Wednesday, June 4, 2014

on Ritholtz and gold, and Ritholtz being wrong

Ritholtz - is this the end of the secular gold bull?

#1, Barry, quit posting headlines in the form of a question. It makes you look like an idiot who doesn't know what he's talking about.

#2, it's augur. The word "auger" which you used means (noun) a drill, or (verb) to drill. The word augur means to divine (tr) or portend (intr). Here is an auger:

Actually, only the spirally bit is an "auger"; though okay sure,
people sometimes call the entire tool an "auger" and the spirally
bit "the bit", but that's because they're thinking of it as a
drill. It's not a drill, it's an auger, because you're augering
holes in the ground with it.

You are augering holes with it and not drilling them because
my construction specification says that you're augering. If
you're "drilling", then you're not getting paid for it.

#3, let's go point by point:

So why has the rally in precious metals been notable mainly for its absence? There are several reasons:

1. Economic stability: Following the tumult of the financial crisis, the past five years have been relatively stable. Growth has been steady, albeit modest. The 1 percent decline in gross domestic products in the first quarter was chalked up to the worst winter in a half-century. Other data suggests significantly better numbers for the second quarter.
Why does stable US growth suggest gold should go down? What was happening from 2002 to 2007, Barry? Was there no stable US growth then? What did gold do over those years?

And why the hell should US growth matter to the price of gold, when the US doesn't buy gold? US bar and coin demand is about 30% of Chinese demand, and 30% of Indian demand. The only gold the US buys anymore is for ETF holdings, bling, and gay marriages.

2. U.S. dollar rally: In the 2000s, the U.S. dollar index declined 41 percent. That helped gold prices soar. Since then, the dollar has been one of the stronger major currencies, providing a significant headwind to precious metals.
OK, in USD terms, yes. Did you know there are other currencies in the world?

I mean, of course foreigners could also just buy USD if all they want to do is hedge local currency risk. And maybe they don't want to buy something whose price is going down. But is gold going down in local currencies? What's the chart look like in rupees, Barry? Hm? What's the chart in rupees? Which chart is more important for supply and demand, Barry? GOLD:USD or GOLD:INR?

3. Low inflation: Despite ominous forecasts of hyperinflation, there has been only a modest increase in consumer price index. For five years, inflation has been a no-show. That removed a major rationale for gold ownership.
Inflation has been a no-show in the US, UK and EZ, sure. The goldbug wackaloons were wrong. But none of those 3 currency zones buy gold. Inflation has been higher, though, in countries that do actually buy gold.

Why are you so fixated on white people, Barry? Why do you think white people still matter to the gold price?

4. Geopolitics: Even with all of the turmoil, the fear trade hasn't caught on. Sure, the first half of this year has seen lots of regional skirmishes, but they remain local. The Ukraine crisis seems to be mostly a Russian affair, while disputes between China and its neighbors are specific problems to Asia. Yes, it always seems like we are on the verge of war breaking out somewhere, but geopolitics has been a minor this year.
Sure, but I don't see why people would buy gold just because of a regional war. I mean, okay, maybe a few Ukrainian oligarchs would want to smuggle whatever money is still Ukraine-exposed into other countries; but they can use Euros or USD for that. Why would they buy gold? Hell, money laundering is all digital nowadays.

This isn't the frickin' 1940s, Barry. This time is different. Why should anyone expect someone to buy gold in case of war anymore? Did you buy gold the last time the US attacked Iraq? How about when your country went to war with Afghanistan? Did that scare you enough to say "gee, I'd better buy a few million in bullion and bury it in my backyard"? Did you? Barry? Barry?

5. No equity crash: The long-awaited bubble popping hasn't occurred. Expectations are that once this finally happens, investors will flock back to the precious metals.
Those expectations are probably fucking retarded. Why would a US equity crash push people into gold? Last time you had a crash, gold tanked brutally. Go look it up. Call it crisis-hypercorrelation crash or call it a rush-to-liquidate crash, but the most recent history indicates that gold does badly precisely when other markets do badly.

You might want to figure out why that is.

And there probably won't be a significant crash for another 10 years anyway, if we're in another US equity secular bull market, right?

Barry Ritholtz seems grossly fixated on an outdated, paleolithic conception of gold. White people no longer buy gold, except as a temporary play in an ETF; other countries are seeing inflation, and in fact inflation might spiral way up for the EMs if we're at the end of the secular EM bull; if you want a catastrophe hedge, you can just as easily buy USD or Euros, depending on where you live and how useful those currencies are in your environment.

Show me gold leaving China and India, show me supply outstripping demand. Then the gold bull market will be over.

Maybe it'll happen, too. New technology might move the breakeven production price lower; maybe central banks will decide enough's enough and dump their gold holdings (hey, maybe EM central banks will start doing this soon, if they get hit with the right crisis). Maybe over the next few decades 21st-century financialization will hit the Indians, and they'll no longer want to own gold. Maybe a Chinese liquidity crisis can shake 2000 tons loose.

But for fuck's sake Barry quit talking about gold like it's the 1970s and only white people have money. You're always going on about cognitive bias and psychology, and yet here you've presented

1. two assumptions whose backtests fail;
2. an assumption based on ignorance of demand;
3. an assumption based on lack of attention to the denominator;
4. multiple assumptions based on total ignorance of the non-white part of the world;
5. several assumptions that gold today acts the way it did in the 1970s.

I agree that goldbugs are annoying, ignorant, racist and paleolithic. But that doesn't mean you should abandon rigour and just take the opposite position to them. The opposite position to "not even wrong" or "wronger than wrong" is not "right".

I'm not asserting the gold secular bull market will continue, by the way. But I will say that the sensible arguments in favour of continuation make some sense to me for the time being as long as certain other things don't happen. And I've got my eyes open for solid evidence against continuation, but frankly I'm getting tired of waiting for that evidence to show up.

Gold went down to $1200 because the ETFs puked. That is the reason, Barry. Gold was overbought for years by ETFs, it caused a supply/demand imbalance, gold shot up faster than it should, the juniors ended up in an insane bubble (follow that link, it's the best goldbug abuse I've ever posted), and now we're mopping up the aftermath.

Mopping up a bubble takes years - look at the Nasdaq chart post-2000. If the analogy holds, then gold is at about mid-2002; is that a good time to buy?

And gold broke support last week because it was OpEx and people like fucking people in the ass at OpEx. I've been waiting for follow-through and I haven't seen it yet.

But for fuck's sake Barry quit making the same stupid mistakes you keep warning other people against making.


  1. I didn't know auger existed as a word. I know the mis-spelling of that one is a shoe-in to drive me nuts.