Monday, Dec 04, 2006
Where the money will go
ameinfo.com: The Dow Jones all time high and the coming correction!
So, after the NASDAQ in 2000 and housing in 2005/2006, where is the next big bubble going to occur? In my opinion, two asset classes stand out as asset bubble candidates: grains and Asian assets.
Wheat and corn have led the grain and agricultural commodities price advance over the last two months. But now, it is very likely that the entire sector including especially soybeans, sugar, coffee, and cattle, will follow. Other 'bubble candidates', are Asian currencies, stocks, and real estate prices.
Posted by sold 2 rent 1 @ 03:46 PM (138 views) Add Comment
7 Comments
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1. monty said...
Err, have they missed out gold in this list of bubbles or is it beyond reproach?
2. japanese uncle said...
Current abnormally strong sterling may partly be caused by massive influx of money from overseas, in pursuit of property investment opportunities in UK. HPC will quickly rectify the stuation and sterling may well be depreciated by say 10% simply because of this.
3. Disciple said...
Gold is cheap in historic terms! Also it's money. When paper, fiat money, comes crashing down, as it does, Gold takes over. So if the $ £ and euro all start to turn south, Investors will seek to hedge, and so will the banks and governments of the world! Gold is therefore the ultimate insurance against money instability.
So a bubble in Gold? No, because it is the natural out come of bad fisical policy. Gold is not an investment, it doesn't payout dividends! So for Gold to go up it has to be one of the following: 1) There is a shortage. 2) An economic crisies is coming! If you look back Gold became very cheap, in 2000 and is still cheap in £. So why is it getting expensive in $? Simple because all the savy investors know that we are heading for an economic winter in the US, which will have a knock on effect with the rest of the world. I would argue that these guys are the early birds. When the smelly stuff hits the fan everyone and his dog will be involved.
So what are you going to do, when all assets turn south? Let me guess your gonna buy Gold. It will be the only thing that wont be destroyed in the fire of stupidity. It may fall, but not as much as the $. It may become politicalised, as it did in 30s & 70s when it went sky high, but that can't be helped. But I guess my point here is don't start seeing Gold as an investment, like I said it pays no dividend, and therefore in times of financial pain, is good to own.
4. Shanghai Tim said...
How about steel bubbles? People who don't use it are now speculating in it. And if manufacturing markets dry up, demand for steel will dry up too.
If nothing else, steel bubbles sound pretty. Or maybe I'm too much of an engineer!
5. monty said...
Disciple, I'm not sure how you come to the conclusion that Gold is cheap in £ terms as the following graphs show - it's at all time highs against practically everything except the Yen and Euro.
http://www.gold.org/value/stats/statistics/monthlysince1971.html
What the graphs don't show, of course, is inflation adjusted currencies which would give a far more accurate picture and may indeed show it cheap against the £. $500 in 1980 is worth roughly $1200 now. Yes, people will pile into gold if/when they feel the dollar slipping. Yes, there is a finite amount of gold on the planet. And yes, gold may well head up beyond $1000 or $2000 as some bugs are claiming. That just makes it more of a bubble asset rather than a long term preserver of wealth.
What is its long term intrinsic value? If it floats around its current 200 day average of around $600 (increasing in line with dollar declines) then I may be inclined to believe that, but what if it spikes as it did in 1980 and then heads straight back down to its longer term average of around $400? Then you've just wiped out 30% of your wealth trying to hedge it against the dollar. IMHO gold is just another bubble asset. The time to buy it was in 2000 when all the central banks were flogging it in the bargain basement. Now it's been talked up with rumours of Chinese panic and the Indian wedding season kicking off. Speculation is rife.
Right now, my money's on oil and uranium, at least they're useful.
6. Blindleadtheblind said...
Monty...your opinion is correct in many ways, and Oil & Uranium have and will continue from their present all time high prices (not inflation adjusted may I add). However neither has the historic importance attached to gold being the money of last resort, and in todays climate of fiscal madness that is a very important point to remember. Certainly at some future point gold will not be the asset to hold, maybe it will be Goverment bonds linked to gold, but right now if you think Oil and Uranium will rise while gold does not then you are well off the mark imho. PS take a look at silver also, it will outshine all of the above mention commodities if you pardon the punn.
7. sold 2 rent 1 said...
Monty,
"IMHO gold is just another bubble asset"
I agree entirely.
We live in a bubble economy where any asset class can inflate and pop.
"The time to buy it was in 2000 when all the central banks were flogging"
I disagree. Spotting a bubble and anticipating when it will pop is an art.
Here are a couple of basic rules:
A bubble will go on for much longer than many people anticipate. Look at Nasdaq 2000 and housing 2006-7
A bubble will only burst when it hits mainstream media proper. You know to sell gold when you overhear the person in front of you at the supermarket checkout talking about their junior gold mining stocks. You read about gold in the business section of The Telegraph but not on the front page of The Sun.
I remember as an 11 year old boy my mum going on about the price of gold in 1980. She was a divorced mum bringing up 3 kids with various part-time cleaning jobs. She had no money/gold to buy or sell it, but still knew about its value.
We have a long way to run in this gold secular bull. As with all bubbles it will end with a crash and timing your exit is the hardest thing.
“Right now, my money's on oil and uranium”
These 2 are also in a secular bull. I am not sure how much oil will pull back before taking off again.