UpTheKhyber

The next round of quarterly earnings reports will bring reality back to the table. Whether that reality is "our revenues are down but it's OK because we screwed our workforce enough to still make a nice profit" or "we screwed our workforce but still didn't make the numbers" we'll just have to wait to find out. My employer's results are due next month.

Any short-term DOW rallies will purely be due to another round of spin being swallowed by the gullible. Is there any significant industry sector which isn't introducing lay-offs, pay cuts and/or reduced working hours for its staff? The consumer engine which has been driving western consumer and easter producer economic growth is going to remain stalled until that situation changes. Cash strapped western consumers = lower corporate revenues. How are even the current share prices increased justified in such an environment? The only way western consumers are going to increase spending again is if western governments successfully debase their currencies just enough to make the western debt burden serviceable without this resulting in either stagflation or excessive inflation. I'm not finding that very probably right now, and until that situation changes a core gold holding with trading on currency volatility looks like the closest thing to a safe bet right now. Disclaimer: I have a reasonably low appetite for risk as my day job is not trading.

Magpie raised the question some time ago as to whether American wages really were lower in real terms than in the 70's. Well, here's an answer not involving pulling figures off the internet; straight from a Commercial Lawyer presenting to UC Berkely, using government stats: It's an hour long lecture, but if you skip the first 5 minutes or so to get to the actual lecture it's well worth an hour of your time. Elizabeth Warren is on the money with many of the points regarding social issues that have been discussed on this site in the past, providing government stats to give backing to her points. General topics covered (all figures given inflation adjusted): . Median fully employed male wage earner now paid $800/year less . Median two-parent family earns more, but nowhere near twice as much. . A large part of the increase in family income have been taken up by increases in the price of housing (which has doubled in price in real terms) . Extra expenses such as child care and the need for an extra car (with a nod to Dr Bubb's theme of the malinvestment of suburban living) have robbed the rest of the income. . Huge increases in cost of healthcare (and what you get for you money) and the increase in baseline education to now include pre-school and graduate degrees (for the same crappy jobs which never needed them before). . In fact, even with decreased spend on everyday purchases such as food and clothing, household have had to sacrifice so much to the credit monster that they now spend more than they earn vs a surplus giving saving rate which was some 10% (IIRC) in the 70's. And that's with two wager earners: families with one wage earner don't stand a chance. . The inability of today's families to withstand economic shocks such as unemployment and sickness has led to huge increases in personal bankruptcies (which is where Elizabeth comes into contact with them). All of it nothing new to readers of this site I'm sure, but the numbers behind the issues are chilling to say the least. Truly shocking how the richest society in the world has been eaten alive within a generation to feed the bankers (and CEOs) bonuses. P.S. She also continues in the same vein here:

A log scale shouldn't really be necessary for a ratio should it? What did strike me about the wages vs gold and the rpi vs gold was they didn't look particularly out of whack with each other. I'd be interested in a wages vs rpi graph to see how well they track with each other. If wages do track RPI, then even if RPI is manipulated i'd argue it doesn't really matter if it is or not, since long term (long enough to even out leveraged price speculation) valuations of assets must surely be driven by people's ability to pay for them..

Approximity's graph of gold vs average GBP wage would be a better measure of affordability / fair value, and where we might be in the relatively overvalued/undervalued cyle, than RPI adjusted price of gold in GBP i'd have thought: http://gold.approximity.com/UK_wages_manuf...g_since1963.pdf (page 2) However, I remain unconvinced that it is possible to make any meaningful comparison between the 70's / 80's and today with respect to macro-economics and the stability of many currencies. The imbalances in global trade, the debt burden built up in the consumerist countries which have driven the global boom, demographic profiles, and the lack of fat* left to cushion the impact of an economic winter, pose a significant danger that the current recession/depression will make the 70's look like a walk in the park. Using graphs from the past as a predictor of future price of gold in GBP is pointless imo; we're in unchartered waters. However, as long as HMG insist on debasing the currency, I'll take the side of the wager which believes gold will do less badly than sterling or sterling demoninated assets. (*fat = inefficiencies/resilience in supply chains, worker/management balance of power, assets vs debts on business and personal balance sheets etc)

This is the most recent information i've seen: "US dollar denominated total cash, and total production costs rose by a similar 25%; rose by $45/oz versus $160/oz rise in the gold price. Weighted average cash costs $317/oz. Simple cash margins widened by $13/oz. Average total production costs in Q4 2007 = $518/oz." See also the graph at the bottom of page 8 - http://www.gfms.co.uk/Market%20Commentary/...resentation.pdf

I guess there is no harm in pointing out that investments go down in value as well as up, although it is a rather obvious point to be making on an investment forum. I'm intrigued as to why you feel it is necessary to point out this truism with particular respect to gold, and what relevance the property bubble had to do with this. Do you think that gold is in a bubble? If so, what is your rationale for this?

I hold gold for the reasons outlined in A, and I don't agree with your prognosis of my future actions.

I guess you just answered your own question there Steve

I'm not an expert on social security and medicare in the US, but they would appear to be run as trust funds so perhaps people are expecting (and entitled to) a defined benefit when their time comes. As such, 'unfunded liabilities' may well accurately reflect the situation in the US, much like public sector final salary pensions in the UK. http://www.msnbc.msn.com/id/7053462/ Mind you, at least they bothered to set up trust funds for such things in the US. Here in the UK public sector pensions will just paid directly out of future taxes, in the typical off-balance-sheet scam approach beloved by the spivs who run our country these days.

The point is that due to population demographics, if we continue to tax and spend at the same rates, future tax incomes aren't going to be enough to govern future public spending. The same will also apply to pension annuities. Western europe has the same issues.

I'm struggling to see how this differs from the old Bretton Woods system. Am I missing something? I was impressed to hear both guests on that podcast make the same excellent point; the current lending crisis is just an omen of our societies' unwillingness to face up to the fact that we are living way beyond our means. For any candidate to tell the electorate the truth about the true state of private and especially public finances would be political suicide. Instead our governments will just take the easy route and rely on the progessive heat of inflation to boil our pipe-dreams of an over increasing standard of living to death. Not only is inflation 'baked into the cake' but, unable to control our own gluttony, we've already eaten it.

Politics will trump economics I think. The US government has pretty much given up all pretence of there being a free market, and like it or not the few key players in the US administration will drive the global economic landscape. They also still hold some powerful bargaining chips: . Most of the world's dollar assets are held by foreign countries, so who suffers most if it goes south? . America is still the world's largest market so who will protectionism and trade sanctions hurt most? . The influence of american multinationals in other countries' domestic political affairs is not to be underestimated. . The US military-industrial complex still dwarfs that of any other nation. Predicting the decisions these few key players will make over the next over the next few months/years is nigh on impossible. One thing is certain though; priority number one will be to protect the US's privileged position as printer of the world's reserve currency. I wouldn't rule out any option that might be taken to achieve that aim, including ones which would have adverse affects for holders of gold, such as price controls or compulsory purchase. What we'll see over the next few years could well make the actions of Franklin D. Roosevelt's New Deal look positively tame. Not that I'm arguing against holding gold; it's still the least worst option I can see right now. But I wouldn't say the end game is certain by any means...

Very sensible, but by giving lessons on TA, he only has himself to blame for any backlash really.... Jim's Review Of Basic Technical Analysis

Yep. All that foreign reserve currency held by the West's creditor nations in the Middle/Far East is going to be invested somewhere, and it sure isn't going to be the West's securitised consumer debt for a while. This will hit the spending power of the Western consumer hard, partly because our easy-money supply has dried up, and partly because the central banks have issued, and will continue to have issue, trillions of high liquidity gilts in exchange for illiquid securitised-debt of dubious mark-to-model value, thus debasing the currency. Find out where the sovereign wealth funds next decide to point the full bore of their petro-plastic-euro-sterling-dollar recycling firehose and that's where you'll find the next bubble. In the meantime, they appear to be doing a nice line in commodity speculation and firesale purchases of western company and property assets (the long-term profits from which will be another avenue for the long-term haemorrhaging of western wealth).