any case mortgages are rather a special case, in that for a long time lots of people have had large investments in property that were mostly leverage; I don't think anything comparable has ever been true for gold, shares, Dutch tulips, or anything else.)
When central banks worldwide stop printing and start raising interest rates, that's when I'll start scrutinizing further accumulation...
I first thought it was going to be an article about Grigori Perelman and about how we are all one step closer to Apocalypse because he was very close to finding that there is indeed no foundation for Mathematics (or any similar conclusion that is way over my head in even trying to explain). Instead I stumbled upon an article about a rich heir to "a mercantile family" who talks about money, money, money. Not that's anything wrong with talking about money, but if that's we consider as the "smartest thing" in an entire Continent I think we have a problem.
[1]: http://en.wikipedia.org/wiki/Godel%27s_incompleteness_theore...
One could imagine a hypothetical stronger result - maybe every nontrivial set of axioms can actually derive p^(not p)?
[1]:http://en.wikipedia.org/wiki/Principia_mathematica#Consisten...
Anyone who truly believes that the "authorities" in China are any more capable than the "authorities" outside of China isn't very smart at all.
But I might be wrong, I'm way out of my comfort zone here.
OK, it will cause a moral hazard. There will be a big need to reform. But there already is a big need to reform. And I think there's already a commitment (from the top, and from the general public) for reforms.
Plus, it's easier to grow when you are under 1/5th the GDP per capita.
Chinese officials can do many things, but they aren't magicians, and won't be fixing anything overnight.
Although you're right that much of the scared-of-China crowd are just people who've transplanted their fears away from Japan.
As for "China's economy has plenty of growth left in it": the issue is not the amount of growth, but the source and quality of the growth.
But the bubble will pop.
A representative sample of China's Politburo:
Hu Jintao, 62, president of the People's Republic of China, graduate of Tsinghua University, Beijing, department of water conservancy engineering.
Huang Ju, 66, graduate of Tsinghua University, department of electrical engineering.
Jia Qinglin, 65, graduate of Hebei Engineering College, department of electric power.
Li Changchun, 61, graduate of Harbin Institute of Technology, department of electric machinery.
Luo Gan, 69, graduate of Freiberg University of Mining and Technology, Germany.
Wen Jiabao, 62, premier of State Council, graduate of Beijing Institute of Geology, department of geology and minerals.
Wu Bangguo, 63, graduate of Tsinghua University, department of radio engineering.
Wu Guanzheng, 66, graduate of Tsinghua University, power department.
Zeng Qinghong, 65, graduate of Beijing Institute of Technology, automatic control department.
-------------
A representative sample of the US Senate:
... 100 people who are pretty much all lawyers
Not saying this implies anything, but my money's on the government run by engineers.
If neither change, china is headed for continued growth and maybe some painful re-allocations of capital, while the US is headed off of a cliff.
For the last 50-60 years, they have proven very capable of keeping 1.3 billion people under a communist regime that arguably lacks most of our understanding of constitutional legality, considering how they came into power through the "War of Liberation" and considering the lack of human rights.
We won't be able to transfer the unneeded wealth of people in Luxembourg to Nigerians or Romanians of course, we must wait a few decades for the abolition of scarcity (of most things) and the abolition of money and economics. Otherwise known by: "Tea, Earl Grey, hot."
I think your argument is disproven by walmart. Walmart doesn't chase "the super rich" they actually chase the bottom end of the market. They make good money by doing their darndest to make prices as low as possible, both to increase volume (and marketshare) but also to cater to the market that doesn't have a lot of disposable income.
I don't see the problem here as a lack of "equality", in fact, the super rich are taxed more than the poor. If things were equal they'd all pay the same dollar amount (not even the same percentage, the same amount in absolute terms.) That would be more moral as well.
The reasons those with less money have trouble affording things is that they have been impoverished by government. Presume you're at the lower tax bracket and paying %15 to the IRS. You're paying another %15 to Social Security (though only half is reported on your check, you have to earn the other half as well or you wouldn't have your job.) You're paying- what %4 to medicare? %3 for unemployment insurance, say %5 in state income taxes (just picking a low number since some states don't have it and it varies.) That's %42 of your income right off the bat.
Now if you're just scraping by, that means you're spending all of the remaining %58! All of that is taxed at rates from %8 (city sales tax) to %30 (cable, phone, an flights) to as much as %40 (gasoline).
If we take the lowest figure there, %8, then that means of every $100 that person makes, government takes %50. It is worse fro people in the middle and lower middle incomes. Their state and federal income taxes are higher.
That's why people have trouble making ends meet.
Why?
> The reasons those with less money have trouble affording things is that they have been impoverished by government.
This (and the argument that follows) is very wrong, for at least the following reasons.
1. The fraction of the money a person receives and spends that gets taken in tax is smaller, not larger, for poorer people.
2. In particular, there are personal exemptions and deductions, which make up a substantial fraction of the salary of people with low incomes, and the lowest tax rate is 10% and not 15%. Many of your other numbers are also wrong, and curiously all in the same direction. Social security taxes are not 15% unless you include the payroll taxes that fund Medicare, in which case the Medicare rate is 0%, not 4%. (It wouldn't be 4% anyway; payroll taxes are 2.9%, including the portion paid by the employer.) 8% of 58% is not 8%. Your percentages are, to put it bluntly, bullshit.
3. If you are going to include the employer's social security contribution in the figure being taxed, you lose the right to say that what's being taxed is so-and-so-many percent "of your income". Because, y'know, it isn't.
4. The money paid to the government in taxes doesn't simply disappear into a hole. It is used to provide services. For instance, that Medicare payment pays (astonishingly enough) for Medicare. Which, if you happen not to be rich, you are likely to have need of one day. In a hypothetical world in which Big Bad Government didn't take all that money, those services would need to be provided privately, and they would cost money. Probably about the same amount of money as the government spends on them. If our hypothetical low-income person is going to avoid being "impoverished" by the government, presumably that means they simply don't get the use of those services. Sorry, Mr Low-Income Person, I know your house was burgled, but you haven't paid the private police and judicial services: no law enforcement for you! Oh, and your child was injured by a toy whose makers were recklessly indifferent to safety? Well, you should have paid for a safety audit yourself. Oh, you lost your job and are starving to death? You'd better find a private charitable organization that wants to help you, then: keeping you alive is no job for the state.
5. (This is more or less #1 from a different perspective.) The difference between poor and rich people, which explains why the poor people can't afford to make ends meet, is not that the government is taking the poor people's money and not the rich people's. The government is taking everyone's money (and doing useful things with it, see #4, but that's a separate issue). Imagine for a moment a world in which the money taken in taxes really does just get burned in a big incinerator. What happens? Answer: there's a large deflation rate, so presumably the currency needs re-denominating every now and then. Aside from that -- which would, yes, have bad effects because of the rapid change, but that's not relevant here -- everyone would in fact be about equally well off. Every year you'd lose half your money, and so would everyone else, so all the prices would have to halve to keep supply and demand in balance, so that half-your-money would be worth the same as it was before it was halved. Of course that's an oversimplification because in our hypothetical world income is being taxed but investment isn't. So the deflation rate would be a bit lower and the net effect would be a steady transfer from those with less capital to those with more. But in the real world, gains from investments are taxed just like gains from income are. If taxation is impoverishing the poor, the reason is the difference between the tax rate on income and the tax rate on capital gains, and you should be arguing for equalizing those, not for reducing taxes as such.
Interesting to find that in the middle of the article.
The gold standard also ties money supply to gold production which is a little like tying fed policy to the quarterly flip of a coin. For example, the Australian and Californian gold rushes of the 1850's caused huge short term price instability.
I'd counter the above statement with the following:
Many problems were solved with our departure from the gold standard and paper money is backed by the faith and credit of the country that prints it and it's value should, and does, fluctuate accordingly.
But arguing with an anonymous "smartest man in Europe" is a little like arguing with Santa.
Whether your money is a bank account, commercial bonds, government bonds, or gold; it doesn't pay to have fluctuations in total volume. Keeping the base (i.e. gold or dollars) fixed won't stop the banks (and governments) from borrowing and loaning more every year, until a crisis shows them that they have gone too far.
Many problems were solved with our departure
from the gold standard
* internet companies
* enron
* property
* banksFancy.
The gold standard merely prevented the government from inflating away the dollar and using inflation to hide the consequences of other bad policies. Its a form of discipline that the founders wisely put in place to prevent the disastrous policies that many other governments have perpetrated throughout history.
But now the constraint of the gold standard is off and much larger bubbles can be created.
The supply of gold changes very slowly. The vast majority of all gold ever mined is still part of the supply. Its the manipulation of the value of paper currency that causes demand for gold to fluctuate.
In such a setting, long-term trade imbalances cannot be balanced out by exchange rate adjustments, so there is a very real danger that countries are drained of money by running net imports in the long term. While this then prevents the country from net importing even more - which is only fair - it also reduces the purchasing power of the country's population internally.
The circulation of money is slowed, causing unemployment and the very bizarre situation where people cannot afford to buy desired XYZ, while at the same time there are involuntarily unemployed producers of XYZ. Everybody's unhappy, simply because the social construct of money ties their hands.
By decoupling from the gold standard, countries left what was effectively a currency union, which enabled them to restart internal circulation.
This is also the choice that Greece has right now, which this supposed "smartest man" does not, or for ideological reasons refuses to, see: leave the currency union to restart internal circulation of a new currency.
When you criminalize the wealth of the country, it is hard to blame people's use of that wealth for the problem. By 1933 it was literally a crime for money (in the form of gold) to circulate, and much of it was sent overseas to hide it.
Francs used to be backed by gold, and might still be partially backed by gold. I think they are not redeemable in gold anymore, but that the country keeps a large supply of gold onhand. So, sort of a partial fiat currency.
However, one can own gold directly, which provides a hedge against all currency risk. It sounds like this is what he is doing, and then also holding some francs against a panic in europe.
The appeal to authority with the Baghdad real estate deal is one of those tell-tale signs of a sensationalist article. If the building in case had been blown up and nothing could have been recouped because nobody wants to insure a building in Baghdad, nobody would've ever heard about the whole deal. Survivor bias at its most obvious.
I cannot help but wonder about China... I am convinced they are extremely clever in toying our Western system of capitalism and number games one way or another. The only example coming to mind right now is the artificial surge in car sales in China and the government is behind a lot of it, buying and storing cars in huge parking facilities. And the refusal of publishing economic statistics or just blatantly making them up.
And they are just as incredibly clever and diplomatic in political affairs; the rhetoric used in their more recent foreign affairs are nothing but jaw dropping and display an unprecedented self-understanding an pride that is bordering smugness. They do not even try to hide or acknowledge violations of human rights; they simply wipe it off with "none of your frakking business" kind of answers. They are showing very clearly: we bow to no one.
For me as a European, their last display of power here in Europe felt like a slap in my face when they offered to "help" in the current financial crisis in Greece and the rest of the EU when I saw how little their ongoing violations of human rights mattered all of a sudden.
Please note I am not bashing Chinese people but wondering about Chinese politics and their regime and how the west, generally so proud of their "humanity" and "human rights", bends over back- and sideways now that China is becoming an influential world power.