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TMFAleph1 (96.59)

The Bull 'n Bear on Gold, Uncle Sam's 'AAA' Rating

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15

April 22, 2011 – Comments (7) | RELATED TICKERS: BRK-B , GLD , WFC

In today's WSJ:

- The Wall Street Journal's page announces that the World is Bitten by Gold Bug. Is this the sign of a top in the gold market, just as BusinessWeek's infamous 'Death of Equities' headline in 1979 was the sign that stocks had bottomed and were about to embark on a huge bull run? I don't think so; I don't perceive that there is the sort of frenzied buying of gold across all types of investors that precedes an exhaustion in interest, and, eventually a reversal that marks the bursting of a bubble.

 On the topic of gold, I challenged a few gold bulls to rebut my quantitative argument that gold is substantially overpriced at these levels. Dave in Qatar (whereaminow) took up the challenge with brio; you can find his response here. I will respond when I get the chance.

- On a related note, there is a good pice by the WSJ's Heard on the Street column regarding Monday's warning from S&P concerning the outlook for Uncle Sam's 'AAA' rating (from 'stable' to 'negative'). Apparently Deutsche Bank has produced a report, according to which the U.S. is riskier than Italy, Spain or Belgium!

Enjoy Good Friday!

Alex Dumortier

 

7 Comments – Post Your Own

#1) On April 22, 2011 at 11:41 PM, portefeuille (99.66) wrote:

Deutsche Bank has produced a report, according to which the U.S. is riskier than Italy, Spain or Belgium

US Fiscal Challenge: A MinskyMoment?

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#2) On April 23, 2011 at 9:41 AM, TMFAleph1 (96.59) wrote:

Nice find. Thanks, portefeuille!

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#3) On April 23, 2011 at 11:11 AM, MegaEurope (20.41) wrote:

That report is pretty lame.  They just ignore all the information that weakens their thesis.  For example, no mention of the PIIGS lacking control of monetary policy.

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#4) On April 23, 2011 at 11:33 AM, MegaEurope (20.41) wrote:

Some charts might be helpful regarding gold.

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#5) On April 23, 2011 at 11:57 AM, TMFAleph1 (96.59) wrote:

Thanks for those graphs, MegaEurope. Relative valuations are useful, but what is your position? Are stocks undervalued because the Dow/ Gold and Dow/ Silver ratios are below trend or do the graphs indicate that gold and silver are overvalued?

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#6) On April 23, 2011 at 1:27 PM, MegaEurope (20.41) wrote:

The latter.

There are other good ways to value stocks (earnings, cash flow, book value, sales, real interest rates, etc.).

Also I think it's almost always better to use real returns or ratios and logarithmic graphs instead of linear.  Shows the data more clearly than nominal, linear graphs.

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#7) On April 23, 2011 at 2:42 PM, MegaEurope (20.41) wrote:

Also there are lots of people who don't believe in official inflation numbers and therefore dismiss real return graphs.  (Quite a few of these goldbugs commented on your original article.)  Using a ratio like Dow/gold helps address this issue.

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