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.

Meanwhile...

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.