Speaking of gold, I’m with you that gold is a good choice to hedge your fund at the moment. However, that’s because gold equities are strong performer during deflation, not inflation. This can be seen from the history. During Great Depression, Homestake mining company rose 500% of stock price as the Dow crashed to 40%. Yes, history doesn’t repeat, but it does rhyme.

Here are some more charts that show relative gold performance. The first chart tells gold’s outperformance of the S&P 500 during deflation. Currently we see Dow:gold is roughly 7:1, however, this ratio will be smaller over the time since it likely be in the downtrend. It could be 5:1 ratio in the near future as shown in the chart. You will see this trend significantly from the second chart. It is clear that gold outperforms S&P and it started since deflation worry
kicked in.

Gold price is supposed to go down during inflation because, as you know, the values of money will be depreciated while values of other equities like stock and real estate will goes up. Therefore, monetary value of gold will no longer rise, then the money flow into stock market and/or real estate market.

The fed would do helicopter drop in order to prevent inflation as you said, but the question is that are we sure that’ll work? In fact, Japan already had gone through this way since the bubble burst in the 1990s. The result? They failed. The reason? They were in severe liquidity trap like we are in.

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eroica 님 글 관심있게 잘봤습니다.. 궁금한건.. 그럼 앞으로 inflation 이 예상된다고 가정시, 아무래도 금 보다는 주식쪽으로의 투자가 return이 좀더 많을수 있다는 이야기인가요??

those supplements were good to start getting me to your point. thanks for the posting. it was another chance to confirm currency amplification throughout the stock market history – the pattern of 1929, 1966, and 2000 is undoubtedly identical, except its scale. lets assume djia divisor is constent – as far as i know its current number is 0.1255527090. those 30 stocks are stalwart, each stock needs to be 4 dollars in order to match up to the current price per ounce of gold, which is almost impossible. if that happens, the us needs to look for another war that also claims to print out more trash why wont gold value surpass djia? well, it wasnt in history so you say no. then, look in 1981 those two made 1:1 at the time gold was peak. again you may want to say one more it will never happen in the future. ok back to 1800, its ratio was at 0.2:1. it looks like the us has initially started a losing game by printing out more trash since 1929. dont you think?

now back to the deflation issue, L-shaped depression would be
worse than U-shaped recession. in deflation, as we all know, debt is nominal while income growth contracts. well, everyone hates it. in 2003, japan took an advice from somebody who was a professor in priceton university, and it only helped the us get out of the shortest recession in the history. now, he is in charge of the fed, still polishing his choppers on his backyard.

ok the main issue – inflation. sometimes i like to bring in an extreme case. in 1923, germans increased their currency supply by 400%. the result? people couldnt even buy a piece of bread because they needed to load cash on a truck to exchange with the bread. the reason? because bread costed 200 billion marks. the price of gold went up to 87 trillion marks per ounce from 100 marks. unfortunately, at that time germans were not conscious of what dow stands for.

now gold in the present.. in a recent survey of major chinese economists, 71.4% of them turned down us bonds while favoring gold. the world economy already lost faith in us dollar. we need to admit the fact and prepare for the next survival game. below is us federal debt held by foreign investors in history, which is $3,125,000,000,000 as of 12/31/08
research.stlouisfed.org/fred2/data/FDHBFIN.txt
official us gold holdings are 260,272,000 ozs as you see from the below table
en.wikipedia.org/wiki/Official_gold_reserves

a simple math will give us the current gold price in us dollar. $3,125,000,000,000 / 260,272,000 = $12,0006.67 per ounce of gold. easy and extreme huh? poor ben needs to print out more money. “BUT” borrow now and pay later wont work if other nations stop accepting us dollars and reject us bonds. im not saying investment on stocks is a totally bad idea. the more options we have, the better chance we have to survive. currently, gold gifts a strong purchasing power. what and when to buy with it is up to bargain hunters. that was my point..

pmcs님,
질문이 참어려운데요. 이렇다 저렇다 딱 확정지어 예기하기가 어렵다고 대답하고 싶네요. 1950년 까지만 해도 미국의 inflation rate이 상당히 unstable하게 positive와 negative를 왔다갔다 했지만 그 이후에는 계속 positive rate을 나타내며 1950년 이전보다는 상대적으로 stable했습니다. 그러나 first oil price shock과 second oil price shock을 거쳤던 1970~1980을 보면 inflation rate이 거의 10%였습니다. 그기간동안의 dow/gold ratio를 보면 급격히 떨어지는 것을 볼수 있습니다. 1980년에 dow:gold가 1:1이었죠. 한편 second oil price shock을 거친 이후로는 현재 recession이 있기까지는 +1%~+5%(1990년에 +6.3%였지만)의 inflation rate을 기록하고 있는데 그 동안의 dow/gold ratio를 보면 1980~2000년 까지는 꾸준히 올라가나 2001년 부터는 다시 하락하고 있습니다. 이런 현상들이 왜, 어떻게 일어났는지 설명하는것은 제 능력밖이고요, 결론적으로 inflation rate이 높아진다고 해서 stock이 gold보다 좋은 hedge수단이라 단정짖기가 상당히 어렵습니다.

제가 gold를 언급한 이유는 stock에 접근을 하던 gold나 다른 commodity에 접근을 하던간에 더많은 돈을 부풀린다는 시각보다는 내 자산을 지킨다는 시각으로 접근을 하는것이 바람직하다는 생각에서 였습니다. 저의 시각은 현재 상황이 deflation상태이고 그와 더불어 생길 deleverage로 인해 귀금속으로서가 아니라 또다른 화폐로서 자산을 지키는 좋은 수단이라는 것이였습니다.

==

jason//
Thanks for the posting. I see your point. That’s right, it always questions ‘when’….

my crystal ball says dow and gold would compromise at a certain point. probably at 5:1 or 4:1. so far ben benanke has been a good firefighter. of course, gold will have a bubble even beyond safe haven as any other commodities, but physical precious metal never hits zero. i believe we already went thru a short recession and inflation in early 2000, now in a deep and short depression as job and salary cut are found everywhere while everything looks cheap, and then hyperinflation that will be in place soon to drive housing price extremely crazy again – then obama will be safe for the rest of his presidency just like clinton did, hoping his zipper is not in trouble.

i found an interesting article on the internet last week.

Median Home Price in Detroit Drops to $7,500
March 02, 2009 02:44 PM ET
How hard has Detroit’s housing market been hit? (From the Chicago Tribune, via The Big Picture)

The median price of a home sold in Detroit in December was $7,500, according to Realcomp, a listing service.

Not $75,000. Remove a zero—it’s seven thousand five hundred dollars, substantially less than the lowest-price car on the new-car market.

Check out the “good news” too:

On a positive note, Detroit’s homicide rate dropped 14 percent last year. That prompted mayoral candidate Stanley Christmas to tell the Detroit News recently, “I don’t mean to be sarcastic, but there just isn’t anyone left to kill.”
http://www.usnews.com/blogs/the-home-front/2009/03/02/median-home-price-in-detroit-drops-to-7500.html

does anbybody want to jointly invest on farmland in detroit? let me know