The Smartest Man in Europe Is Very Cautious(blackstone.com)
blackstone.com
The Smartest Man in Europe Is Very Cautious
http://www.blackstone.com/cps/rde/xchg/bxcom/hs/firm_commentary_6873.htm
13 comments
It is true that in a bubble everyone is telling you to buy. But I don't think we're in a bubble for the gold price for a couple reasons. The first is that most people with an unsophisticated financial perspective (eg: hair dressers) are not aware of gold (in the countries I've visited.) The slightly sophisticated (Eg: people who invest in mutual funds) have been claiming there was a gold bubble going all the way back to when it was only $400 an ounce.
But the other reason is we haven't seen gold take leave of the fundamentals. The financial crisis that has been unfolding since 2008 has revealed that the only response governments seem willing to take is ever more monetary inflation. The more money out there, the higher the price of gold. Secondly, most gold trading is at the level of very sophisticated people, not the average joe. When average joes start piling in and blowing up the price, then gold may take leave of its fundamentals and we'll have a bubble.
The thing is, in bubbles, supply rushes in to meet demand-- but you cant' scale up supply of gold like you can dotcoms or houses. Environemntal regulations and kleptocratic governments keep new mine production opportunities limited.
Finally, mining companies-- which should be the darlings of the gold bubble if there is one-- are trading sympathetic with the rest of the stock market, not contrary to it. If we were in a gold bubble, then good news for gold (eg: bad financial news) would cause those prices to go up-- but they don't they go down now. This indicates that they are not seen as an alternative, but as being subject to the bad news the same way General Electric, et. al. are.
We won't enter a bubble phase until that has changed. When people start seeing gold as a safer asset (or as a bull market "you just gotta get into!") then we'll have entered a bubble. At that point, when there's bad news for General Electric, you'll see a bump in the price of GoldCorp. We saw this in the dotcom bubble-- a big IPO for a tech company would cause a decline in General Electric or Gold for that matter.
All of these are subjective observations, so neither of us can really prove the other wrong of course. I found it interesting is that we use the same signal to detect a bubble-- the hair dressers and MLM schemes. I'm impressed to see how much more popular gold is outside the USA than it is inside the USA. I take that as a sign that it is heading towards a bull market.
However, if you're right and I'm wrong, I will be very severely punished by the markets. I'm not too worried, though. I got punished by the dotcoms. I played the housing bubble successfully going up and going down and got out a bit early, but am happy with the result.
I remember being told I was crazy on forums because I said there was a bubble in housing. So, you're not crazy, I just think you're too early.
But the other reason is we haven't seen gold take leave of the fundamentals. The financial crisis that has been unfolding since 2008 has revealed that the only response governments seem willing to take is ever more monetary inflation. The more money out there, the higher the price of gold. Secondly, most gold trading is at the level of very sophisticated people, not the average joe. When average joes start piling in and blowing up the price, then gold may take leave of its fundamentals and we'll have a bubble.
The thing is, in bubbles, supply rushes in to meet demand-- but you cant' scale up supply of gold like you can dotcoms or houses. Environemntal regulations and kleptocratic governments keep new mine production opportunities limited.
Finally, mining companies-- which should be the darlings of the gold bubble if there is one-- are trading sympathetic with the rest of the stock market, not contrary to it. If we were in a gold bubble, then good news for gold (eg: bad financial news) would cause those prices to go up-- but they don't they go down now. This indicates that they are not seen as an alternative, but as being subject to the bad news the same way General Electric, et. al. are.
We won't enter a bubble phase until that has changed. When people start seeing gold as a safer asset (or as a bull market "you just gotta get into!") then we'll have entered a bubble. At that point, when there's bad news for General Electric, you'll see a bump in the price of GoldCorp. We saw this in the dotcom bubble-- a big IPO for a tech company would cause a decline in General Electric or Gold for that matter.
All of these are subjective observations, so neither of us can really prove the other wrong of course. I found it interesting is that we use the same signal to detect a bubble-- the hair dressers and MLM schemes. I'm impressed to see how much more popular gold is outside the USA than it is inside the USA. I take that as a sign that it is heading towards a bull market.
However, if you're right and I'm wrong, I will be very severely punished by the markets. I'm not too worried, though. I got punished by the dotcoms. I played the housing bubble successfully going up and going down and got out a bit early, but am happy with the result.
I remember being told I was crazy on forums because I said there was a bubble in housing. So, you're not crazy, I just think you're too early.
> The first is that most people with an unsophisticated financial perspective (eg: hair dressers) are not aware of gold
Nah. Most people have an unsophisticated financial perspective, including loads of smart people. I have had many, many quite smart people I know (who aren't in finance) tell me about how they're buying gold or silver at the moment. Why?
"It's safe and it has real value. You can't eat dollar bills [sic]"
These people know what gold is, and have ultra simplistic views on why they should buy it, as well as the means.
Nah. Most people have an unsophisticated financial perspective, including loads of smart people. I have had many, many quite smart people I know (who aren't in finance) tell me about how they're buying gold or silver at the moment. Why?
"It's safe and it has real value. You can't eat dollar bills [sic]"
These people know what gold is, and have ultra simplistic views on why they should buy it, as well as the means.
Can you show me a Times, Newsweek, CNN, MSNBC, ABC, CBS, or NBC article, that's not an editorial, taking a pro-gold position? That's the mainstream. That's what the mostly-unsophisticated read and believe.
The genuinely unsophisticated have a negative net worth, and they're not holding gold. They haven't dug themselves out of the hole they got into during the housing bubble.
Do you know where we can find statistics of financial holdings by households in the USA? I'm sure it will show an increase in gold holdings, but the vast majority of people who have any savings at all have them in naive instruments like mutual funds. Even holding individual stocks is a level of sophistication that puts you above probably %80 of the population.
Holding gold is probably at the level of holding stocks in terms of sophistication right now... to do so you have to recognize the fundamental error in the worldview held by essentially the entire media-- and that takes a lot of thinking.
I do see a lot of people who aren't completely unsophisticated, but not very sophisticated who bash gold. These are the people who hold mutual funds and don't understand why paying %1 of your total assets to a mutual fund in order to underperform the market (which they think they're not doing because they have an "index" fund) is a bad idea, even after you try to explain it to them. ("Stocks are too risky, that's gambling" they say).
For the past 10 years, I've been seeing the same arguments, mostly ideological, against owning gold. I won't call these people unsophisticated, as it take some sophistication to understand why gold is a threat to their ideology.
The genuinely unsophisticated have a negative net worth, and they're not holding gold. They haven't dug themselves out of the hole they got into during the housing bubble.
Do you know where we can find statistics of financial holdings by households in the USA? I'm sure it will show an increase in gold holdings, but the vast majority of people who have any savings at all have them in naive instruments like mutual funds. Even holding individual stocks is a level of sophistication that puts you above probably %80 of the population.
Holding gold is probably at the level of holding stocks in terms of sophistication right now... to do so you have to recognize the fundamental error in the worldview held by essentially the entire media-- and that takes a lot of thinking.
I do see a lot of people who aren't completely unsophisticated, but not very sophisticated who bash gold. These are the people who hold mutual funds and don't understand why paying %1 of your total assets to a mutual fund in order to underperform the market (which they think they're not doing because they have an "index" fund) is a bad idea, even after you try to explain it to them. ("Stocks are too risky, that's gambling" they say).
For the past 10 years, I've been seeing the same arguments, mostly ideological, against owning gold. I won't call these people unsophisticated, as it take some sophistication to understand why gold is a threat to their ideology.
> When average joes start piling in and blowing up the price, then gold may take leave of its fundamentals and we'll have a bubble.
> The genuinely unsophisticated have a negative net worth, and they're not holding gold.
Perhaps I'm misunderstanding, but if I take both of these seriously then it sounds as if your criterion for a bubble is that most of the money sunk into something comes from people with negative net worth. By that criterion, I'm not sure that there has ever been a bubble in anything.
(Maaaaaaybe houses in the recent property bubble, but (1) I very much doubt it and (2) in any case mortgages are rather a special case, in that for a long time lots of people have had large investments in property that were mostly leverage; I don't think anything comparable has ever been true for gold, shares, Dutch tulips, or anything else.)
> The genuinely unsophisticated have a negative net worth, and they're not holding gold.
Perhaps I'm misunderstanding, but if I take both of these seriously then it sounds as if your criterion for a bubble is that most of the money sunk into something comes from people with negative net worth. By that criterion, I'm not sure that there has ever been a bubble in anything.
(Maaaaaaybe houses in the recent property bubble, but (1) I very much doubt it and (2) in any case mortgages are rather a special case, in that for a long time lots of people have had large investments in property that were mostly leverage; I don't think anything comparable has ever been true for gold, shares, Dutch tulips, or anything else.)
This is quite interesting to hear. So in the US it hasn't taken hold yet? Here in Europe the buzz is starting, the MLM aspect has been less than a year old. So I have caught this in the early stage?
Can someone else from the US confirm or deny econgeeker's claim?
This is the specific scheme I was invited to: http://www.securitas-aurum.com/
But its hard for me to believe that Slovenia (where I am from) is ahead of US on this one. We usually lag a year or two in such phenomena.
So I can explain it in 2 ways -> You are either a nugget of gold, if your statements are legit, then there is still money to be made from this one.
The other explanation is that you are one of the team doing the pumping.
What does the hive mind have to say?
Can someone else from the US confirm or deny econgeeker's claim?
This is the specific scheme I was invited to: http://www.securitas-aurum.com/
But its hard for me to believe that Slovenia (where I am from) is ahead of US on this one. We usually lag a year or two in such phenomena.
So I can explain it in 2 ways -> You are either a nugget of gold, if your statements are legit, then there is still money to be made from this one.
The other explanation is that you are one of the team doing the pumping.
What does the hive mind have to say?
Certainly there is more awareness of gold in the USA than there was in the 1990s. On political radio- conservative or liberal- you hear "buy gold!" advertising. I've been hearing those ads going back, at least, to 2005! They were there in between the mortgage refinance ads back in the day. On TV you see people pitching "investment grade" and "rare" gold coins. They think numismatics are the way to go, and they are charging too much money. I've seen that since the 1990s. I bet the amounts of both of these kinds of marketing of gold is up significantly in the last 10 years.
All around Europe, eastern and western europe, I've seen lots of signs at money changers and some banks who are happy to sell you gold. These signs are generally posters in the windows, not metal signs or painted, so this gives me the impression this is a new phenomena. I was very happy to see these signs, given my experience in the USA.
In the USA, if you want to buy gold, you can spend way too much to buy it on the TV. Or you can go to one of the few local retailers who sell bullion - but generally their primary business is either selling collectable coins or selling jewelry. The bullion is a side business. Unless things have changed in the last year, it is a pain in the ass to buy gold in the USA. There may be one or two of these bullion dealers in a larger sized town. You can't just go to the money changer or the bank.
I gave you several reasons for my perspective. Consider them critically. But if you're looking for someone to agree with you, and tell you I'm a dirty rotten capitalist who is full of it, you'll have no trouble finding that.
I would strongly recommend that you not rely on my opinion, or that of the "hive mind" or anyone else to make any sort of financial decisions. You have to use your own judgement and you have to learn what you can about the subject. This is why I said, "If I'm wrong, I'll be punished"-- the market will take one action or the other, long after this conversation is finished.
I would suggest reading economics books such as "Economics in one lesson" by Henry Hazlitt Free here: http://www.hacer.org/pdf/Hazlitt00.pdf
By all means, keep a critical eye on anything anyone says in favor -- or opposed-- to gold. That is why I read what you said and considered it seriously. I'm keenly looking for evidence of a bubble, and you referenced a metric I use.
I'd also recommend looking a bit into the history of gold, preferably by reading articles here: http://mises.org
Here's the short summary, see if this fits with what you know of the world: Gold is historically been the best form of money because it was difficult to counterfeit, had reasonable value per given weight, was malleable, didn't degrade, etc. But governments want to spend more than they have, so they choose paper currencies over gold. The nice thing about paper is that they can make it "money" by passing a law, forcing people to use it... and they can print as much as they want. The downside is, they get addicted to this spending, and in doing so, they always need to spend more and more. The more paper there is in circulation the more pieces of paper it takes to buy anything tangible, and prices rise, which means costs rise for the governments and they need to print paper at an even faster rate.
These effects take a very long time to play out. They ultimately result in a currency crisis, however. Gold is merely something that is difficult to counterfeit, and it is difficult to bring new mines into production. So it serves as a hedge against currencies.
I don't think there's ever been a gold bubble. When gold has gone up in response to a currency, really it is the value of the currency declining with respect to gold. The amount of gold in the world doesn't change very fast- it can't- at least in terms of currencies, and thus really the "gold price" is the "price of the currency in units of gold." $1,580 is not a gold price, it is a measure of the value of the dollar.
All around Europe, eastern and western europe, I've seen lots of signs at money changers and some banks who are happy to sell you gold. These signs are generally posters in the windows, not metal signs or painted, so this gives me the impression this is a new phenomena. I was very happy to see these signs, given my experience in the USA.
In the USA, if you want to buy gold, you can spend way too much to buy it on the TV. Or you can go to one of the few local retailers who sell bullion - but generally their primary business is either selling collectable coins or selling jewelry. The bullion is a side business. Unless things have changed in the last year, it is a pain in the ass to buy gold in the USA. There may be one or two of these bullion dealers in a larger sized town. You can't just go to the money changer or the bank.
I gave you several reasons for my perspective. Consider them critically. But if you're looking for someone to agree with you, and tell you I'm a dirty rotten capitalist who is full of it, you'll have no trouble finding that.
I would strongly recommend that you not rely on my opinion, or that of the "hive mind" or anyone else to make any sort of financial decisions. You have to use your own judgement and you have to learn what you can about the subject. This is why I said, "If I'm wrong, I'll be punished"-- the market will take one action or the other, long after this conversation is finished.
I would suggest reading economics books such as "Economics in one lesson" by Henry Hazlitt Free here: http://www.hacer.org/pdf/Hazlitt00.pdf
By all means, keep a critical eye on anything anyone says in favor -- or opposed-- to gold. That is why I read what you said and considered it seriously. I'm keenly looking for evidence of a bubble, and you referenced a metric I use.
I'd also recommend looking a bit into the history of gold, preferably by reading articles here: http://mises.org
Here's the short summary, see if this fits with what you know of the world: Gold is historically been the best form of money because it was difficult to counterfeit, had reasonable value per given weight, was malleable, didn't degrade, etc. But governments want to spend more than they have, so they choose paper currencies over gold. The nice thing about paper is that they can make it "money" by passing a law, forcing people to use it... and they can print as much as they want. The downside is, they get addicted to this spending, and in doing so, they always need to spend more and more. The more paper there is in circulation the more pieces of paper it takes to buy anything tangible, and prices rise, which means costs rise for the governments and they need to print paper at an even faster rate.
These effects take a very long time to play out. They ultimately result in a currency crisis, however. Gold is merely something that is difficult to counterfeit, and it is difficult to bring new mines into production. So it serves as a hedge against currencies.
I don't think there's ever been a gold bubble. When gold has gone up in response to a currency, really it is the value of the currency declining with respect to gold. The amount of gold in the world doesn't change very fast- it can't- at least in terms of currencies, and thus really the "gold price" is the "price of the currency in units of gold." $1,580 is not a gold price, it is a measure of the value of the dollar.
Indeed, your writing makes much sense and most of it I am aware of. It may not be as useful to me as to other members of the community.
Id just like to clarify that I am not looking for investment advice I am merely collecting opinions. It just so happens that opinions of this community are more valuable since on average members of this community are the very intellectual elite of the world - as far as communities go.
Id just like to clarify that I am not looking for investment advice I am merely collecting opinions. It just so happens that opinions of this community are more valuable since on average members of this community are the very intellectual elite of the world - as far as communities go.
In the US MLM schemes for gold have been going on essentially since forever, so it's hard to tell signal from noise. This covers the full spectrum from the cheap survivalist magazine advertising gold coins next to weapons and emergency kits to upscale hedge funds trying to sell shares to smart money. A pretty well known media personality (Glenn Beck) has been plugging gold investing (but also conversion to cash) through one of his sponsors on his show. Whatever you think of Mr. Beck's political views, that he managed to tie them into simple ad sales shows good business sense. I'm sure our American friends here can come up with some more examples. It's hard for me to say if there's more signals recently or I'm just discovering them.
Well, I'm not the hive mind, but I've seen gold marketed very aggressively in America -- to conservatives. My National Review subscription has been full of gold ads for some time. Same with conservative talk radio.
This makes sense to me -- conservatives in America seem far more alarmed about the size of the debt and its impact on the dollar than liberals.
My guess is the level of gold hype in America varies dramatically from region to region.
This makes sense to me -- conservatives in America seem far more alarmed about the size of the debt and its impact on the dollar than liberals.
My guess is the level of gold hype in America varies dramatically from region to region.
You are not hive mind, but you are a voice. Thank you for your response.
I'll add one more reason I don't think we're in a gold bubble: as long as countries around the world continue devaluing their currencies, the nominal price of gold will continue to rise. While it's possible that the inflation-adjusted price of gold could fall, I can't imagine that happening in an environment where fiat currencies globally are being debased. I should say that this isn't just true for gold, but for any hard asset that hasn't seen an explosion of supply (like apartments in Nevada or China for example).
When central banks worldwide stop printing and start raising interest rates, that's when I'll start scrutinizing further accumulation...
When central banks worldwide stop printing and start raising interest rates, that's when I'll start scrutinizing further accumulation...
> The Smartest Man in Europe Is Very Cautious
I first thought it was going to be an article about Grigori Perelman and about how we are all one step closer to Apocalypse because he was very close to finding that there is indeed no foundation for Mathematics (or any similar conclusion that is way over my head in even trying to explain). Instead I stumbled upon an article about a rich heir to "a mercantile family" who talks about money, money, money. Not that's anything wrong with talking about money, but if that's we consider as the "smartest thing" in an entire Continent I think we have a problem.
I first thought it was going to be an article about Grigori Perelman and about how we are all one step closer to Apocalypse because he was very close to finding that there is indeed no foundation for Mathematics (or any similar conclusion that is way over my head in even trying to explain). Instead I stumbled upon an article about a rich heir to "a mercantile family" who talks about money, money, money. Not that's anything wrong with talking about money, but if that's we consider as the "smartest thing" in an entire Continent I think we have a problem.
There is no foundation for Mathematics [1] :-)
[1]: http://en.wikipedia.org/wiki/Godel%27s_incompleteness_theore...
[1]: http://en.wikipedia.org/wiki/Godel%27s_incompleteness_theore...
Goedel's theorem is not about nonexistance of foundation in mathematics, it's about existence of true but nonproveable statements in every nontrivial formal system.
One could imagine a hypothetical stronger result - maybe every nontrivial set of axioms can actually derive p^(not p)?
One could imagine a hypothetical stronger result - maybe every nontrivial set of axioms can actually derive p^(not p)?
IANAM, but I do know it was an unassailable problem in Russell + White's efforts to found mathematics on a firm basis in Principia Mathematica [1].
[1]:http://en.wikipedia.org/wiki/Principia_mathematica#Consisten...
[1]:http://en.wikipedia.org/wiki/Principia_mathematica#Consisten...
Provided the axiom set is recursively enumerable. The second order Peano axioms for the natural numbers are complete.
Based on the biography and attitude, I assumed it was George Soros, who is pretty damn smart, financially. I could be wrong, though.
After pointing out that "The central bankers throughout the world have lost touch with reality" and discussing the messes that have been created in large part by inept bureaucrats, The Smartest Man in Europe dismisses all of the problems brewing in China with a naive "the authorities will figure out solutions to solve them."
Anyone who truly believes that the "authorities" in China are any more capable than the "authorities" outside of China isn't very smart at all.
Anyone who truly believes that the "authorities" in China are any more capable than the "authorities" outside of China isn't very smart at all.
Agreed. These are the same Chinese authorities that refuse to publish key economic statistics, or blatantly make them up. They also have trouble keeping track of government debt -- just this week there were reports about regional government loans that have been kept hidden. And then there's the housing bubble developing in the major cities because it's been so easy to get private loans the last two years.
Chinese officials can do many things, but they aren't magicians, and won't be fixing anything overnight.
Chinese officials can do many things, but they aren't magicians, and won't be fixing anything overnight.
Seems like what they say about China echos what they used to say about Japan 20-25 years ago. And Japan kept on rising happily forever after.
Um, no. Japan's economy has been stagnant for close to twenty years now. China's economy has plenty of growth left in it.
Although you're right that much of the scared-of-China crowd are just people who've transplanted their fears away from Japan.
Although you're right that much of the scared-of-China crowd are just people who've transplanted their fears away from Japan.
I think you missed the poster's obvious sarcasm.
As for "China's economy has plenty of growth left in it": the issue is not the amount of growth, but the source and quality of the growth.
As for "China's economy has plenty of growth left in it": the issue is not the amount of growth, but the source and quality of the growth.
Sure, 'twas obvious sarcasm, my bad. But there are good reasons for China's economy to grow sustainably for some time yet (emerging middle class, manufacturing going more high-tech, etc). They have major structural problems too, but it's not all doom-and-gloom like Japan is/was.
Of course there are good reasons for it to grow. Hopefully, the unwise choices driving the property bubble won't squelch it.
But the bubble will pop.
But the bubble will pop.
Yeah, you need to get a little better at detecting sarcasm.
They aren't more capable, but at least they are able to take responsibility. Banks will be nationalized the minute they look shaky. Local governments will be recapitalized, and the leaders might get punished. But there won't be as bad a crisis, because someone will foot the bill.
OK, it will cause a moral hazard. There will be a big need to reform. But there already is a big need to reform. And I think there's already a commitment (from the top, and from the general public) for reforms.
Plus, it's easier to grow when you are under 1/5th the GDP per capita.
OK, it will cause a moral hazard. There will be a big need to reform. But there already is a big need to reform. And I think there's already a commitment (from the top, and from the general public) for reforms.
Plus, it's easier to grow when you are under 1/5th the GDP per capita.
What are you talking about? Banks already are 'nationalized' for all intents and purposes (rather, they've always been under central leadership). And that's exactly the core problem with the debts owned by Chinese banks comes from.
Bingo. It's truly amazing that after all the world has seen in the past several years, many fail to recognize a house of cards when they see one.
Maybe not capable, but surely more focused? As far as I know there are no elections that change the top leadership every few years. This way they have a larger interest in planning beyond their political term and the private industry has less influence through campaign contributions.
But I might be wrong, I'm way out of my comfort zone here.
But I might be wrong, I'm way out of my comfort zone here.
In China, "private industry" doesn't truly exist in many industries. To do business, you need to be politically connected to some degree. In other words, campaign contributions are unnecessary; the state and private industry are already married.
Anyone who truly believes that the "authorities" in China are any more capable than the "authorities" outside of China isn't very smart at all.
A representative sample of China's Politburo:
Hu Jintao, 62, president of the People's Republic of China, graduate of Tsinghua University, Beijing, department of water conservancy engineering.
Huang Ju, 66, graduate of Tsinghua University, department of electrical engineering.
Jia Qinglin, 65, graduate of Hebei Engineering College, department of electric power.
Li Changchun, 61, graduate of Harbin Institute of Technology, department of electric machinery.
Luo Gan, 69, graduate of Freiberg University of Mining and Technology, Germany.
Wen Jiabao, 62, premier of State Council, graduate of Beijing Institute of Geology, department of geology and minerals.
Wu Bangguo, 63, graduate of Tsinghua University, department of radio engineering.
Wu Guanzheng, 66, graduate of Tsinghua University, power department.
Zeng Qinghong, 65, graduate of Beijing Institute of Technology, automatic control department.
-------------
A representative sample of the US Senate:
... 100 people who are pretty much all lawyers
Not saying this implies anything, but my money's on the government run by engineers.
A representative sample of China's Politburo:
Hu Jintao, 62, president of the People's Republic of China, graduate of Tsinghua University, Beijing, department of water conservancy engineering.
Huang Ju, 66, graduate of Tsinghua University, department of electrical engineering.
Jia Qinglin, 65, graduate of Hebei Engineering College, department of electric power.
Li Changchun, 61, graduate of Harbin Institute of Technology, department of electric machinery.
Luo Gan, 69, graduate of Freiberg University of Mining and Technology, Germany.
Wen Jiabao, 62, premier of State Council, graduate of Beijing Institute of Geology, department of geology and minerals.
Wu Bangguo, 63, graduate of Tsinghua University, department of radio engineering.
Wu Guanzheng, 66, graduate of Tsinghua University, power department.
Zeng Qinghong, 65, graduate of Beijing Institute of Technology, automatic control department.
-------------
A representative sample of the US Senate:
... 100 people who are pretty much all lawyers
Not saying this implies anything, but my money's on the government run by engineers.
China's errors seem to be ones of engineering: Overbuilding.
America's errors seem to be ones of lacking fortitude: constantly increasing over spending.
If neither change, china is headed for continued growth and maybe some painful re-allocations of capital, while the US is headed off of a cliff.
If neither change, china is headed for continued growth and maybe some painful re-allocations of capital, while the US is headed off of a cliff.
> Anyone who truly believes that the "authorities" in China are any more capable than the "authorities" outside of China isn't very smart at all.
For the last 50-60 years, they have proven very capable of keeping 1.3 billion people under a communist regime that arguably lacks most of our understanding of constitutional legality, considering how they came into power through the "War of Liberation" and considering the lack of human rights.
For the last 50-60 years, they have proven very capable of keeping 1.3 billion people under a communist regime that arguably lacks most of our understanding of constitutional legality, considering how they came into power through the "War of Liberation" and considering the lack of human rights.
I found a fun game to play whenever reading superlatives from financial news sources: append ", in finance" to every one you see. Thus, "the Smartest Man in Europe" becomes "the Smartest Man in Europe, in finance." Things start to make more sense that way.
I knew all this. Stocks are bound to be crap, they depend on making a profit from selling goods and services. There are only two types of people left in unequal economies. Those who can't afford the stuff and those who don't need to buy any more than they do. Consumption, profits and stocks would all be much higher if societies were more equal. There is tons of money locked up that never needs to be spent by the people who've got it. Economic demand is money + (desire or need). Every consumer has one or the other but not both. Maybe the poor deserve no more a share of the resources than they get, after Reagans tax cuts, but the result is terrible for companies. To sell anything PROFITABLY, chase the super-rich. Everyone else is broke.
We won't be able to transfer the unneeded wealth of people in Luxembourg to Nigerians or Romanians of course, we must wait a few decades for the abolition of scarcity (of most things) and the abolition of money and economics. Otherwise known by: "Tea, Earl Grey, hot."
We won't be able to transfer the unneeded wealth of people in Luxembourg to Nigerians or Romanians of course, we must wait a few decades for the abolition of scarcity (of most things) and the abolition of money and economics. Otherwise known by: "Tea, Earl Grey, hot."
I disagree with you strongly, but I think you made a good attempt at an argument and I think it is wrong you were downvoted, so you have my meager upvote.
I think your argument is disproven by walmart. Walmart doesn't chase "the super rich" they actually chase the bottom end of the market. They make good money by doing their darndest to make prices as low as possible, both to increase volume (and marketshare) but also to cater to the market that doesn't have a lot of disposable income.
I don't see the problem here as a lack of "equality", in fact, the super rich are taxed more than the poor. If things were equal they'd all pay the same dollar amount (not even the same percentage, the same amount in absolute terms.) That would be more moral as well.
The reasons those with less money have trouble affording things is that they have been impoverished by government. Presume you're at the lower tax bracket and paying %15 to the IRS. You're paying another %15 to Social Security (though only half is reported on your check, you have to earn the other half as well or you wouldn't have your job.) You're paying- what %4 to medicare? %3 for unemployment insurance, say %5 in state income taxes (just picking a low number since some states don't have it and it varies.) That's %42 of your income right off the bat.
Now if you're just scraping by, that means you're spending all of the remaining %58! All of that is taxed at rates from %8 (city sales tax) to %30 (cable, phone, an flights) to as much as %40 (gasoline).
If we take the lowest figure there, %8, then that means of every $100 that person makes, government takes %50. It is worse fro people in the middle and lower middle incomes. Their state and federal income taxes are higher.
That's why people have trouble making ends meet.
I think your argument is disproven by walmart. Walmart doesn't chase "the super rich" they actually chase the bottom end of the market. They make good money by doing their darndest to make prices as low as possible, both to increase volume (and marketshare) but also to cater to the market that doesn't have a lot of disposable income.
I don't see the problem here as a lack of "equality", in fact, the super rich are taxed more than the poor. If things were equal they'd all pay the same dollar amount (not even the same percentage, the same amount in absolute terms.) That would be more moral as well.
The reasons those with less money have trouble affording things is that they have been impoverished by government. Presume you're at the lower tax bracket and paying %15 to the IRS. You're paying another %15 to Social Security (though only half is reported on your check, you have to earn the other half as well or you wouldn't have your job.) You're paying- what %4 to medicare? %3 for unemployment insurance, say %5 in state income taxes (just picking a low number since some states don't have it and it varies.) That's %42 of your income right off the bat.
Now if you're just scraping by, that means you're spending all of the remaining %58! All of that is taxed at rates from %8 (city sales tax) to %30 (cable, phone, an flights) to as much as %40 (gasoline).
If we take the lowest figure there, %8, then that means of every $100 that person makes, government takes %50. It is worse fro people in the middle and lower middle incomes. Their state and federal income taxes are higher.
That's why people have trouble making ends meet.
> If things were equal they'd all pay the same dollar amout [...]. That would be more moral as well.
Why?
> The reasons those with less money have trouble affording things is that they have been impoverished by government.
This (and the argument that follows) is very wrong, for at least the following reasons.
1. The fraction of the money a person receives and spends that gets taken in tax is smaller, not larger, for poorer people.
2. In particular, there are personal exemptions and deductions, which make up a substantial fraction of the salary of people with low incomes, and the lowest tax rate is 10% and not 15%. Many of your other numbers are also wrong, and curiously all in the same direction. Social security taxes are not 15% unless you include the payroll taxes that fund Medicare, in which case the Medicare rate is 0%, not 4%. (It wouldn't be 4% anyway; payroll taxes are 2.9%, including the portion paid by the employer.) 8% of 58% is not 8%. Your percentages are, to put it bluntly, bullshit.
3. If you are going to include the employer's social security contribution in the figure being taxed, you lose the right to say that what's being taxed is so-and-so-many percent "of your income". Because, y'know, it isn't.
4. The money paid to the government in taxes doesn't simply disappear into a hole. It is used to provide services. For instance, that Medicare payment pays (astonishingly enough) for Medicare. Which, if you happen not to be rich, you are likely to have need of one day. In a hypothetical world in which Big Bad Government didn't take all that money, those services would need to be provided privately, and they would cost money. Probably about the same amount of money as the government spends on them. If our hypothetical low-income person is going to avoid being "impoverished" by the government, presumably that means they simply don't get the use of those services. Sorry, Mr Low-Income Person, I know your house was burgled, but you haven't paid the private police and judicial services: no law enforcement for you! Oh, and your child was injured by a toy whose makers were recklessly indifferent to safety? Well, you should have paid for a safety audit yourself. Oh, you lost your job and are starving to death? You'd better find a private charitable organization that wants to help you, then: keeping you alive is no job for the state.
5. (This is more or less #1 from a different perspective.) The difference between poor and rich people, which explains why the poor people can't afford to make ends meet, is not that the government is taking the poor people's money and not the rich people's. The government is taking everyone's money (and doing useful things with it, see #4, but that's a separate issue). Imagine for a moment a world in which the money taken in taxes really does just get burned in a big incinerator. What happens? Answer: there's a large deflation rate, so presumably the currency needs re-denominating every now and then. Aside from that -- which would, yes, have bad effects because of the rapid change, but that's not relevant here -- everyone would in fact be about equally well off. Every year you'd lose half your money, and so would everyone else, so all the prices would have to halve to keep supply and demand in balance, so that half-your-money would be worth the same as it was before it was halved. Of course that's an oversimplification because in our hypothetical world income is being taxed but investment isn't. So the deflation rate would be a bit lower and the net effect would be a steady transfer from those with less capital to those with more. But in the real world, gains from investments are taxed just like gains from income are. If taxation is impoverishing the poor, the reason is the difference between the tax rate on income and the tax rate on capital gains, and you should be arguing for equalizing those, not for reducing taxes as such.
Why?
> The reasons those with less money have trouble affording things is that they have been impoverished by government.
This (and the argument that follows) is very wrong, for at least the following reasons.
1. The fraction of the money a person receives and spends that gets taken in tax is smaller, not larger, for poorer people.
2. In particular, there are personal exemptions and deductions, which make up a substantial fraction of the salary of people with low incomes, and the lowest tax rate is 10% and not 15%. Many of your other numbers are also wrong, and curiously all in the same direction. Social security taxes are not 15% unless you include the payroll taxes that fund Medicare, in which case the Medicare rate is 0%, not 4%. (It wouldn't be 4% anyway; payroll taxes are 2.9%, including the portion paid by the employer.) 8% of 58% is not 8%. Your percentages are, to put it bluntly, bullshit.
3. If you are going to include the employer's social security contribution in the figure being taxed, you lose the right to say that what's being taxed is so-and-so-many percent "of your income". Because, y'know, it isn't.
4. The money paid to the government in taxes doesn't simply disappear into a hole. It is used to provide services. For instance, that Medicare payment pays (astonishingly enough) for Medicare. Which, if you happen not to be rich, you are likely to have need of one day. In a hypothetical world in which Big Bad Government didn't take all that money, those services would need to be provided privately, and they would cost money. Probably about the same amount of money as the government spends on them. If our hypothetical low-income person is going to avoid being "impoverished" by the government, presumably that means they simply don't get the use of those services. Sorry, Mr Low-Income Person, I know your house was burgled, but you haven't paid the private police and judicial services: no law enforcement for you! Oh, and your child was injured by a toy whose makers were recklessly indifferent to safety? Well, you should have paid for a safety audit yourself. Oh, you lost your job and are starving to death? You'd better find a private charitable organization that wants to help you, then: keeping you alive is no job for the state.
5. (This is more or less #1 from a different perspective.) The difference between poor and rich people, which explains why the poor people can't afford to make ends meet, is not that the government is taking the poor people's money and not the rich people's. The government is taking everyone's money (and doing useful things with it, see #4, but that's a separate issue). Imagine for a moment a world in which the money taken in taxes really does just get burned in a big incinerator. What happens? Answer: there's a large deflation rate, so presumably the currency needs re-denominating every now and then. Aside from that -- which would, yes, have bad effects because of the rapid change, but that's not relevant here -- everyone would in fact be about equally well off. Every year you'd lose half your money, and so would everyone else, so all the prices would have to halve to keep supply and demand in balance, so that half-your-money would be worth the same as it was before it was halved. Of course that's an oversimplification because in our hypothetical world income is being taxed but investment isn't. So the deflation rate would be a bit lower and the net effect would be a steady transfer from those with less capital to those with more. But in the real world, gains from investments are taxed just like gains from income are. If taxation is impoverishing the poor, the reason is the difference between the tax rate on income and the tax rate on capital gains, and you should be arguing for equalizing those, not for reducing taxes as such.
replicators won't get rid of status. holodecks, however, will. at least for anyone who doesn't care.
The smartest man in Europe is about an enlightening as Thomas Friedman column.
"All the problems really started when the dollar was no longer convertible into gold. That happened in August 1971 and eliminated all currency restraints because money became only paper and not backed by anything real."
Interesting to find that in the middle of the article.
Interesting to find that in the middle of the article.
There's a school of thought that blames the gold standard for the great depression. The French accumulated massive amounts of gold between 1928 and 1932 and some scholars say the global deflationary effects of Bank of France's policy during this time caused the great depression.
The gold standard also ties money supply to gold production which is a little like tying fed policy to the quarterly flip of a coin. For example, the Australian and Californian gold rushes of the 1850's caused huge short term price instability.
I'd counter the above statement with the following:
Many problems were solved with our departure from the gold standard and paper money is backed by the faith and credit of the country that prints it and it's value should, and does, fluctuate accordingly.
But arguing with an anonymous "smartest man in Europe" is a little like arguing with Santa.
The gold standard also ties money supply to gold production which is a little like tying fed policy to the quarterly flip of a coin. For example, the Australian and Californian gold rushes of the 1850's caused huge short term price instability.
I'd counter the above statement with the following:
Many problems were solved with our departure from the gold standard and paper money is backed by the faith and credit of the country that prints it and it's value should, and does, fluctuate accordingly.
But arguing with an anonymous "smartest man in Europe" is a little like arguing with Santa.
The gold standard was not the cause of the Great Depression; the collapse of the investment bubble created by the Federal Reserve, along with the interruption of international trade by the Smoot-Hawley Tariff Act caused the initial problem. Subsequent interference in the economy by both Hoover and FDR extended the problems.
The gold standard merely prevented the government from inflating away the dollar and using inflation to hide the consequences of other bad policies. Its a form of discipline that the founders wisely put in place to prevent the disastrous policies that many other governments have perpetrated throughout history.
But now the constraint of the gold standard is off and much larger bubbles can be created.
The supply of gold changes very slowly. The vast majority of all gold ever mined is still part of the supply. Its the manipulation of the value of paper currency that causes demand for gold to fluctuate.
The gold standard merely prevented the government from inflating away the dollar and using inflation to hide the consequences of other bad policies. Its a form of discipline that the founders wisely put in place to prevent the disastrous policies that many other governments have perpetrated throughout history.
But now the constraint of the gold standard is off and much larger bubbles can be created.
The supply of gold changes very slowly. The vast majority of all gold ever mined is still part of the supply. Its the manipulation of the value of paper currency that causes demand for gold to fluctuate.
It's not that simple. The gold standard basically established an international monetary union, similar to the Euro today.
In such a setting, long-term trade imbalances cannot be balanced out by exchange rate adjustments, so there is a very real danger that countries are drained of money by running net imports in the long term. While this then prevents the country from net importing even more - which is only fair - it also reduces the purchasing power of the country's population internally.
The circulation of money is slowed, causing unemployment and the very bizarre situation where people cannot afford to buy desired XYZ, while at the same time there are involuntarily unemployed producers of XYZ. Everybody's unhappy, simply because the social construct of money ties their hands.
By decoupling from the gold standard, countries left what was effectively a currency union, which enabled them to restart internal circulation.
This is also the choice that Greece has right now, which this supposed "smartest man" does not, or for ideological reasons refuses to, see: leave the currency union to restart internal circulation of a new currency.
In such a setting, long-term trade imbalances cannot be balanced out by exchange rate adjustments, so there is a very real danger that countries are drained of money by running net imports in the long term. While this then prevents the country from net importing even more - which is only fair - it also reduces the purchasing power of the country's population internally.
The circulation of money is slowed, causing unemployment and the very bizarre situation where people cannot afford to buy desired XYZ, while at the same time there are involuntarily unemployed producers of XYZ. Everybody's unhappy, simply because the social construct of money ties their hands.
By decoupling from the gold standard, countries left what was effectively a currency union, which enabled them to restart internal circulation.
This is also the choice that Greece has right now, which this supposed "smartest man" does not, or for ideological reasons refuses to, see: leave the currency union to restart internal circulation of a new currency.
Starting a new currency is only an option if they restructure also the debt. Having a new currency and owing the money in euros won't help much.
We went off the gold standard in 1914. There was a minor depression in 1920, but the government did nothing and it resolved itself. In 1929, the government decided to abandon that policy and took action, and by 1933 the use of gold as money in the USA was forbidden by executive order.
When you criminalize the wealth of the country, it is hard to blame people's use of that wealth for the problem. By 1933 it was literally a crime for money (in the form of gold) to circulate, and much of it was sent overseas to hide it.
When you criminalize the wealth of the country, it is hard to blame people's use of that wealth for the problem. By 1933 it was literally a crime for money (in the form of gold) to circulate, and much of it was sent overseas to hide it.
Many problems were solved with our departure
from the gold standard
* internet companies
* enron
* property
* banksAnd now, governments! http://blogs.reuters.com/felix-salmon/2011/07/15/the-horrify...
Fancy.
Fancy.
Well, the collapsing credit money couldn't be offset by more printed paper money; so that's what made the Depression cut so deep. But the credit money was only able to collapse because it had gotten so high in the first place.
Whether your money is a bank account, commercial bonds, government bonds, or gold; it doesn't pay to have fluctuations in total volume. Keeping the base (i.e. gold or dollars) fixed won't stop the banks (and governments) from borrowing and loaning more every year, until a crisis shows them that they have gone too far.
Whether your money is a bank account, commercial bonds, government bonds, or gold; it doesn't pay to have fluctuations in total volume. Keeping the base (i.e. gold or dollars) fixed won't stop the banks (and governments) from borrowing and loaning more every year, until a crisis shows them that they have gone too far.
That argument that value of gold is 'something real' is getting tired. Value of gold is not baked by anything practical - it's usage for jewelery depends on its high value in a self referencing, half paradoxical feedback loop (see Nick Szabo on origins of money: http://szabo.best.vwh.net/shell.html ). But there is something that indeed makes gold a better standard than the printing press of the government - it is its objectivity. Printing money is just too easily manipulated, mining gold sets more objective rules and clear rules are what makes any decentralized social system work.
The "something real" is its objectivity not its practicality.
According to some, the dollar is still on a gold standard but a floating one -- backed by oil flows. As soon as oil does not trade for dollars -- poof.
Cracking good timing too: http://en.wikipedia.org/wiki/Iranian_oil_bourse
I hope Byron Weiss is better at picking smart men than predicting the future:
http://www.zerohedge.com/article/byron-wiens-prediction-trac...
I don't always invest, but when I do, it's in gold and Swiss francs.
You invest your money... in money? Well, guess it's a smart move these days =)
It's a reddit-style joke. ("Most interesting man in the world.")
U.S. dollars are also a bet, you know.
[deleted]
He made one interesting point, which is to invest in Swiss Francs. I have been contemplating doing that over the past weeks, what are your opinions on that?
Switzerland still has a conservative financial system, and may benefit from a "flight to safety" as the euro deteriorates. That might be his reason for buying francs.
Francs used to be backed by gold, and might still be partially backed by gold. I think they are not redeemable in gold anymore, but that the country keeps a large supply of gold onhand. So, sort of a partial fiat currency.
However, one can own gold directly, which provides a hedge against all currency risk. It sounds like this is what he is doing, and then also holding some francs against a panic in europe.
Francs used to be backed by gold, and might still be partially backed by gold. I think they are not redeemable in gold anymore, but that the country keeps a large supply of gold onhand. So, sort of a partial fiat currency.
However, one can own gold directly, which provides a hedge against all currency risk. It sounds like this is what he is doing, and then also holding some francs against a panic in europe.
All this talk of "but they have no other choice" amuses me. Yes they do. And they will probably exercise it.
Why should I believe that "The Smartest Man in Europe" is anything other than a sock puppet talking up Blackstone's book?
Still, an interesting read nonetheless.
Depends I guess on how often one reads finance articles. There's nothing new in there, there is an entire 'school of thought' that has been saying what's in this article since 2008. New economies are the future, fiat money is bad mmkay, US and Europe don't have enough room for growth to out-grow debt.
The appeal to authority with the Baghdad real estate deal is one of those tell-tale signs of a sensationalist article. If the building in case had been blown up and nothing could have been recouped because nobody wants to insure a building in Baghdad, nobody would've ever heard about the whole deal. Survivor bias at its most obvious.
The appeal to authority with the Baghdad real estate deal is one of those tell-tale signs of a sensationalist article. If the building in case had been blown up and nothing could have been recouped because nobody wants to insure a building in Baghdad, nobody would've ever heard about the whole deal. Survivor bias at its most obvious.
> I remain positive on China.
I cannot help but wonder about China... I am convinced they are extremely clever in toying our Western system of capitalism and number games one way or another. The only example coming to mind right now is the artificial surge in car sales in China and the government is behind a lot of it, buying and storing cars in huge parking facilities. And the refusal of publishing economic statistics or just blatantly making them up.
And they are just as incredibly clever and diplomatic in political affairs; the rhetoric used in their more recent foreign affairs are nothing but jaw dropping and display an unprecedented self-understanding an pride that is bordering smugness. They do not even try to hide or acknowledge violations of human rights; they simply wipe it off with "none of your frakking business" kind of answers. They are showing very clearly: we bow to no one.
For me as a European, their last display of power here in Europe felt like a slap in my face when they offered to "help" in the current financial crisis in Greece and the rest of the EU when I saw how little their ongoing violations of human rights mattered all of a sudden.
Please note I am not bashing Chinese people but wondering about Chinese politics and their regime and how the west, generally so proud of their "humanity" and "human rights", bends over back- and sideways now that China is becoming an influential world power.
I cannot help but wonder about China... I am convinced they are extremely clever in toying our Western system of capitalism and number games one way or another. The only example coming to mind right now is the artificial surge in car sales in China and the government is behind a lot of it, buying and storing cars in huge parking facilities. And the refusal of publishing economic statistics or just blatantly making them up.
And they are just as incredibly clever and diplomatic in political affairs; the rhetoric used in their more recent foreign affairs are nothing but jaw dropping and display an unprecedented self-understanding an pride that is bordering smugness. They do not even try to hide or acknowledge violations of human rights; they simply wipe it off with "none of your frakking business" kind of answers. They are showing very clearly: we bow to no one.
For me as a European, their last display of power here in Europe felt like a slap in my face when they offered to "help" in the current financial crisis in Greece and the rest of the EU when I saw how little their ongoing violations of human rights mattered all of a sudden.
Please note I am not bashing Chinese people but wondering about Chinese politics and their regime and how the west, generally so proud of their "humanity" and "human rights", bends over back- and sideways now that China is becoming an influential world power.
What I have read is a collection of pop fearmongering. Basically his stance is the prevalent position among people out there today. Thus it reeks of manipulation. It is a piece meant to evoke a specific emotional response. That it is written by a hedge fund executive only reinforces the stench.
Thus I mark this piece as hedge fund propaganda. True meaning is a feint within feint.
Edit: I suspect that Blackstone is trying to unload its gold and trying to create a market. Gold is probably in the last phase of bubble. Why do I think so? Only one reason. In my country there is a vocal MLM type gold investment operation going on. Very similar to what was going on with stocks and derivatives in the 2006/2007 era. If there is one fundamental truth about markets, it is that when your hairdresser and butcher start giving investment advice it is time to get out. There is no more bigger fools out there. Gold is going down.