Quote of the Day

The $10,000 dollar bill does exist

From the comments:

The Baldchemist Says:
January 7th, 2008 at 3:29 pm

Dollar bills of any denomination aren’t worth a light these days. Get into Yen; Ruppees and Euros.

Yen? +2%. Nice.
Rupees? -41%. Oops!
Euros? -22%. Oops!

Perhaps the rule of thumb should be, never take financial advice from an anonymous person on the internet who can't actually correctly spell the investment? Ruppees? With a 41% loss since 2008, puppies would have been a much better investment!

Puppies? Good investment.
Poopies? Not so much.

See? Spelling is important! ;)

April 7, 2016
Rupee does not face any ‘serious’ depreciation challenge

This should provide much comfort to the bald chemists of the world, lol. Sigh.

Bad Mark. Bad! Bad!

Disclosure: Still sitting in dollars. Still heckling Peter Schiff and Jim Rogers. Still not planning to move to China. Bought gold and silver in 2004. Sold gold and silver in 2006 for a 50% profit. Still never planning to buy them again. Whatever happens, happens. Sigh.

The Sarcasm Report v.214

June 21, 2015
CNBC: Make in India: Lessons from China

A rapidly growing manufacturing sector is the only way India can create highly productive jobs for the 10 million-plus youngsters who join the country's labor force each year and the much larger number of farmers who need to move from working the soil to the working on the factory floor.

Looks like I am going to need to knock down a few walls and expand the McMansion. My kitchen barely has room for all the Made in China appliances! Now I'm told I must do my part to buy Made in India appliances too?

Not only that, but I am also feeling enormous pressure to eat at restaurants more often to keep our own American economy stumbling along. WTF am I going to do with all of this cookware!!

Thank the heavens that there is no global excess manufacturing and/or restaurant glut forming though! Well, assuming I do my part as a forward thinking responsible citizen of the world, of course. The key is consumption and I'm not obese yet! There is plenty of room for me to grow, and the global economy with me.

Oh, and just one more thing. The growing manufacturing sector in India better not be thinking about highly automated assembly lines or 10 million-plus youngsters are going to be terribly disappointed.

But what are the odds of that happening? Everyone knows that increasing manual labor at the expense of advanced technologies is the only way to stay competitive in the global marketplace. In fact, the more labor the better. Corporations don't care about the bottom line. Never have, never will. Shareholders realize that a happy workforce is its own reward. Down with automation they say! Power to the people!

This concludes yet another sarcasm report. I apologize for the lack of sarcasm. It's just that CNBC gave me so little to work with this time. That said, perceptive readers can probably spot what little there is. *eyes rolling*

Parabolic Trend Failure of the Day: Diagnostic Imaging Center Employment

The following chart shows the 12-month moving average of diagnostic imaging center employment.


Click to enlarge.



April 14, 2006
Radiology must confront outsourcing challenges

Teleradiology has apparently come of age. Imaging examinations can be sent via high-speed connections to anywhere in the world, at increasingly low cost. Teleradiology also appears to be a profitable business. Take, for example, the services emerging to cover the night shift for U.S. radiologists. Teleradiology Solutions and TeleDiagnosys Services are just two of the many enterprises in the field, both offering this service from a base in India.

March 17, 2013
Job Prospects Are Dimming for Radiology Trainees

“The times of graduating from medical school and driving a Porsche are done,” said Dr. Dana Lowenthal, a first-year radiology resident and fourth-generation doctor. “It was never easy, but there was light at the end of the tunnel. This is new territory.”

The Philippines may be hiring. They claim they are preparing to tackle the global radiologist shortage! Must be plenty of job opportunities there!

November 8, 2014
Philippine Startup Takes On Global Radiologist Shortage

Many developing countries don’t have enough doctors to meet their citizens’ healthcare needs. Radiologists are particularly hard to find in many places, but Lifetrack Medical Systems, a digital healthcare startup based in the Philippines, wants to improve the situation with innovative software and services.

Demographic trends in developing countries will likely exacerbate the radiology talent gap in the coming years. As economic growth improves living conditions in these countries, people everywhere are enjoying longer, healthier lives.

And while you are working in the Philippines, don't forget to hire a staff of personal assistants to help you do your work!

October 18, 2012
How to Hire a Virtual Assistant in the Philippines – with John Jonas

$250 a month for someone who is starting out and they’re capable, and their English isn’t perfect, but it’s good, and you’ll never have any communication problems with them. You’ll always understand them, they’ll always understand you, communicating isn’t an issue in the Philippines at $250. If you were to pay $300 or $350, typically as the price goes up, you get better work. It’s not always the case, I mean, the first – I’ll talk about a programmer. The first programmer I ever hired, I hired him through a service, and I was paying them $750 a month, and they were paying him $250.

Source Data:
BLS: CES Databases

An Economy Built on Sand (Musical Tribute)

The first chart shows the 12-month moving average of construction sand and gravel mining employment.


Click to enlarge.

We're now below levels seen during the early 1990s recession. Too dire? Secretly wishing to read the newspaper instead? Well, better hurry!

The next chart shows the 12-month moving average of newspaper publishing employment.


Click to enlarge.

We're now below levels seen during the post-war 1940s. Look, I'm not intending to send you into a claw your own eyes out and jump off the nearest bridge style clinical depression. Let me spin you a positive "yarn" to cheer you up!

This last chart shows the 12-month moving average of textile mill employment.


Click to enlarge.

The Fed has apparently permanently halted the decline! Just look at that trend failure. Sometimes small victories are the best victories. So get out there and pick up some of these textile jobs before the next person does. I have a really good feeling about our textile employment future! That's right India and China! We're gunnin' for ya!



Source Data:
BLS: CES Databases

Gonna Pop Some Tags (Musical Tribute)

The following chart shows the 12-month moving average of annualized production and nonsupervisory apparel (nondurable goods) employee hours worked per capita.


Click to enlarge.

I wear your granddad's clothes
I look incredible
I'm in this big ass coat
From that thrift shop down the road

Source Data:
BLS: Employment
St. Louis Fed: Population

Potatoes vs. Apparel

Click to enlarge.

All exponential trends eventually fail. This one is no exception.

Real apparel prices (inflation adjusted) have seemingly stopped their downward spiral at about the same time real potato prices have seemingly stopped their upward advance. Also note that this chart has been relatively flat over the past 5 years (we're no longer on the exponential trend line in red). Coincidence?

This is great news for those of us who have hoarded apparel in recent years. It is also great news for those who couldn't figure out a way to hoard potatoes long-term.

Lucky me! ;)

In all seriousness, I look at this chart and wonder if the Commodity ‘Super Cycle’ May Be Coming to End. It doesn't help that I'm not bullish on China, nor have I been since 2007.

This is the part that I find most interesting. Perhaps it was not a coincidence. As real apparel prices fell, something else (like potatoes) had to go up in order for our central bank to meet its 2% inflation target. So what happens to the real price of other things if real apparel prices can no longer fall? Perhaps they can't go up. It's a rather simplistic question and the answer is simplistic too. Of course, that doesn't mean it isn't right. Who can say for sure?

In any event, I am definitely not in the hyperinflation camp (at least not anytime soon).

Just something to think about. This is not investment advice.

Source Data:
BLS: CPI Database

Quote of the Week

June 2, 2012
2012 is not 1991: Why UPA’s snake oil remedies won’t work this time

A drowning man is not going to throw another drowning man a lifeline.

The article is filled with quote of the week candidates. I was nearly overwhelmed when it came to picking the best one. Snake oil? The illusion of prosperity? Steroids? The proverbial stone age? And so many more!

Drowning man for the win apparently.

Long-Term Nonfarm Payroll Growth v.2

The new employment report is out. It is my intent to keep this chart up-to-date.

I see three reasons to be concerned.

1. The trend line now has us in negative growth territory. Let's hope the long-term trend does not continue.

2. We are already above that trend line and I tend to be a believer in "return to the mean" theories. If the trend does indeed continue then I would not expect to see it happen anytime soon though. Momentum is still up. This is a long-term prediction at best.

3. MaxedOutMama describes the current report as schizophrenic. Who am I to argue?

January 25, 2011
Obama State Of The Union Speech 2011: FULL TEXT & VIDEO

So, yes, the world has changed. The competition for jobs is real. But this shouldn't discourage us. It should challenge us. Remember -- for all the hits we've taken these last few years, for all the naysayers predicting our decline, America still has the largest, most prosperous economy in the world. (Applause.)

The naysayers would point to the word "still" and ask why it is there? It is a word that a coach would say at half-time if you are losing the Super Bowl.

"The competition is real. Don't be discouraged. Rise up to the challenge. You've taken some hits in the first half but we're still in this game!"

We should have no illusions about the work ahead of us. Reforming our schools, changing the way we use energy, reducing our deficit -- none of this will be easy. All of it will take time. And it will be harder because we will argue about everything. The costs. The details. The letter of every law.

This blog was founded on prosperous illusions.

See Also:
Long-Term Nonfarm Payroll Growth

Source Data:
St. Louis Fed: Total Nonfarm Payrolls

Run to the Nearest Exit? (Musical Tribute)

Copper Surges to Record in N.Y. on Rising Demand, Tight Supply

“Fundamentals are very bullish,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “There is optimism out there. China and India are growing. The demand picture will remain robust.”

5 Year Copper Chart



Modern Soul, 1974 on Goodear. R.I.P.

Gold vs. Cement, Steel, Copper, & Nickel

If history is any guide, it could easily be argued that gold was expensive compared to all four of these hard assets back in 2008. Gold was $871 an ounce then and has continued to climb in price.

The key, at least to me, is what happens to the price of those other hard assets. Should they fall, then gold would seem to be even more overpriced.

Here's a mix of inflationary and deflationary stew for you to digest.

As China’s Wages Rise, Export Prices Could Follow

“For a long time, China has been the anchor of global disinflation,” said Dong Tao, an economist at Credit Suisse, referring to how the two-decade-long shift to manufacturing in China helped many global companies lower costs and prices. “But this may be the beginning of the end of an era.”

China worried over high steel prices

The switch to quarterly pricing for iron ore and a similar switch potentially lying ahead for coking coal is the biggest structural change to impact the global steel industry for decades. Various steel producers and bodies have warned that it will increase price volatility in both costs paid for raw steel-making materials and prices passed down to consumers.

Copper to Drop as China Chokes Off Property Boom: Chart of Day

“There could be further downward pressure on the copper price,” MF Global analyst Jeremy Cave wrote in a report. “Over 40 percent of copper is used in construction, so the relationship with Chinese property markets is clear.”

Copper Enters Bear Market on Jobs Data; Zinc, Nickel Plunge

Copper has fallen 23 percent since reaching a 20-month high in April on signs that growth is slowing in the U.S., China and Europe. The Reuters/Jefferies CRB Index of 19 commodities fell as much as 2.4 percent today, led by declines in metals. Zinc plunged 15 percent this week, the most since February 2007, and nickel lost 16 percent, the biggest drop since October 2008.

“The jobs number was very bad,” said Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York. “It means that the economy doesn’t have any traction. Markets will struggle from here and people are going to sell base metals.”

China bubble

It is very difficult saying when a bubble will pop. As John Maynard Keynes once famously said, “The markets can remain irrational longer than you can remain solvent.” But the available evidence seems to suggest that the Chinese property bubble cannot go on for long. And as when it pops, Chinese manufacturers will start dumping all the steel and the cement that they produce, on other parts of the world. As and when then happens, steel and cement prices will crash.

At that point of time, you wouldn’t want to be holding these stocks, anywhere in the world, India included.

Beijing chills hot property market

James Chanos, a hedge fund manager, went so far as to warn earlier this year that China was “on a treadmill to hell”.

...

Despite the effects the measures have had, analysts are predicting further action. In particular, it seems likely that a property tax will be introduced. It is expected to be a tax on those holding properties, rather than a transaction tax. This will give local authorities a more stable income and make them less reliant on the revenue from land sales, something that has helped fuel the price increases.

In sharp contrast to Forbes, I find the opinions of James Chanos to be rational. I continue to lean deflationary. It is not a sure thing though.

See Also:
A Century of Gold Bubbles
Gold vs. The World's Oldest Money
Gold to Aluminum Price Ratio
Gold to Salt Price Ratio

Source Data:
USGS: Historical Mineral Prices

Tuesday's Stock Market Prediction!

Do you think I am insane? This is not Mad Money! Making daily predictions just makes me look stupid.

I have standards to maintain. I can't predict the unpredictable on a regular basis and still expect anyone to think I'm credible. It's hard enough to come up with long-term winners of the new world. Incredibly hard, using hindsight of course.

I don't want you to leave empty handed though. Here's something for those who enjoyed the comedy of Better Off Dead, but have always wondered what the horror version would be like.

Enjoy!



Over the long-term, I suspect there will be plenty of horror and comedy in the global stock markets, for both bulls and bears alike. That's been true for centuries. What hasn't been true for centuries is the miracle of modern discovery and its fueling of our ever growing trade deficit.

Cumulative Trade Deficit Nightmares

Why is it that we are always told what the trade deficit is but we have to go digging to find out what the cumulative trade deficit is?

Think if credit cards worked that way. Each month you are sent a bill. The only thing on it is your minimum payment information. There's no balance information on it at all. Can you imagine?

I'm being serious here. There's a deficit in cumulative trade deficit discussions and I can prove it. I went looking for more information on it today and it took me right to my own blog! Do I look like some sort of expert on the topic?

Google: "cumulative trade deficit"

There I am at #4 and all I did was mention it the one time. How is that even possible? (Note: This post will probably alter the results of the search thereby increasing my market share of "cumulative trade deficit" concerns!)

Spending Power vs. Trade Deficit

Is the cumulative trade deficit like the crazy aunt that nobody is supposed to talk about?



She's older now but still thinks she's fine.

Maybe she was fine when she was young, but she's not young no more.

That's us! We have a crazy aunt economy now.

So let's see what the top link was for "cumulative trade deficit". It was written by a Ph. D. MBA. Maybe he knows something we don't.

The Trade Deficit and the Fallacy of Composition

The U.S. economy will collapse. Repeat. The U.S. economy, and probably the world economy, will collapse because of the United States' exponentially-increasing trade deficit.

Keep in mind that it was written in 2005. This isn't hindsight analysis based on recent events. He predicted it. I turned bearish in 2004 and I am more bearish now than I was then. Our long-term situation continues to erode.

How can anyone in their right mind possibly think this economic model is sustainable? You think things are bad now? Just wait until we eventually lose our "free lunch". We export paper dollars and we get back cheap goods and not-so-cheap oil. As hard as it is to believe, life is actually good right now. How could we possibly ask for a better deal?



In my opinion, the eventual failing of such a model will have a huge impact on most of the world's population, from homeowners to stock investors to retired savers to the unemployed, just as the Great Depression did.

It would be easy to say that hyperinflation/stagflation is coming when looking at such a model, especially for those of us who live in the United States. I did call myself Stagflationary Mark after all. There's certainly a decent chance.

I don't think it is that simple though. This is similar to the economic model of the Great Depression. The world was built on the exponential growth of production capacity then too. When the exponential growth in demand is no longer there to meet it we could just as easily slide into an ongoing deflationary spiral.

You think China is safe? Just look at that chart. Their economy depends on exponential growth that is based on the exporting of goods in exchange for paper dollars. That's not a sign of strength. It's one of desperation. When that began to fail, they opted for a housing bubble of epic proportions to plug the hole. In my opinion, it is making the situation even more dire.

China's "Sure Thing" Mentality

Chinese Slowdown Tarnishes Metals

"I can't in any way subscribe to a China crash scenario – even in real estate," says Jonathan Auerbach, managing director at the institutional brokerage Auerbach Grayson. "There's a sort of knee-jerk reaction when copper is down 10% in the last three days. But it got hammered along with all the other base metals, and that doesn't mean that China is going to stop buying it."

The following scenario is inconceivable to him.

February 17, 2009
The big rise and great fall of base metals!

Now, there are no takers for the base metals in the market. China, India and other buyers have reduced imports for these metals and the inventories are piling up at several ports across the globe.

The result is simple. A crash in prices. Already within corrective environments, the stock panic has bled the base metals to dangerously unhealthy levels. Copper, zinc, nickel, lead, and aluminum have seen declines of 69%, 77%, 84%, 78%, and 61% respectively from their recent highs.

Is it even remotely possible that Auerbach Grayson could be somewhat biased in their analysis?

Auerbach Grayson

Auerbach Grayson & Co (abbr: AGCO) is a New York-based stockbroker that deals predominantly in the equity of non-US based companies, catering to institutional investors.

Here's a chart showing copper's annual price from 1913 to 2008 (adjusted for inflation).



As of today, copper trades at $3.13 per pound. It now sits at pre-crash levels. I remain deflationary.

Kitco: 5 Year Copper Chart

Source Data:
USGS: Historical Copper Prices
BLS: Historical CPI-U

India Indirectly Spanked Gold Today

India’s Unexpected Interest Rate Rise ‘Sign of Things to Come’

March 20 (Bloomberg) -- India’s central bank will probably raise interest rates again next month as the first increase in two years is only the initial step in the battle against inflation, BNP Paribas SA and Standard Chartered Plc said.

I have argued in the past that China would have to raise rates before we did, since inflation tends to hit food first and poor countries cannot afford to let that go unchecked. India is even poorer.

Inflation is politically sensitive in a country such as India, where the World Bank estimates three-quarters of the nation’s 1.2 billion people live on less than $2 a day.

The beatings will continue until the morale improves?

Gold tumbles after India rate hike, ends week flat

(Reuters) - Gold fell toward $1,100 an ounce on Friday, losing nearly 2 percent after an interest rate hike in top gold consumer India, and investors cashed in gains from earlier this week ahead of the weekend.

Inventories Don't Matter

Looking for oil demand in all the wrong places

It’s Wednesday, and the week’s U.S. oil inventories numbers will soon be out. I have no clue what they will say, nor much interest, either. But others do.

Exactly why oil traders and speculators think the data has anything to do with the state of world oil demand is beyond me. I suppose, like Pavlov’s dog, they’re only doing what they’re trained to do. But their training comes from a world that no longer exists.

Inventory levels no longer matter. It is different this time.

Between explosive growth in oil-thirsty economies like China and India, and OPEC’s voracious appetite for its own fuel, OECD fuel markets are becoming increasingly marginal.

He is yet another believer in the Chinese economic miracle story.

In a world where affordable oil supply will soon peak, if it hasn’t already done so, global oil consumption quickly becomes a zero-sum game.

How will China and India continue to "grow explosively" if "affordable oil supply will soon peak"?

Perhaps inventories didn't matter in 2008 either. Let's look to see what he said then.

May 28, 2008
Soaring transportation costs will ignite inflation: Rubin

Mr. Rubin recently predicted oil would gravitate towards US$200 a barrel, driving by soaring consumption in China and the Middle East and constrained supplies.

In hindsight, oil gravitated to $145 a barrel. Soaring transportation costs actually ignited deflation though and oil crashed back down to $30+.

The report argues a mild U.S. recession will be no cure-all for rising inflation which it sees staying around 4% next year and forcing the U.S. Federal Reserve to raise interest rates into a recovery.

In hindsight, we got a severe recession. The non-seasonally adjusted CPI-U rose a grand total of 0.025% from May 2008 to January 2010 (from 216.632 to 216.687). The Fed Fund Rate was 2% in May 2008. It now sits at 0.25%.

June 26, 2008
Road Warning: $7 Gas Ahead

Economist Jeff Rubin predicts the $7 mark will arrive by the year 2010.

Is it 2010 yet? Am I free to use hindsight on this prediction too?

Five Long-Term Inflationary Apparel Trends

Click to enlarge.

Here's a look at the seasonally adjusted apparel index on a log chart. Constant exponential growth shows up as a straight line. My eye sees 5 trends. I suspect we won't like the 6th long-term trend, but who really knows?

I hoarded quite a bit of apparel in recent years. I'm not all that fashionable. I'm all about comfort. I have a ton of clothes in reserve now. Most say "Made in India" on them. You can see the deflation in the chart as apparel was one of the first things to be outsourced. In order to get further deflation, one would think that we'd need to outsource the outsourcing. Who is going to make t-shirts cheaper than India though? What if the global economy turns protectionist someday? Would I still be able to buy a high quality large tall t-shirt for just $10? I did not want to risk it.

We take $10 t-shirts for granted in this country. I can say this. It would take me a lot more than $10 to make one myself, especially if one factored in typical American labor costs.

I also have a lot of socks in reserve. I bought my favorite Gold Toe brand at Wal-Mart. It saved me a lot of money doing that. My local Wal-Mart no longer sells them. They switched to a cheaper brand. I do not regret the decision to hoard them.

Here's the socks sold at Macy's. They want $21 for 6 pairs. That's roughly twice as much as I paid.

Gold Toe Premier Classic 6 Pack Crew Athletic Socks

I love this sock. No other brand is acceptable to me. I'd pay the $21 today if forced. Fortunately, I don't have to. I may not need to buy socks again for 30 years. That's how many I have, lol.

That said, the tennis shoes I hoarded at Costco have not gone up even so much as a penny. Some of my hoard is performing well. Some is not performing so well. To be perfectly honest, I hope that my hoard was a complete waste of time long-term. I do not root for higher prices.

See Also:
Four Long-Term Inflationary Energy Trends
Three Long-Term Inflationary Food Trends
Trend Line Disclaimer

Source Data:
St. Louis Fed: CPI-U: Apparel

China's Bubble Trends

Google Trends: "Housing Bubble"

The popularity of the "housing bubble" theories peaked in mid-2005. Using hindsight, the housing market did crash over the next few years.

Google Trends: "Oil Bubble"

The popularity of the "oil bubble" theories peaked in the spring of 2008. The crash came later that year.

Here's a chart showing the popularity of "China Bubble" theories. "Gold Bubble" theories have just now turned popular too.

Google Trends: "China Bubble"

Google Trends: "Gold Bubble"

Is there a connection?

Oil, Metals Get Over a Hump

"If you look at the drivers behind commodities, it's really the fact that growth is around the corner," said Bob Tull, chief operating officer of Old Mutual Global Index Trackers. "The economy looks like it's turning around here, and China's made some positive statements."

How China Is Moving Dollar, Oil & Gold: Experts

“If you look at gold’s activity this year, every time we’ve had monetary tightening, or we’ve had comments from the Bank of China, or from commercial banks reducing loans, gold has tended to sell off with other commodities,” Steel added.

The Timeless Allure of Gold

Entire countries have jumped on the gold band wagon of late, with India purchasing 200 tons in November, the single largest purchase of the commodity by a government central bank in three decades. Recent rumors that China is strongly mulling a big purchase similar to India’s have kept the price of gold above the $1,000 an ounce range, according to analysts.

It's a band wagon all right... China, gold, China, gold, China, gold.

For those who think that the best time to buy gold is when central banks are buying, I would like to point to the period between 1999 and 2002. It was without a doubt the best time in the last 30 years for the private investor to be buying gold. What were central banks doing? Selling.

Brown lost £2bn selling UK's gold

They have revealed that Bank of England officials had serious misgivings over the chancellor’s determination to sell 400 tons of bullion in a series of auctions between 1999 and 2002, when the price was at a 20-year low.

Global Employment Competition (Musical Tribute)

Type-A-Plus Students Chafe at Grade Deflation

Nancy Weiss Malkiel, dean of the undergraduate college at Princeton, said the policy was not meant to establish such grade quotas, but to set a goal: Over time and across all academic departments, no more than 35 percent of grades in undergraduate courses would be A-plus, A or A-minus.

As the number of graduating students approaches infinity, the work each student must do to get ahead also approaches infinity.

Meanwhile, here's a look at China.

Govt helps college graduates get employment

According to unwritten rules at many universities, students cannot graduate if they do not find a job, Southern Metropolis Daily reported in July last year.

'Indian and Chinese students out-competing US with hard work'

"We are simply being out-competed by children in India and China. They are not smarter than our children. They are just working harder," Education Secretary Arne Duncan told the MSNBC television in an interview yesterday.



They seem to be worked harder. I guess that's something. There are also just so darned many of them.

This is the new normal. This is our truth.



Clock is ticking while I'm killing time
Spinning all around
Nothing else that you can do
To turn it back

Wicked partnership
In this crime
Ripping off the best
Condescending smile

Trying to forget
We're falling right through
Lying to forget
We're raising our truth

Predictions for 2010-2019

Bad decade for U.S. stocks but not world's worst

Here are the last decade's notable winners (average annual return):

Gold bullion: 15.26%
India: 13.68%
Crude oil: 11.78%
Commodities (S&P MSCI index): 10.26%
China: 9.65%
U.S. long-term Treasury bonds: 8.28%

Here's my prediction for the next decade. At least one of these six things will lose its "sure thing" status.

I know, I know. It is not a very gutsy call. What can I say? I'm not a big risk taker.

I figure there are at least three ways I can be right.

1. Deflation hurts commodities and/or Chindia.
2. Stagflation hurts Treasuries and/or Chindia.
3. "Real Prosperity" replaces the "Illusion of Prosperity".

Don't heckle that last one without first considering the unexpected appearance of magical pixie fairy dust, an endless pot of leprechaun's gold, and/or the invention of Mr. Fusion. Could happen!

Cement Prices Warn of Overcapacity and Deflation

You would think that an unsustainable global construction boom would have pushed cement prices near the top of their historical trading range heading into the bust. What could be more obvious? That was not the case though. Yet another "sure thing" investment crashed and burned. Go figure. I suspected there was serious overcapacity but I certainly didn't think there was THAT much. Wow.

October 22, 2009
COLUMN-China's looming output glut: Christopher Swann

Today's GDP figures provided further evidence that in its efforts to avoid a slowdown, China has been stoking over-capacity.

Even before the release, officials estimated that the peak output of steel was about 40 percent greater than expected demand. Purchases of cement, meanwhile, may absorb only two thirds of the industry's potential production.

Despite this looming glut, China's state banks continued until recently to shovel record funds into heavy industry -- more than $1 trillion in the first six months of the year. The consequences of this investment binge will last well into next year.

This blog has taken a more deflationary stance and continues to do so. Commodity investors beware, and that includes fiat commodity currencies as well, unless you think gold can rocket higher even if global prices fall. Again!

On an inflation adjusted basis, both cement and gold did very well during the 1970s. They were both horrible investments during the 1980s and early 1990s though. I don't think it is just a coincidence that they moved together. Both gold and cement are commodities. If one buys gold, it is with the understanding that it may someday be used to buy cement. That's the math behind the psychology. Right? Of course...

Maybe it is different this time.

That's pretty much the scariest sentence in all of investing though. Rarely does it work out in the average investor's favor.

Gold investors of today are going to ban me at some point if I keep this up. It's just that I have a healthy skepticism of ANY investment once it reaches "sure thing" status. I was heckling dotcom stocks in 2000 when few were. I was heckling real estate in 2004 when few were. Although I owned gold from 2004 to 2006, I now find myself heckling it too.

This article started with a curiosity over historical cement prices. I was not actively seeking to warn about gold again. I ended up there though. Go figure.

I should also point out that I am aware of the risks. I very well could be wrong. I'm staking my blog's reputation on a gold price bubble theory at a time when most would consider that insane. So be it.

It all comes down to this. I honestly believe that toilet paper is the much better store of value if one must hoard these days and I'm sticking to it. Toilet paper has yet to go up in price much and yet it surely will if inflation takes off. Is it easy to hoard? No. Does it require a lot of work to transport it home? Yes. Is it easy to rationalize not hoarding it? Yes. It takes a lot of work to buy physical toilet paper at reasonable prices. I do not deny it. However, the market does not care about the work involved. It's either a bargain or it isn't. Relative to gold, I believe with 100% conviction that it is a serious bargain.

In sharp contrast, well over a billion dollars worth of gold is now traded daily just through the physical gold (GLD) ETF alone. All it takes is a button click to participate. I wonder how much thought goes into the idea that gold is 1/4th of the bargain it was when it was four times as cheap though. At what point will most participants actually question its price? $2000? $5000? Or is it a great store of value at any price? Just how much cement do gold investors imagine they will be buying with it in the distant future?

One last note. There's a lot of talk of India's government buying gold these days. From an emotional standpoint, this would seem to be a gold bug's dream come true. However, let's look back through history and see what it has to say. When was the best time to actually buy gold?

Goldfinger Brown’s £2 billion blunder in the bullion market

Gordon Brown had decided to sell off more than half of the country’s centuries-old gold reserves and the chancellor was intending to announce his plan later that day.

It was May 1999 and the gold price had stagnated for much of the decade. The traders present — including senior executives from at least two big investment banks — warned that Brown, who was not at the meeting, could barely have chosen a worse moment.

The best time to be buying gold was when a major government was actually selling it. That's the conclusion of history. Only then could you know for sure that you were buying it cheap.

And lastly, I'm really starting to see how Japan fell into a deflationary spiral and has yet to emerge. Nobody really believes that deflation can be sustained when there are government monetary printing presses that can print money at essentially no cost. Maybe they should. If cement can't even keep up with inflation during one of the biggest construction booms in the history of this planet, what does that tell you about the ongoing bust? It tells me that the deflationary forces are extremely powerful and should not be underestimated.

Just opinions!

Source Data:
BLS: Historical CPI
USGS: Historical Statistics for Mineral and Material Commodities in the United States