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Comment by wccrawford | Hacker News Reader

"And, perhaps most telling, you can't have a bubble when people are constantly screaming "Bubble!""

Oh, I bet you can.

The housing bubble seems to be a pretty good counterexample. Plenty of people were saying that it was a bubble, while others were furiously flipping properties.

Exactly. It's just like the interviews with some of Bernie Madoff's clients. They knew that he had to be doing something not quite legit to be getting the returns that he was getting, but they all figured that they could make some money off of it.

Everyone sees a chance to make some money and convinces themselves that they will get out before the crash so that they won't be the last one holding the bag.

The smart ones realize that it's a bubble, and the dumb ones don't. It's just that the people that know it's a bubble convince themselves that that knowledge shields them from getting burned because they know more than the other guy.

the bubble was in the price of the collaterized debt. having read a few accounts of hedge funds in that time - it seemed preposterous that these things would ever lose value because of the way they were engineered.

some of the big fund managers who made big at the time were embarrassed to tell their peers that they were short CDO's.

David Einhom was probably the only one who came out and said it - the rest, like Poulson and co. were quiet.

Indeed, I was thinking the same thing as I read the comment. Look at google trends for "housing bubble." Peaked in 2005, well before the bubble popped.

http://www.google.com/trends?q=housing+bubble

Yes, and I think one reason for that is the discrepancy between the huge potential of software in so many industries and the greately varying barriers to entry to these industries.

It's no coincidence that Andreessen speaks of oil and gas exploration, defense, logistics, the auto industry, etc, but most of his investments seem to be in the entertainment/leasure and advertising space.

I agreed with most of the article, but I had the same reaction to that sentence. My guess is that people saying something is a bubble is, in fact, one of the best indicators that it is a bubble. (But of course it's not an infallible indicator of same.)

If the din keeps investment low, then you will not have a bubble. The current bubble is in "insecurity", as gold prices indicate.

what's the attraction to gold, other than being somewhat scarce and well prospected for (probably no massive surprise claims to be found).

The value assigned to gold is clearly not due to its industrial applications. Gold for jewelry is also clearly not driving up the price as uncertainty rises.

What is a bar of gold good for and why does it represent a more secure asset than a bar of platinum, or silver, or anything else. Why is gold the commodity to go to for "security".

Same as with any other currency. The reason people invest in USD instead of pink shells is because people will pay for USD disproportionately to its functional value.

You could certainly invest in platinum, but it's value is still rooted in practical utility- people won't pay for it unless they have a use for it.

Why is it gold that is partly a currency, instead of platinum? It was established as a currency back when its utility really was equal to its value, and people noticed that it was a valuable and stable resource.

you make these points 1. used to be a currency 2. stable resource

which have helped me understand that 1. dollars used to be tied to gold. now USA is making more dollars, thereby devaluing dollars relative to everything including gold.

2. the supply of gold is relatively fixed compared to the supply of dollars these days

wouldnt you rather use a currency whose value does not depend by dumb politicians?...wouldnt you use a currency whose value truly depends on the laws of supply and demand?

That would be the US dollar. The Fed is independent of "dumb politicians", who cannot coerce monetary policy, and its value is determined by supply and demand, as is any commodity.

The Fed is not entirely independent of "dumb politicians" since it targets both inflation/deflation and unemployment. When politicians make exceptionally stupid decisions, such as borrowing too much money which results in a bubble of productive overcapacity that then pops and produces excess unemployment, then the Fed has to react by devaluing the dollar to bring unemployment under control. It would be preferable for it to have an adversarial relationship with the politicians in which it would raise interest rates when fiscal policy starts to get out of control in order to make sovereign borrowing too painful past a certain predefined level (such as a percentage of GDP) but this seems unlikely given that politicians are responsible for nominating and confirming Fed governors.

I never thought of that. That's kind of staggering. We should be electing the fed.

No, we shouldn't. Politicians have a very long and impressive history of running up excessive debts and then printing their way out of them. The Fed was created from a careful compromise between loose money and sound money interests, and could probably do with a bit less interference from the political class. As someone who works hard and saves carefully for retirement, I would prefer to avoid to have the risk that my investments would be devalued in real terms at some point in the future because the two main political parties in US over the last couple of decades seem to view compromise as the act of raising spending, cutting taxes, and borrowing money.

If you're joking you got me. I can't think of another commodity whose value is affected by the government to the degree of fiat currency. Even if you leave the impact of government borrowing/spending aside, a dollar (or any other fiat currency) is just a piece of paper until the government institutes legal tender laws and demands people make and accept payments denominated in that currency.

The fact that the now-fiat currencies of the world used to be pegged by some fixed ratio to gold and to one another hasn't totally left the collective psyche.

For reasons others here have mentioned, and its relative inertness. Most other things with similar qualities have the unfortunate habit of oxidizing and effectively vanishing. As long as people keep valuing it, it will keep having value, and it won't decrease in quantity.

it can be readily and universally exchanged for goods or services, and has been that way for thousands of years

so in short, it is valuable because we all think it is

> it can be readily and universally exchanged for goods or services

I'm pretty sure all of the retailers in my area only accept USD. Nobody even bothers with the Canadian exchange rate on this side of the border, although some (and any vending machine) will refuse Canadian coins instead of accepting them at a 1:1 value with American ones.

Gold rests on a mass psychological base that has remained reasonably stable for thousands of years. Well, if you want to to call something stable that went from $100 in the seventies to $800 in the early eighties back to $300 at the turn of the century to $1800 now. At least it never went to $0 as many currencies did in past millenia.

For me, that kind of "safety" is like becoming a farmer to avoid starving to death in the event of war.

Arguably the dollar price of gold reflects the dollar's instability. You see run-ups in the dollar price of gold after the inflation / stagflation of the seventies and with whatever the Fed has been doing the last few years.

It's not just inflation, though. Compare the history of platinum prices with those of gold. There is definitely a psychological component to the run-ups in gold which has nothing to do with immediate economic pressures.

The problem I see is that fears of inflation swing much more wildly than actual inflation. If the gold price were a reflection of actual dollar instability, a chart of the inflation adjusted gold price should be a flat line. In fact it shows swings of several hundered percent.

The price of gold is a reflection of inflation fears, not of inflation. I'm not saying it is too high or too low right now. But gold is clearly unfit for purpose if you're looking for a safe haven or a store of value.

I would argue that it is, the flat line could be said to have tripled from the seventies to right before it took off during the current panic. If one had bought gold before the panic and held long they would most likely see the same trend as was seen from the 70's up until the panic. The thing about gold is it is subject to panic buying when currencies are debased and it is exactly the time that someone that has held long in gold should vacate there position, wait for it to implode and then double down on it again. Gold purchased at it's baseline is actually one of the best hedges available. The problem is gold goes unnoticed until there is a panic. Institutional investors ignore it because it's performance is long while others ignore it because it is not a high profile security that the institutions are chasing.

One of the principle reasons people value it is that so many world wide banks hold it as a hedge against turmoil.

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