Remember 1999? And how profits don't matter; it's the NEW Economy, stupid?

Remember 2008? Oil was $140 and going to go all the way to $200 cause it was running out and China was using so much of it?

Gold will be the story to remember about 2010.

The bottom line is wealth preservation in the face of a perceived deflationary environment. We use fiat currency to denominate wealth and it looks like there could be another massive fall (in fiat currency terms) in asset values - stocks and shares, property, commodities etc.

Therefore you want to park your net worth somewhere 'safe'. In such a case, you use government bonds as they are pretty much the next best thing to actual physical cash. If you have anything more than a couple of tens of thousands of dollars/pounds/CHFs to park, then cash isn't really feasible. (Actually, in many countries it's tough to hold any appreciable amounts in physical cash as all sorts of so-called 'money laundering laws' are in place to dissuade people from using cash. Switzerland is a notable exception, where an ordinary person can still actually use large amounts of cash and not be treated as a criminal.)

You could deposit the balance with a bank but of course, 'money in the bank' is anything but what it says on the tin. It just means the bank owes you ... should the bank become insolvent (very likely in a deflation) then bye bye 'money'.

You can buy something like Gold but if you believe that deflation is looming then the price could drop ... plus of course the gold market is subject to speculation and large amounts of interference so you're never quite sure where it will go.


Personally, I think the move into bonds is highly misguided. It's a cert that the central banks will just 'print' near endless amounts of money out of thin air to fill the debt hole. This will eventually result in all out inflation but it will take time to 'prime the pump' and for that money to slosh into the various corners of the economy. Despite that, you can already see signs of strong inflation in the UK at least. Rising food prices, rising energy prices, strong consumer price inflation.

Short term bonds make sense in a time of turbulence, but anything which matures longer than a couple of years in the future is going to leave the holders badly burned when they try to dump the bond once it's clear that the debtors are simply printing money to pay them and the value of the currency in which the bond is denominated is falling off a cliff.

Agree with all you say except my view is that the current inflations signs in the UK are more due to the weak £ &cost of imports. UK inflation will get worse due to printing money; I suppose one could also say the weak £ is itself due to printing money.....

Yes, inflation means a higher ratio of money vs the goods and services it is used to purchase. In the UK at least I don't detect any increase in goods and services offered (quite the opposite as manufacturers cut capacity and businesses pare back) and we've had all manner of money printing via 'quantitative easing' to compensate for reduced bank lending. There has also been an approximate 3x increase in physical notes and coin.

Trouble is, this base money which is being created can be leveraged many times by the banks to create credit so it is going to cause massive inflation problems at some point in the future once the banks decide to lend again.

As a result we're already seeing above-target (and the targets are ludicrously loose) inflation in the UK, even at a time when we should be seeing massive deflation. That's just from the immediate effects. Once they have printed enough cash that it sloshes into all corners of the economy (and a second 'quantitative easing' programme is on the cards) then inflation really takes off.

Meantime, UK salaries aren't really going up even though the cost of living is rising appreciably, making things tougher for a lot of people. Still, at least a lot of speculative landlords who bought property on base rate trackers are being bailed out and the banks are coining it in by borrowing ultra cheap from the central bank and leveraging and loaning on to borrowers at a huge margin. Who cares about savers or people buying annuities for their pension, eh?

If gold price does fall then probably there will be a rush of people selling their gold ETFs; I wonder how the ETF suppliers will manage this?
I do not see gold price quickly collapsing, there are too many central banks holding gold who would be interested in managing some minimum level of market stability?

The 'fall on your face' US dollar is looking like the story to remember in 2010 IMO.

I see some of the newspapers are claiming that the eurozone leaders are now discussing ideas that include requiring bond holders to "participate in any losses" due to countries in future not meeting the bonds repayments needs/schedules. That would make Govt. bonds really attractive - not!

There's always a risk of default either through non-payment or inflation ... it's just that governments of countries with AAA ratings are supposed to be practically 100% safe.

Then again, the ratings agencies gave AAA ratings to hundreds of billions (maybe trillions) of dollars worth of sub-prime CDOs/MBSs which got us into this mess in the first place.

You'd have to be nuts to loan money to a Western govt over the long term. I suspect future bond sales will become increasingly 'forced' purchases through regulation of the banking industry (buy govt bonds to increase your tier 1 capital), the ever reliable pension industry (whose customers are in for a shock in a couple of decades) and outright money printing fuelled self-purchasing by central banks of their own government's debt.

It's a huge ponzi scheme - the only question is how much longer the Western governments can keep the plates spinning. They nearly lost it in 2007 and nothing they've done since then has made the situation any less dangerous.

So should we conclude based on you guys' comments,that Cash is the king, as no investment seems promising!?

No. There are lots of promising investment ideas. Just don't necessarily believe that "following the herd" or believing what you read in the papers will make you a fortune.

As always, a good investment very much depends on your personal circumstances. Cash is only king of liquidity. If you are comfortable enough to have money to invest (ie tie up for a certain period of time, and worst case scenario you could afford to lose it...) then it will depend on the amount you have and your appetite for risk to determine what is the best opportunity for you.

From today's Telegraph "Simon Miles, Head of Merrill Lynch Portfolio Managers, told me: “Those thinking of applying their hard-earned, taxed savings to UK government bonds or gilts would do well to ponder where we are before reaching into their pocket.""

full article here http://blogs.telegraph.co.uk/finance...merrill-lynch/

I do not think that you can compare Gold to Oil scenario.

China is using a lot of oil and will continue to increase the use however the West will lose less as we use it more efficiently and you could argue that if unemployment continues to rise, there is less need for petrol to comute to that job you no longer have.

Gold has been purchased as in effect a safe currency (even though it isn't a currency) because the dollar will probably we worth nothing and as people have pointed out; of recent (last 4 months) Gold hasn't gone up but the dollar has fallen in value.

__________________
I do not have friends..........I have contingent liabilities

Gold almost hit US$1,400 today - as we know reflecting dollar weakness as much as Gold strengthening.

BTW, from today's papers "Leading economies should consider readopting a modified global gold standard to guide currency movements, said World Bank president Robert Zoellick."

Now that will not happen overnight but it could somehow put a floor under the price in future if people pick up on this idea & start seriously discussing.

Finished the day over $1,400 & chf/kg up 2.5%.

Bubbling?

Maybe, but with Ireland about to fail in the coming months, Bank of America close to starting another banking crisis and the concept of printing money now firmly ensconced with QE2 in the states, I'm not at all certain that it is a bubble.

I do believe that we are all subject to high level manipulation of the economy (boom/bust cycles) by the people at the top ... but this time around the boom was allowed to get out of control and hence the bust will be totally unmanageable by the elites.

Witness what happened in 2007 as an emerging bust was fought by all and any means. 'They' know that once we hit recession/deflation it is game over for the current system. The name of the game now is to loot as much wealth as possible from the real economy through money printing.

IMO of course ...

about Ireland "LCH.Clearnet, the world’s second largest fixed income clearing house, said an additional margin requirement of 15 per cent would be charged on investors’ net exposure to Irish bonds because of the increasing risk of a sovereign default"

Does not look good & getting worse.

Don't know why they are so worried about Ireland when their bonds are heading to 8% when Greek bond yields are heading for 12%

full article here http://www.ft.com/cms/s/0/2a6f23d0-e...#ixzz14uQWdQTz

Paradise Lost: Why Fallen Markets Will Never Be the Same

A thoughtful piece by Nouriel Roubini and Ian Bremmer (the analyst who wrote of the ascent of State Capitalism for Eurasia Group) on the reasons why "it will never be the same".
http://www.institutionalinvestor.com...icleID=2660510

Another reason to believe that out of the Financial Crisis we will experience a rise in social issues, which will lead us into a even worse political mess :-/

Ciao,

Paul

The Swiss National bank announced today a loss of a few billions for the last quarter due to their buying a lot of (increasingly worthless) euros earlier this year & last year.
Loss mitigated by rises in their gold holdings (looks like they might not be selling gold soon?) & reduced toxicity of their UBS legacy toxic holdings.

Irish Govt bond rates around 9% last time I looked. Crazy world.....

Ho hum & where next....

I suppose fill the nuclear shelter with Good wine, gold bars & Swiss Francs in cash & then wait for Spring time?

Gold
From Internet research today
Seems U.S. Gold Shares Fund Spider had to sell 13.34 tons of gold yesterday/today because investors withdrew funds massively. The trigger was enough that the gold price has fallen over one percent. Link
http://www.tagesanzeiger.ch/wirtscha...story/13366735

In comparison ZKB has bought 33 tons this year to cover their ETFs - seems Swiss ETFs that state they are fully 100% covered by metal do actually buy the metal. Overall it is believed that there are 184 tons of gold in Swiss bank vaults - I do not know if this includes SNB holdings.

Haha.... springtime of what year, exactly...?


P.