25 Feb 11
Originally posted by KazetNagorraSo I assume you are saying that stocks are the best place to be right now.
It's not that far from its inflation-adjusted high, and that high is a well-known bubble.
Steel, for example, has productive potential, because you can make e.g. cars out of it. Wheat has productive potential because you can make bread from it. Gold has some industry and cosmetic applications, but mostly it just sits there.
I agree that stocks usually outperform other investments. I don't think the economy is out of the woods though. If oil prices keep rising that could cause stock prices to drop.
I completely agree that manufacturers have productive potential and gold does not, neither does currency. I would rather hold gold and silver than dollars or TIPS.
25 Feb 11
Originally posted by Metal BrainI'm not sure what the best place to invest in is at the moment. The Japanese economy is on the verge of a serious crisis, so I think I would avoid anything that is closely related to Japan. Perhaps simply investing in oil, gas, green technology, foodstuffs and steel (i.e. things that see increased demand due to growth in BRIC countries), though I haven't studied their recent price changes. I'm not sure how a possible Japanese default would affect other nation's debt papers, but perhaps they are best to be avoided.
So I assume you are saying that stocks are the best place to be right now.
I agree that stocks usually outperform other investments. I don't think the economy is out of the woods though. If oil prices keep rising that could cause stock prices to drop.
I completely agree that manufacturers have productive potential and gold does not, neither does currency. I would rather hold gold and silver than dollars or TIPS.
25 Feb 11
Originally posted by KazetNagorraI guess you could always pick stocks that will outperform the rest of the market.
I'm not sure what the best place to invest in is at the moment. The Japanese economy is on the verge of a serious crisis, so I think I would avoid anything that is closely related to Japan. Perhaps simply investing in oil, gas, green technology, foodstuffs and steel (i.e. things that see increased demand due to growth in BRIC countries), though I haven' ...[text shortened]... se default would affect other nation's debt papers, but perhaps they are best to be avoided.
I don't see anything unreasonable about your suggestions with oil, green tech and food. Maybe that is the best place to be right now. It is still a bet though. I wouldn't want to pick stocks. Last time the economy took a dive oil stocks went down too. It is so hard to tell the future.
If I were to make stock picks I might consider Dollar General and Family Dollar. If oil prices keep rising these stores might compete more with WalMart. Those stores are in smaller towns where it takes more fuel to drive to the big towns with a WalMart. Even if oil prices stay reasonable they ought to still do well.
25 Feb 11
Originally posted by Metal BrainOf course oil stocks went down during the recession, but from a long term perspective there is a large increase in demand for oil (and other commodities) from BRIC. It probably would have been better to get into commodities in 2008 though.
I guess you could always pick stocks that will outperform the rest of the market.
I don't see anything unreasonable about your suggestions with oil, green tech and food. Maybe that is the best place to be right now. It is still a bet though. I wouldn't want to pick stocks. Last time the economy took a dive oil stocks went down too. It is so hard to te ...[text shortened]... the big towns with a WalMart. Even if oil prices stay reasonable they ought to still do well.
25 Feb 11
Originally posted by KazetNagorraI think oil stocks will go up. I also think the dollar will go down. A drop in the dollar might cause some of the rise in oil prices in the future. That might cause all commodities to rise.
Of course oil stocks went down during the recession, but from a long term perspective there is a large increase in demand for oil (and other commodities) from BRIC. It probably would have been better to get into commodities in 2008 though.
I am still bullish on gold and silver for the next 2 years.
25 Feb 11
Originally posted by Metal BrainYou can't really predict when a bubble will burst. It may very well be that the bubble will continue to grow for 2 years. Or it may burst next week. I think it's more useful to recognize bubbles and get out of them even though you may be missing out on the short term.
I think oil stocks will go up. I also think the dollar will go down. A drop in the dollar might cause some of the rise in oil prices in the future. That might cause all commodities to rise.
I am still bullish on gold and silver for the next 2 years.
26 Feb 11
Originally posted by Metal BrainHow about a little quiz, Metal Brain? Please answer the following questions about prices.
You are not making any sense.
Either the price of gold is moving up or it is moving down. You can't say the value of gold is changing. Since it is the buying power of the currency that is reducing, it takes more of that currency to buy gold.
Gold is close enough to being a currency. It is real money that hold value better than any fiat currency. What ...[text shortened]... supply should go back to us. If you really look at it, we are getting ripped off big time.
1) If you observe food prices rising, and automobile prices falling, then
a) There is inflation in food prices and deflation in auto prices
b) There is inflation in food prices and auto prices
c) There is deflation in food prices and auto prices
d) One cannot tell from the information given
2) If a central bank expands the money supply, prices
a) Always rise
b) Always fall
c) One cannot tell from the information given
3) If the price of gold is rising while the prices of all other goods in the economy are remaining the same, then
a) A fixed weight of gold could be traded for more goods now than before
b) The value of gold relative to other goods has risen
c) The Fed has been running an inflationary policy
d) (a) and (b)
e) (a) and (c)
f) (b) and (c)
g) None of the above
h) One cannot tell from the information given
01 Mar 11
1 edit
Originally posted by telerionWell, 1) and 2) are d) and c), respectively. Ceteris paribus and all that. (And, in 1), a change in relative prices does not define inflation/deflation—see comment below.)
How about a little quiz, Metal Brain? Please answer the following questions about prices.
1) If you observe food prices rising, and automobile prices falling, then
a) There is inflation in food prices and deflation in auto prices
b) There is inflation in food prices and auto prices
c) There is deflation in food prices and auto prices
d) ...[text shortened]... d (c)
f) (b) and (c)
g) None of the above
h) One cannot tell from the information given
3) is cast in terms of “the price” of gold vis-à-vis “the price” of all other goods. A change in relative prices is not inflation.* So, c) is out. In this case, if one owns gold (or, say, shares in a gold ETF), one could sell it (or the shares) at a price that allows one to purchase more of other goods than one could if the price of gold were lower. So: a) and b), taking price as a measure of relative value. Holding income constant, this would be a straight substitution effect; since the price of other goods has remained the same, however, there may also be an income effect (and if one expects the price of gold to continue rising, one might buy more of that as well).
Note: I have assumed that gold is not being used as “commodity money”, and so is not the currency in which prices are cast. That seems clear from your wording. However, the situation would be the same if one was talking about how much rice one can obtain in exchange for a cow. As you noted earlier: “As for your second assertion about gold not changing much in value, value is always relative to something else. For example, US prices are usually stated as dollars per unit of a good. There is no absolute measure.” The same is true for valuing one currency vis-à-vis another. Even in Classical Economics (Ricardian and Marxian, anyway), value was held to be relative to some measure of labor input.
Just wanted to test myself, tel. 🙂
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* At least some strict Austrians define inflation as an increase in the money supply per se, not a general rise in prices. Although I’m reaching from memory, I think Mises insisted on that; the Austrians seem to have a tendency to insist on their own definitions, which can make discourse difficult. As someone noted, Austrians also reject empirical testing (Hayek may be a partial exception), claiming that their economics is strictly deductive. My limited experience, however, makes me think that they often do not succeed in showing (deductively) what they say.
01 Mar 11
Originally posted by vistesdDo you agree with this?
Well, 1) and 2) are d) and c), respectively. Ceteris paribus and all that. (And, in 1), a change in relative prices does not define inflation/deflation—see comment below.)
3) is cast in terms of “the price” of gold vis-à-vis “the price” of all other goods. A change in relative prices is not inflation.* So, c) is out. In this case, ...[text shortened]... es me think that they often do not succeed in showing (deductively) what they say.
http://www.allbusiness.com/finance/108196-1.html
01 Mar 11
Originally posted by Metal BrainFirst, I am unqualified to assess or critique the econometrics (an area I was weak on even 30+ years ago). Telerion and Palynka are immersed in that.
Do you agree with this?
http://www.allbusiness.com/finance/108196-1.html
If the question is what factors influence the aggregate demand for money (M1 or M2 in the essay)—as opposed to alternative stores of wealth—I would think that liquidity demand is the most fundamental. Cash is liquid. But there is a cost for that liquidity: zero return (talking about hoarding physical cash, now). People expect to receive some return for putting their money into less liquid vehicles. The higher the liquidity risk, the greater the yield people will demand for tying up their money, and (normally) for longer periods of time (though, in times of uncertainty, the yield curve may be inverted).
Various alternatives to holding money are more, or less, liquid relative to one another. The currency market, for instance, is generally considered to be more liquid than the equities market (if one sticks with the major currencies); some individual stocks are more liquid than others (trading volume). Countervailing liquidity risk is inflation risk; at the moment, that is generally perceived to be low. There are others as well: e.g., market risk, credit risk, etc.
But all the various alternatives represent perceived liquidity risk relative to the other risk/return considerations. And their relative prices reflect those perceptions (expectations)—accurate or not, strictly rational (or adaptive) or not, distorted or not—as they are expressed in market transactions.
Don’t know if that gets to your questions or not. (By the way, an interesting read is Nouriel Roubini’s Crisis Economics, in that he draws on a wide range of economic schools—from Austrian to Marxian to Neoclassical/Keynesian to Chicago-Monetarism to Post-Keynesian—in his analysis. One doesn’t have to agree with his conclusions to find that refreshing. [I think that Telerion and Palynka are both pretty much in the Neoclassical/Keynesian Synthesis, which is the broad “orthodoxy”; but neither of them are dogmatic.]) I’m just a “leftover” trying to keep my hand in at a very basic level, as a kind of perennial student… I don’t show up here much anymore, but occasionally pop in to look at a discussion such as this one. Take what I say as just “thinking out loud”…