View Full Version : Why don't price go down during a recession?
phantom_opera
23-03-13, 15:53
Why Don't Prices Decline During A Recession?
[Q:]When there is an economic expansion, demand seems to outpace supply, particularly for goods and services that take time and major capital to increase supply. As a result, prices generally rise (or there is at least price pressure) and particularly for goods and services that cannot rapidly meet the increased demand such as housing in urban centers (relatively fixed supply), advanced education (takes time to expand/build new schools), but not cars because automotive plants can gear up pretty quickly.
First, do you agree with this and if not, how do you see it?
Second, when there is an economic contraction, supply initially outpaces demand. However prices for most goods and services don't go down, and neither do wages.
My main question is why don't prices go down for goods and services? I expect for wages, it's just stickiness from the corporate/human culture... people don't like to give pay cuts... managers tend to lay off before they give pay cuts (though I've seen exceptions). Why don't prices go down for most goods and services?
[A:] Great question! Your analysis is spot on. Now on to your question:
In my article titled Why Does Money Have Value we saw that changes in the level of prices (inflation) was due to a combination of the following four factors:
The supply of money goes up.
The supply of goods goes down.
Demand for money goes down.
Demand for goods goes up.
In a boom, we would expect that the demand for goods to rise faster than the supply. All else being equal, we would expect factor 4 to outweigh factor 2 and the level of prices to rise. Since deflation is the opposite of inflation, deflation is due to a combination of the following four factors:
The supply of money goes down.
The supply of goods goes up.
Demand for money goes up.
Demand for goods goes down.
We would expect the demand for goods to decline faster than the supply, so factor 4 should outweigh factor 2, so all else being equal we should expect the level of prices to fall.
From my article titled A Beginner's Guide to Economic Indicators we saw that measures of inflation such as the Implicit Price Deflator for GDP are procyclical coincident economics indicators, so the inflation rate is high during booms and low during recessions. The information above shows that the inflation rate should be higher in booms than in busts, but why is the inflation rate still positive in recessions?
The answer is that all else is not equal. The money supply is constantly expanding, so the economy has a consistent inflationary pressure given by factor 1. The Federal Reserve has a table listing the M1, M2, and M3 money supply. (To learn about these definitions, see How much is the per capita money supply in the U.S.?). From Recession? Depression? we saw that during the worst recession America has experienced since World War II, from November 1973 to March 1975, real GDP fell by 4.9 percent. This would have caused deflation, except that the money supply rose rapidly during this period, with the seasonally adjusted M2 rising 16.5% and the seasonally adjusted M3 rising 24.4%. Data from Economagic shows that the Consumer Price Index rose 14.68% during this severe recession. A recessionary period with a high inflation rate is known as stagflation, a concept made famous by Milton Friedman. While inflation rates are generally lower during recessions, we can still experience high levels of inflation through the growth of the money supply.
So the key point here is that while the inflation rate rises during a boom and falls during a recession, it generally does not go below zero due to a consistently increasing money supply.
And we are in the era where M2 grows by 16% in Indonesia |& India, 13% in China, 9% in Singapore
phantom_opera
23-03-13, 15:57
Look at US history, whenever there is recession, money will grow even faster, faster and faster and faster
http://research.stlouisfed.org/fred2/data/M2_Max_630_378.png
phantom_opera
23-03-13, 16:04
and what is a bubble?
an asset bubble happens when the growth rate of that asset far exceeds growth rate of M2 e.g. share price of EMC gone from $4 to $120 during NASDAQ boom, price of HDB gone from 100k to 400k during last property bubble
from 2005 to now, M2 in Singapore has doubled ... property psf also doubled on average
therefore ... we are not in bubble, at least NOT YET ;)
phantom_opera
23-03-13, 16:12
China's broad money supply rose 15.9 percent year on year to 99.21 trillion yuan (about 15.8 trillion U.S. dollars) at the end January, compared with 10.4 trillion U.S. dollars of outstanding M2 in the United States, data from the Chinese and U.S. central banks showed.
Zhou explained China's M2 will expand relatively fast at the beginning of the year due to the New Year and Spring Festival.
"I can't tell whether we can achieve this year the expected 13-percent growth in M2 or not, it all depends on developments in the coming months," said 65-year-old Zhou.
wow you guys so high tech .... just observed that lesser people wants to sell, more people wants to buy during recession :D
and what is a bubble?
an asset bubble happens when the growth rate of that asset far exceeds growth rate of M2 e.g. share price of EMC gone from $4 to $120 during NASDAQ boom, price of HDB gone from 100k to 400k during last property bubble
from 2005 to now, M2 in Singapore has doubled ... property psf also doubled on average
therefore ... we are not in bubble, at least NOT YET ;)
er... does that means if one's salary didn't double from 2005 to now, then is actually suffering pay cut? :D
phantom_opera
23-03-13, 18:11
er... does that means if one's salary didn't double from 2005 to now, then is actually suffering pay cut? :D
didn't u see many complain about stagnant lower tier salary due to competition from foreigners??
but beware hoh ... all along we "make use" of cheap foreginer labors to maintain lower prices in kopitiam, town council, food court ... be prepared for huge inflation when all foreigners are gone and a cleaner salary is 2k pm
They asked for minimum wage as well, more inflation.
didn't u see many complain about stagnant lower tier salary due to competition from foreigners??
but beware hoh ... all along we "make use" of cheap foreginer labors to maintain lower prices in kopitiam, town council, food court ... be prepared for huge inflation when all foreigners are gone and a cleaner salary is 2k pm
didn't u see many complain about stagnant lower tier salary due to competition from foreigners??
but beware hoh ... all along we "make use" of cheap foreginer labors to maintain lower prices in kopitiam, town council, food court ... be prepared for huge inflation when all foreigners are gone and a cleaner salary is 2k pm
thats when i reenter the workforce :D
perfect mitigation of risks.
btw you should start a youtube channel. econs for dummies. use v layman terms to explain.
I feel compel to share some insights about money supply in macroeconomics. During recession, when people are spending less, more monies are being 'held up' through saving. During boom time, people spend more and hence money supply is lossen up within the system.
Central banks use interest rate and most recently (Fed in 2008) money supply to manage inflation and unemployment. There is evidence to suggest that there is caustion between large money supply and price due to inflation. That is the reason why the FED has undertaken to reduce money supply (hence increase interest rates) the moment inflation hits the United States.
Price is more of a function of supply and demand and the price elasticity of supply and the price elasticity of demand in microeconomics.
phantom_opera
24-03-13, 10:43
property in Sg is supply inelastic, made worse by low productivity, unlike cars
u really think us fed will shrink m2?? how accurate is their CPI also in question .. gas price has gone up from 2.5 to 3.5 and airlines all fold due to high jet fuel price, oil is supply inelastic
money printing causes goods with limited supply elasticity to go up fast n furious but goods with supply side elasticity still under control with lower velocity of money in G7
if not because china has seemingly unlimited supply of cheap labor from rural west, iPhone price would have doubled
Soon we will see $2 coins as a norm.
Bak chor mee and chicken rice minimum $10.
:scared-3:
property in Sg is supply inelastic, made worse by low productivity, unlike cars
u really think us fed will shrink m2?? how accurate is their CPI also in question .. gas price has gone up from 2.5 to 3.5 and airlines all fold due to high jet fuel price, oil is supply inelastic
if not because china has seemingly unlimited supply of cheap labor from rural west, iPhone price would have doubled
Prices of Singapore's properties are largely managed through either the supply side or the demand side. All the CMs are targeting the demand curve while it takes time for the supply to increase.
Quote: "The Federal Reserve on Wednesday agreed to keep a key short-term rate near zero until the 7.7% unemployment rate is 6.5% or lower.
The short-term rate will also stay unchanged at 0.25%, the Fed said, until the current 2.2% inflation pace hits 2.5%. Tying the one rate it controls to unemployment and inflation targets is unprecedented, economists said." Unquote USA Today 12, Dec 2012
phantom_opera
24-03-13, 10:50
Soon we will see $2 coins as a norm.
Bak chor mee and chicken rice minimum $10.
:scared-3:
agree, our cheap foreign labor helped to make kopitiam 3 dollar chicken rice sustainable .. now our xenophobic citizens want to chase the
out.. wait till u see 10$ chicken rice to repent
live to repent
Leeds what is yr point ?? What is so "compelled" about ?
"use monetary policy ... to manage unemployment "... ?
phantom observations are far more realistic and to the point
phantom_opera
24-03-13, 10:59
it is further complicated by china US strange relationship as factory of the world vs consumer of the world, China M2 increased 25pc in 2009 following QE1 in US has set the stage of a new kind of capitalist system where central bank is Godfather of market
Singapore is overwhelmed by the Kiasu Syndrome. :D
Prices of Singapore's properties are largely managed through either the supply side or the demand side. All the CMs are targeting the demand curve while it takes time for the supply to increase.
Quote: "The Federal Reserve on Wednesday agreed to keep a key short-term rate near zero until the 7.7% unemployment rate is 6.5% or lower.
The short-term rate will also stay unchanged at 0.25%, the Fed said, until the current 2.2% inflation pace hits 2.5%. Tying the one rate it controls to unemployment and inflation targets is unprecedented, economists said." Unquote USA Today 12, Dec 2012
Prices of Singapore's properties are largely managed through either the supply side or the demand side. All the CMs are targeting the demand curve while it takes time for the supply to increase.
Quote: "The Federal Reserve on Wednesday agreed to keep a key short-term rate near zero until the 7.7% unemployment rate is 6.5% or lower.
The short-term rate will also stay unchanged at 0.25%, the Fed said, until the current 2.2% inflation pace hits 2.5%. Tying the one rate it controls to unemployment and inflation targets is unprecedented, economists said." Unquote USA Today 12, Dec 2012
The US economy is now in bull run, the 7.8% unemployment can drop to 6.5% in less than 6 months.
Leeds what is yr point ?? What is so "compelled" about ?
"use monetary policy ... to manage unemployment "... ?
phantom observations are far more realistic and to the point
To answer your question, you need to ubderstant the roles of central banks. Please goggle and you will appreciate my writing. It is quite complex which I tried to simplify in layman terms here.
To answer your question, you need to ubderstant the roles of central banks. Please goggle and you will appreciate my writing. It is quite complex which I tried to simplify in layman terms here.
On the contrary, your postings are full of superficial "economic" theories that you so proudly proclaimed,without even the slightest idea of the way market operates. Complex is not the word, "beating around the bush" is. As put forward once by a member here , "A level" style economics writing.
So what is so "compelling" about phantom's theory ? I failed so see anything that is so "compellingly" wrong.
On the contrary, your postings are full of superficial "economic" theories that you so proudly proclaimed,without even the slightest idea of the way market operates. Complex is not the word, "beating around the bush" is. As put forward once by a member here , "A level" style economics writing.
So what is so "compelling" about phantom's theory ? I failed so see anything that is so "compellingly" wrong.
Is is perfectly fine if you take on the other views. I am presenting the basic of economics which are well supported. Please goggle to understand more.
Really? Let's see then.... :p
On the contrary, I expect US to achieve 6.5% unemployment earliest by early 2016... So it means many more good years or many more bad years depending on which side your interest is in. So which side is your interest in? From what you said, I think it is very obvious...
The US economy is now in bull run, the 7.8% unemployment can drop to 6.5% in less than 6 months.
phantom_opera
24-03-13, 12:26
you can increase M2 anytime you want, but you can never shrink (look at the 25% increase in 2009) lol
http://research.stlouisfed.org/fred2/data/MYAGM2CNM189N_Max_630_378.png
phantom_opera
24-03-13, 12:32
anything supply inelastic will follow, from this inflation-adjusted graph u can see that normally oil price should be around 20USD only
http://inflationdata.com/inflation/images/charts/Oil/Inflation_Adj_Oil_Prices_Chart_sm.jpg
gasoline
http://inflationdata.com/Inflation/images/charts/Oil/Inflation_adjusted_gasoline_price_med.jpg
college education
http://inflationdata.com/Inflation/images/charts/Education/education_sm.jpg
As what the Fed had said, M2 will be reduced through selling of gov's bonds hence reducing the money supply and increasing the interest rates once inflation and unemployment hit target.
phantom_opera
24-03-13, 12:49
copper
http://www.tradingeconomics.com/charts/commodity-copper.png?s=hg1&d1=20020101&d2=20130331
gold in AUD (as AUD is more stable)
http://www.sharelynx.com/chartstemp/sharelynxgold008.php
Really? Let's see then.... :p
On the contrary, I expect US to achieve 6.5% unemployment earliest by early 2016... So it means many more good years or many more bad years depending on which side your interest is in. So which side is your interest in? From what you said, I think it is very obvious...
confirm many more good years.. in 2016. :D
Amber Woods
24-03-13, 17:44
confirm many more good years.. in 2016. :D
Remember that property is illiquid. 3 or 4 years is consider short term.
Is is perfectly fine if you take on the other views. I am presenting the basic of economics which are well supported. Please goggle to understand more.
You still do not get it , do you ?
In A level, undergrad, you learn about demand, supply, "basic economic theories". Everything fits the basic economic theories.
In postgrad studies, you learn about abnormality in basic demand/supply equations. The impact and hence modifications of the assumptions where your "basic economic theories" needs to be adjusted.
In doctorate, post doctorate studies, you realize all you learned about "basic economic theories" esp supply/demand are wrong. Human process is stochoiasic, decisions are often not rational, all ppl do not have equal information, physical commodities are not demand driven, existence of governments dominates supply decision, etc. new idea of economics evolves every day. Ppl realize human behavior is impossible to quantified. Top economists disagree with each other all the time.
So where are you ? Very much like step 1. Wheereas phantom's theories are step 2 onwards. While you are still arguing "basic economic theories", many members here already look way beyond that. So please stop thinking only you know "basic theories" and others know nothing,such that you are so "compelled" to explain. It is you that need to learn what real life economics is.
Pty supply is not only inelastic, demand is also sentiment driven. And pty supply in diff areas are not fungible with each other. Nothing is simple here.
You still do not get it , do you ?
In A level, undergrad, you learn about demand, supply, "basic economic theories". Everything fits the basic economic theories.
In postgrad studies, you learn about abnormality in basic demand/supply equations. The impact and hence modifications of the assumptions where your "basic economic theories" needs to be adjusted.
In doctorate, post doctorate studies, you realize all you learned about "basic economic theories" esp supply/demand are wrong. Human process is stochoiasic, decisions are often not rational, all ppl do not have equal information, physical commodities are not demand driven, existence of governments dominates supply decision, etc. new idea of economics evolves every day. Ppl realize human behavior is impossible to quantified. Top economists disagree with each other all the time.
So where are you ? Very much like step 1. Wheereas phantom's theories are step 2 onwards. While you are still arguing "basic economic theories", many members here already look way beyond that. So please stop thinking only you know "basic theories" and others know nothing,such that you are so "compelled" to explain. It is you that need to learn what real life economics is.
Pty supply is not only inelastic, demand is also sentiment driven. And pty supply in diff areas are not fungible with each other. Nothing is simple here.
I only need to ask you the following question:
1. Why does the FED increase money supply?
2. Why does the FED set target to reduce money supply (increase interest rates) when inflation/unemployment hit target?
To me the above are basic marco economics. I had answered the above questions.
Did you google "the roles of central banks" that I suggested you to do? If you do not, then there is no way you can understand my writings.
You still do not get it , do you ?
In A level, undergrad, you learn about demand, supply, "basic economic theories". Everything fits the basic economic theories.
In postgrad studies, you learn about abnormality in basic demand/supply equations. The impact and hence modifications of the assumptions where your "basic economic theories" needs to be adjusted.
In doctorate, post doctorate studies, you realize all you learned about "basic economic theories" esp supply/demand are wrong. Human process is stochoiasic, decisions are often not rational, all ppl do not have equal information, physical commodities are not demand driven, existence of governments dominates supply decision, etc. new idea of economics evolves every day. Ppl realize human behavior is impossible to quantified. Top economists disagree with each other all the time.
So where are you ? Very much like step 1. Wheereas phantom's theories are step 2 onwards. While you are still arguing "basic economic theories", many members here already look way beyond that. So please stop thinking only you know "basic theories" and others know nothing,such that you are so "compelled" to explain. It is you that need to learn what real life economics is.
Pty supply is not only inelastic, demand is also sentiment driven. And pty supply in diff areas are not fungible with each other. Nothing is simple here.
Amk u are very good.
Leeds what is yr point ?? What is so "compelled" about ?
"use monetary policy ... to manage unemployment "... ?
phantom observations are far more realistic and to the point
You still do not get it , do you ?
In A level, undergrad, you learn about demand, supply, "basic economic theories". Everything fits the basic economic theories.
In postgrad studies, you learn about abnormality in basic demand/supply equations. The impact and hence modifications of the assumptions where your "basic economic theories" needs to be adjusted.
In doctorate, post doctorate studies, you realize all you learned about "basic economic theories" esp supply/demand are wrong. Human process is stochoiasic, decisions are often not rational, all ppl do not have equal information, physical commodities are not demand driven, existence of governments dominates supply decision, etc. new idea of economics evolves every day. Ppl realize human behavior is impossible to quantified. Top economists disagree with each other all the time.
So where are you ? Very much like step 1. Wheereas phantom's theories are step 2 onwards. While you are still arguing "basic economic theories", many members here already look way beyond that. So please stop thinking only you know "basic theories" and others know nothing,such that you are so "compelled" to explain. It is you that need to learn what real life economics is.
Pty supply is not only inelastic, demand is also sentiment driven. And pty supply in diff areas are not fungible with each other. Nothing is simple here.
Usually, I would not even bother to response to such questions/person. Learn my lesson.
You still do not get it , do you ?
In A level, undergrad, you learn about demand, supply, "basic economic theories". Everything fits the basic economic theories.
In postgrad studies, you learn about abnormality in basic demand/supply equations. The impact and hence modifications of the assumptions where your "basic economic theories" needs to be adjusted.
In doctorate, post doctorate studies, you realize all you learned about "basic economic theories" esp supply/demand are wrong. Human process is stochoiasic, decisions are often not rational, all ppl do not have equal information, physical commodities are not demand driven, existence of governments dominates supply decision, etc. new idea of economics evolves every day. Ppl realize human behavior is impossible to quantified. Top economists disagree with each other all the time.
So where are you ? Very much like step 1. Wheereas phantom's theories are step 2 onwards. While you are still arguing "basic economic theories", many members here already look way beyond that. So please stop thinking only you know "basic theories" and others know nothing,such that you are so "compelled" to explain. It is you that need to learn what real life economics is.
Pty supply is not only inelastic, demand is also sentiment driven. And pty supply in diff areas are not fungible with each other. Nothing is simple here.
Soros say that doctorates and economists are never good at guessing the markets. I rather trust Soros who made tens of billions from stocks, currencies and commodities.
You don't need to be an economist to know how markets work. The logic is simple, what goes up, comes down. Simple newton law of gravity.
Soros recently dumped his gold, that's all we need to know about the direction of interest rates.
http://www.bloomberg.com/news/2013-03-12/gold-sales-from-soros-reveal-12-year-bull-run-decay-commodities.html
Gold Sales From Soros Reveal 12-Year Bull Run Decay: Commodities
By Nicholas Larkin & Debarati Roy - 2013-03-12T14:27:11Z
Gold’s worst start to a year in a quarter century and the biggest sales by investors on record are increasing concern that bullion’s longest rally since the end of World War I is ending.
Investors sold 106.2 metric tons valued at $5.4 billion from exchange-traded products in February, the most since their creation in 2003, data compiled by Bloomberg show. Another 26.1 tons was cut since then. Credit Suisse Group AG and Barclays Plc say the 12-year rally will peak in 2013 and billionaire George Soros reduced his stake in the biggest ETP by 55 percent in the last quarter. Prices are within 5 percent of a bear market after the longest run of monthly losses since 1997.
Enlarge image
The slump in gold is curbing profit for those extracting the metal, in some cases from as deep as 2.4 miles underground. As bullion almost quadrupled since 2003, mining costs jumped more than fivefold, data compiled by New York-based Kenneth Hoffman and other analysts at Bloomberg Industries show. Photographer: Chris Ratcliffe/Bloomberg
Audio Download: Strategic Gold's David Williams Is Bullish on Gold
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Hedge funds are now their least bullish since 2007 as economies accelerate and Federal Reserve policy makers review stimulus. Bullion as much as doubled after central banks, led by the Fed, started buying more than $3.5 trillion of debt from December 2008 to restore growth. With global equities at a four- year high and the dollar near its strongest in seven months, eight of 13 analysts surveyed by Bloomberg said they expect lower average gold prices in 2014 than this year.
“There is a belief that the world economy is improving,” said John Toohey, a San Antonio, Texas-based vice president of equity investments at USAA Investments, which manages more than $54 billion of assets. “We are especially seeing the signs in U.S. and that may at some point lead to higher interest rates. It seems as if the fast money is moving out of gold.”
Worst Start
Gold slid 5.6 percent to $1,581.55 an ounce in London this year by yesterday’s close, the worst start since 1988. It traded at $1,595.71 today and averaged a record $1,669 last year. The Standard & Poor’s GSCI gauge of 24 commodities rose 1.1 percent since the start of January and the MSCI All-Country World Index (MXWD) of equities gained 6.4 percent. Treasuries lost 1.1 percent, a Bank of America Corp. index shows.
Goldman Sachs Group Inc. reduced its three-month forecast by 12 percent to $1,615 on Feb. 25 and expects $1,550 in a year. Gold is “significantly overvalued” and unlikely to return to its September 2011 record of $1,921.15, Credit Suisse said Feb. 1. The bank, along with Barclays Plc, Societe Generale SA, Natixis SA, BNP Paribas SA, ABN Amro Bank NV, Danske Bank A/S and TD Securities Inc., is predicting lower average prices next year than in 2013.
About $6.8 trillion was added to the value of global equities since November as China accelerated for the first time in two years. Economists surveyed by Bloomberg expect U.S. growth to gain every quarter this year and the International Monetary Fund predicts global expansion will climb to 3.5 percent in 2013 from 3.2 percent in 2012. U.S. unemployment fell to a four-year low of 7.7 percent last month, as job growth surged from automakers to builders to retailers.
‘Asset Bubble’
Soros Fund Management LLC, founded by the 82-year-old who called bullion the “ultimate asset bubble” in 2010, owned about $97 million of metal through the SPDR Gold Trust as of Dec. 31, a regulatory filing showed last month. Louis Moore Bacon’s Moore Capital Management LP sold its stake in the SPDR fund, valued then at $16 million, and cut holdings in the Sprott Physical Gold Trust by 53 percent to $12.1 million in the fourth quarter. Spokesmen for both investors declined to comment.
John Paulson, the largest SPDR investor, kept his holding unchanged last quarter, his filing showed. The stake is now valued at $3.4 billion. New York-based Paulson & Co.’s investors can choose between gold-and dollar-denominated versions of most of its funds. The 57-year-old told clients March 6 that his Gold Fund fell 26 percent this year. Stefan Prelog, a spokesman, declined to comment.
Mario Draghi
Central bank asset buying won’t end any time soon and concern about currency debasement combined with rising expectations for inflation will spur demand for gold, Morgan Stanley said in a Feb. 25 report. The median estimate of the 13 analysts surveyed by Bloomberg is for a record annual average of $1,700 in 2013, falling to $1,638 in 2014.
Bank of Japan Governor-designate Haruhiko Kuroda said last week the central bank should bring forward open-ended asset purchases scheduled to start next year. European Central Bank President Mario Draghi said March 7 that officials discussed cutting borrowing costs further. Gold usually earns returns only through price gains, increasing its allure at a time of record- low interest rates.
“Just because it feels that the economy is improving does not necessarily mean that is actually happening,” said Michael Cuggino, who manages $17 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “We could continue to see governments trying to boost growth.”
Gold Council
Bullion isn’t declining for all investors, amid mounting rhetoric over currency wars. Gold priced in yen rose 5.7 percent this year and in British pounds advanced 4.1 percent.
Central banks added 534.6 tons to reserves last year, the most since 1964, in part to diversify their currency holdings, according to the London-based World Gold Council. Barclays forecasts 300 tons of buying in 2013 and the same in 2014. Lower prices and improving economies may boost jewelry purchases, the biggest source of demand, with the bank predicting a 3.2 percent gain this year, from an 8.2 percent drop in 2012.
The slump in gold is curbing profit for those extracting the metal, in some cases from as deep as 2.4 miles underground. As bullion almost quadrupled since 2003, mining costs jumped more than fivefold, data compiled by New York-based Kenneth Hoffman and other analysts at Bloomberg Industries show. For as many as 11 of the world’s biggest miners, production costs averaged $991 an ounce in the first nine months of 2012.
Future Production
The 30-member Philadelphia Stock Exchange Gold and Silver Index, including Freeport-McMoRan Copper & Gold Inc. (FCX), fell 17 percent this year, extending retreats of 8.3 percent in 2012 and 20 percent in 2011. Mining companies have so far held off locking in prices by selling future production, with Barclays anticipating net hedging of 20 tons this year and 35 tons in 2014. Annual production is about 2,700 tons.
Options traders are increasing bets on more declines. Puts that profit should the SPDR Gold Trust (GLD) fall 10 percent cost 2.1 points more than calls betting on a 10 percent rally, according to three-month options data compiled by Bloomberg. The price relationship known as skew reached a record 3.3 points Feb. 21. Combined ETP holdings stand at 2,479.9 tons, from a peak of 2,632.5 tons in December.
Hedge funds are 84 percent less bullish on gold than they were the month before prices reached a record in September 2011. Speculators held a net-long position of 39,631 futures and options in the week ended March 5, the fewest since July 2007, U.S. Commodity Futures Trading Commission data show.
The U.S. Mint sold 753,000 ounces of American Eagle gold coins last year, 25 percent less than in 2011, data on its website show. Coin and bar sales from Australia’s Perth Mint fell 17 percent last year, the company said March 6.
“People are seeing less need for gold,” said Michael Mullaney, the chief investment officer at Fiduciary Trust in Boston, which manages $9.5 billion of assets. “The end of loose money supply is making gold less attractive.”
Soros say that doctorates and economists are never good at guessing the markets. I rather trust Soros who made tens of billions from stocks, currencies and commodities.
You don't need to be an economist to know how markets work. The logic is simple, what goes up, comes down. Simple newton law of gravity.
Soros recently dumped his gold, that's all we need to know about the direction of interest rates.
http://www.bloomberg.com/news/2013-03-12/gold-sales-from-soros-reveal-12-year-bull-run-decay-commodities.html
.”
Nice article!
It is important to understand what the Fed is doing and why is the Fed doing it. How does this New Economic Consenus of money supply affects the macro economic structure in the short, medium and long term? How does it influences the prices of investable products, commodity, hard assets and daily essentials? A thesis is still awaiting to be written.
Don't need to think and debate so much lah, all the theories are just theories. Don't need thesis to make money also.
I just know when Fed started the money printing machine, I started buying properties, as many as I can! As long as they do not stop, the direction is only 1 way - UP! Even after they stop, they will take years and years to take back only part of the massive money that they had already printed! Print easy, take back? Nah! :scared-1:
Now we know not only Fed is printing, Europe is printing, Japan started printing, soon China will have no choice but to print as well! :scared-3:
Nice article!
It is important to understand what the Fed is doing and why is the Fed doing it. How does this New Economic Consenus of money supply affects the macro economic structure in the short, medium and long term? How does it influences the prices of investable products, commodity, hard assets and daily essentials? A thesis is still awaiting to be written.
Soon we will see $2 coins as a norm.
Bak chor mee and chicken rice minimum $10.
:scared-3:
I surprise the new coins still has a 5 cent denomination , properly it may cost more now to produce it as compare to it value...
I was actually expecting a 2 dollars coin given the fact of today's value..
didn't u see many complain about stagnant lower tier salary due to competition from foreigners??
but beware hoh ... all along we "make use" of cheap foreginer labors to maintain lower prices in kopitiam, town council, food court ... be prepared for huge inflation when all foreigners are gone and a cleaner salary is 2k pm
this is so very true.. prices will start to climb....i personally find cheap labour cannot be sustain.
Don't need to think and debate so much lah, all the theories are just theories. Don't need thesis to make money also.
I just know when Fed started the money printing machine, I started buying properties, as many as I can! As long as they do not stop, the direction is only 1 way - UP! Even after they stop, they will take years and years to take back only part of the massive money that they had already printed! Print easy, take back? Nah! :scared-1:
Now we know not only Fed is printing, Europe is printing, Japan started printing, soon China will have no choice but to print as well! :scared-3:
Fed is increasing money supply by buying private securities in the hope that some of these monies will go to the comsumers in the form of lower interest rate and some will flow back into starting or restarting businesses, hence reducing unemployment rate. The Fed is doing all these hoping to restore the weak US economy.
This increase in money supply has bought about super low interest rates round the world which translate into cheap loans for countries like Singapore and Hong Kong. This new money also flows into other stock markets all over the world, hence stock prices remain firmed. Asset bubbles are blewing in many other countries due to the new money. The more people buying properties, the greater is the bubble.
The Fed will starts reducing money supply by selling government's bonds once inflation and unemployment hits target. The US could not afford high inflation with small growth and high unemployment.There is currently no asset bubbles in the US as long as inflation is under control.
The start of reducing money supply that comes with increase interest rates will result in money going back to the US. How strong this reaction is remains to be seen. MAS and other central banks in Asia are so worry about this coming happening and have put in place various cooling measures to prevent the asset bubbles from bursting when the day comes.
As reported, DPM Therman believes the sudden pull out from Asia will cause distability in our financial systems. We are talking about large amount of M2 flowing out of Asia at the same time. Huge funds are known to take profits without warning when the day come. Never assume that the withdrawal is going to be as smooth as the funds coming in because funds coming in were spread over a period of time since 2009. When funds move out, these accummulated huge funds may not move out in smaller quantity over a period of time.
No economist has done any empirical study on this New Economic Consenus. Most economists only study the effect of new money and prices of equity and other investable products with all things being equal. Such studies are not informative to form any conclusion.
Amk u are very good.
i always enjoy reading amk posting...
Better to remain silent and be thought a fool than to speak out and remove all doubt. (http://www.brainyquote.com/quotes/quotes/a/abrahamlin109276.html)
Abraham Lincoln (http://www.brainyquote.com/quotes/quotes/a/abrahamlin109276.html)
phantom_opera
25-03-13, 09:08
Another one, DJIA in real GDP vs monetary base
http://azizonomics.files.wordpress.com/2013/03/djiabase.png
Rates going up is a good sign for the global economy.
Fed is increasing money supply by buying private securities in the hope that some of these monies will go to the comsumers in the form of lower interest rate and some will flow back into starting or restarting businesses, hence reducing unemployment rate. The Fed is doing all these hoping to restore the weak US economy.
This increase in money supply has bought about super low interest rates round the world which translate into cheap loans for countries like Singapore and Hong Kong. This new money also flows into other stock markets all over the world, hence stock prices remain firmed. Asset bubbles are blewing in many other countries due to the new money. The more people buying properties, the greater is the bubble.
The Fed will starts reducing money supply by selling government's bonds once inflation and unemployment hits target. The US could not afford high inflation with small growth and high unemployment.There is currently no asset bubbles in the US as long as inflation is under control.
The start of reducing money supply that comes with increase interest rates will result in money going back to the US. How strong this reaction is remains to be seen. MAS and other central banks in Asia are so worry about this coming happening and have put in place various cooling measures to prevent the asset bubbles from bursting when the day comes.
As reported, DPM Therman believes the sudden pull out from Asia will cause distability in our financial systems. We are talking about large amount of M2 flowing out of Asia at the same time. Huge funds are known to take profits without warning when the day come. Never assume that the withdrawal is going to be as smooth as the funds coming in because funds coming in were spread over a period of time since 2009. When funds move out, these accummulated huge funds may not move out in smaller quantity over a period of time.
No economist has done any empirical study on this New Economic Consenus. Most economists only study the effect of new money and prices of equity and other investable products with all things being equal. Such studies are not informative to form any conclusion.
but once the pandora's box is opened, it is very hard to rein in the money floating so freely in the economic system. QE was a neccessary evil, but we are now in uncharted territories since there was no precedent for us to look back upon.
Better to remain silent and be thought a fool than to speak out and remove all doubt. (http://www.brainyquote.com/quotes/quotes/a/abrahamlin109276.html)
Abraham Lincoln (http://www.brainyquote.com/quotes/quotes/a/abrahamlin109276.html)
I might not be as brainy. So let me throw u a question. How easily do u think the FED wind down all the money?
1. By increasing interest rate and in effect increasing US national debt even more?
2. By finding a "miracle" competitive edge that other nations cannot replicate?
3. By decreasing spending, which can contract their economy in a heart beat?
Why can't u accept that US has no way out and all they can do now is printing and hoping for a miracle?. We cannot hope for a miracle. We have to do something.
I might not be as brainy. So let me throw u a question. How easily do u think the FED wind down all the money?
1. By increasing interest rate and in effect increasing US national debt even more?
2. By finding a "miracle" competitive edge that other nations cannot replicate?
3. By decreasing spending, which can contract their economy in a heart beat?
Why can't u accept that US has no way out and all they can do now is printing and hoping for a miracle?. We cannot hope for a miracle. We have to do something.
This is what engagement is all about. I enjoy it.
Suggested answers:
1. Fed only needs to start selling back gov's bonds and money supply will reduce and rates will rise. Debt will reduce in term.
2. No miracle in economics.
3. Decrease gov's spending but increase investments in private business.
Fed is doing something unprecendantial. That is why no economist is able to conclude their findings yet.
Suggested answers:
1. Fed only needs to start selling back gov's bonds and money supply will reduce and rates will rise. Debt will reduce in term.
2. No miracle in economics.
3. Decrease gov's spending but increase investments in private business.
Fed is doing something unprecendantial. That is why no economist is able to conclude their findings yet.
when rates rise, debt will increase as well unless Fed can produce a higher return than the amounts owed to bondholders.
they are already decreasing federal spending - e.g. hundreds of public schools shut in Chicago. i blame this squarely on the republican morons that refuse to up tax rates, and yet want to cut essential social programs. mitt romney once suggested cutting back on Big Bird and friends on Sesame Street :doh: :doh:
when rates rise, debt will increase as well unless Fed can produce a higher return than the amounts owed to bondholders.
they are already decreasing federal spending - e.g. hundreds of public schools shut in Chicago. i blame this squarely on the republican morons that refuse to up tax rates, and yet want to cut essential social programs. mitt romney once suggested cutting back on Big Bird and friends on Sesame Street :doh: :doh:
eng81157 obviously passed his economic exam with flying colour. U see the fed's balancing act is very delicate. One false move it will send US economy into abyss. Therefore the risk of inflation is very real. We must invest in something that is in limited quantity, rather than put our faith in unlimited fiat currency.
when rates rise, debt will increase as well unless Fed can produce a higher return than the amounts owed to bondholders.
they are already decreasing federal spending - e.g. hundreds of public schools shut in Chicago. i blame this squarely on the republican morons that refuse to up tax rates, and yet want to cut essential social programs. mitt romney once suggested cutting back on Big Bird and friends on Sesame Street :doh: :doh:
The Fed could do just that; another unprecendantial move.
History has shown that despite the internal politicing, the US is capable of putting things together and come back stronger.
The Fed could do just that; another unprecendantial move.
History has shown that despite the internal politicing, the US is capable of putting things together and come back stronger.
let's see for now. the Fed doesn't have a good track record. even before the crisis, they were already piling up debts of trillions of dollars. and for this, i blame another republican moron for plunging the country into a war that wasn't justified
Recently a developer in jakarta was asked "why he build apartment in suburb of jakarta where there are still plenty of land". He answered its not the lack of land that matters, its the price of land that priced out buyers of landed homes.
Singapore is facing similar situation, its not lack of supply or too much demand that drive the price up. Its the dollar value destruction that drive up the price. That is your answer why CMs are not effective.
phantom_opera
25-03-13, 11:50
Recently a developer in jakarta was asked "why he build apartment in suburb of jakarta where there are still plenty of land". He answered its not the lack of land that matters, its the price of land that priced out buyers of landed homes.
Singapore is facing similar situation, its not lack of supply or too much demand that drive the price up. Its the dollar value destruction that drive up the price. That is your answer why CMs are not effective.
or put in another way, would OPAC voluntarily increase the supply so that oil price drops back to $30USD so all of us need not pay the extra fuel surchange of SIA flights??
replace OPAC with Singapore garmen, oil with land
Leeds basically has blind faith in US propaganda (just like many middle class Americans) ... you must understand US has the best marketing team in the world
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