More Credit Stimulus from China?

China's authorities are now more concerned about growth than inflation...

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The Papandreou Puzzle

Was calling a referendum a principled stand, or just a way of correcting a mistake...?

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Gold: The Last Man Standing in the Currency Horse Race

The world's central banks are all competing to have the weakest currency possible...

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Gold: The Last Man Standing in the Currency Horse Race

The world's central banks are all competing to have the weakest currency possible...

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Beware the Euro Cake

Plans to solve the Eurozone crisis won't work if they're too tightly focused...

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Debt Overhang Prevents Recovery

The massive overhang of debt is weighing on economies and creating a bear market in government-backed money. A breakout in gold is the result...

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Debt Overhang Prevents Recovery

The massive overhang of debt is weighing on economies and creating a bear market in government-backed money. A breakout in gold is the result...

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Central Banks Buying Gold to Prepare for Falling Dollar

The world's central banks are on track to buy more gold than any year since 1971...

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Gold’s Fear-Based Trade

Imagine if you ran your finances like Washington runs the US...

JULY DIDN'T produce much in the way of excitement for stock-market investors, writes Dan Denning in his Daily Reckoning Australia.

But we have found out a few interesting things...

One, so long as sovereign debt woes in Europe persist, then US Treasury bond yields can go lower. Investors seeking a haven from Europe don't seem to have any problem buying US debt at near record-low yields. This is bizarre.

Of course, at a superficial level, if you were concerned that the European bank stress tests were a sham and that interest rates in Europe could go much higher unexpectedly, you might view US Treasury notes and bonds as "safe". This is only possible in a world of utter relativity.

After all, the US government ran a deficit of 9.9% of GDP in 2009. The Congressional Budget Office in Washington reckons next year's deficit will be $1.47 trillion. That forces the US government to borrow 41 cents of every Dollar it spends. Imagine if you ran your finances this way.

But it's a strange old world we live in. Europe's problems have been America's blessing. Demand for US Treasury bonds and notes is the highest on record, according to the Wall Street Journal. On July 23rd, the yield on two-year notes – a kind of near cash fight-to-safety proxy for big money – feel to 0.5516%. Ten-year notes briefly yielded less than 3% earlier this month, and for the entire month of July, the US Treasury managed to flog off $173 billion in bonds to investors.

This is an important development. As long as global savers – for whatever reason – are frantically bidding for US debt at auctions, US borrowing costs should stay relatively low. It should also allow the Federal government to run its absurdly large and reckless deficits. And most importantly, if investors are buying US debt it means the Fed doesn't have to, at least not yet.

This last point is the most important, we reckon, because it averts the dreaded hyperinflationary scenario in which Fed money printing leads to an inflationary shock. So far, investors (who may have gone wobbly on stocks) have decided there is safety in numbers in the US bonds market. We'll see how that works out for them.

All this has taken some starch out of the Gold Price. You will have known about this if you read the latest salvo in Michael Pascoe's increasingly strange vendetta against gold in today's Age. He points out that spot Gold Prices are at three-month lows in New York and down 8% from the June highs.

It's pretty obvious by now that Pascoe either doesn't understand gold's role as money or simply believes gold is an anachronism in which "money" can be created by central banks. Frankly it's a pretty unserious and mildly embarrassing argument to make given the last few years of economic events. But each to his own.

The bigger issue is what will happen with the Gold Price from here. Yesterday we spent an hour on the phone chatting about this and other things with Greg Canavan, the editor of Sound Money. Sound Investments. Greg pointed out that the Gold Price doesn't normally perform so well during the North American summer.

Our view? We'd be pleased to buy more gold on dips, even if for the year gold doesn't make a new high. Gold is insurance against financial disaster. And if you think there aren't any more financial disasters lurking, you're not thinking hard enough.

Yes, this is a fear-based trade. We are worried that bad fiscal and monetary policies worldwide can wipe out savings, depress share markets, and destroy purchasing power. Totally wacky of course. But there you go.

Buying Gold today? Get the safest gold at the lowest prices by using BullionVault...

Gold in a Bubble? Really?

Stocks say recession, bonds say depression. And what about Gold...?

INVESTORS have changed their minds, writes Dan Denning in his Daily Reckoning Australia.

Instead of pricing a second half recovery in the global economy, they're now pricing in a recession in the stock market and a Depression in the bond market. What gives?

As PIMCO bond guru Bill Gross points out in his latest missive, stocks are reflecting what he calls the "New Normal". It's a long period of lower than average economic growth, household and business and even public sector deleveraging, re-regulation (less leveraging in the financial sector), and de-globalization.

It's actually the last point that interests us most – that the end of artificially cheap capital and cheap energy is straining all the connections (trade, finance, and logistic) formed during the last thirty years. Contractions can be painful when you're giving birth to a new world order, or so we've heard.

Gross makes several other worthy points. One is that debt is no longer productive in boosting living standards. When it was, households were happy to borrow and so were businesses. But each addition Dollar of new debt taken on in the economy is producing less and less real growth. Indeed, each additional Dollar taken on is going, at least part of it, to service previously borrowed money. Unhealthy.

Gross also makes a great point about what "bringing forward" consumption does in the long run...

"Consumption when brought forward must be financed, and that financing is a two-way bargain between borrower and creditor. When debt levels become too high, lenders balk and even lenders of last resort – the sovereigns, the central banks, the supranational agencies – approach limits beyond which private enterprise's productivity itself is threatened."

We appear to have reached those limits. Or that is the proposition investors are weighing up.

But what about that gold bubble? We had hoped to take Rory Robertson and Michael Pascoe to task for being so wrong about gold. But since we're busily preparing to debate Macquarie Bank's Rory Robertson in Sydney...and tell him why he's so wrong about house prices instead...our colleague Greg Canavan stepped into the crease last night and hit Pascoe for six.

"First, let's kick off with an update on gold," Greg wrote to readers of his Sound Money.Sound Investments report. "Michael Pascoe wrote an article on Monday in The Age and SMH quoting Macquarie's Rory Robertson saying that gold is in a bubble. As contrarians this sort of stuff is music to our ears.

"Apparently Robertson thinks that most people are buying gold simply because it is going up. While no doubt some traders are playing the momentum game, the vast majority buy gold because it is a time-honoured protector of wealth.

"Only those ignorant of financial history disparage gold with bravado. Take this piece of ignorance for example: 'The interesting thing about gold – beyond it being a much-loved 'pretty rock' that several generations ago was at the centre of the global financial system – is that it has no 'running yield', so there is no anchor, no firm benchmark for valuation...The price will be whatever investors are prepared to pay. How long is a piece of string?'

"To many people this is a very persuasive argument against gold and we have heard it trotted out for years. But it is so wrong it's not funny. Especially coming from a financial professional.

"No anchor, no benchmark for valuation? Gold is the benchmark. Its value doesn't change. What changes is the value of the various fiat currencies gold is measured against. It is the error and habit of the media that gold is quoted in terms of US Dollars. US Dollars should be quoted in terms of gold. That is, one US Dollar can now buy you 1/1245th of an ounce of gold, compared to 1/35th of an ounce back in the early 1970's when the US was last on some sort of gold standard.

"And like the paper notes in your wallet (cash) gold has no running yield. So what? Gold is money and money in its purest form has no yield. Yield is the reward or enticement for you to part with your cash and give it to a bank. At this point it ceases to become yours. It is a liability of the bank.

"Gold is no one else's liability. It has no counterparty risk. It therefore generates no yield. It's simple when you think about it. Why is that so hard for seemingly intelligent people to understand?"

Good question!

Ready to buy gold today...?

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