Roubini on the Anti-Gold Warpath

I’ve always had great respect for Nouriel Roubini. Not only because he was my Econ professor at NYU, but also because he is not afraid to take on controversial issues in economics with a very strong opinion. Harry Truman said it best “All my economists say ‘on one hand’, and then adding ‘but on the other hand’”. He then said “give me a one-handed economist”. Roubini is one of the few “one-handed” economists.
Roubini has long been a classic Keynesian and his views on gold has always been negative. But his hatred of gold has turned into a fierce crusade in recent days. After first doing battle with Zero Hedge on Twitter, his anger has now turned to gold and gold bugs.
Here’s a snapshot from his Twitter stream today:

And part 2:

So, what’s his beef? Well, first, as a Keynesian he obviously hates gold. I have no problem with that, everyone’s entitled to their own beliefs. But he has two other points worth discussing: 1) the impact of leverage on the price of gold and 2) the vast amount of hype, misinformation and crack theories being spread across the Internet.
Regarding leverage, it is interesting that Roubini argues that the high leverage allowed for gold futures trading and the ability of even physical buyers to borrow almost the entire purchase price had driven the gold bubble higher. Most gold bugs think the opposite - that leverage is used by shorts to suppress the price. However, common sense supports Roubini. As with housing, stocks or any other asset, speculators throughout history have used leverage to drive asset prices up, not down. Take the example of housing - no money down mortgages, no doc loans, etc allowed the public infinite levergage to drive the housing bubble to its ultimate peak. When the leverage was stopped, prices collapsed.
Some gold bugs argue that if Comex and the LBMA collapse it would be positive for gold prices, but in reality it would be the opposite. As seen from the impact of margin increases in gold and silver, it is the longs that are using the leverage, not the shorts. Think about what would happen if everybody had to pay 100% cash to buy a home. Would that be positive for housing prices, or negative? It would be the same for gold.
The second main point in Roubini’s stream is the extreme way gold has been pushed on the public. As mentioned in Yukon’s rant, conspiracy and doomer entrepreneurs have no limit to how low they will stoop to push their cause. From simple misinformation to conspiracy theories, proclaiming impending doom and calling for the execution of public officials, these guys will do and say anything. The result is that the more objective, clear thinking gold bugs like ourselves are grouped in with these nutcases while the true case for gold is obscured beyond recognition. True gold bugs should rise up and reject the nutcases and bring the discussion back to the mainstream, or the public will end up siding with Roubini and reject gold once and for all.
While many of us may dismiss Roubini’s arguments as the rants of an elitist intellectual, there is some truth in those statements. Considering and reflecting upon his statements would do us all a lot of good.

16 comments:

Kid Dynamite said...

"The result is that the more objective, clear thinking gold bugs like ourselves are grouped in with these nutcases while the true case for gold is obscured beyond recognition. True gold bugs should rise up and reject the nutcases and bring the discussion back to the mainstream, or the public will end up siding with Roubini and reject gold once and for all."

very well said, Brian, you Bankster Shill

The Big Setup said...

So China, Brazil, Russia, Central Banks etc. would stop using the comex to buy their paper GOLD if the contract cost 100%? HELLO?

Brian O'Flanagan said...

How much gold have ALL central banks purchased in the last 12 months? 305 tonnes. That would buy about 0.19% of total world above ground gold stocks, which doesn't move the needle Mr. Setup. If you think central bank buying is going to propel gold to the moon, you are delusional.

Let's do the math: 305 tonnes of annual central bank demand / 163,000 tonnes of above stocks = 0.19%.

GM Jenkins said...

The result is that the more objective, clear thinking gold bugs like ourselves are grouped in with these nutcases ... [such that] the public will end up siding with Roubini and reject gold once and for all

Who's doing the grouping? Are they doing the grouping in bad faith? Then I say fuck 'em. Look at all of Roubini's fallacies for a clue as to good vs. bad faith: e.g. ad hominems (cranks, neo-nazi-black helicopters etc.); mistaking the part for the whole (let him name an anti-establishment movement without its share of cranks); using the false dichotomy fallacy (i.e. either leveraged traders are running up the price of gold OR massively short banking cartel is pushing it down) etc.

The way I see it, gold and silver investors have been unfairly disparaged for many years. A guy like Ted Butler has been pointing out crime in the silver market for decades, and finally you have the head of the CFTC saying (last week) that if his feckless agency doesn't get moving, he's going to make another public comment about manipulation. Well, of course now a thousand "crack theories" will bloom. Debunk them by all means, but don't misattribute the blame: it lies squarely at the feet of the venal frauds who've created such a fertile environment for them. (I have a crank theory myself I brought up in comments a while back; namely, that Buffett's late 90's silver play was very suspicious, selling it as he did at the start of the bull market. When I see today that Obama calls him and he invests $5 billion(!) in Bank of AMerica, my suspicion that he's lying about his motivations for buying/selling the silver grows.)

Then, I'm not buying the consequent of your conditional above. Gold is such a natural store of value that it can't really be rejected "by the public once and for all." If, this time around, "things are different," and the fiat game of musical chairs never ends, then yeah those disparagers of gold will have wisely put their faith in the parasitic banking oligarchs and the vacuous glad-handing politicos to guide them (and sway them away from gold).

Brian O'Flanagan said...

"Debunk them by all means, but don't misattribute the blame: it lies squarely at the feet of the venal frauds who've created such a fertile environment for them."

I disagree with that. The professional conspiracy entrepreneurs like Ted Butler and GATA take all the blame for taking small pieces of truth and blowing them up and distorting to epic proportions. Of course there has been illegality in the markets. That goes for all markets, not just silver. Yet there is an entire industry built around these silver allegations to the point where every downtick is engineered by Blythe and every uptick due to good old fashioned buying while the banksters have to have midnight meetings to stop it. There is absolutely NO evidence of ongoing suppression of silver or any other asset and the financial results of these supposed manipulators provide ample evidence of the contrary - that if anything they are net long.

Contrary to the gold bugs, gold can be rejected. It is not a "must-own" asset. Successful people can go their entire lives during boom, bust, deflation or inflation owning not an ounce of gold and still be just as successful as any gold bug. Those doomers out to scare people into buying it lest they be left with nothing when the great fiat collapse comes are shameful. Talk about false dichotomy, it's pure bullshit that we are either with the parasitic bankers or the patriotic gold buyers.

In fact, if you want to talk fallacies the gold and silver bugs have the market cornered. Appeals to authority: Ted Butler, GATA, ZeroHedge, Wynter Benton, ect. Ad Hominem: endless personal attacks on Bernanke, Gensler, Shapiro, Masters, Dimon, etc. Appeal to emotion: must get revenge on the bankers - buy silver! Crash JP Morgan! Execute the SEC Chairwoman!

Why can't gold and silver proponents make an argument based solely on fact and logic? Why must they resort to these tactics? One more conditional: if one cannot make the case based on fact and logic, then one has no real argument to make - his objective is solely to mislead and deceive. And that is despicable.

All the disparagement of gold and silver investors is deserved given their support for these tactics. And I say "fuck them".

GM Jenkins said...

Of course there has been illegality in the markets. That goes for all markets, not just silver.
Because viability of fiat currency depends on shared illusion, and because gold and silver are natural replacements, they're categorically different than other commodities. Pork bellies can go to the moon and people won't eat pork bellies. Gold and silver going to the moon means there's a currency crisis and all that entails. Because they're money, they're different also in their price action, as demand increases with price at a certain point.

There is absolutely NO evidence of ongoing suppression of silver or any other asset I disagree that there's "NO evidence." I won't start listing but even the opacity and evasiveness of the Fed regarding GATA's inquiries into gold is itself SOME evidence.

Those doomers out to scare people into buying it lest they be left with nothing when the great fiat collapse comes are shameful.
So you're basically saying that anyone who fears a currency collapse is "shameful." Because how many hard assets will do as well as gold in such a situation? Maybe farmland and artwork and diamonds and stuff, but gold is certainly a good bet.

fallacies the gold and silver bugs have the market cornered.
fallacies abound everywhere... i was simply adducing roubini's fallacies to suggest he was arguing in bad faith.

must get revenge on the bankers - buy silver! Crash JP Morgan! Execute the SEC Chairwoman! Why can't gold and silver proponents make an argument based solely on fact and logic?
All the disparagement of gold and silver investors is deserved given their support for these tactics. And I say "fuck them".

There we'll have to agree to disagree. Emotion and logic aren't mutually exclusive. And I believe anger is justified, seeing as the banking class not only escaped any suffering after the 2008 crisis (despite causing it), but they are actually better off now, and moreover better off by virtue of money taken from the public, who is much worse off. That's parasitism right there.

Louis Cypher said...

Well my friends it appears the stars are aligning once again on Silver. Between WB's latest and last statement. Buffett bailing out a zombie bank. Sprott telling everyone he sold some gold and is buying more silver. Europe on the edge with demands of collateral from the Greeks etc. The list goes on and on.

On the WB thing these are very specific and bold statements. Much the same way as they had very specific and bold price calls. If what they are saying doesn't pan out their fan base will disappear. Based on the little we do know about them they are a cog in the Silver pump. With all the stuff mentioned above that is why I think we are ramping up again.

I can only assume WB are talking about China and Silver given their recent history (encouraging their citizens buy and hoarding their supplies, life blood of their industrial base) and their history of old (Bi Metallic). Just a wild guess on my part. It could be Mexico for all I know.


As for Roubini I wouldn't take investment advice from the guy. He's a smart guy obviously but he comes to the table with way too much bias.
Once you get to a certain age you start to have trouble recalling recent events and older events are much clearer. New ideas and original ideas are harder to come by and tougher to accept. With his lifestyle that process is bound to be accelerated. Don't get me wrong if I got an invite to his depreciating 5.5 Million apt he bought in 2010 I would go. I just wouldn't tell Wifey.

Kid, I would be happier holding onto just property but some jackass from the IRS will show up once a year looking for rent. I would be happier with food but it rots. My seashell collection and beads are no longer considered much use even by the native Americans around here. So I guess I am stuck with my Gold and Silver. I am open to ideas though. I am being a wise ass here but if you have a better idea I'm seriously all ears.

BTW can someone hit the reset button on the Matrix as we appear to be stuck in a loop. JP Morgan and a few other bankers tried and failed what Buffet just did during the last Depression.

The Big Setup said...

Brian where do you come up with such mumbo jumbo? You forget that world banks have bought in other years..Europe bought 250 tons, UK 312 tons and the IMF leased out perhaps 1000 tons, the list is endless. Have done any research? Your last written article explained how GOLD and SILVER were to crash. How did that work out for you so far? Its unfortunate you don't own any...

Swampfox said...

Dear Louis,

Copper and lead (in the proper mix). If you are in Canada I can supply you with sufficient quantities of both.

:-)

Swampfox.

GM Jenkins said...

Re-reading my comments above, I feel i may have argued with more confidence than i have a right to. (When gold hits $53,000 an ounce I'll hire a copy editor to help me with this.) I just like a good debate and enjoy playing the conspiracy defense attorney but in truth I'm not especially qualified to debate the finer points of finance or economics with Brian. Also I should've mentioned that this was really a thought-provoking post e.g. the ideas that no leverage would sink gold and re: Roubini's claim of 40x leverage vs. the 5x subprime. Is that right or is he popping off?

Louis Cypher said...

It is an interesting idea that most conspiracy theorists forget to mention. However, leverage is simply a tool that will magnify an otherwise orderly price movement. It creates volatility but if it is applied honestly by equal participants in both directions then the trend will be true. In an expanding paper paper monetary base there can only be one direction all things being equal.

GM, If you could buy a house with no money down that is a lot of leverage. Also, I am finding out that in some parts of the world pulling multiple full mortgages on a single property was not only possible but the fashionable thing to do :)
This, of course, was not known to the banks in question but that is a lot of leverage. For example I could buy a house for 100k cash and pull three mortgages for 100K each. This allows me to buy multiple properties now with cash and create a nice Ponzi scheme with the banks money. In case you are wondering I am still looking into this but AIB, BOI, RBS and some Dutch banks are a few that I have identified as being this sloppy. How widespread this was is unknown but I am guessing there is going to be a hell of an unwind in Portugal, Spain, Greece etc in the holiday home market. It also means a hell of an unwind in the Ponzi originators starting point.

Mr. Fox I prefer a more manual approach for around the house. http://www.amazon.com/Horton-Vision-Scope-Crossbow-Package/dp/B002HHRKCK/ref=sr_1_12?ie=UTF8&qid=1314363062&sr=8-12

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Louis Cypher said...
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