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Monday Message Board

September 15th, 2008
.!.
Mosquito the Rapist aka Bloodlust dvd

It’s time once again for the Monday Message Board. Post your thoughts on any issue. Civilised discussion only. Please avoid snarks and trolling and strictly no coarse language.

I won’t have time for a while to post on the startling events on Wall Street over the weekend, but feel free to jump in and have your say.

Categories: Regular Features Tags:
  1. Joe
    September 15th, 2008 at 11:01 | #1

    There’s an interesting article by Paul Theroux on moose hunting and H D Thoreaux, Whether it’s moose, duck or bongo, the slaughter of gentle creatures has been the making of many a Republican politician. It would seem to me that before the premeditated killing of one of God’s creatures, one should say a prayer. I wonder what it is.

  2. gerard
    September 15th, 2008 at 11:41 | #2

    what do you expect? the GOP just about embodies Pure Evil – we’ve reached the point where details and examples are no longer necessary. I’m going nuts about this election, the suspense is already excruciating.

  3. observa
    September 15th, 2008 at 12:56 | #3

    “I wonder what it is.”
    Lord, for what we are about to eat to satisfy that hydrochloric acid in our stomachs and our pressing need for vitamin B12 among other things you created, make us eternally grateful for eyes that point forward like hunters and the brains to graduate from spears and stone axes to facilitate same. Also for the gentler creatures, the vacuum packed meat at the supermarket, or the multinational vitamin B12 capsules they need with their Devilish ways and all that methane.(I’ll try and turn the other cheek Lord) Amen!

    Speaking of the seriously excruciating-

    ‘PROPERTY sector funds management and indices business Rismark International has called on the Federal Government to introduce an “Aussie Mac” mortgage financing conduit similar to ailing US giants Fannie Mae and Freddie Mac.
    But Rismark managing director Christopher Joye said the differentiator for Aussie Mac would be it remained in government hands, given he considered the demise of Fannie and Freddie to be directly attributable to dominance supplied through government guarantee.
    Speaking on Sky TV yesterday, Mr Joye said given the consistent nature of market shocks – the tech wreck and recent credit debacle among them – that markets weren’t as efficient or liquid as exponents maintained.
    “There’s a question as to whether Fannie and Freddie were conceived in the right manner,” he said.
    They were given this open-ended protected status, and became private enterprises that dominated the US housing market.
    His vision for Aussie Mac would be it sat on the sidelines and would not actively pool mortgages, repackage them and on-sell the vehicles to promote liquidity.
    Instead, Aussie Mac would lie in wait as a back-up in the case of any liquidity crisis.’

    Please Lord, not in front of Labor Govts!

  4. September 15th, 2008 at 14:12 | #4

    Don’t look now but Wall Street is collapsing.

  5. smiths
    September 15th, 2008 at 15:49 | #5

    i would like to take this collapsing farce to make a connection that doesnt seem to be being made in any articles i read

    insane pay packets and bonuses for top managers at banks —- banks folding due to insolvency and worthless ‘asets’

    at any other point it would have been called what it was – theft

  6. September 15th, 2008 at 15:50 | #6

    is it time yet, to suggest that (democratic) socialism may save the human race, since oligarchic capitalism shows signs of putting us in irreversible trouble? just a modest suggestion..

  7. Bingo Bango Boingo
    September 15th, 2008 at 16:14 | #7

    It may be, al loomis. Perhaps we could put it to the people by way of referendum?

    BBB

  8. Steve
    September 15th, 2008 at 17:07 | #8

    “It’s the worst situation for the US banking system since The Great Depression.”

    http://business.smh.com.au/business/financial-shares-hit-by-lehman-fallout-20080915-4glr.html?page=1

  9. Ikonoclast
    September 15th, 2008 at 20:12 | #9

    I would say most Australians in market linked super schemes have just found out or are about to find out that their super nest egg has lost 10% of its value.

    These supers of course remain market linked in retirement. Ten years of 10% pa losses are now quite possible. Many people who think they will have a worthwhile retirement next egg will not. It will mostly be gone by then. Still, since there will be little to purchase it will probably won’t matter anyway.

  10. observa
    September 15th, 2008 at 20:15 | #10

    Probably once in a century eh Al? That means way back to 1908. Hmmm….gulp!

    ‘THE US is mired in a “once-in-a century” financial crisis which is now more than likely to spark a recession, former Federal Reserve chief Alan Greenspan said today.
    The ex-central banker said the crisis was the worst he had seen in his career, still had a long way to go and would continue to affect home prices in the United States.

    “First of all, let’s recognise that this is a once-in-a-half-century, probably once-in-a-century type of event,” Dr Greenspan said on ABC’s This Week program.

    Asked whether the crisis, which has seen the US government step in to bail out mortgage giants Freddie Mac and Fannie Mae, was the worst of his career, Dr Greenspan replied: “Oh, by far.”

    “There’s no question that this is in the process of outstripping anything I’ve seen, and it still is not resolved and it still has a way to go,” Dr Greenspan said.

    “And indeed, it will continue to be a corrosive force until the price of homes in the United States stabilises.

    “That will induce a series of events around the globe which will stabilise the system.”

    Dr Greenspan was also asked whether the United States had a greater-than 50 per cent chance of escaping a recession.

    “No, I think it’s less than 50 per cent.

    “I can’t believe we could have a once-in-a-century type of financial crisis without a significant impact on the real economy globally, and I think that indeed is what is in the process of occurring.”

    The former Federal Reserve chairman also predicted the financial crisis would see the failure of more major financial institutions, even as embattled Wall Street investment giant Lehman Brothers scrambled to find a buyer.

    “In and of itself that does not need to be a problem. It depends on how it is handled and how the liquidations take place. And indeed we shouldn’t try to protect every single institution.”‘

    So much for the machinations at sherriff head office. Meanwhile, you’ll recall what was going down at the deputy sherriffs at the time-
    “From March 1996 to December 2007 currency rose by 110 per cent, bank deposits by 178 per cent and M1 by 163 per cent.â€? (Monetary Aggregates – D3 Reserve Bank).
    Now this was when our pinstriped Reserve Bank experts were targetting inflation at 2-3%. If you take their upper target of 3% compounding over 11 years you’ll get around 38% increase in money supply needed to pay for that inflation. Compare that with those money supply figures and Austrian economists are grimacing wryly and anticipating the inevitable now. So why don’t we let the deputy sherriff Glenn Stevens explain it all for us(well actually to Parliament just recently)-

    “I don’t think the board had got it wrong,�
    Hmmm.. well we’ll listen to what you’ve got to say then Glenn

    “I doubt very much we could have credibly just sat there with what inflation was doing.�
    I guess that’s true on those salaries Glenn and rising prices were getting to be a bit problematic for those not enjoying them.

    “On the information we had then on the assessment on the risks that we could make then and even looking back those moves were correct.�
    Whichever way you look at it, we were on the job earning every cent of those big salaries folks!

    “The logic of this decision[to cut interest rates] was the same as the one that, some years earlier, had led the board to begin raising rates from unusually low levels: the setting of policy designed to get the economy to change course probably will not be the right one once the change of course has occurred, and it will need to be adjusted.�
    Hmmm.. so you might have set interest rates a bit ‘unusually low’ in the past there Glenn. Ah well, I guess you can always raise them until you think they’re about ‘just right’ then mate, although apparently that means things change as a result and you have to make it all up as you go along again. So that’s what the big salaries are all about.

    “A further consideration was that conditions recently had actually tightened marginally as a result of rises in lenders interest rates, which from a macroeconomic point of view was not needed.�
    Things were getting a bit beyond our control.

    “Admittedly, we are probably six months away from seeing clear evidence that inflation has begun to fall, and even then it has to fall quite some distance before it is back to rates consistent with achieving 2 to 3 per cent on average,�
    Things are getting out of control when we can’t set inflation at 2-3% on average permanently. Shutup the self-funded retiree asking a stupid question like- ‘Why don’t you target say -3% to -2% Glenn?’ Glenn’s salary is indexed you dummy!

    “Rather than trying to achieve that larger fall in inflation [than was the case in either 2001 or 1995] by pushing it down more quickly, the board’s strategy is to seek a gradual fall, but over a longer period,�
    This is much different to 1995 and 2001 so stagflation is the best policy.

    “This carries less risk of a sharp slump in economic activity, though it does require a longer period of restraint on demand.
    “On the other hand, this carries the risk that a long period of high inflation could lead to expectations of inflation rising to the point where it becomes both more difficult and more costly to reduce it.�
    We choose stagflation rather than a depression for obvious reasons although the risk with stagflation is depression in the long run most likely.

    “That framework will continue to guide the board’s decision making,�
    Something for us all to look forward to no doubt.

    “Overall, households are at present much more cautious about spending and borrowing, after a number of years in which confidence levels were very high and there had been strong rates of growth in borrowing and spending,�
    Cheer up if you thought households were borrowing and spending profusely because of those unusually low interest rates we set years ago. We’ve fixed that now.

    “What we see in the Australian financial scene is an order of magnitude less troubling than what we see abroad,�
    Don’t worry, things aren’t as bad as OS and besides we don’t earn those US Fed salaries anyway.

    “In summary, the Australian financial system is weathering the storm well.�
    On our tenured, indexed salaries things are looking OK.

    Austrian fans grimace even more wryly.

  11. observa
    September 15th, 2008 at 20:51 | #11

    Shhhh Ikon. We don’t want everyone rushing into their Super Funds to all request the fixed interest option right now.

  12. Ubiquity
    September 15th, 2008 at 21:24 | #12

    Nicely said observa.

  13. observa
    September 15th, 2008 at 22:06 | #13

    OTOH perhaps it was all about a lack of unprotected sex-
    http://www.atimes.com/atimes/Global_Economy/JI16Dj08.html
    Stop laughing, this is bloody serious-
    http://www.news.com.au/adelaidenow/story/0,22606,24345562-2682,00.html?from=public_rss

  14. September 15th, 2008 at 23:48 | #14

    Twaddle. One US investment bank collapses and it is the end of the capitalist system? ROFL.
    These things happen every downturn. Banks that have run higher-risk exposed positions fall. Safer ones stay. During the next upturn some other, perhaps new, bank will grow quickly. It might get caught in the next downturn. So what? Did you have your money in Lehman’s, Al (or you, smiths)? I thought not.

  15. smiley
    September 16th, 2008 at 00:10 | #15

    One US investment bank collapses and it is the end of the capitalist system?

    So what was Bear Stearns?

    So what? Did you have your money in Lehman’s, Al (or you, smiths)? I thought not.

    It’s called collateral debt for a reason. I read somewhere recently (I think it was the Australian) that NAB and ANZ still had about $1B in losses to be accounted for due to the sub-prime crisis. And as Nouriel Roubini puts it:

    It was subprime, it was near-prime, it was prime, it was home equity loans, it was CDOs, it was MBSs, commercial real estate, credit cards, auto loans, student loans, leveraged loans, corporate bonds, muni bonds.

  16. CashedUpHippie
    September 16th, 2008 at 08:34 | #16

    In Australia we don’t have deposit insurance on our bank accounts (and John thinks we should):
    http://www.uq.edu.au/economics/johnquiggin/news/DepositInsurance0208.html. I happen to have a lot of AUD cash (over 500K) right now. Given there is a small but real chance that the global credit crisis could produce a run on the banks in Australia, where is the safest place to park my cash for the next couple years?

  17. observa
    September 16th, 2008 at 10:36 | #17

    CashedUpHippie,
    The Reserve will protect deposits in the Big Four Banks to the last, albeit they may place an immediate limitation on depositor account protection(really withdrawal capability). Failing that the dollars in our pocket are worthless anyway. As to what that immediate withdrawal capability would be in a liquidity crisis is anyone’s guess, but probably around $100k per account. Hence you should consider say four $100k term deposits with the Big Four and then a transaction account. Term deposit rates are accessible on each bank’s website and are not that dependent on amounts invested at present, so even $50k tranches are an option. You might want to spread the terms too, bearing in mind a penalty on interest offered for any before term withdrawal. If you have a spouse/partner in this, clearly you can allocate such tranches between you, bearing in mind respective tax liability positions. You might also consider the other smaller banks here too with this strategy as again the Reserve will protect bank deposits (ie only fully licensed banks)All the banks have transaction accounts like mine with Westpac. I use their Westpac Choice account with unlimited free transactions provided I maintain a $3000 minm balance and sweep any extra into an ‘e-saver account’, that currently pays 6.8%, calculated daily and payable monthly. Bear in mind that is equivalent to a higher annual term deposit rate, payable at end of term only.(the monthly interest payments compound) You might also consider switching any Super to capital guaranteed (basically fixed interest), although there is a fallacy of composition problem in that strategy that is avoided by being first cab off the rank. God help the laggards in a game of financial musical chairs basically.

    You should also be aware of the traditional flight to safety in a finacial crisis, due to resort to the printing press and all that fiat money. Gold and silver and in that regard it is generally acknowledged that silver is at historical low multiples cf gold, at a time when industrial consumption appears to be outstripping production. Some would argue that’s a one way bet in the medium term now. Buying bullion incurs storage costs but you can overcome that with such products as Perth Mint warrants (via setting up an internet trading account)and you may want to consider a portion of your fiat money in that form as a hedge against the worst. I have done that and although gold has fallen overall of late(in US$), so has our dollar. As well the price jumped $25US a couple of days ago, back again and then up again $22US yesterday. That suggests fiat money holders are getting very edgy right now. Should SWFs holding US$ and Treasury notes get very edgy all of a sudden, that could become a stampede.

    You pays your money and you takes your chances but remember, there are only 3 rules to investing-
    1. The greater the return the higher the risk
    2. Don’t put all your eggs in one basket(or bank)
    3. If anyone tells you they’ve got a sure thing they’re lying because they’d be in the Maldives with their feet in a bucket of champagne, not telling you and lowering their odds stupid.

  18. CashedUpHippie
    September 16th, 2008 at 10:56 | #18

    Wow, thank you so much Observa. This is excellent information about the reserve and the big banks. I needed to know that and hadn’t got that info from a morning of googling.

    I just set up a CommSec account and made my first foray into the market this week by buying 60 GOLD stock at $91 – just a little buy to try my hand. After reading your note I wish I had bought a lot more. Do you think Perth Mint warrants are better than GOLD on the ASX? Thanks for the tip on silver, I hadn’t thought about that.

    Thanks again. Exactly the advice I was looking for. That is very generous of you.

  19. CashedUpHippie
    September 16th, 2008 at 11:04 | #19

    PS,

    Will the reserve bank back deposits at banks like BankWest, which is owned by HBOS (and currently has the highest interest paying account)? Or just the big 4?

  20. Steve
    September 16th, 2008 at 11:35 | #20

    All respect to observa, this comment is not about criticising observa. but:

    is getting financial advice on what to do with $500,000 from an anonymous commenter on a blog really such a good idea?

  21. September 16th, 2008 at 12:04 | #21

    What is happening to financial markets at the moment appears to be consistent with Prof Quiggin’s February prediction.
    http://johnquiggin.com/index.php/archives/2008/02/17/here-comes-the-big-one/

  22. September 16th, 2008 at 12:17 | #22

    From a recent jumbojoke:-

    “The railways were invented to bring the Irish from Dublin to Liverpool where they were promptly arrested for being vagrants.” and
    “The railways were invented to take the weight off the motorways.”
    –Answers from two students at the St Helens College of Art and Design when asked to discuss the importance of railways in 19th-century Britain.

    (See also my related guest post.)

  23. smiths
    September 16th, 2008 at 12:29 | #23

    heres a list of failed institutions i didnt have any involvement with andrew

    Washington Mutual
    Wachovia
    Bear Stearns
    Merrill Lynch
    Fannie and Freddie
    Indy Mac
    Lehmann Brothers
    AIG

    if i had money, which i dont, it would be in physical gold, which i would be betting to be worth more than US$2000 per oz within five years

    if the US dollar still exists in five years

  24. observa
    September 16th, 2008 at 12:38 | #24

    “is getting financial advice on what to do with $500,000 from an anonymous commenter on a blog really such a good idea?”

    Read that overarching caveat on investing and decide for yourself is the be all and end all of my advice.

    CUH, you need to understand that currently there is NO explicit Govt depositor gurantee with any bank licensee. However, that said and given the US Fed position,(BOE with Northern Rock, etc) it’s hard to see our Reserve shrinking from any liquidity crisis with Aust licenced banks. As I pointed out, if they did shirk it, all our AUD$ holdings are suspect right now. Actually the only explicit guarantee-to-be was Treasurer Swans recently-
    http://business.theage.com.au/business/swans-promise-is-ready-cash-but-not-full-protection-20080602-2kuy.html
    I see that more as an instant liquidity guarantee than the medium/longer term, so perhaps $20k tranches are wisest if you think you need lots of readies in a hurry. Under the mattress is always an option, but I wouldn’t advertise the fact.

    Whether bullion is a better hedge against inflation than fiat money remains to be seen and certainly any wealth holder would observe the ‘eggs in one basket’ caveat here. You can’t eat gold or silver, nor Australian dollars, only the quantity of food you can exchange all of them for at the time you’re actually hungry. Dollars can earn you interest(more tucker) providing you trust the banks to lend it to good payers and not everyone suddenly gets hungry at once. Just as noone can tell you what bullion will exchange for in 12 months time, they can’t tell you what your dollars will either. Always a case of holder beware and beware of the holder.

  25. observa
    September 16th, 2008 at 12:55 | #25

    Oh and I did make the implicit assumption here that the $500k was surplus to any immediate requirements(food, clothing, shelter..?) and you are debt free(ie not paying interest).

  26. September 16th, 2008 at 13:15 | #26

    smiths,
    You missed out Northern Rock, a UK bank. Banks, like any other business, fail from time to time. In a very real way if they never failed that would be a very real problem. Lehman’s (and the others you mentioned and the ones you missed) were running unsustainable business models and / or had poor management. The whole point of the system is that, under those sorts of conditions they do fail. Others, with better management or business models then replace them. The falures of individuals within the system improves the system.
    Attempting to stop them failing (as the US government is doing with Fannie and Freddie) is the real problem. If there is no punishment for failure then there is no reward for success. This has been demonstrated time and again with systems that attempt to stop failures – from the policies of the US government that caused, extended the life and increased the depth of the 1929 depression to the stupidity of protectionist trade policies.
    Its why advice like observa’s above is broadly correct – if you want safety, spread your bets and accept that lower total returns are the likely result.

  27. September 16th, 2008 at 13:25 | #27

    cuh, don’t listen to them.

    your best investment is a remote property with a well and a windmill. put a high fence around it. fill the cellar with canned goods. learn to shoot and fish, if there’s any wildlife in the neighborhood.

    the current economic convulsions may be the end of capitalism, but if so, there is no plan b, and barbarism will be next. a good thing really. the only thing that can save the planet and you from looming eco-catastrophe is financial catastrophe and subsequent depopulation due to war, famine,and disease..

    remember where you got this tip, i may need a refuge as i haven’t got 500k loose.

  28. smiths
    September 16th, 2008 at 13:34 | #28

    andrew this period since the 80′s hasnt been capitalism functioning as normal

    it has been fraud and wealth transfer on a massive scale

    i am all in favour of the failures of inefficient business’

    but thats not mainly whats happened, when glass steagall was repealed the green light was given for reckless activity,
    selling debt as assets is not capitalism, its alchemy,
    leveraging money at ratios of 30 or 40 to 1 is fraud

    you would do yourself more favours as a defender of classical liberal capitalism by attacking this period as the disgusting theft that it is

  29. Ubiquity
    September 16th, 2008 at 13:44 | #29

    Smiths words are wise. Invest in what you know and at the best price. As Buffet says Invest in your “circle of competence” and understand your limits.

  30. Bingo Bango Boingo
    September 16th, 2008 at 13:44 | #30

    Clearly the legal right to collect on a debt is an asset, smiths. The issue is how much that asset is worth.

    BBB

  31. CashedUpHippie
    September 16th, 2008 at 13:50 | #31

    Steve, I asked a specific question about deposit insurance on a specific amount of money and got an excellent specific answer from Observa that is right in line with my own research – plus some extra tips. I’m more than comfortable taking Observa’s advice into account. Much more comfortable taking his/her advice into account than the appalling advice I have gotten from Aussie financial advisers who all have something to sell, in one way or another. If you wouldn’t do the same, that’s cool, but I have confidence in my own ability to filter advice – I did earn this money myself, after all. I’m just new to investing. Thanks for your concern.

    Observa, yes I am debt free and the $ is surplus to requirements. Thanks for checking.

    Al, I assume you’re joking but I actually think there is a small but real chance the “looming eco-catastrophe” with food and water wars etc could happen in my lifetime. But I don’t think there is a snowball’s chance in hell that a remote property in Australia would be a refuge if this happens – we have one of the most climate-fragile ecosystems in the world. Try growing veggies in baked dead dirt in a hotter remote Australia. I’d rather have my gold bars ready to immigrate somewhere more ecologically robust.

    But mainly, I’m analysing global companies to see who I want to buy when the market bottoms out. I think the most likely scenario is a 2 to 5 year global recession.

    Anyone have more tips for me? This is fun. Thanks guys.

  32. observa
    September 16th, 2008 at 14:40 | #32

    Flattery will get you everywhere CUH, whereas flatulence won’t help Joe #1 and those vegans much at all-

    “MELBOURNE: Scientists have discovered that going veggie could be bad for your brain-with those on a meat-free diet six times more likely to suffer brain shrinkage.

    Vegans and vegetarians are the most likely to be deficient because the best sources of the vitamin are meat, particularly liver, milk and fish. Vitamin B12 deficiency can also cause anaemia and inflammation of the nervous system. Yeast extracts are one of the few vegetarian foods which provide good levels of the vitamin.

    The link was discovered by Oxford University scientists who used memory tests, physical checks and brain scans to examine 107 people between the ages of 61 and 87.

    When the volunteers were retested five years later the medics found those with the lowest levels of vitamin B12 were also the most likely to have brain shrinkage. It confirms earlier research showing a link between brain atrophy and low levels of B12.”

    As for ‘Try growing veggies in baked dead dirt in a hotter remote Australia.’ there are some companies like PrimeAg set up to buy well watered land for just such a purpose (Google PrimeAg and read their announcements)They raised $300mill in $2 share offer last Dec and are well on their way with good management. They planned to spend 80% of the IPO on property purchases so at a current price around $1.34 might be worth a punt in troubled times for the medium term hold (at least 3 years as they’ve got that Qld dam water allocation in the bank now with recent rains) Keep an eye out for more of these food agribusinesses in future, with the carbon ETS fans effectively putting the world’s food in our tanks now.

  33. observa
    September 16th, 2008 at 15:04 | #33

    Woops, PrimeAg bottomed at $1.44, now trading at $1.52, but the initial subscribers have probably taken the major hit now. Could be some downside if rural land prices collapse naturally, but crop returns could ameliorate much of that.

  34. Ian Gould
    September 16th, 2008 at 17:27 | #34

    The thing about “once in a century” events is that if the media are to be believed they happen every decade or so.

    Personally I think the current financial crisis has pretty much bottomed out, especially here in Australia.

  35. September 16th, 2008 at 17:34 | #35

    Al Loomis, you forgot to specify “learn to shoot with a bow and arrow” (ammunition for guns won’t be available in that scenario, and it has a limited safe and/or reliable shelf life so it can’t easily be stockpiled in advance).

    The general investment advice I once heard was to split your portfolio roughly equally three ways, between foreign bonds, land in your own country (including your own home if you want), and investment in businesses about which you are personally knowledgeable in your own country so you can assess them directly – and rebalance the portfolio at least quarterly.

  36. CashedUpHippie
    September 16th, 2008 at 17:38 | #36

    Observa, I am currently researching silver, thanks for that. I disagree with you on the Aussie agribusinesses, tho. There was a recent BRW cover on agribusiness, which sparked a conversation with an economist friend of mine. He said that Australian farm land is extremely overvalued relative to agricultural yield and always has been. Food prices have to go much higher (possible of course) to justify these land prices. Has John Q ever weighed in on price of farmland?

  37. smiths
    September 16th, 2008 at 18:54 | #37

    Personally I think the current financial crisis has pretty much bottomed out, especially here in Australia.

    i’ll hold you to that, as indeed i should be held to any predictions i might venture to make

  38. smiths
    September 16th, 2008 at 18:58 | #38

    Consider the following. As gold and silver prices started to plummet on July 14th, surging physical demand for gold and silver continued to lead gold and silver prices markedly lower. For the first time in history, record demand in a commodity was helpless to stem plummeting prices and in fact, contributed to further price declines. In July, India bought 22 tonnes of gold. In August, according to Reuters, India increased its gold purchases by more than 350%, buying more than 100 tonnes of gold.

    This figure also represented a 56% increase in purchases when compared to purchases during the same month from a year prior. In Dubai, demand surged as well.

    “We are definitely witnessing a surge in demand for gold in Dubai and physical shortages have been reported by many dealers,� said Ian MacDonald, the Dubai Multi Commodity Center’s executive director for gold and precious metals. “We are also seeing demand being driven by currency concerns in the region as many investors perceive the precious metal as one of the few strong currencies.�

    Gold jewelry sales in Abu Dhabi soared 300 percent in volume and almost 250 percent in value in August from a year earlier after the metal dropped to nine-month lows, the emirate’s industry group said on Monday.

    “It was the best month the market has seen in almost 30 years and it compensated for any drops we have seen earlier this year,� Abu Dhabi Gold and Jewelry Group Chairman Tushar Patni told Reuters.“We had never expected (emphasis mine) that if gold fell below $800 an ounce we would see a 300 percent increase in volume and 250 percent in value, especially as many buyers are abroad on holiday.�

    In the United States, the stories were the same. Many gold and silver bullion and coin dealers reported record sales in August and shortages of supply. I could quote fifty other stories similar to the ones above, but for the sake of brevity, I will not. Global sales of gold and silver would have to be at record levels in August for gold and silver prices to be pushed much higher for that month, and all preliminary indications are that global sales in August for gold and silver were indeed at record numbers. So how can it be that record demand and sales in the physical gold and silver markets would cause gold to plummet from a price of $910 an ounce at the beginning of August to less than $750 an ounce, and silver to plummet from a price of close to $18 an ounce at the beginning of August all the way down to almost $10 an ounce?

    http://seekingalpha.com/article/95496-the-law-of-supply-and-demand-is-dead-for-gold-and-silver

  39. observa
    September 16th, 2008 at 19:02 | #39

    That’s true as I ponted out CUH, but PrimeAg’s land values now reflect simply underlying asset backing. on that point they had just signed up drought property when those rains came. The question is what future dividend yield can you anticipate on that current share price now.

    WRT the safety of bank deposits here’s the rub from The Age today CUH-

    “GLOBAL markets were stunned by a Wall Street meltdown that forced investment bank Lehman Brothers to file for bankruptcy protection and broking giant Merrill Lynch to sell itself to Bank of America for about $US50 billion ($A61 billion) in a lightning transaction.

    As investors and bankers were assessing the implications of the dramatic reshaping of Wall Street, concerns remain over the fate of US insurance giant AIG, which balances on the brink of collapse.

    The Reserve Bank yesterday pumped more than $1.3 billion into Australia’s financial markets as a precautionary measure to keep liquidity levels up for local banks and is expected to make more funds available in its regular market operations this morning.”

    And here’s the PM with the usual soothing stuff-

    ‘PRIME Minister Kevin Rudd has warned that the global financial crisis has a long way to run.
    Mr Rudd said he had earlier today discussed the ongoing crisis with Treasury officials and the Reserve Bank in the wake of recent developments in financial markets.

    US investment banking giant Lehman Brothers was yesterday forced to file for bankruptcy as a result of the fallout from the global credit crunch.

    Mr Rudd told parliament today that the Federal Government was undertaking a number of concrete measures to combat the global financial crisis and protect the Australian economy.

    The Federal Government was supporting a push for greater transparency in global financial markets, a lack of which had in part gone to the heart of the credit crunch problem, Mr Rudd said.

    The government had also acted to boost liquidity in the Australian economy by expanding the government bond market to ensure that broader financial markets operate effectively, he said.

    “These are concrete measures we’ve taken in response to the advice provided to us from Treasury and others in the first six months of this year because upon taking office we were acutely conscience that this global financial crisis was not over, it had a long way to run,” Mr Rudd said.’

    Basically they’ll throw money at the banks to make sure the nervous nellies can take out their dough if they want to. When they find they can they’ll stick it back again. However that might mean a short run drop in interest on your funds, so you might want to lock in to some term deposits for 5-12 month tranches. Five years is the max, but that’s a long time and interest rates might spike again after this initial injection of cash, if the world economy continues south and lenders get scarce cf borrowers. Sooner or later the central banks(particularly the US Fed) have to stop printing money and then real interest rates could rise sharply when they do. The US Fed refusing to bail Lehmans is the recognition of that simple truth. They have to tread the fine line between providing suitable ongoing liquidity to avoid financial seizure and picking up much of the current structural insolvency. A very fine line now to be sure.

  40. smiths
    September 16th, 2008 at 19:05 | #40

    this is what i reffered to the other day,

    from alan kohler today …

    Last night our time, many of those employees were leaving the flash Lehman Brothers building carrying cardboard boxes and glum expressions.

    The final indignity for them might be that creditors claw back last year’s $5.7 billion in bonuses. That’s right – Lehman paid an average of $US219,000 in bonuses to the staff in 2007, although of course they were massively towards to top, starting with CEO Dick Fuld.

    Total compensation at Lehman in 2007 was $9.5 billion, up from $8.5 billion in 2006. Sixty per cent of it was paid in bonuses.

    so in just the last two financial years they paid out $10.8 billion in bonus’

    capitalism?

  41. Ian Gould
    September 16th, 2008 at 20:39 | #41

    SAmiths – we now have falling oil prices; falling interest rates; declining unemployment and a lower Aussie dollar which will increase returns for exporters.

  42. Ian Gould
    September 16th, 2008 at 20:48 | #42

    “So how can it be that record demand and sales in the physical gold and silver markets would cause gold to plummet from a price of $910 an ounce at the beginning of August to less than $750 an ounce, and silver to plummet from a price of close to $18 an ounce at the beginning of August all the way down to almost $10 an ounce?”

    Well there’s at least two factors involved – a recovery in the value of the US dollar and a decline in inflationary expectations.

  43. observa
    September 16th, 2008 at 22:05 | #43

    “So how can it be that record demand and sales in the physical gold and silver markets would cause gold to plummet from a price of $910 an ounce at the beginning of August to less than $750 an ounce, and silver to plummet from a price of close to $18 an ounce at the beginning of August all the way down to almost $10 an ounce?”
    He’s not the only one wondering-
    http://www.atimes.com/atimes/Global_Economy/JI17Dj01.html
    However you’ll recall how all those financial derivatives and the bloated financial intermediation industry all looked hunky dory until the day the music died. Trading bullion futures can be like that until someone big stands in the market and demands delivery. That could mean a very eerie silence too.

  44. observa
    September 16th, 2008 at 23:41 | #44

    “we now have falling oil prices; falling interest rates; declining unemployment and a lower Aussie dollar which will increase returns for exporters.”

    With a 20% fall in the $AUD, that will no doubt protect commodity exporters from falling world prices. Those prices were quickly driven up when the ponzi scheme in asset prices due to past central bank profligacy broke suddenly. That was the signal for that funny money to go looking for value in commodities and commodity streams. As it did so it drove up prices until global demand was smashed and back they’ve come from their peaks. That 20% fall in the Aussie has not begun to be reflected in imported inflation yet, but it is on the runway now. As for employment, the latte/financial intermediation/service consumption economy was still booming even as manufacturing was declining. Cheap money fuelled the former but inevitably that would crucify the latter by crowding out manufacturing investment and competing for its inputs. Classic monetary induced boom and bust. Manufacturing always falls, even as the consumption sector is still rising, presaging the end of it all and given the length and depth of the monetary expansion, this one will rival the 1930s now. Even that well meaning Keynesian meddler Greenspan can smell it now and it’s a long way back to unwind all those monetary induced malinvestments.

    God only knows what central bankers world wide have been cooking up to cover their backsides recently. In that regard that US Mint stasis in gold reserves since 2006 is not a good look. It’s a reasonable question to ask- Have central bankers been playing locked door games with their traditional nemesis lately? Or in other words show us yer gold and prove it’s freehold chaps.

  45. observa
    September 17th, 2008 at 00:00 | #45

    On second thoughts, it’s probably all a bit academic now chaps-

    ‘THE Federal Reserve said today it was set to make a “large” injection of liquidity to help stressed financial markets, a move coming on the heels of similar actions by other central banks.

    The Federal Reserve Bank of New York made the announcement a day after the US central bank injected $70bn dollars into financial markets amid turmoil following the bankruptcy of Wall Street giant Lehman Brothers.

    The Fed “stands ready to arrange further operations later in the day, as needed,” the statement said.

    Earlier, the European Central Bank, Bank of England and central banks of Switzerland and Japan pumped pumped billions into the markets for a second day on Tuesday as it joined other central banks in trying to contain the fallout from the collapse of Lehman Brothers.

    The operations came after Lehman Brothers filed for bankruptcy protection on Monday and after fellow Wall Street giant Merrill Lynch was bought by Bank of America to prevent it suffering a similar fate.

    US insurance giant AIG was also reported to have sought a massive emergency loan to head off its own crisis.

    The events sent shockwaves through markets and prompted central banks to provide the extra liquidity to keep banks lending to each other and avert a wider freeze-up of the entire financial system.’

  46. smiths
    September 18th, 2008 at 11:33 | #46

    casheduphippie

    on monday you asked what to do with your 500k

    i advised purchasing gold, it was US$770oz

    that would have bought you 643.5 ounces

    today it is US$8800z which would have netted you US$66,000

    in four days,

    i would like a 10% fantasy cut of the fantasy profit

    a cool US$6,600 for some random thoughts

    wouldnt it be lovely it was that easy

  47. smiths
    September 18th, 2008 at 11:34 | #47

    sorry that should read 880 not 8800

    i wish there was an edit feature on this blog

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