Measuring relative value

Fiat currency is elastic - it stetches and contracts according to the demand for, and supply of, credit. So it is an unreliable tool to measure the value of anything.

George Kleinman addresses this problem and suggests a relativistic approach: compare the historical price ratios of different asset types. He admits that you can play this game forever, but it's not his fault that governments have corrupted our traditional yardstick. All you can hope for is some sense of trend, which is what all this rune-reading is for, anyway.

His conclusions: gold looks undervalued against oil, and not overvalued against either the Dow or silver. His trend feeling: a coming economic and stockmarket downturn.

Financial Sense may be run by investment advisers, but I feel their commitment to public education goes well beyond self-interest. It's a sort of University of the Air.

Tear your eyes away from the gold watch

A sound article from Clif Droke, about psychology, avoiding the extremes of bulls and bears, and remembering that being a contrarian means going upbeat when the crowd feels down.

Sovereign wealth funds: a tidbit

Adrian Ash in Financial Sense:

BCA Research in Montreal thinks that "sovereign wealth funds" owned by Asian and Arabian governments will control some $13 trillion by 2017 – "an amount equivalent to the current market value of the S&P500 companies."

Is an irregular cycle a cycle at all?

And 'mid this tumult Kubla heard from far
Ancestral voices prophesying war!

There is a kind of thrill in contemplating destruction - it's a whorl in the grain of human nature. Jeffrey Nyquist indulges this tendency in a piece about Robert Prechter Jnr's views on mass psychology and the markets, and our facing possibly the biggest economic depression since the founding of the American Republic.

You know how everything seems so bright when you get out of the cinema?

The returning wave

Hokusai: Mount Fuji off Kanagawa

As Japanese currency is getting out of risky investments and heading home, Brady Willett lists the factors putting the dollar under downward pressure:

In recent weeks the markets have speculated that the Saudis may drop their peg, that other Gulf states and sovereign wealth funds in the area are lightening their exposure to the dollar, and that OPEC continues to eye settling in Euros instead of dollars. Also recently China and Japan dumped a combined $33 billion in U.S. Treasuries (in August), and Chinese officials have continued to discuss reducing exposure to the dollar. Suffice to say, that against an already uncertain backdrop U.S. dollar holders are coming forward threatening to fan the flames and talk of the dollar era being over is running hot is hardly encouraging. Less encouraging still is the fact that those who previously cheered the dollar’s decline are turning scared.

He wonders whether we may see an emergency support plan for the dollar.

Avast behind!

Cut-throat Jake spies danger

Pearce Financial (Financial Sense, yesterday), like Marc Faber, believes that the East is dangerously overheated and deflation could hit commodities as well as shares; also, the dollar could rise again, and the Japanese yen might break free from its moorings.

I'd like some help with understanding this last, as tides of returning dollars and yen would seem to argue inflation in their home countries.

Karl Denninger (Market Ticker, yesterday) explains it as a relativistic effect:

Our problems are bad. The problems that will be faced overseas are FAR WORSE. Overseas economies are dependant on us, not the other way around. When this sinks in the other currencies against which the DX is measured will collapse; this will appear to raise the dollar, but in fact it is the sinking of other currencies.

"Tom the cabin boy smiled, and said nothing."

Stop engines

(image source)

Julian Phillips (Financial Sense, today) explains why he thinks central banks may soon have to stop selling gold, and may even need to start buying.