A few interesting Gold discussions lately (See chart below)

Also, see Eddie Elfenbein’s Central Bank Gold Sales Began 10 Years Ago This Week: Has it Worked?

Via Chart of the Day:

“Today’s chart presents the Dow divided by the price of one ounce of gold. This results in what is referred to as the Dow / gold ratio or the cost of the Dow in ounces of gold. For example, it currently takes 9.2 ounces of gold to “buy the Dow.” This is considerably less that the 44.8 ounces it took back in 1999. When priced in gold, the Dow is down 79% from its 1999 peak and the scale of the current two-month rally has not distinguished it from the many bear market rallies that have occurred over the past decade.”

20090508

Source: Chart of the Day

Category: Commodities, Index/ETFs

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

80 Responses to “Dow / Gold Ratio”

  1. hawleyl says:

    So, what next? Will gold fall to restore the ratio or will the DOW rise to restore the ratio? I think the real solution should be related to inflation rather than a stock index. Also note that the gold silver ratio is also at a high level currently ranging between 70 and 80. Difference of opinion makes horse races and the stock market, but that doesn’t mean we should interpret the recent result of the Kentucky Derby and bet on a long-shot.

  2. DL says:

    Critics of Peter Schiff should at least give him credit for consistently calling for a decline in the Dow/gold ratio.
    …….

    My own guess is that a long USO / short SPY position will outperform a long GLD / short SPY position over the next three years.

  3. royrogers says:

    that chart is blashphemy on CNBC

  4. Cursive says:

    Decisions, decisions. It is about this time that I am feeling the weight of being an asset owner. For those of us who are all in cash, what of the risk of devaluation? We are at the point where just about any investment decision, even the seeminly riskless decision to remain in cash, is only an educated guess. What do the stormwinds have in store for us tomorrow? Guess wrong or do nothing and you could lose big. Rather than a society built on rewarding hard work and saving, we seem to be capriciously doling out gifts to the most undeserving. The social dislocations we are experiencing, ranging from the death of cities or individual investors looking for fixed income, will be profound and irreversible. Someone remind me why we have a Federal Reserve and allow them to monkey with our money supply?

  5. Someone remind me why we have a Federal Reserve and allow them to monkey with our money supply?

    Cursive,

    you want the Answer found in Textbooks, or the Answer that Andrew Jackson & Thomas Jefferson already gave us?

  6. Cursive says:

    @MEH 5:08

    Preferrably that given by Andy Jackson. Along the lines of Lawrence Olivier talking to Tony Curtis in “Spartacus,” do you think the hanging in effigy of Andy Hamilton to be immoral?

  7. snapshot says:

    http://seekingalpha.com/article/136802-global-markets-in-review-risky-assets-surge

    Another Barry Ritholtz sighting….the quote du jour no less…

    Seeking Alpha – Prieur du Plessis

    Quoted about half-way down -

    “The quote du jour relates to whether the stress tests were “stressful” enough and belongs to Barry Ritholtz (The Big Picture), who remarked:

    “…the 25-to-1 leverage…well – you remember what you said…

    He also quotes Jeremy Grantham.

  8. Cursive,

    No, he & Charlie Merrill could, both, be hung in effigy, but, we should leave aside that waste of Time.

    Better, to me, would be the repeal of “Legal Tender” Statutes. If the FedRes’ product is so good, let it compete, freely, in the Marketplace.

    “…Although this principle had been recognized by other economists for almost a century theretofore, it received systematic exposition in Ludwig von Mises’s seminal treatise, Socialism, first published in the 1920s. So, during the heyday of central planning from the 1920s to the 1980s, no one should have been unaware of the problem. Nonetheless, the political elite and the intelligentsiia ignored it, just about everywhere…
    Economic theory also teaches that any scheme of fiat currency and fractional-reserve central banking is just as inherently flawed, incapable of permanent existence, and inevitably doomed to disaster as all-around, full-blown socialism, because fractional-reserve central banking systematically subverts the free market’s structure of prices through expansion of currency and credit–which results in redistribution of wealth, misallocation of scarce capital, and collapse in either depression or hyperinflation followed by depression. This is no new insight. The problems fractional-reserve banking causes were widely discussed in the 1800s; and the whole subject of political versus free-market money was exhaustively examined by Ludwig von Mises, in his treatise The Theory of Money and Credit, first published in the 1920s. (Probably the best book on this subject now available for the average reader is Murray Rothbard’s The Mystery of Banking.) But, throughout the Western world during the 1900s and even unto the present moment, the political elite, high finance and big business, and their hired intelligentsiia have generally ignored these problems–doubtlessly because irredeemable currency and fractional-reserve central banking have served their short-term interests, and the costs of the system have always been paid by picking the pockets of the common man…”
    http://www.fame.org/HTM/ARE%20MONETARY%20AND%20BANKING%20CRISES%20INEVITABLE%20IN%20THE%20NEAR%20FUTURE%20vieira%204-12-05.htm
    http://www.fame.org/

  9. Cursive,

    No, he & Charlie Merrill could, both, be hung in effigy, but, we should leave aside that waste of Time.

    Better, to me, would be the repeal of “Legal Tender” Statutes. If the FedRes’ product is so good, let it compete, freely, in the Marketplace.

    “…Although this principle had been recognized by other economists for almost a century theretofore, it received systematic exposition in Ludwig von Mises’s seminal treatise, Soc*al*sm, first published in the 1920s. So, during the heyday of central planning from the 1920s to the 1980s, no one should have been unaware of the problem. Nonetheless, the political elite and the intelligentsiia ignored it, just about everywhere…
    Economic theory also teaches that any scheme of fiat currency and fractional-reserve central banking is just as inherently flawed, incapable of permanent existence, and inevitably doomed to disaster as all-around, full-blown soc*al*sm, because fractional-reserve central banking systematically subverts the free market’s structure of prices through expansion of currency and credit–which results in redistribution of wealth, misallocation of scarce capital, and collapse in either depression or hyperinflation followed by depression. This is no new insight. The problems fractional-reserve banking causes were widely discussed in the 1800s; and the whole subject of political versus free-market money was exhaustively examined by Ludwig von Mises, in his treatise The Theory of Money and Credit, first published in the 1920s. (Probably the best book on this subject now available for the average reader is Murray Rothbard’s The Mystery of Banking.) But, throughout the Western world during the 1900s and even unto the present moment, the political elite, high finance and big business, and their hired intelligentsiia have generally ignored these problems–doubtlessly because irredeemable currency and fractional-reserve central banking have served their short-term interests, and the costs of the system have always been paid by picking the pockets of the common man…”–Dr. Edwin Vieira, Jr.
    http://www.fame.org/

  10. Cursive says:

    @MEH 5:56

    Is Guy Fawlkes day a waste of time? The Brits have done pretty well with that. Interesting what Leftback’s thoughts may be. These little national rituals do serve an ulitmate purpose, i.e. to remind our citizenry of the harms of traitors and all manner of bad actors. Agreed on the end of fiat currency and fractional reserve lending. It will end as surely as did the Soviet Union, but will it be in my lifetime?

  11. Cursive says:

    Anecdotal Alert: Just talked to my brother in Dallas, a/k/a “Home of the $30,000 Millionaire.” He says anywhere he goes to eat these days is virtually vacant. He says he has definitely seen a drop in conumption, and this in a city that is populated by people who pride themselves consuming things.

  12. RW says:

    A classic Dilbert strip today captures the times well: Capitalism will end with neither bang nor whimper but with a shrug. Not sure if embedding will work here so the URL is http://dilbert.com/strips/comic/2009-05-10/

  13. zerohedge says:

    the chart with a longer historical horizon and long-term trendlines: http://zerohedge.blogspot.com/2009/04/dows-weight-in-gold.html

  14. Bruce in Tn says:

    Cursive:

    I am also in cash…doesn’t bother me one bit the recent run up…I think the foundation is one of sand, so I content just to be patient here…(once again)..

  15. royrogers says:

    “Cursive:

    I am also in cash…doesn’t bother me one bit the recent run up…I think the foundation is one of sand, so I content just to be patient here…(once again)..””
    …………………………………………………………….
    by holding USD, you are supporting Bernanke just like the chinese,
    good luck

  16. call me ahab says:

    RW-

    thanks for the clip- funny stuff- sometimes a comic strip can say in a few words what would take most people paragraphs

  17. Graphite says:

    The long-term chart of this ratio is interesting. It shows how the “progressive” innovations of the early twentieth century basically succeeded into transforming the U.S. economy into a series of successive booms and busts. The supposedly successful welfare state created by the New Deal had to be propped up with inflation and debt, and we’ve reached the end of that game.

  18. Cursive says:

    BNT 8:17

    Yes, but, therein lies the problem. We have reached a point where being all in cash is not necessarily a safe haven. I do not believe that we will see inflation for 2 to 3 years, but I could be wrong. The point is that, given the amount of “quantitative easing” going on, if one were to chose cash, then one would have to remain vigilant of the eventual devaluation. Or, looked at differently, what of those of us who choose to follow the rally under the assumption that it is best to be invested because of the coming tsunami of inflation. People are making important investment decisions based on guesses about how the Fed will or will not manipulate the money supply and whether those efforts at manipulation will even work. The NYSE has been a casino, now our economy is a casino. It’s not suppossed to work that way. Don’t take that as me whining, the consequences of a lack of transparency will have ominous ramifications down the road. There will be many losers in this high-stakes game.

  19. call me ahab says:

    Bruce in Tn-

    I hear you- mostly cash myself- but I am still somewhat aggravated at the run-up- especially the last few weeks- in that it is based on a conspired and drawn out assessment of the health of TBTF banks that the market players were only too willing to accept- hopefully a more thoughtful assessment will gain some traction and the market will reflect such

    Ahab

  20. Cursive says:

    Test. WordPress is eating my blogs.

  21. Cursive says:

    Fourth attempt.

    BNT 8:17

    Therein lies the problem. Cash may not be a safe haven within the next year or two. People are making important investment decisions based on how the Fed will attempt to manipulate the money supply and whether those manipulations will even work. That will have disasterous consequences.

  22. franklin411 says:

    OT, but…great article in the WSJ about how Wall Street tried and failed to buffalo President Obama on Chrysler’s debt:

    * MAY 11, 2009
    U.S. Played Rough With Chrysler’s Creditors
    President Barack Obama’s auto task force heard a blunt message early this spring from J.P. Morgan Chase & Co., the largest lender to Chrysler LLC. In any deal to remake the troubled auto maker, Chrysler would have to repay its lenders all $6.9 billion it owed.

    “And not a penny less,” said James B. Lee Jr., vice chairman at the bank, in a call to auto task-force boss Steven Rattner on March 29.

    The next day, Mr. Obama called the banker’s bluff. The president stepped before a podium to announce that Chrysler could face a disorderly bankruptcy or even liquidation. His meaning was clear: If that happened, the lenders would get nowhere near $6.9 billion.

    A few hours later, Mr. Lee called Mr. Rattner back. “We need to talk,” he said.

    http://online.wsj.com/article/SB124199948894005017.html

  23. The Curmudgeon says:

    I’m in cash, and a bit of gold (which I consider to be “emergency” cash) and oil, because dollars are priced in oil nowadays.

    Andrew Jackson abolished the Second Bank of the United States, and paid the debt of the United States completely to zero. A little more Andy and a little less Timmy and Benny would be nice about now.

    As long as Godman Sachs (no, that’s not a typo–omniscient, omnipotent and omnipresent, at least in the financial world–sounds like a man-God to me) runs the country’s finances, unless you are one of ‘em, you can’t win, so I’ll stay away. It’s difficult enough to figure out a market that operates on discrete rules subject to minimum gaming by its overseers. It’s damn near impossible to figure one out that operates at the whim of Godman.

  24. franklin411:
    If you have read anything about Obama, you know he doesn’t like to rip people publicly by name(No, he didn’t name specific names during that Chrysler speech). Sometimes I wish he would. A great majority of the people would be behind him. Most people are fed up with the banksters(like JP Morgan).

  25. DL says:

    Another relevant issue here is the performance of the SPX versus the CRB index going forward. On March 9th, the ratio of the SPX to the CRB index was approximately 1.9. Some have argued that the March 9th low will not be revisited in nominal terms. Suppose that this is true in NOMINAL terms; what about in some sort of inflation-adjusted frame of reference?

    I think that the SPX/CRB ratio of 1.9 will be revisited eventually, but whether it takes two months or 5 years I don’t know.

  26. Cursive says:

    @franklin411 9:23

    Uh, I think the buffaloing began and ended with PPIP. You see, with PPIP, all manner of other problems for the banks melt away. Enjoy your false spring of green shoots for now. I’m going to enjoy hearing your take once we breach 10% on U-3 later this year and the banks are still reporting great earnings on the backs of the American taxpayer. Bush/Paulson started this crap, but Obama/Geithner have maintained and expanded it. I suggest you call your congressman/woman and Senators.

  27. “Is Guy Fawlkes day a waste of time? The Brits have done pretty well with that.”

    Cursive,

    yes, it is. Britain is nearly a Police State, how has GF-day helped them out?

    try the search terms: Britain Police State.

    here’s one, from the other side: “…We need ordinary Britons in their masses to unite behind our campaign. We need to invoke our Constitution, restate our right to govern ourselves and educate a dumbed-down populous to the reality of their virtual enslavement – a harsh fact that few will recognise or are prepared to accept as true despite overwhelming evidence.

    We are over-regulated, over-taxed, spied on, burdened by bureaucracy and political correctness, to the extent that we are even told the words and phrases that we can and cannot utter. Thieves, muggers and drug dealers escape with meaningless cautions, whilst the law abiding majority are fined and harassed by a militia-like officialdom who themselves take orders from compliant and controlled strata of middle mangers with an inflated sense of self-importance, hand-picked for their enthusiasm for social engineering and their busy-body mentality…”
    http://www.ukcolumn.org/2009/05/09/wanted-one-million-rebellious-britons/

  28. franklin411 says:

    @Calvin:
    I think the President knows that he’s gotten all the money and authority he’s going to get out of Congress and he has to work within the confines of TARP. It’s funny how in one breath, people were accusing him of being some sort of radical Marxist who wants to destroy capitalism, while in the other they accused him of being the servant of Wall Street.

    As to the question of naming names, I think the President handled it correctly as well. Polls have shown that Wall Street/bankers are hated by nearly everyone. There’s probably a better cliche for this, but…Why shoot a man who is busy hanging himself? ;-)

  29. The Curmudgeon says:

    franklin411:

    It is hard for me to see that anyone with any knowledge of history and the tyranny and oppression littered throughout it would imagine that political strong-arming of bond holders like a mafia don is a good thing. The bondholders had a contractual right to repayment that the US government was willing to steamroll over. What the Obama administration tried to do with Chrysler and its bondholders violated at least the spirit of the 5th Amendment protection against seizure of property without the due process of law:

    “No person shall be held to answer for a capital, or otherwise infamous crime, unless on presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”

    The 5th amendment descended from the Magna Carta, John Locke and embodies one of the greatest ideals in the founding of this county: That life, liberty and property do not belong first to the state and next the individual, but first to the individual. It stands as one of the greatest protections against government tyranny yet devised. Should we throw it all away for the simple expedient of saving a few UAW jobs so Obama can pay back some political favors?

  30. franklin411 says:

    @TC:
    Read the article. They had their due process, and they spurned it. Many of these creditors were offered the opportunity to make a 100% return on their investments, but they wanted more. They wanted a 400% profit. They gambled. They lost.

  31. DL says:

    franklin411 @ 9:40

    “the President knows that he’s gotten all the money and authority he’s going to get out of Congress and he has to work within the confines of TARP”.

    It remains to be seen whether he really will work within the confines of TARP. If he (via the Treasury or the FDIC) offers guarantees on assets, and those assets decline in value, he’ll going beyond TARP, perhaps way beyond.
    …………..

    “It’s funny how in one breath, people were accusing him of being some sort of radical Marxist who wants to destroy capitalism, while in the other they accused him of being the servant of Wall Street”

    Well he is indeed a servant of the bank executives, and the bondholders of the banks. He doesn’t think much of the bondholders of Chrysler and GM, however.

  32. Cursive says:

    @ MEH 9:38

    Britain’s problem is what plagues most of Europe: self-loathing, unchecked immigration and rampant welfarism. When I was in London roughly a decade ago, I was astonished at the numbers of Pakistani and Indian immigrants. I’d never seen that many Sihks in my life. I don’t think they shared the same dedication to Queen and Country that, say, Winston Churchill did.

  33. The Curmudgeon says:

    They had a contractual right to be repaid, whether that constituted a 400% or 4% profit. It was a deal Chrysler had made with the bondholders that the government was obligated to enforce, until bankruptcy, which is the only legal mechanism for breaking enforceable contracts, back-room government threats notwithstanding.

    JPMorgan Chase was itself compromised because of its TARP entanglement, but that still didn’t mean it, or any other bondholder, should have been forced to take less than bankruptcy would have provided, and that’s what the rest of the bondholders objected to–they were extrajudicially being moved down the priority chain by the Administration.

    It is most troubling to me that a young man like you can’t see the inherent danger in vesting so much power in one person. No man is perfect, or even close. That is why the constitution was written with its system of checks and balances, as well Obama knows. He’s just making sure, as his chief of staff said, that he doesn’t waste the opportunity presented by this crisis.

  34. Outlier says:

    I think the really operative phrase in the 5th amendment is “No person shall”. Now granted a few of those Chrysler bond holders may have actually been individuals, but I’m pretty most if not all were limited liability organizations of some sort and not people. When you use the framework of limited liability to initiate actions on your behalf there is a trade off, and that is that the organization itself is not entitled to constitutional rights given a person.

    Now that’s just my opinion, law tends to be interpreted slightly differently by the courts than I’d like so make of it what you will…

  35. Cursive says:

    @ franklin411 9:40

    Sorry to harsh your mellow, but those two critiques are not mutually exclusive. His critics are not having it both ways. Both analysis are correct. Obama has a socialist agenda. He, like many others including Dubya, are also very statist in their outlook. This breeds crony capitalism or, to be more blunt, fascism.

  36. DL says:

    Outlier @ 10:05

    I’m not sure exactly what your point is. I’m not a lawyer, but I do know that contract law does not have its basis in the U.S. Constitution. And I assume that there isn’t much about bankruptcy in the Constitution either. The issues of interest to me are: (a) what sort of deal would the Chrysler bondholders have gotten in bankruptcy, and (b) what sort of pressure did the Obama operatives put on the bondholders to cave in?

    Chrysler, in and of itself, isn’t going to have much effect on the economy one way or another. But the bankruptcy laws and their enforcement will have a direct effect on borrowing costs that corporations have to bear.

  37. The Curmudgeon says:

    In the law, LLC’s, Corps, etc. are considered “persons”. The requirements that property can not be taken without due process applies to corporations/llc’s as much as it does to individuals, and back-room threats by a journalist cum hedge-fund manager cum government agent (Rattner) do not constitute “due process”.

  38. Cursive says:

    franklin411 9:40

    His critics are not having it both ways. Both observations are true. He has a socialist agenda and he will
    protect certain industries as it serves his political self-interest. This is called crony capitalism. It
    is most definitely not the free enterprise system.

  39. The Curmudgeon says:

    @DL

    to mildly put it, the US constitution is all about contract law, just that most of it’s concern is the contract between the sovereign and its citizens. It is also very much concerned with property rights, of which a contractual obligation is one type.

    The real question is what sort of deal would the bondholders have gotten in bankruptcy, and that’s why so many objected. The Administration was pushing them down the priority chain in favor of it and the UAW, which was less than bankruptcy would probably have provided.

    And Bankruptcy is the only cause of action specifically provided for in the U.S. Constitution. The details are not laid out, except that it would be available, basically in leiu of debtor’s prisons.

  40. Cursive says:

    Anyone else having problems with posting comments?

  41. Cursive says:

    I lost several posts, but TC said it better than I did….

  42. DL says:

    The Curmudgeon @ 10:20

    “…the US constitution is all about contract law…”

    If you want to define the term “contract” in a way that goes far, far beyond its use in normal business transactions, then perhaps you’re right. I actually took a course in contract law several years ago, and there was no suggestion that the term “contract” should be defined nearly as broadly as you suggest.

  43. Outlier says:

    It’s true that corporations and the like tend to be granted the rights of persons under current interpretations of the constitution, but in my books that’s a travesty of justice. If Obama is going to change that than more power to them.

    @DL, my point is that The Curmudgeon is citing the constitution as the basis to defend the contract rights of a bunch of corporations whining about being stripped of due process by the government. In my book, the constitution gives a lot of rights to people, but those rights should not also be automatically granted to corporations.

  44. MRegan says:

    José Padilla. Fifth Amendment was written for natural persons, not juridical persons. Contract law is statutory and not sacrosanct. This is fetischism.

    Back in 1990 I was on a bus in Chimbote, Peru and a couple of thugs tried to pull as fast one. Too many things happened to describe here but one thing that applies is that one of the thugs ended up getting his nuts stomped on by a dude named El Enano Miguel Manay. Point is, nobody likes getting their nads stepped on. That’s why the three holdouts are crying: “no, jefe, no me lo pises.” We tossed the two out the back door, at about 35 mph. It was good plan, still is.

  45. franklin’s pro-State ‘arguments’ remind me of: “…Notwithstanding all the proclamations we have made to mankind, within the last ninety years, that our government rests on consent, and that that was the rightful basis on which any government could rest, the late war has practically demonstrated that our government rests upon force — as much so as any government that ever existed.

    The North has thus virtually said to the world: It was all very well to prate of consent, so long as the objects to be accomplished were to liberate ourselves from our connexion with England, and also to coax a scattered and jealous people into a great national union; but now that those purposes have been accomplished, and the power of the North has become consolidated, it is sufficient for us — as for all governments — simply to say: Our power is our right.

    In proportion to her wealth and population, the North has probably expended more money and blood to maintain her power over an unwilling people, than any other government ever did. And in her estimation, it is apparently the chief glory of her success, and an adequate compensation for all her own losses, and an ample justification for all her devastation and carnage of the South, that all pretence of any necessity for consent to the perpetuity or power of government, is (as she thinks) forever expunged from the minds of the people. In short, the North [*6] exults beyond measure in the proof she has given, that a government, professedly resting on consent, will expend more life and treasure in crushing dissent, than any government, openly founded on force, has ever done.

    And she claims that she has done all this in behalf of liberty! In behalf of free government! In behalf of the principle that government should rest on consent!…”
    http://www.lysanderspooner.org/notreason.htm

    Curmudgeon,

    amazing, no? how little We know of the Constitution.

    “The genesis of the bankruptcy power is the Bankruptcy Clause of the U.S. Constitution. The Constitution provides that Congress shall have the power “to establish . . . uniform laws on the subject of bankruptcies throughout the United States.” U.S. Const. art. 1, section 8. Bankruptcy statutes were passed by Congress in 1800, 1841, 1867, 1898 and 1978. The current bankruptcy law is the Bankruptcy Act of 1978, as amended. It is found in Title 11 of the United States Code.”
    http://www.thebankruptcylawyer.net/source.htm

  46. Cursive says:

    @ Outlier 10:27

    You would hand over our rights and freedoms to one man? WOW. Scary stuff. Just for a little word play, could you try substituting name of various dictators in place of Obama, then read and re-read until the problem you pose becomes evident.

  47. The long-term chart of this ratio is interesting. It shows how the “progressive” innovations of the early twentieth century basically succeeded into transforming the U.S. economy into a series of successive booms and busts.

    Causation is not correlation.

    You could also say that sunspot cycles, coupled with the invention of the telephone and the automobile and the last World Series victory by the Chicago Cubs, when combined, “basically succeeded into transforming the U.S. economy into a series of successive booms and busts.”

  48. DL says:

    Outlier @ 10:27

    “In my book, the constitution gives a lot of rights to people, but those rights should not also be automatically granted to corporations”.

    This may be above my pay grade, but the fact is that corporations are owned by stockholders. Perhaps more importantly, it seems to me that bankruptcy laws ought to control here. Then there are potentially coercive tactics (by Obama operatives) that cannot be reasonably addressed by legal means. For example, the “car czar” could have threatened to review the tax returns of all the bondholders, or have the SEC attack the hedge funds, or whatever. No one is providing any information about the tactics that were used (if any), so we are left to speculate.

    I suppose the moral of the story is, don’t buy bonds of a corporation that is teetering on the edge of bankruptcy, and which employees members of the UAW.

  49. Cursive says:

    @ MRegan 10:34

    If you are saying that the non-Tarp Chrysler bondholders are getting their just desserts, well then, just wait for what is in store for you later.

  50. Britain’s problem is what plagues most of Europe: self-loathing, unchecked immigration and rampant welfarism. When I was in London roughly a decade ago, I was astonished at the numbers of Pakistani and Indian immigrants. I’d never seen that many Sihks in my life. I don’t think they shared the same dedication to Queen and Country that, say, Winston Churchill did.

    This is a goof, right?

  51. DW,

    that’s too cute by 1/2

    the vaunted FedRes was masqueraded as a “Progressive” innovation..they are the Masters of the boom/bust cycle, pretty good at Economy Ramp n’ Crash, vers. 1.0 & 2.0, too..

  52. Outlier says:

    Also worth noting that when the Constitution and Bill of Rights was written corporations were a very different sort of beast than they are today. There were dramatically fewer of them, and most business was conducted by individuals or partnerships. The corporations that did exist were all based on charters crafted specifically for each instance by the government, so each corporation had it’s own government negotiated bounds and guidelines.

    For instance a corporation might be granted the right to build a bridge over the River Charles and for that purpose sell bonds of X term at X rate and also collect tolls for a said number of years on the completed bridge. The abstract corporations of today which are granted massive rights and protections under blanket incorporation laws did not really exist until the 1830s and did not take off until the railroads began spreading. The idea that a corporation should be granted the rights given to people under the bill of rights would be pretty alien to most of the founding fathers, and likely horrifying to most of them.

  53. franklin411 says:

    @Outlier:

    Your position regarding corporations is similar to the position of Theodore Roosevelt ca 1910. Corporations are not natural entities, like people. People are natural beings with natural, inherent rights, both under the Constitution and under natural law. But corporations are not natural. They’re creations of society, and they’re permitted to hold the rights of individuals because there it serves the greater good for them to do so. For example, it would be impossible for a single individual to finance the design and manufacture of a jumbo jet. The only way modern civilization is possible is because we allow many individuals to pool their capital in corporations. But as society’s creations, corporations exist at the sufferance of the people. They must always be regulated to ensure that they serve the public interest, without which they have no reason to exist.

    http://teachingamericanhistory.org/library/index.asp?document=501

  54. Cursive says:

    @DL 10:37

    You have divined the moral of the story. Furthermore, this is the law of unintended consequences. If smart money managers were to take your analysis to heart, the cost of capital to all companies with a union shop just went up several hundred basis points. That is a big competitive disadvantage for the companies involved. And we wonder why capital has moved overseas?

  55. Douglas Watts Says: May 10th, 2009 at 10:39 pm

    that, though, I tend to concur with. sounds like came from an Intro to Xenophobia text used @ Eugenics U.
    http://www.thefreedictionary.com/xenophobia

  56. Steve Barry says:

    Just thought I’d check the current S&P earnings estimates.

    Looky here…inside we find a special historic footnote:

    “As Rpt EPS for 12 Mo Sep,’09 estimated to be negative ($-1.83 EPS) – first time in index history.”

    What to make of this? I can be generous and go forward in time to take out 4Q08 from 12 mos estimates…the 12 mos. estimate ending 12/31/09 is about $28…giving an average market multiple of 14 (again very generous), gets us to a fair value of 400. I am being very generous on all counts.

  57. MRegan says:

    Yeah, that and I’m saying they’re crying like little girls, no, worse- paunchy ex-frat boys with unresolved issues about their mommies. And I ain’t afraid of your boogey man. If I thought that there existed in North American culture any true attachment to equal application of law I would be interested in the ‘rights’ of the bondholders but this is one more chapter in the exercise of power in the US of A. You just don’t like it cuz the calvary getting shot full of arrows instead of having free rein in slaughtering the unarmed.

  58. Outlier says:

    @Cursive 10:35

    I said nothing even remotely like what you are trying to put in my mouth. There is an awful of lot of really bad interpretations of the constitution involved in the sorts of rights granted corporations today and I’d love to see Obama take actions that lead to those interpretations be overturned, but it needs to happen via the due process of the laws of this land and the powers granted to him.

  59. DL says:

    Steve Barry @ 10:45

    “giving an average market multiple of 14 (again very generous), gets us to a fair value of 400”

    Perhaps we won’t see the 14 multiple until the year 2013. Or, who knows? Maybe not until 2017.
    This bear may not be in any big hurry.

  60. Mark H — the vaunted FedRes was masqueraded as a “Progressive” innovation..they are the Masters of the boom/bust cycle, pretty good at Economy Ramp n’ Crash, vers. 1.0 & 2.0, too..

    If the reference of “progressive” was specifically to creation of FedRes, then I have no qualms. The next reference mentioned “welfarism” — which I took to mean something other than the Fed.

  61. Outlier says:

    @F411

    “They’re creations of society, and they’re permitted to hold the rights of individuals because there it serves the greater good for them to do so. For example, it would be impossible for a single individual to finance the design and manufacture of a jumbo jet. ”

    I think you are conflating two very different sorts of rights granted corporations and their shareholders into one. Limited Liability is what allow corporations to pool large amounts of capital and undertake large and risky ventures. This has absolutely nothing to do with granted them a larger set of rights like those granted to people in the US Bill of Rights. Corporations existed for centuries before the Supreme Court granted those rights to US corporations. And in most parts of the world corporations still exist without those rights.

  62. Cursive says:

    @MEH 10:45

    You would jump to eugenics? Please scroll down the throttle on the neural hypertexting.

  63. Clem Stone says:

    Hmm, i just quickly breezed through all previous comments and noticed only one or two mentions of gold. I thought this thread was about gold so it’s interesting that nobody has much of an opinion about it. That’s the only bullish thing i can think of.

    Here’s my opinion: Gold is and always will be fundamentally crap! I wouldn’t go near it except as a chart trade like any other chart trade.

  64. Graphite says:

    To the extent that the welfare state was only made possible by inflation and debt issuance (the crushingly high tax rates needed to support its full heft being neither politically nor economically supportable), then welfarism is actually intimately tied with the existence of a central bank issuing fiat money, and yes, it can all be broadly painted as part of the “progressive” package.

  65. Cursive says:

    @Outlier 10:50

    Fair enough. Perhaps I took it wrong. I agree that corporations, particularly in the TBTF banks, seem to enjoy many priviledges that they shouldn’t. I just want a level playing field and a free enterprise system, not political retribution meted out on the whim.

  66. Cursive says:

    @ Clem

    I felt the same way two years ago. Now I wish I had bought the crap in the 300′s and 400′s. Would I touch it here? Indecision…

  67. Graphite says:

    Furthermore, there is a rational chain of argument by which one can establish that higher tax rates and inflation would push a larger share of a national economy into impatient borrowing and speculation, while this would be harder to construct when trying to tie the boom/bust cycles to the record of the Chicago Cubs.

    Booms and busts would exist without the FedRes and a welfare state, but these have made such cycles much more acute and harmful, by promoting an historically unprecedented accumulation of debt.

  68. Cursive says:

    @SB 10:45

    I read more and more of people, like Dshort, of the P/E 10 ratio, introduced by Graham and Dodd, that smooths it out over the previous 10 year average of earnings. Your thoughts?

  69. boom/bust, more strictly speaking, is the province of Fractional-Reserve Banking, the FedRes is, merely, the Cartel-izing Front-piece, w/ unConstitutional Legislative imprimatur, of the Practice.

    ” promoting an historically unprecedented accumulation of debt.” occurs b/c the FedRes, by Fiat, was granted the Power to create Fiat. This issuance of which had to be, by Fiat, accepted..
    http://www.thefreedictionary.com/fiat

    as an aside, Fiat should be wise, and not try to sell Fiats in the US..

    Curvise,

    note: “sounds like”, in the same that 44′s “Yes, we can” sounds like Ceasar Chavez’ “Si, se puede”

  70. Stuart says:

    In a post bubble contraction, gold rises versus financial assets. That is what this chart is showing. In fact the “real price” of Gold , which is Gold relative to other metals/commodities, it really takes off and so do the miners. These periods typically last for 20 years.

    reference: http://www.institutionaladvisors.com (Bob Hoye)

    Highly recommended.

  71. Steve Barry says:

    @Cursive: Using 10 year average earnings probably is a good idea usually. The boys at the Comstock Funds did so recently and came up with an S&P target of 500. In this case though, using 10 year average earnings will include parts of two distinct bubbles…tech stocks and housing – it will likely overestimate the index fair value.

  72. Cursive says:

    @ SB 11:24

    Thanks. I always read your posts with interest.

  73. Stuart gets it w/ “gold rises versus financial assets.”

    IOW, “Things” v. “Paper”

    LSS: too much paper v. too few things, or as the Economic Fractalist would say: the Physical World has reached its Debt-saturation point.

    peep would do well to brush-up on their Relative Pricing skillz..

    b/c the non-linearity going fwd: is going make things like this: “smooths it out over the previous 10 year average of earnings.” look awkward.

    though, P/E 10 would be Great if it visioned the last 5, and the next 5..
    http://www.thefreedictionary.com/visioned

  74. Marcus Aurelius says:

    Wow. Got here late.

    Corporations: are treated as persons under the law, but there is precious little Constitutional about that. You can’t jail a corporation, nor deprive it of life, or liberty. We have lots of laws (mostly legal precedents, but many statutes) that do not conform to Constitutional restrictions. We’d be smart to start taking back our liberties (conservatives beware — our Constitution is the most liberal of documents). Bottom line: if it doesn’t infringe on your rights, I can do it. That’s liberty.

    As for gold, I’ve owned a good bit of it (foreign coin, actually) for about 3.5 years. Glad I bought it, So far, it’s increased and held its gains well. If you don’t believe in it, that’s okay by me — 99% of the world population does (and has since the beginning of human history), and I have no overwhelming need to trade with the 1% that doesn’t. Why is gold valuable? Who cares? Maybe we’re just like Bower birds when it comes to gold.

  75. Ducky62 says:

    It’s funny how in one breath, people were accusing him of being some sort of radical Marxist who wants to destroy capitalism, while in the other they accused him of being the servant of Wall Street.

    What are they teaching in academic history departments these days? These things can be one and the same.
    Pro-business is NOT pro-free market.In free markets businesses fail.

  76. “They’re creations of society, and they’re permitted to hold the rights of individuals because there it serves the greater good for them to do so. For example, it would be impossible for a single individual to finance the entire U.S. tobacco industry and give millions of children lung cancer and emphysema.”

    I was given little sample boxes of cigarettes by a pretty lady when I was 13 years old at the gate of the Springfield, Mass. Exposition. She worked for R.J. Reynolds and was there to give out free boxes of cigarettes to kids. This was in 1978. This is how I got addicted to smoking cigarettes for the next 30 years and have now royally destroyed my lungs and my voice and my body.

    Go corporations.

    Always for the greater good.

    Word.

  77. danm says:

    Curmudgeon:

    I agree with your contractual argument but I can’t help but wonder how many of these bonds are in the hands of the investment bankers or venture capitalists who bought them at pennies on the dollar and are hoping to get 30 cents but pleading for as close as possible to 100.

  78. danm says:

    Gold?

    Anybody else worried that if suddenly there was a total and utter loss of confidence in the currency and gold shot up, that governments would make it illegal to own it?

    So unless you are worth millions, I wonder how safe it is to have gold if you end up having to sell it in the black market to get some cash.

    Just wondering…

  79. wally says:

    It was 20 years up; if it is 20 years down it will wreck a lot of retirements.

  80. batmando says:

    @ Cursive Says:
    Anyone else having problems with posting comments?

    Yes, on the Private Sector Payroll Changes thread.