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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Viral Bubbleomics: Debt infected Housing infected Oil …Now Gold

Stock-Markets / Liquidity Bubble Feb 14, 2011 - 04:15 PM GMT

By: Andrew_Butter

Stock-Markets

Best Financial Markets Analysis ArticleThis article, references two articles put out recently, one on oil and one on how America has been financing its trade deficit. The only place that published them was Market Oracle:


http://www.marketoracle.co.uk/Article24849.html
http://www.marketoracle.co.uk/Article26271.html

The editor of one of the places that rejected the articles kindly explained that the articles were, (I paraphrase), “much too complicated for their readers”.

This is going to be real simple, as in, “Hey kiddo…let’s play, Spot the Bubble”.

You can spot a bubble pretty easy after it happened; trick is to spot them before they pop.

See the red line, that’s the oil bubble (expressed as a percentage of what USA spent on oil imports from 2000 to 2004); remember that? Then there was a bust….then it came back (as predicted) to precisely the square root of the top multiplied by the bottom which is another characteristic of bubbles.

But I bet you are wondering what’s that blue line…looks like a bubble dun it?

But what is it? Well you can find that line on the Bureau of Economic Analysis website, click on “Table 1. U.S. International Transactions” then find Line 55 which is called “Foreign-owned assets in the United States, excluding financial derivatives (increase/financial inflow ()”, which is basically the amount of foreign debt that America piled on every quarter so that it could pay for its trade deficit.

That looks like a bubble, in Q2:2007 it hit  $700 billion, which makes TARP look like a walk in the park (ONE quarter remember).

That was a bubble…in debt, or put that another way, bubbles typically happen when people borrow money to pay too much for things. And that was one of the things; a very important thing; that caused the housing bubble…then that bust and then, woe and behold….the virus went to oil.

And now…this is a test…spot the bubble!!!

Of course all bets are off if the Saudi’s decide that $150 WTI is “fair”.

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( hbutter@eim.ae ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2011 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Andrew Butter Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

dincer
15 Feb 11, 09:35
What else can a central banker do?

Mr. Butter, if you put yourself in a Chinese central banker's place, what would you do? Wouldn't you decide to increase your gold holdings? I think you surely would. When WWII ended US Treasury had owned 35% of world above-ground gold, today this ratio is under 5%. Is it any wonder why US dollar became world's #1 reserve currency at Bretton Woods, China is surely getting prepared to internationalize the yuan via owning as much as gold she can. China is following the same path FDR had followed. Probably China will seize her citizens' private gold in the next decade, just like Roosevelt. (to some economists China is the #1 short at paper gold markets. it is in China's best interests to increase physical holdings by shorting gold at Comex)

For an ambitious sovereign state like China or Russia, gold's price is not important. The important thing is how much gold she does possess. If China is offered 5,000 metric tonnes of gold at a price of $2,000 per ounce, she will be very very pleased as long as the deal remains secret. (the cost of deal is only 11% of her forex reserves) Let's not forget the fact that gold is in limited supply. When gold shortages become acute it will affect everything in the monetary realm. Gold is not money for an ordinary citizen, but it is money for central banks, governments, bankers and financial community. Thus to avoid a catastrophic precious metals shortage, world's nations must introduce gold as a monetary asset along with well-managed fiat currencies. Gold must circulate within the financial system. Gold must be deposited in banks and it must pay interest. Make no mistake, we will certainly use ,or have to use, fiat currencies to meet our daily needs as long as "bad money" circulates. But gold and silver are being constantly ignored and demonetized as "ordinary commodities", "good money" namely gold and silver, will be hoarded and hidden, and this is not a desirable situation. In short, till excessive debt is wiped out from the system and ambitious sovereign nations give up accumulating gold, gold is not in a bubble.


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