Tuesday, May 18, 2010

China, Gold, Commodities, and CNBC

At the risk of alienating some of my readers, here I go again.

China’s bubble waiting to burst

Investors are beginning to sense that Chinese officials may not be able to realise their contradictory objectives — cooling the real estate market, curbing inflation, keeping growth above 8% and raising real wages — at the same time.

The first signals are coming through in the markets. The Shanghai composite index has been the worst performer in Asia this year.


INTERVIEW:Commodity Price Bubble Limits M&A Opportunity -CNMC

LONDON -(Dow Jones)- High commodity prices have made most mining assets too expensive for acquisitions, a senior executive at China Nonferrous Metals Co. Ltd. (8306.HK) said Tuesday.

Forget Greece, China's "Red Flags" Are a Bigger Problem

Given the obvious concerns about Europe and the "under the radar" issues in China, the Hoffman Brothers are big believers in gold right now. Even if gold is a bubble, as Henry suggests, it could have much further to inflate if confidence in paper currencies continues to erode, they say.

I do think we're in the bubble stage for gold. How much higher it can go from here is anyone's guess.

Adjusted for inflation, the peak gold price was just over $2000 in the early 1980s. We can use hindsight to see that it was insanely overvalued then. Can we take gold back to insanely overvalued levels or even double or quadruple that? Of course we can. Does that mean we will? Who knows? I can say that I have no interest in owning it at these levels, unless someone can prove to me that hyperinflation will soon be upon us.

$250 - Undervalued
$500 - Reasonably Valued
$1000 - Overvalued
$2000 - Insanely Overvalued
$4000 - Double Insanely Overvalued
$8000 - Quadruple Insanely Overvalued

There's only so many times gold (or any other hard asset) can double in price before you have to start scratching your head. This is especially true given the tame increases in the price of toilet paper and my ongoing belief that $80 oil would be roughly the top in this cycle.

I remain deflationary and have been since November. Cold hard cash doesn't seem so bad to me right now. I saw the following on CNBC today. Apparently it is acceptable to use the word "deflation" in public again. Who knew? If each viewer tells two friends, and so on, and so on...

As seen in the video, Dennis Kneale has an extremely sarcastic tone regarding deflation. He's taking a risk. There's nothing worse than a CNBC sarcasm failure. This could really hurt his chances in my most recent poll. To the best of my knowledge, no crow has ever experienced sarcasm failure though. They're smart that way. Just something to think about.


watchtower said...

As far as PM's go, I'm not selling or buying right now, I'm just standing here like a deer caught in the headlights...

G.H. said...

"...risk of alienating..."

Aliens of Gold

"It uses the Wolfenstein 3D game engine..."

I loved Wolfenstein, and this one too.

Stagflationary Mark said...


As far as PM's go, I'm not selling or buying right now, I'm just standing here like a deer caught in the headlights...

I love your attitude. May the humble inherit the earth. :)

You remind me of Jerry in the "The Opposite" episode. Everything goes downhill for Elaine. Everything goes amazingly well for George. There's Jerry, holding his own no matter what happens.

The Opposite

By the end of the episode, Elaine claims that she has "become George," but Jerry is only marveled at how things always even out for him: first Elaine was up, and George was down, and now George is up and Elaine is down.

Being Jerry in this environment is not so bad, especially when compared to today's stock market.

Stagflationary Mark said...


You are a gamer too? You should give Borderlands a try. I think you'll like it.


Borderlands has garnered mostly favorable reviews from game critics, with an average GameRankings score of 85.84% for Xbox 360 and 83.76% for PlayStation 3 and Metacritic score of 84 and 83 for Xbox 360 and PlayStation 3 respectively.

And for those of us who are already fans...

As a result of its surprise retail success, Borderlands' creative director Mike Neumann told VG247 that there is a chance of a Borderlands 2, adding that the decision "seems like a no-brainer."


G.H. said...


Mr. Neumann must have read my mind, I hate to say. lol

Stagflationary Mark said...


Newman vs. Borderlands! ;)

G.H. said...

In truth, I'm really not a gamer. Not anymore anyway. Wolf. and PofP2 were circa 1994. I needed them to take an occasional break from Differential Equations and Assembly Language Programming and other mild subjects while I was at university.

Today all I play is life.

Here's something to crow about: My UUP buy @ $23.80/sh.

Today's value: $25.46. For an unrealized gain of 7% in ~3 months. I'm carefully watching it and poised to pull a sell-stop to protect profits.

Thank you Eurozone!

Stagflationary Mark said...


Nice! We're both doing well on our US dollar denominated trades this year.

Note the 30-Year TIPS I bought in February.


Price Per $100: 97.667212



Price: $109 9/32

11.9% gain. No way I'll be keeping that pace up long-term though. In any event, I'm still planning to hold it 29+ more years and I'm not exactly complaining about my entry point.

Stagflationary Mark said...


And let's not forget that in April I managed to lock in 0.3% on an inflation protected I-Bond instead of the 0.2% I would have got had I waited until May.

0.1% for the win!

Okay, okay. I must admit that the trade does not quite look so legendary under close examination under the microscope, lol. ;)

G.H. said...

Message to G.H.:

"DON'T crow about your success lest ye be given haircut forthwith and be forced to dine upon said crow!"

I crow on Tuesday, lose 1% on Wednesday. Oh well, I'm getting some of it back today ;-)

Stagflationary Mark said...


Hahaha! I hear you. I crowed about the performance of my inflation protected treasuries while pointing out the risks of deflation.

We got some deflation. My TIPS took some damage. I might just as well have said something...

Good night, Westley. Good work. Sleep well. I'll most likely kill you in the morning. - Dread Pirate Roberts, Princess Bride

G.H. said...

Drat, another lousy day for the USD.

If UUP does not resume upward movement tomorrow I'll likely liquidate and get the hey out of there.

I'm not a trader, I'm an investor. But in today's world frankly I'm neither. If I can bank some gains I'll take them and kick back cozy on the sidelines.

I'm thinking UUP will rebound though because I'm just guessing there have been a lot of big money guys who need to sell some to raise cash for clients selling off their other positions. Just a guess though.

Stagflationary Mark said...


TIP lost a penny today which surprised me. I expected it to do worse.

I suspect that when people calm down just a fraction, they might realize the deflationary ramifications of what just happened today though.

I therefore suspect there will be some TIP pain tomorrow.

As for UUP, I'll just have to shrug my shoulders and admit that I have no idea what might happen next.

On the one hand, deflation should boost our dollar if history is any indicator.

On the other hand, we are being tested in ways that no historian may fully grasp. Myself included!