Monday, March 24, 2014

Jojo on bubbles, wherein I say "but did you look at the GDXJ?"

The Daily Gold - gold 2011 peak versus past bubbles. Wherein he gives us this chart:

Hey Jojo, I addressed this back in November 2013:

Greatest Blorg in the Universe - the chart shows a bubble, why does everyone deny it?

The problem with your chart above, at least in the case of today's gold versus 2000 Nasdaq, is you're comparing a commodity versus the companies that (supposedly) made money off it.

If you compare my post's "indiscriminate basket of gold miners and explorecos" chart against the Nasdaq bubble, you'll see that the miner space was indeed in a bubble just like the Nasdaq.

The difference, I guess, is that if you chart 2000-2002 internet bandwidth usage, internet commerce, and so on, that chart probably also looks a lot better than the contemporaneous Nasdaq index. In reality, it was the equities that were grossly overvalued; the investment thesis was sound (there was still massive growth in the underlying commodity), it's just the equity valuations were stupid.

Exactly like with the GDXJ.

This is meant to illustrate a problem for you. Nasdaq took a decade to get back to its previous highs, despite the internet continuing to explode. The miner indexes might also take a decade to get back to their previous highs.

Then again, a valid retort is that internet use and internet commerce is a different commodity than gold.

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