Tuesday, May 6, 2008

The Price of Gold

Quote of the week:
"You have to ask yourself why OFHEO is letting them take on more mortgages. The last thing the Fed, or the administration wants is for the companies to go out and buy more mortgages and blow up." - David Dreman, chairman of Jersey City, New Jersey-based Dreman Value Management.
David connects the War on Terror with mortgages. Personally, I didn't think it could be done.
I can just picture it now ... Person A looks up and says 'What was that Noise? Was it a bomb?'. Person B replies, 'What world are you living in friend? Bombs are so 90's. It was a mortgage company!'

Commentary for the Week:
Why is the price of Gold so high?

The price of Gold has recently shot up above $970 US. Many intelligent people have opined and argued that this is because of the shortage of supply and the increase in demand from Asia. What they really mean to say is that at the rate people from China and India are growing up, getting married and buying jewellery for the aforesaid marriages, the shiny stuff going to be all gone before you and I will be able to say 'I do' in Mandarin or Hindi. This is of course, not entirely accurate. Not only is it quite easy and beautiful to say 'I do' in Mandarin and Hindi, it is also inaccurate because they have framed the question the wrong way around. While it may be true that the price of Gold is getting higher and higher by the day due to demand and supply pressures, it is more true that it is the value of the printed paper we call money that is actually falling drastically. The market for Gold is just one of the areas where we are seeing the effects first.
What evidence do I have for this, you ask? One's innate genius aside, there is of course, the price of oil, the price of bread, the price of wheat and the price of milk that we can take a look at. While I haven't actually been grocery shopping in a while and am surviving on the various flora such as mushrooms that are fed to me by my better half; and I haven't actually filled in any gas in months because the car is in my garage protesting the unprecedented severity of Winter, I am told by reliable sources that the price of things that are Real is rising quite quickly. What this means of course, is that while we feel it is the price of our consumables that is rising, it is actually the fact that intangibles such as paper money and the hours we spend at work that are being devalued in terms of purchasing power. This is even worse for our elders and seniors, or those who are on a fixed income, who get a certain dollar amount a month to spend but are being confronted with prices that have risen beyond all recognition. While I don't mean to be alarmist, the time when Gas Pumps prices and Ittihad's toll free phone no. below will perhaps contain the same number of digits. So what does all this mean for you anyway? You already know that prices are going up. Here are a couple of suggestions for you to think about:

1. To ensure that your paycheque keeps current with reality, I suggest that you ask your HR department at work for an extra zero at the end of the monthly paycheque. To argue your case, you can share with them your pop-corn receipt from the last movie you saw and observe to them gently, but with the air of an Expert, that if this keeps up, we as a society might have to add a couple of zeros to the five dollar bill for it to be enough to buy pop-corn.

2. While you may be tempted to call your broker (who btw did not tell you to short Insurance stocks) and demand some Gold in your portfolio, perhaps you should make a call to your MP instead. You should demand that the Bank of Canada stop 'loaning' money hand over fist to subprime lenders because that excess printing of money is costing you some good pop-corn.

Alternatively of course, you could not believe me and move to China, find someone to marry and learn to say 'I do'. I am thinking then that the Gold would just magically appear, and all the political machinations at our Central Bank would just be a memory, just like $0.50 gas.

Finance News:

1. As I suggested not-so-humbly two weeks ago, the largest Insurance company in the world confesses to huge losses of untold proportions ... all you short-sellers out there owe me a dinner ... read more here

2. The largest IPO in US history is going to be a credit card company ... go figure ... read more here

3. For all those that thought Ethanol was a good investment ... read more here

Economic News:

1. Corporate bankruptcies are forecasted to rise in the next year. Now, remember the recent investments that GCC sovereign funds made into banks? What effects will these bankruptcies have on bank stocks? Not positive I fear. Much better not to have invested of course, but if they had to invest, better to have waited a bit more, let them sweat a bit more instead of jumping in at the first sign of trouble ... read more here


Islamic & Middle East Finance:

1. Funny how most outbound Middle Eastern money is going to the UK, but UK is the worst positioned country vis-a-vis the US$ ... read more here


1. 1% of the US population is in prison ... Wasn't the difference between the Republicans and Democrats less than 1% during the last election? And don't people in prison vote for Democrats? Hmmm ... if only I was a conspiracy theorist ... read more here

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