The big D

gm1

A favourite ride takes me down a ribbon of highway through a series of towns two hours west of Toronto. In my dust I leave at least six GM dealerships, from the historic to the newly-built, passive to aggressive, sleepy to sizzling.

I’m told three of them are now going out of business, along with 242 others across the country, as GM Canada struggles to survive. And while the rationalization was expected, the consequences are sharp. Three towns where some of the best jobs are ending, peewee hockey clubs will go unsponsored and a large hole’s blown in the local tax base. Three local newspapers just lost their biggest buyers of ad lineage, while the ripple effect will hit license offices, couriers, body shops and future generations of lot boys.

In fact, I guess this is the largest single day of job loss in the country’s history – 14,000 people. Sadly, many of the families taking the hit live in small cities and towns where replacement jobs don’t exist. So I guess they will be moving on, some after devoting their entire lives to their independently-owned dealerships.

But this is not about GM or its cavalier savaging of entrepreneurs who fashioned its public face.

Instead, I write about what this symbolizes – a strengthening undertow of deflation which most Canadians have managed to ignore in their quest for normalcy. So while prices of training houses suddenly surge, equity investors exceed their grasp and cheap rates cause a tsunami of borrowing, the foundation sinks.

Job loss is deflationary. Asking employees to reduce wages, to share jobs and retire early – as is happening in scores of major companies – is deflationary. Interest rates at zero, no-money-down auto purchases and 1,000 new price reductions at Home Depot are deflationary. Erased corporate profits are deflationary. And did I mention the demographic age wave and climate change? The mothers of deflation.

Against this backdrop, a speculative surge in oil or gold prices, like bidding wars, is insignificant. Far from being inflated into a shadow currency, money will continue to grow in value as its purchasing power augments in a deflationary environment lasting several years. This will make debts more difficult to pay, ensure a lengthy correction in real estate values and spank all those dumb enough to think Armageddon would be over in eight months.

By the way, I see the annual government-tallied inflation number just out is 0.4%. Economists think it will be zero by next month. I’d say this is going to get interesting.

(DailyRecord.co.uk, May 20, 2009)

MILLIONS of workers could be set for wage cuts after deflation hit a record low.

Tumbling house prices, lower utility bills and food costs and rock bottom mortgage rates sent it crashing to minus 1.2 per cent last month. And fears are growing bosses will react and pay rates will take a hammering.

TUC general secretary Brendan Barber warned: “There are no green shoots.”Official figures released yesterday show the retail prices index plummeted from minus 0.4 per cent in March – the biggest drop since records began 61 years ago.

The RPI, which includes housing costs, is used by eight out of 10 employers to work out salary increases. Experts estimate seven million workers, including 2.5million public sector staff – from nurses and midwives to junior civil servants and prison officers – now face wages hell.

91 comments ↓

#1 3725 on 05.20.09 at 10:58 pm

Garth… Mark this post…

Oil topped out today at just over $62.

Earlier this year in February the trade was long oil and short gold.

The tide has turned.

The trade is now short oil – long gold.

#2 ts harpoon on 05.20.09 at 11:09 pm

RPI: An index that gathers the prices of several retail goods in outlets across the United States in order to give an indication of the rate of inflation.

TUC: Trades Union Congress; Brendan Barber is the current General Secretary.

That is all.

#3 john on 05.20.09 at 11:28 pm

Garth,

Why such a long lapse before we can begin reading comments and bloggers. You posted your entry about an hour ago and we have to wait until the following day to read reactions. Kinda like giving us a menu but having to wait until the next day to eat. Please hurry as my stomach is growling..might be gas.

#4 $fromA$ia on 05.20.09 at 11:29 pm

Thank goodness a new thread, thanks Garth all that Gold bashing was starting to hurt my feelings.

#5 spork on 05.20.09 at 11:46 pm

This is bang on. The big rebound is still the same ol’ same ol’….borrowed money *quantitative easing makes this possible* …not real wealth.

I just got me a cabin. Will be living in it year round. I have a full-time job that pays ok, but decided to move to a cabin deep in the woods with plenty of game, water and wood. The reasons are simple:

1. I want to build self-confidence in the great outdoors. Most of us are soft. Utterly dependent on Sobey’s or Safeway. Picture your city if the trucks laden with food stopped coming for one reason or another. Those ‘friendly follks’ the mayor (any mayor…pick one) keeps talking about would turn on one another like a pack of feral pitbulls.

2. Gaining knowledge about how to be somewhat self-sufficient takes time. Years. If it was to really hit the fan, how well would I do? At the moment, not too well. Put me out into the woods and I would eat grubs and drink puddle water but would soon suffer. Badly. For example, I know how to fish. I started when I was 4. I am quite a few years older than that now. I know how to fish well today as a RESULT of all the days before me spent fishing.

3. Even if there is no meltdown…it is a good lifestyle to live. I still have my car, my walmart, my movie theatre popcorn and all that junk…but also have the infinite stars, wolves howling, beautiful moonscapes and a view infinitely better than a tv set.

…my first foot out of suburbia.

“If you’re pointing in the right direction, keep walking.”
~anonymous

#6 nonplused on 05.21.09 at 12:02 am

Deflation at the consumer level has been entirely driven by energy prices, which they normally exclude from the headline number but now that’s all in to justify massive borrowing by governments. Exclude energy, and inflation is still low but alive. Remember, at 2% uncompounded inflation steals all your savings every 50 years. But it is compounded so it happens much faster than that.

Side note, same with property taxes. Even if you own your home free and clear you have to slowly buy it back from the government every 25 +/- years depending on where it is. Figure it out if you don’t believe me using your current tax rate that you know goes up every year.

Asset prices are in “deflation”, but they should be because they were in a bubble. All bubbles burst. This one is actually bursting quite slowly, giving the people paying attention plenty of time to get out, although not at the highs.

In the future, higher inflation and higher interest rates. Once the Fed fund rate goes to effectively zero, it means no one wants to borrow even one penny more no matter the terms, and the credit push bubble is over. Ludwig von Misses described this “you can’t push on a rope” scenario quite well years ago. Google “Misses Institute” if you want to know more.

To sum up for those who don’t want to do their own reading, I will paraphrase the key point:

There is no resolution to a credit inspired boom but the voluntary withdrawal of further credit expansion, or the complete collapse of the currency system involved.

The people of the world are voting for a voluntary withdrawal of further credit (with some exceptions see Garth’s last post). They are refusing to borrow or lend. But the government is going for complete collapse of the currency system. Why do we elect these morons?

#7 . . . fried eggs and spam . . . on 05.21.09 at 1:15 am

The Ripple Effect on other businesses will hit hard shortly.

Then it becomes a very slippery slope, gathering momentum throughout ’09, all of 2010 and reaching total frustration for taxpayers who are continually being charged more and receiving less for govt. services.

At that point, either (1) anarchy will prevail, as most won’t even care anymore, (2) there may be a new global fiscal system to replace what there is now, (3) gold becomes the new standard again (doubtful) or (4) WW3 is set in motion.

Taxpayers’ / workers uprising happened before in the shipyards of Gdansk, Poland where Solidarity was formed, with Lech Walesa as the head honcho. Eventually the collapse of the USSR happened. Life goes on, no matter what.

Any other ideas, please contribute them! After all, politicians and so-called business people are so thoroughly corrupt and incompetent, we may as well sort out the world’s problems right here on Garth’s blog!
——
Is this the start of something big?! — http://tinyurl.com/qlk9jp

#8 Mark on 05.21.09 at 1:49 am

Garth,

Any stats on how many GM dealers in Canada closed their doors within the last 4-5 months, before the official “purge”?
The next shoe to drop is Chrysler Canada … .

To compare the numbers with those south of the border (from last week announcements):
1. GM is to close 2,100 dealers till the end of 2010 out of their US network of 6,000 (38.3 %).
2. Chrysler is to eliminate 789 dealers of their 3,181 in America (24.8 %).

#9 Da HK Kid on 05.21.09 at 2:03 am

Yes the deflation spiral, poised by 500K+ job loses south side per month, no bottom in sight for the housing market and well, everyone saving like bandits for the first time in 30 years shows how much of an artificial world we created and now most will pay dearly for their stupidity.

Thank you all for your long lasting support of our country leadership. Thank you so much for the SEC who were on the take via the greed of Wall Street.

The next person who mentions “green shoots” should be shot!

Welcome to the GREAT GLOBAL RESET, for those who have followed the advice of Garth’s Blog, are in rented homes, released of their debt load, still have a job and working hard to keep it, sitting on the sidelines of liquidity and stuffing their pockets with extra take home, THE KID SALUTES YOU!

I am off to Kuala Lumpur in August to live where the Big Mac Index reads $1.57 USD and say goodbye to Hong Kong. We have reduced our expenses by almost 60%. Oh btw, you can live in KL and still run your company out of HK for the lower tax rate. How’s 15% max sound. How’s less than 8% if you apply write-offs.

Remember folks if you’re a Yankee you pay taxes to the US government no matter where you live in the world for 10 years.

Being a Canuck, you can live anywhere in the world and declare yourself a non-resident and pay the local tax rate immediately. One catch, you need to find a job and sell your house back in Canada but isnt that going happen at an alarming rate anyhow.

Living like a KING today about being the most credit worthy but not taking it. It means having no debts and being cash rich to control your future. It means not trusting the media or government or RE agent of I-Banker again.

Now get out there and be a KING!!!!

#10 Republic_of_Western_Canada on 05.21.09 at 2:06 am

In our previous lecture, we had unequivocally established that gold can indeed be an abstract and constant holder of value called ‘money’. That is in addition to and separate from the commodity-related aspects of gold which are immediately utilitarian. The borderline between this abstract, representative and constant store of value on one hand, and the manifestation of its utility on the other is generally indicated by Fryin’ Brian’s Goddamn Sales Tax.

However, no claim was yet made that it would or could become a widespread replacement for paper or byte accounting, despite howls of suspicion from those drinking too much coffee.

That will change today. We will examine what would happen when gold is actually used ‘en masse’ as a means of regional exchange.

Now, we have seen that price increases of rhubarb or motorcycles or every additional useless ‘option’ on a GM Chevy is not inflation. Instead, inflation is too much money (including debt by definition) chasing too few goods. Sometimes it will drive up overall prices, but don’t let that tail wag the dog.

Similarly, deflation is not falling wages nor prices nor job losses. It is just fewer dollars being used to represent the same goods and services as before.

So, the payoff and eradication of underlying or derivative debt (which I don’t see happing anytime soon despite blatant evasion of ‘mark-to-market’ rules, and taxpayer-financed ‘bad banks’) would be necessary for true deflation. So would a reduction in ‘printed’ fiat currency be necessary (and which shore ain’t happened either due to TARP and the like).

The symptoms of societal and economic malaise in Detroit North is just caused by the elimination of unnecessary overcapacity. That is exacerbated by chronic inefficiency, waste, and an historic sense of entitlement endemic to that area. It has little to do with deflation.

An immense, arbitrary, and cumulative generation of additional fiat ‘money’ into the system during the last quarter century stimulated massive buildups of capacity and overproduction of chattel of all kinds. Chevy’s, chipboard doghouses, rubber dogshit out of Hong Kong, screaming kids, – the whole catastrophe. At some point, general oversaturation will occur. (What do you need six (!) large dealerships for, along one stretch of highway? And that’s just for a single manufacturer, no less).

The housing mess is just a part of this. It is mainly driven by selfish domestic types everywhere trying to squeeze out way too many damn kids because of a mindless, abominable sense of entitlement to overpopulate the planet. The core of the housing catastrophe was demand for detached houses to keep kids in. Everything from RE agents to flippers to Chinese drywall worked off of that.

As was seen during the dot-com crash, there are natural physical limits which cannot be exceeded in development and production. That’s regardless of how fast you want to get your stuff to market before the next guy. Pumping more debt into the system just to fuck over the next guy before he does you ain’t gonna work. Outsourcing everything imaginable over to Bangalore, Guang Dong and Ho Chi Min City to goose consumption is just an extension of that.

At some point it dawns on the issuers of debt for profit that everybody can’t get through the entrance door all at the same time. That’s when the money gets yanked back, and the soup lines start.

Using gold as money instead of paper or storage bits can damp all of that tremendously. You can’t just create gold out of thin air when you get a sudden urge to fund carpet-bombing of Cambodia or Tora Bora or build McMansions all over southern California.

Sooner or later a fundamental kind of damper will have to be implemented. It might as well be sooner. And it might as well be gold.

#11 Munch on 05.21.09 at 2:14 am

It sure sounds bad there – we are experiencing the same “lag” here in South Africa – housing down very marginally (10%) and people partying on like there’s no tomorrow – I have tired of trying to alert my circle of friends to the imminent dangers – now I just wait wand watch.

Some nighs I wake up, and I think maybe I have got it all wrong – maybe things will recover soon – my finance minister and the governor of our reserve bank keep reasuring us everything is alright – but in my heart of hearts I know what is coming down the track – as irrefutable as gravity – and I despair.

I will be right, but I really don’t wanna be!

Rgds

Munch

#12 Mike (authentic) on 05.21.09 at 3:07 am

A couple of things I don’t understand, maybe someone can shed light on it for me:

1. Isn’t it in GM’s and Chrysler’s best interest to have franchises? Does auto franchises work like restraunt franchises where the franchiser pays the auto company a % of net/gross profit? And to setup the franchise the owner pays the auto company for the priviliage to do so?

2. As it looks like we are approaching a deflationary enviroment rather than a hyper-inflationary one, won’t this hurt infaltionary hedges like precious metals?

Here in the UK, I can attest to the minus 1.2 per cent. We have noticed prices for Cars, Homes, Rent and Restrurant menu items going down. While cheap things like basic food and beer is going up though as well as postage stamps.

And in Canada “High-Interest savings” interest rates are very poor already at 1% (PCF), 1.05% (HSBC), 1.35% (ING) and many others. I guess even at 1% you might beat inflation!

Mike

#13 David Bakody on 05.21.09 at 6:08 am

Off to Tim’s to ponder me thoughts ….. think of this in the interim ….. profit and shareholders what is the connection? Answer when I return.

#14 Maurice on 05.21.09 at 6:21 am

Amigos: Less competion means higher prices not lower!

#15 Chris in England IG-AZ at the moment on 05.21.09 at 7:25 am

I was just hunting for a story about deflation that appeared in yesterday’s Daily Mail, and got side-tracked by this:

“This week, Britain’s biggest bank, Lloyds TSB, waded into the battle for first-time buyers by offering a cheap mortgage with just a 5 per cent deposit, in exchange for 20 per cent of the mortgage value being held in a savings account by the bank.

The deal allows buyers to tap into their parents’ savings or those of a friend to help them get on the property ladder.”

http://tinyurl.com/pnnqwn

So, not only are we encouraged to over-extend ourselves, our “parents savings or those of a friend” are to go down the tubes too! I wonder if this type of mortgage will find its way to Canada?

Anyway, here is the article I was looking for, which tries to put a positive spin on deflation (hey, it’s great for home owners!), but the little twist of gloom towards the end accords with your latest offering Garth.

http://tinyurl.com/o3lm5d

And for the inflation watchers:

“James Hughes, of Black Swan Capital wealth management, said: ‘We expect UK inflation to escalate rapidly with the onset of global economic recovery, possibly into double digits by as early as 2012, and interest rates will have to rise accordingly. It will be like the 1970s all over again.’ “

#16 Midas on 05.21.09 at 7:31 am

When Garth makes comments like ‘not in our lifetime’ it truly shows his ignorance. The first world war was called ‘The Great War’ because the people in those days figured there wouldn’t be another one in their lifetime but boy were they wrong. So unless Garth is God he should refrain from making such crystal ball observations. The times we live in are without precedent, and thus all we can do is make educated guesses, calculate probabilities, and the probability of a true deflation are rapidly approaching zero. Even in a deflationary environment there are certain things that inflate such as energy which will of course lead to an inflation in food prices, and transportation and heating and cooling costs and other necessities. Let us not forget the inflation in taxes that is already in the works such as the HST and as government revenues tank, you can bet your bottom paper money fiat dollar that their hands will reach deeper into your pockets. Start practicing ‘can you spare a dime mister’ if you listen to ‘Cash is King’ Garth and his ilk. The Chinese are not hoarding gold because it is shiny and pretty but because it is money and has been money since men have used money, and will be money as long as mankind continues to use money. There will be a new reserve currency in the near future, the probability of that is very high and after this biggest failed fiat money experiment the world has ever embarked upon it will have some solid backing, at least initially, solid as in GOLD. Not in our lifetime, eh Garth?

No. Suck it up. — Garth

#17 David Bakody on 05.21.09 at 8:07 am

Couple of quick points as I am off to see the tooth fairy. If we all should drive 50% less to save fuel then profit must be raised 50% for shareholders to continue to invest or they move. Now I wonder if deflation should fall to -1.5% would that mean indexed pensions (OAS/CCP) included would they be reduced as opposed to an increase? (think, how much money governments would save) ….. then the shoe would be on the other foot for all those Union Bashers!

#18 Bill-Muskoka (NAM) on 05.21.09 at 8:07 am

In fact, I guess this is the largest single day of job loss in the country’s history – 14,000 people.-Garth

Well, Gooly Gee! It has taken what used to be the world’s largest corporation to finally equal what the Diefenbaker Conwervative Goverment did on their own. Remember the number for the AVRO employees? 15,000 in ONE DAY!

#19 polecat on 05.21.09 at 8:34 am

Took a spin out to Wal Mart last night.It’s in one of those big box shopping areas.Lots of sale signs,big discounts in the surrounding stores.Noticed the big W had a lot of reduced prices on items which even I can figure out they are losing money on.Yet gas shot up 5 cents a litre in one day.Is this a last gasp of the energy side of things to get some profit?Or just typical summer driving season money grab?Almost giving to one hand and taking from another.A dollar for a bottle of Fantastic cleaner and a dollar 7 for gas?If we all quit smoking,driving and drinking beer the government would be broke…

#20 Soylent Green is People on 05.21.09 at 8:45 am

For all those burnt-out boomers who are too busy shopping to enjoy their cottages for most of the year, think about donating one week to a person recovering from cancer:

http://www.cottagedreams.org/Donate/donate_time.htm

Why let that cottage go to waste?

#21 Patrice on 05.21.09 at 9:09 am

Don’t give any money to a failing company.

If you are going to spend 4 billions,

GIVE 4 BILLIONS TO TOYOTA, HONDA, HUINDAI, MERCEDES, AUDI… or any other SUCCESSFUL car company.

Offer them the money and they will come here, open factories, create products people actually want to buy.
And create tens of thousands of jobs that are likely to be here for decades to come.

The car industry is important to us, not a particular company.

You only have 2 choices,
a- invest in a company that proved it’s incompetence and create products nobody wants
b- invest in a competent and successful company that create products people want to buy.

It’s not rocket science.

spread this idea around!

#22 lgre on 05.21.09 at 9:20 am

“Chinese are not hoarding gold because it is shiny and pretty but because it is money and has been money since men have used money, and will be money as long as mankind continues to use money”

Really? in what nation is gold used as money? money is someting you can purchase with, I dont recall being able to purchase anything with gold in any nation at this point. ..it is nothing more then a hedge…it will never become money again, fiat currency is here to stay, regardless of what anyone is hoarding.

Does gold have a value? yes, but until its exchanged for fiat, it’s pretty much worthless in this era. Fiat was created for a reason, control and manipulation, and for those reasons gold will be nothing more then a shiny and pretty piece of rock.

#23 Toronto Real Estate Update on 05.21.09 at 9:31 am

Toronto real-estate market stabilizes

Home sales up 3%, prices flat vs. May 2008.

Mike Eppel Toronto, 680 News | Thursday, May 21st, 2009 8:10 am

Toronto – Home sales around the GTA for the month of May are running ahead of last year’s pace.

Prices are holding steady even with the concerns about the economy.

After a brutal start to the year things seem to have stabilized in the real-estate market.

The Toronto real-estate board said that in the first two weeks of may there were 4,500 sales.

That number is up by 3 per cent compared to last year.

The average selling price was just shy of $400,000, which is almost the same as a year ago.

Jason Mercer, the real-estate board’s senior manage of market analysis says that having mortgage rates at a record low has helped the affordability issue.

Earlier this week, the Canada Mortgage and Housing Corporation warned that there are still some potential shocks to come, including lay-offs from the auto and retail sectors.

#24 Dave on 05.21.09 at 9:41 am

As it looks like we are approaching a deflationary enviroment rather than a hyper-inflationary one, won’t this hurt infaltionary hedges like precious metals?
——————————————————–

nope. Just look through history. In the crashes of 1929, 1873, 1825 there were deflationary spirals. The precious metals in all those cases went down with the bubble. After the implosion, the mining stocks that mined those precious metals exploded. You have to remember that along with everything, the capital costs of a mine (labour, energy, commodities) have decreased in price along with everything else around us. Gold, for example, is roughly 10% from its high. Not bad compared to everything else. Mining makes sense right now. The big, big money will come in mining stocks in a few different sectors, one being gold.

#25 Jack on 05.21.09 at 9:44 am

May be deflation is affecting most parts of the country, but certainly not here in Unionville, ON…. particularly in terms of real estate prices …. asking price has gone up 10% when compare with last month. Go check for yourself on mls.ca if you don’t believe me. Crazy ?

#26 Nostradamus jr. on 05.21.09 at 9:47 am

Many uneducated posters here Garth.

Friends, the second leg of World Deflation is kicking in…you are reading and seeing it everywhere.

1/
…Small towns “Car Dealership” Canada are dying off now.

That is why you will continue to see the important Major City cores retain their Real Estate values.

2/
Manufacturing is dead…China took care of that…and no one anywhere in the world will be able to compete as China will continue to “drop” the prices of their finished goods.

3/
…Gold, is going nowhere friends, down , sooner than later.

Easy to see why….India and China who have horded gold will begin selling the commodity…..for food!

…The economic world pundits agree with me, the Pacific Northwest will become the safest place to live in the world…

#27 Mike (authentic) on 05.21.09 at 10:09 am

#15 Chris in England ‘We expect UK inflation to escalate rapidly with the onset of global economic recovery, possibly into double digits by as early as 2012, and interest rates will have to rise accordingly. It will be like the 1970s all over again.’ “

Being in Cash is a very good position, fiat or not, it’s liquidable and you can move it around easily. If double digit 1970’s inflation takes hold we will have bank accounts and GIC’s paying 10-15% a year vs 1% today. Gold goes up or down but try to liquidate it easily. Also I heard if you sell or buy more than $25,000 in gold in one day your automaticly reported to the Canadian Revenue Dept.

Mike

#28 Dan in Victoria on 05.21.09 at 10:09 am

Here’s a personal story of a dealership in Florida, I wonder how many stories like this there are going to be in Canada?http://www.americanthinker.com/blog/2009/05/letter_from_a_dodge_dealer.html

#29 MaW on 05.21.09 at 10:16 am

Calgary, no closer to reality.
This:
http://www.realtor.ca/propertyDetails.aspx?propertyId=8196590

is considered a starter home price.

Bring on the deflation. Unfortunately.

#30 squidly77 on 05.21.09 at 10:25 am

this guys one pathetic piece of work..and boy does he enjoy teeing off on this blog and its author..its like daily

http://www.bobtruman.com/blogs/bob_truman/archive/2009/05/20/worldclass-says-2009-2010-is-the-time-to-buy.aspx

#31 Dodged-a Bullit-in Alberta on 05.21.09 at 10:39 am

Greetings: The local GM dealership in my community own 7 dealerships scattered about southern Alberta. Talk about having your eggs all in one basket eh!! I guess much like having your money all in residential real estate. I wouldn”t ever buy another Pontiac, the most user unfriendly car we have ever owned.

#32 Nathan in Edmonton on 05.21.09 at 10:44 am

I’m thinking too many rich white guys with way too much gold read this blog….

#33 David #3 on 05.21.09 at 10:53 am

The mere fact that cars and other luxury goods are getting cheaper is in no way indicative of a deflation. Basic necessities, on the other hand, are slowly getting more expensive by the day.

Who is gonna care for plasma TVs on sale, when most of our paycheck will go toward paying for food and energy?

I’d like to think that cheap money and “quantitative easing” is not inflationary. But looking at my mint Zimbabwe dollar bill, I don’t think so…

May you be right Garth!

#34 Rasputin on 05.21.09 at 10:59 am

The US dollar will not only fail to last our lifetimes, it may fail to last the year. At least as the reserve currency. The US cannot sell the bonds they need to patch their deficits. Their tax revenues cratered by 35% so far this year. The chosen one didn’t see that one coming when he created the US budget. They are printing. As the politicians like to say “deficits don’t matter”. To which I will add “they don’t matter until the day they do. From that day on it is all that will ever matter”. That day is coming soon. Governments around the world are playing the old it won’t blow up on my watch game. It blew up on their watch. The fallout has only begun. This could end up with a civil war down south. I sure hope not but the stress fractures are getting huge.

#35 Davinci on 05.21.09 at 12:19 pm

“Gold is money and nothing else. ” – JP Morgan.
or
“Paper is paper and money is money” – German Farmer 1923

Simple statements that anyone can understand here is statements you may not understand…

“It is impossible to calculate the moral mischief, if I may so express it, that mental lying has produced in society. When a man has so far corrupted and prostituted the chastity of his mind as to subscribe his professional belief to things he does not believe he has prepared himself for the commission of every other crime.” – Thomas Paine

I am glad to be out of Plato’s “The Allegory of the Cave” or, for the average Joe, I am glad to be out “The Matrix”.

Paper money is about to destroy so many lives it’s not funny. I weep for the elderly and those on fixed incomes. There is no help coming because too many people refuse to see the truth.

That truth is, MONEY IS A TOOL that has automatic value not decreed value.

Let me repeat that for the dumb, deaf and retarded…
MONEY IS A TOOL that has automatic value not decreed value.

Cash is trash, those that have the gold makes the rules.

Ok, now I understand why Central banks have 75% of the worlds deliverable gold. :)

If good people like you had the Gold the world would be a better place.

“Gold in the hands of the public is an enemy of the state.” Adolf Hitler

“the best way to destroy the capitalist system is to destroy the currency.. by continuing inflation governments can secretly confiscate the wealth of the citizens. This process engages all of the hidden forces of destruction in a manner that not one in a million can diagnose.” – Lenin

I weep because 90% of north Americans believes that ‘Cash is King’.

Got Gold?

You sound like a shrill, insecure little weenie. — Garth

#36 tjmikey on 05.21.09 at 12:33 pm

So I just called Bob Truman out on his blog.

I’m willing to bet Bob $1,000 that Calgary real estate will drop between 25 to 35% from current levels within the next 24 months.

Should be interesting.

Emailed Garth to hold.

#37 $fromA$ia on 05.21.09 at 12:53 pm

Golds up major today.

#38 Got A Watch on 05.21.09 at 12:55 pm

Things are breaking loose in the US sovereign Bond market today. The US Fed bought $7 B worth of longer term Bonds ( the famous QE), and other toxic papers.

This should have resulted in longer term yields on US Bonds falling, which is the stated point of Bernanke’s “policy”, if you can call it that.

Instead, yields spiked higher, above yesterday’s levels, when Ben bought another boat load. Yesterday, it worked for a few hours, yields fell. Today, not so much. An announcement that the US Treasury will issue a fresh pile of $101 B in Bonds next week, and Bond traders seeing little demand for this, seems to have been the tipping point.

This is the total failure of “quantitative easing” live in real time. The effects can be seen quite readily. Long term interest rates (think mortgages), which key off of Bond yields, will rise. The US $ has fallen sharply again, which it has been doing for a few days now.

Precious metals moved up, being inverse $ instruments.

The CAD $ will strengthen, not good for our exports, but driven by price inflation in commodities shaped by falling US $.

If this trend continues, interest rates will rise, and so will prices of imports – creating CPI inflation, even though the economy as whole will be gripped by deflation due to wealth destruction and credit de-leveraging. At some future point, we may see really strong price inflation in gas prices, food prices…while the rest of the economy continues to contract.

Just about the worst scenario possible, for consumers. To protect yourself financially, you need to be in those “assets” which are rising in price, not falling. Like, cough, gold, cough.

This is my macro view right now. Others may disagree. But if you figure this one wrong, your personal wealth will take a sever hit. We seem to be at an inflection point, the “green shoots” meme is over.

This is all just my personal opinion, due your own due diligence before you trade or invest. But don’t wait too long, or events may overtake you.

#39 Munch on 05.21.09 at 1:07 pm

What gold IS is not necessarily defined in terms of what it can be USED for.

For example, it may not be able to BUY things in the short term but it DOES act as a store of value.

Will it go UP or DOWN?

The answer is YES and YES!

The timing is the problem!

Forget about the future – “We don’t kjnow and neither do they!”

Regards

Munch

#40 David on 05.21.09 at 1:14 pm

One man’s rationalisation is another man’s loss of livelihood. In larger centres like Calgary and Winnipeg, for example, the big regional dealerships have a cushion with corporate and government fleet sales to soften the blow. Smaller town dealers selling Pontiac, Cadillac and Hummer lines get to lose out, stuck with millions invested in expensive proprietary technology and GM certified techs trained to use that expensive equipment looking for a new career in a bleak job market. Investing in gold or real estate won’t be much help to these people trying to cope with what is called structural readjustment or whatever euphemism becomes part of the popular economic parlance. Tough to hedge against job loss isn’t it?

#41 Argentum Aurum on 05.21.09 at 2:02 pm

Garth,

What to do in a deflationary environment?

Thanks
AgAu

#42 nonplused on 05.21.09 at 2:28 pm

For those of you thinking of jumping back into the stock market per Garth’s advice, a nice, very quick summary of what you face:

http://market-ticker.org/archives/1054-Unintended-Consequences-Again.html

In short, now that Obama is abrogating contract law you own nothing when you buy a stock in any company the government may be interested in “rescuing”. At least in the US. Stick to stuff that is too small to save.

#32 Nathan in Edmonton

“too much gold” is an oxymoron. That’s like saying “too much money”. I wish I had that sort of a problem.

#34 Rasputin

I agree with your observations but not the timeline. The USD will not collapse in a year because so many people cannot conceive of an alternative (like Garth). Instead, inflation will rise as the government prints new money to buy its own bonds and then spends that money into circulation. (I don’t mean inflation in stocks or houses. Those were bubbles and they have burst. They have a long way down to go before they meet the headline inflation coming up from below them.)

If you can get your hands on John Mauldin’s “Outside The Box” for May 18, 2009 (volume 5 issue 30), Horace Brock does an excellent job of presenting various scenarios for the growth of US debt vs GDP going forward. The short summary is that a Zimbabwe style dollar collapse is likely still +/- 20 years away, even at the rates the Obamanation is printing money. However, IMO, “stagflation” might be the outcome until then.

The exception would be the case that the government can’t sell its bonds and the Fed buying them causes the rest of the world to see the US dollar as a fraud and panic sell it. Then we get the 80’s all over again, with 20% interest rates and defaults all over the place.

But short of a dollar panic it should be a slow steady ride to less purchasing power through inflation for the actionable future. Once the debt collapse is over, that is, which it isn’t. Inning 3 starts this summer in commercial real estate, followed next year by inning 4 which will be Alt-A mortgages. Somewhere soon consumer credit should jump in for inning 5 but that might be before inning 4. Debt collapse is a crazy sport. The ump makes up the rules as he goes.

Where did I tell anyone to “jump back into the stock market”? Be accurate. — Garth

#43 Devil's Advocate on 05.21.09 at 2:31 pm

#22 lgre on 05.21.09 at 9:20 am

You are at liberty to do as you see fit as am I and others similarly.

Gold is indeed a hedge and consequentially a speculative one at that. Fiat currencies on the other hand are currently nothing more than “faith” in those who control them who might unilaterally decide that substantial change is warranted in order to correct their fiscal and montetary mismanagement of the economy. Both – gambles.

What I do know is that historically, while many fiat currencies have failed for one reason or another, gold has retained a relative worth as a storage of the fruits of one’s labour (labour being the operative word). I am sure Confederate soldiers were quite confident in their currency, as were Argentinians and a swack of others as I equally sure they wished they had held gold rather than the fiat currencies their government issued and multiplied with the blind faith of their citizens through the fractional reserve banking system but no real “fruits of those citizens labour” to back. Fiat currencies are essentially promisary notes. Hopefully the promise that backs them is good – but do you know many politicians (save for Garth) who have not at one time or another not made good on their word?

I do not place as much faith in our current fiat currency as a medium in which to store the fruits of my labour so much as I do in other mediums. For example we own a home free and clear which we would like to sell but what would we do with the fiat currency given us for it? Buy gold? Probably more than most other options right now as politics and the economy suggest it will not likely devalue as much as the house nor the stock market – which I firmly believe will drop twice it’s last four months gains once this dead cat bounce is over – or our current fiat currency. Gold does not go up so much as other things go down in my opinion. In other words I don’t expect gold to go up so much as I expect other things to fail.

Any worth I invest in gold is not a speculation but an insurance and in these economic times me thinks insurance is not a bad idea as the probability increases that a non-linear event might occur.

We need a roof over our heads in any event – while I do accept doing nothing is a gamble in itself.

#44 CalgaryRocks on 05.21.09 at 2:37 pm

#17 David. Government inflation figures are bs as they do not include food and energy. Try spending even one day without spending money on these categories and you’ll realize how useless gvt figures are.

My own Superstore index says that a raw chicken costs 10 bucks now and everytime I go in, I notice at least 1 item that has gone up by 1 buck or so.

#45 Bill-Muskoka (NAM) on 05.21.09 at 2:49 pm

#32 Nathan in Edmonton

Or a lot of wannabe rich white guys who just bought gold and are trying like mad to get others into their game so they prosper? Just like the RE people, and most other proselytizing religionists who want more to join in.

Interesting story regarding caterpillars. If you place them around the edge of a flower pot they will inately follow one another until they all die of starvation, rather than break free from the crowd and go EAT! And people think they are superior? LOL

#46 Bill-Muskoka (NAM) on 05.21.09 at 2:55 pm

Garth,

Watch out down your way. The cab you hail may be hailing you…to pull over! LOL

Halton police cruisers looked like taxis

#47 please talk about something else on 05.21.09 at 3:35 pm

Why do people who like gold feel compelled to drone on and on about it, constantly bringing up their favourite metal even in conversations on different topics?

I like tin. Would you like me to make a neverending series of repetitive comments about tin? Perhaps every three days I could provide a quote from some long-dead tin can maker about its usefulness? Maybe I can remind everyone on a daily basis that Pygmies in Africa make headdresses out of tin (or some other irrelevant trivia)?

You think gold is great.

We get it.

Move on.

#48 smw on 05.21.09 at 3:45 pm

#44 CalgaryRocks

I hear you, its not that they lie, its how they group those consumer price numbers together. They make it as confusing as possible so the herd is content and kept acting slovenly towards their finances.

Core CPI? Well of course it doesn’t include that food stuff you talk about. Basically the selective economists always use this number which is basically discressionary spending.

CPI? Well thats of course your shelter, food, gas/oil, sin items(booze and cigs). The things we really need in time of recession. This is the number, which includes the above items and the nessecities of life.

CORE CPI is almost meaningless, CPI, however, isn’t. With just the right confusion, the common man will be kept unaware and unclear of just whats happening…

Maybe if Garth can get the real PC party going again, we can get somebody in Ottawa to at the minimum, have Stats Can change the names so we’re not playing the reverse deffinition game.

#49 smw on 05.21.09 at 3:56 pm

#38 Got A Watch

I concure with your analysis, but I’m wondering, and maybe its a page out of history that won’t be repeated, but, if those yields have to rise, will it not eventually bring some people out of gold and back into bonds, because of the rise that rates will have to take in order to get attract new buyers?

If this trend continues, interest rates will rise, and so will prices of imports – creating CPI inflation, even though the economy as whole will be gripped by deflation due to wealth destruction and credit de-leveraging. At some future point, we may see really strong price inflation in gas prices, food prices…while the rest of the economy continues to contract.

This is EXACTLY what that guy that got it so wrong, Peter Schiff said would happen.

The next group of idiots running out of the stock market and into American treasuires won’t be as LUCKY as they were in the fall.

#50 poorguy on 05.21.09 at 3:56 pm

What a great idea!!!!

Create another bubble to solve the problem created by
one bubble.When these guys will learn?

#51 Future Expatriate on 05.21.09 at 4:23 pm

Erroneous impression #1: Only the rich invest in gold, or can afford gold.

BS. Gold bullion 1 oz. coins are currently in the area of $950 USD apiece, and there are smaller coins as well.

Anyone with ANY money in any kind of investment paper can afford gold maple leafs.

However, the rich DO tend to to invest more in gold, because they DO tend to be smarter about money. And they can handle more risk than the average paper investor.

And the rich tend to be bigger risk-takers overall.

Garth is not bullish on gold because it’s a risky proposition, so lay off. He’s obviously well off enough to be able to afford to lose most of his portfolio if and when paper crashes.

I’m not. So that’s why I’m not rich YET, but still bullish on gold. But I understand people who are not.

#52 Grumpydawgs on 05.21.09 at 4:24 pm

This ‘deflation’ bally-hoo is nothing more than a lie and a red herring being broadcast by a government trying to keep i nflation hidden and keep their revenues in the black. Nothing is deflating, in fact that opposite is taking place, inflation is raging. Don’t be fooled by hedonic measurements of inflation. You eat food, use, gas, pay taxes, you don’t consume dummied up gas mileage improvement stats , computer RAM or cotton T-Shirts from China.

Look at any price graph and you’ll see that between 2000 and 2008 the price of everything has gone parabloic. Your government would like to keep it up there because that is what they’ve based their budgets and raises on. While at the same time they phony up these ‘inflation’ stats to show zero movcement to keep wages, benefits, pensions and adjustments down.

Bringing the insane price inflation of late back down to match the governments own CPI stats would bring costs to consumers down almost 80% ( gov says inflation over 10 years averaged 2%) and would be brought back into line with wage gains over that period. In other words ‘affordable and realistic’, but no, that would be ‘deflationary” Bwahahahahahah, sorry Pally but I’m not falling asleep for that one.

For a good read on how bad your economy has been managed and what our prospects are read this

http://news.goldseek.com/GoldSeek/1242886380.php

#53 john m on 05.21.09 at 5:00 pm

Interesting times……Canada Pension Plan reports a 17 billion loss(hmmmmm 17 billion is a hell of a lot of money,who manages this fund? what kind of fool rides the roller coaster this deep oh well its only a technical recession and obviously our future is being guided by some very incompetent people so why worry :-) ),the markets took a dive today,jobs disappearing,wages dropping,hospitals closing,and we have billions invested in failing corporations (hoping for a miracle) and billions in our banks who are very thankful and are pumping it out to reel in more suckers………after all how can they lose? Our government has given them a key to the vault …………..wow the future doesn’t look very promising to this guy.

#54 Simon on 05.21.09 at 5:07 pm

FWIW

In my local area, we have 4 dealers selling GM brands and 1 Toyota dealer and 1 Nissan dealer. There’s something wrong with that picture, folks!

#55 ryan on 05.21.09 at 5:09 pm

There is a middle ground in this discussion…one where you neither place your bets on a deflationary price collapse (and impending monetary irrelevance of gold, simply because the panic did not result in 3k per ounce), nor the opposite, where gold holdings are the only defense of capital. The middle ground is simple asset diversification….and yes gold should be a part of that.

The next three to five years is going to be an asset allocation tapdance, and for most, something they should avoid getting drawn into.

The middle ground:

10% Allocation of assets to gold (physical OR ETF)
30% Cash in savings accounts (no more than 100k in each)
30% Low risk (sic) income bearing assets
30% Equities (as long as you are not retiring next week)
Oh…and 2-5k cash on hand in a safe.

This is also true for those that have lots (50% +) of equity in a single real estate asset, and either job security, or more likely, liquid same as cash reserves. It’s not a terrible idea to own your house, just a terrible idea to bank on its value increasing in the next year or being beholdent to current income levels to maintain it.

Honestly….if you were to sell your primary residence and rent (as I and others have done), what asset class do you deem bomb-proof? I don’t see one that has not got some real question marks. Not cash, not gold, not houses, not bonds nor equities. So unless you are great with timing the bumps that are coming, you are better off spreading your wealth.

I think that’s just great common sense.

#56 timbo on 05.21.09 at 5:29 pm

buy gold or be priced out forever…..gives a dividend, an interest rate return and a tax deduction. I think remax is starting to sell gold.

http://pricedoutforever.com/

#57 Simon on 05.21.09 at 6:11 pm

In fairness to the folks who run the CPP they’re obliged to invest billions upon billions of dollars so it’d be pretty hard to see how they could escape being hit by collapsing investment prices. Keep in mind that their job is considerably more difficult than that of a small investor who can move money arouind as he/she chooses whenever the mood strikes. Better to take a look at how they’ve performed over a longer term.

#58 Tony on 05.21.09 at 6:19 pm

#36 tjmikey the opposite will happen to real estate in Alberta. In two years’ time real estate values will be UP 25 to 35 percent. Edmonton will lead the way with the highest increases in the South West and West areas. I’m buying heavily into both areas as we speak. Just a word of advice for all the people who live in Alberta i’ve noticed all Albertans tend to think alike, so when as always they’re all wrong you’ll see a huge upswing in real estate prices.

#59 Future Expatriate on 05.21.09 at 6:21 pm

#56- How nice. A real estate Bull shit blog…

#60 Boombust on 05.21.09 at 6:37 pm

“…The economic world pundits agree with me, the Pacific Northwest will become the safest place to live in the world…”

Why anyone would want to live in Blaine, Washington is beyond me…

#61 . . . fried eggs and spam . . . on 05.21.09 at 6:40 pm

Garth said recently that oil may jump to US$100, and #1 3725 on 05.20.09 at 10:58 pm had the same thought. Not too far off the mark! — http://tinyurl.com/oom855

This may also be consistent with the link on my post from last night, about Russia switching from the US$ to the Euro. Together, Russia and Iran hold 20-25% of the world’s oil and gas reserves.

Neither of them, along with China want to keep flogging a dead horse (the US$). By the time all this is sorted out, the Yuan and / or Euro may well be the world’s reserve currency.

The US is clearly interfering with other countries (AfPak), and blaming terrorism / terrorists for events they are staging, such as the bombings in Bombay recently.
——
#26 Nostradamus jr. at 9:47 am — “3/…Gold, is going nowhere friends, down , sooner than later. Easy to see why….India and China who have horded gold will begin selling the commodity…..for food!”

Q & A to your point. If China and India sell gold for food, obviously it will depress the price significantly. What of the price of food? It’s already hitting new highs. But who is going to buy the gold as there is a major fiscal downturn in almost all the world?

I guess it would be the ‘elite’, the Bilderburg Group and friends so they get a lock on it, but what good will it do them when the peasants (us) get fed up with those in power?

Life is so seductively complicated!
——
From Money Morning today. One reason for Brazil and China’s cozying up to each other:

“Brazil is on the mend from its biggest economic drought and may grow as much as 4% in the second half of the year, Itau Unibanco Banco Multiplo SA’s Chief Executive Officer Roberto Setubal said at a conference in New York. “Our economy is showing very strong signs of recovery,” Setubal said, Bloomberg reported. “The pace of growth is already there, and I believe we will see a very strong second semester in Brazil.”
——
Interpret this as you will. From The Daily Reckoning. — http://tinyurl.com/qu75lv

“If the US economy is really following Japan, things are going to get a lot worse. Japan’s output is collapsing – at a 15% annual rate last quarter.”

Possibly investing in Ghana and Norway (the only two countries that are doing reasonably well, as far as I know) could be good places to park cash for the time being!

#62 jojo69 on 05.21.09 at 7:01 pm

Hi Garth,

Ha,Ha deflation in Canada. Goverments doesn’t like deflation because of less revenue.
Did you see oil price over $ 62, and gassoline price over one buck again. What about food, education costs, transit fares and all other services prices up over 50%.
Finally, Report from Toronto Real Estate Board reported 4,561 transactions in the first two weeks of May/09,
sales UP 3% compared with May/08.
The avg. price was almost same as last year’s down about 1% at $ 399,811.
What deflation?

#63 Barb the proof reader on 05.21.09 at 7:21 pm

“shift to thrift”

Humans act like one big, dumb, happy family don’t we?

(Well, except for the unhappy parts.)

Watching shifts in trends, mass trial & error learning, is like watching a school of fish dart hither and thither.

#64 JO on 05.21.09 at 7:23 pm

Solid post Garth. The irony is that while we are in deflation in many sectors of the economy, we may still eventually experience inflation in other parts (food,). This deflation you discussed above is the main reason right now that the long gov’t bond market is showing some horrible signs. As we all know today, England’s credit rating is on a negative watch. US and others to follow..Canada will get there eventually but not for a while.

If we do experience the classical deflation trade again in fall 09 through 2010, the only thing rising will be the USD and maybe gold. I do thin gold has at least one new high left in it before any major correction..but imagine, the deflationary crash comes: SP500 in low 400’s / oil under 25 / USD up against everything / Canadian dollar down to at least low 60’s with chance for more…the decline should intensify once the loonie breaks the 77 area and holds it..so here it is: Deflation in US may lead to some inflation in some areas of the Canadian economy.

The bond market remains the main market to watch..once we enter into the major bear market, I cannot fathom what 7-10 % long term rates will mean for society (this is moderate bear scenario..ceiling is unknown..could even be 20 % as bond investors refuse to roll over/buy new debt due to drasticly shrinking tax revenues and rising spending)..If the USD goes down hard as well (a break of 78-79 or so on dollar index is a huge red flag), then we go into a hyperinflationary collapse ala Iceland…Cad $ may do better there, but gold is the only refuge.

Watch California..it is a great barometer of the leading edge of the crisis and a picture of what awaits North American society in 6-12 months. By the way, congrats to the voters down there by rejecting the pathetic “budget” proposals..time to end the socialist nonsense of tax and spend and tax and spend…
JO

#65 JO on 05.21.09 at 7:27 pm

Ryan, be very careful with any ETF..especially the Gold ETFs..these are loaded with massive counterparty risk..the gold etf GLD has over 30 counter parties..the scale of the coming crash will mean many financial companies wiped out…your ETF will likely be at risk or is at high risk…would suggest you consider Sprott Bullion or gtu.un (disclosure: I own a modest position in gtu.un) or other closed end, pure bullion funds (not funds owning certficates).

JO

#66 Dan in Victoria on 05.21.09 at 7:28 pm

Looking at the picture of the closed chev dealer,out here(and elsewhere) you can scratch out the chevrolet and substitute,McMillian Blodel,Weyerhauser,Pope&Talbot,Western Forest Products,Domans,Madill,Hayes,APD, etc…….and now chev,GM,Dodge. You guys out east are just getting started,you’ll catch up to us in awhile.Your’re in for a world of hurt,I wouldn’t wish it on anyone.Look around and give your family a big hug.That’s what is important.

#67 jojo69 on 05.21.09 at 7:46 pm

Look at any price graph and you’ll see that between 2000 and 2008 the price of everything has gone parabloic. Our government would like to keep it up there because that is what they’ve based their budgets and raises on. Second do not short the oil (first should go up to $70) and don’t go long on gold now because gold will again hit $ 800 and after that it will go to
$ 1250 . Real estate prices in Toronto Area now are the same as highest levels in history.
Yep, we saw the crash on the stock market about- 40% and RE prices – 10% between Oct/08 and March/09 and it’s over. Prices now are almost same as 2007,2008.What deflation? Even if we have over 15% unemployment rate in Canada and every year more 250,000 immigrants plus 200,000 new graduated Canadians desperate for job, still goverment will print more money and spent more to keep assets prices high.
Garth is not bullish on gold,food and Real Estate .
Does Garth know for printing money and current interest rates? Is it deflation as 1987,1988 with interests over 20% or very soon will see hyper-inflation.

#68 JoeCalgary on 05.21.09 at 10:32 pm

#53, john m, that CPP loss was $23.6 billion, not 17.

http://www.thestar.com/business/article/637563

#69 tjmikey on 05.21.09 at 10:36 pm

Hey Andrew,

I called out your buddy Bob on a bet.

No response, no surprise.

Sometimes you’ve got to put your money where your mouth is….I’m ready and willing, Turner has agreed to hold.

#70 tjmikey on 05.21.09 at 10:49 pm

#58 Tony,

You want in on the action?

If your buying in this market then you have to think my bet would be a lock..no?

Oh, what was the name of this blog again?

#71 dd on 05.21.09 at 10:54 pm

#53 john

… Canada Pension Plan reports a 17 billion loss …

And Warren Buffet lost big time too. But he is still buying. CPP has a long term view of the world. They make investment decision on the 20 yrs plan. Markets will be up again.

#72 nonplused on 05.21.09 at 11:21 pm

Sorry Garth, I thought you had been advocating stocks. I suppose you did not say when or how people should buy them so my mistake. Your advice was more around getting a good financial planer and that stocks would be a good investment over the longer haul, which is probably true, so I stand corrected.

By MHO would be not now! I think this thing looks like a potential full stop if credit keeps drying up like it is. And with hedge funds contemplating getting out of corporate bonds due to the handling of Chrysler, I can only say it continues to look like everything the government is doing to help is making matters worse!

#47 please talk about something else

Control Freak. People will talk about what they want and you are free to skip it in a blog.

Now could we all stop talking about who other people are talking about things we don’t want to talk about? I don’t come here to read about how other people don’t like reading things here.

Whoops, I guess I am a control freak too.

#55 ryan

If you are going the ETF route, make sure they have physical. I like CEF. Canadian, allocated, insured and audited, and they have a bunch of silver too.

2-5k cash? Your kids are way less expensive than mine. 2k would barely buy groceries for a 3 month lay off.

#57 Simon

I thought CPP mostly was just brought into the government ledger. I would be surprised if they have invested in anything but an IOU from the government. In other words all the surplus on CPP (and UI) has been spent funding government programs and the idea is the government is good for the money later.

#58 Tony

Nothing wrong with “talking your book” as they say in the trading world but Billy Joel has you: “You may be right for all I know but you may be wrong. You may be right but you may be wrong… “. Repeat.

#73 Basil Fawlty on 05.21.09 at 11:24 pm

One of the worlds top earning hedge fund managers ($2B in 2008) John Paulson has been investing in gold in 2009. Mr Paulson’s fund manages $26B in assets and the following are from his 15 top holdings:
1. SPDR Gold Trust, 30.37% (of total portfolio)
5. Gold Miners ETF, 6.8%
6. Kinross Gold, 5.87%
11.GoldFields 2.21%
When asked why he has recently invested so much in gold, “That position was established as a hedge, the company said in a statement, because its funds have a share class that is denominated in gold rather than in dollars or euros.”
Interestingly, China recently became the major trading partner of Brazil, taking over from the US and putting downward pressure on the dollar.
The financial world is shifting, what to do, what to do?

#74 . . . fried eggs and spam . . . on 05.22.09 at 12:15 am

Throw this into the mix, just for good measure. Recently, Canada, the US and Oz all said GM wheat was okay to use. Monsanto is working to have GM foods on all tables for lunch and supper, a.k.a. “Lupper”.

Who are the ‘behind-the-scenes’ ones at Monsanto? There is another side to this — fertilizer. From John Thompson’s column on Castanet.net today:

“Millions of farmers are cutting back on fertilizer because it is too expensive. That creates a slowdown in potash production in Saskatchewan. One farmer’s son that I talked with said his dad was cutting back seventy five per cent because the price is too high. Our farmers are holding back on the fertilizer purchases.

“What this all means is that like Venezuela where they have already done that to their crops, they are showing a smaller yield from their fields. Now does this mean we are going to see less from producers this year? If so, then look for the price increase of the food for your table and who knows by how much? It is a scary thought isn’t it? Right now it costs us $150 for the two of us a week at the grocery store… ”

It is possible that the powers-that-be forced the price of fertilizer up. Also, those who control Monsanto could be bleeding fertilizer companies dry. Fertilizer use is cut back so that it drives the cost of food up. Or — maybe — they will buy the fertilizer companies up and shut them down.

Sask.’s boom will probably take a hit as well. The only things we can do are vigorously support Farmer’s Markets and other small operations, thus keeping them in business, and / or switch to frozen foods.
——
Latest from Mish’s site. US, UK, Spain, Hungary and Ireland all face debt downgrades. Probably includes others as well.

Second one — see heading, as the rest follows on.– http://tinyurl.com/qb6gfe — and — http://tinyurl.com/qgxd3u
——
Bernanke and Obama said roughly the same thing a week or two ago. Guess someone has to yell “TIMBERRRR”, ‘coz the whole thing is sliding now! — http://www.bnn.ca/news/9509.html
——
No day is ever complete without a ravishingly good conspiracy theory. Whether true or not is irrelevant — it is designed to fool all of the sheeple all of the time, and we’re not sheeple.

With grateful thanks and an enormously large drum roll to the Paparazzi, I present the following. Keep in mind Deep Throat’s sage advice — Follow the Money, connect the dots.

Is there a link with all these? Big Pharma, bailed-out automakers, Monsanto, deficits – debts all over, the US Fed, MI5, MI6, CIA, FBI, the Bank of Canada, any US or British bank?

Please have written submissions on this blog by 1800 hours PST Friday. First place receives nothing in particular!

#75 Gord In Vancouver on 05.22.09 at 12:30 am

Is BC Still The Greatest Place On Earth?

http://www.vancouversun.com/business/fp/Welfare+cases+since+last+year/1617771/story.html

I hope so.

#76 Da HK Kid on 05.22.09 at 12:38 am

#19 Polecat – Dont forget the biggest sham, Lottery Tickets!

#25 Jack – Temporary Insanity, or permanent stupidity or both. Sell that White Bread Unionville McMansion while you in this phase.

$fromA$ia – With all the other manipulative Gold Bug Blogs around you have to choose Garth’s – Move On!

#jojo69 – You need to visit this site more often!

Munch – Just had dinner with my one of my Directors who runs my RSA office out of Durban. May I submit that yes the North American Ponzi Scheme is coming undone and the few here that GET IT, seem calm and collected, however the newbies are in 3rd stage denial.

RAND looking better to the USD recently!

#77 NZ on 05.22.09 at 1:10 am

Gold is money….The powers that be do not want you to realize this…as they manipulate the currency in which you store your savings…paper currency is not a storehouse of value, however, Gold..silver…hard assets are. Are you trying to tell me that increasing the money supply dramatically does not lead to “velocity of money” within 1 -3 years?…Look what happened in Weimar Republic Germany, Zimbabwe, and a host of other countries..

#78 Mike (authentic) on 05.22.09 at 2:53 am

When everyone, including the “poor people” who cannot afford it start buying gold you know it’s a bubble and about to bust.

Mike

#79 Mike (authentic) on 05.22.09 at 2:59 am

#47 please talk about something else “Why do people who like gold feel compelled to drone on and on about it, constantly bringing up their favourite metal even in conversations on different topics? I like tin. ”

Tin is very useful! I like motorcycle companies, they were not hit as hard a the car companies and you’ll notice in 3rd world countries they are full of motorcycles. Thus if Can/US is headed for hard economic times motorcycle companies should do good. :)

Tin is nice though, very useful!

After all we did for Britain, selling that corduroy and making it swing, all we got was a bit of tin on a piece of leather.” George Harrison

“Even a tin knocker will shine on a dirty door” – Irish

The path of civilization is paved with tin cans.” – Elbert Hubbard

Mike

#80 David Bakody on 05.22.09 at 5:56 am

53 john m on 05.21.09 at 5:00 pm

Add to this the tidal wave all Jr, Senior Boomers (age 60-64) who are jumping on the band wagon ….. when I applied at age 61 I was told 90% have done the same thing ….. there is no waiting period or need to leave work, as there are many ways to skirt the waiting period.

On anther note: I am due for my late spring blood work …. I was told there is now a 14 day waiting period for results as opposed to 7 from last fall …… health care costs are going through the roof …. do you young working new home owners have any guess as to who will be supporting these costs?

Deflation in wages and services and inflation in taxes, food and service costs. Again to-day Asian markets see no early recovery in North America …. markets down!

#81 Sean in E-Town on 05.22.09 at 6:32 am

#6 “Remember, at 2% uncompounded inflation steals all your savings every 50 years. But it is compounded so it happens much faster than that.”

Nonplussed, just a clarification: That 2% is compounded in the reverse direction. A 2% bite is being taken from 98% in year two and so on… so you would instead multiply by 0.98 which, to the 50th power is 36.4 cents on the dollar. To wit: If you’re holding cash for 50 years, buy a bond. That 2% allows prices to un-stick themselves, and I’d be happy with any steady rate of inflation above 1% and on the happy side of the historical devaluation rate on Virgina’s fiat currency: 7%. Money’s meant to be moved about and zero inflation ensures that it molders, not being invested or used for exchange.

Sincerely,

A crazy leftist economist.

#82 Got A Watch on 05.22.09 at 8:20 am

For those who wonder where we are in the ‘Business Cycle’, a nice chart:4 Kondratieff Waves in the USA. ‘Winter’ started at end of 2000, the last 2 ‘Winter’ seasons lasted 19 and 21 years, so our recovery is scheduled (start of ‘Spring’) for 2019-2021. Be patient.

Thanks to Zero Hedge, one of the best new financial Blogs in a while – technical and information dense, but on the breaking edge with the critical financial info from inside the Wall St matrix. Highly recommended.

#49 – smw – “eventually bring some people out of gold and back into bonds” – Well, yes, eventually. Interest rates will not rise as fast as gold will in the early stages. Later on, gold will be slow, and rates will be rising quickly. Study of history suggest gold will rise the most at the beginning stages of crisis’, when investors are anticipating future inflation – the stage we are at right now.

If Bond interest rates get to 15-18%, like they did last time out, I would put almost all my capital into long Bonds and forget about trading or investing. That day is a long way off yet. Central Banksters will be highly reluctant to jack up interest rates, as that dampens economic activity, the last thing they want to do in the depths of a Depression.

I have no problem with Schiff’s macro economic calls, except where he was so insistent that Asia would “de-couple”. I do have a big problem with where and how he put his client’s money – some lost up to 70% on his wrong investment calls, I read. They may have made some back since, but when you lose 50% you need 100% gain to get back to even. That is just very bad money management with no risk controls. He was too confident to hedge, and to dumb to use stops.

You have to separate the macro economic calls from an ability to trade them in the market for profit. There are very few who can do both successfully. I personally would rather have an investment manager who makes the correct calls with my money, and does not flap his jaw on TV every day about the macro economy. The 2 don’t seem to go together very well.

#83 $fromA$ia on 05.22.09 at 8:56 am

Have you seen the anti Michael Ignatiev..(Liber Leader) Commercials put out by the Conservatives on BNN Channel. Looks like there will be an election called soon.

Garth, you will run again right? I’d like to see you as the new finance minister, then I go from gold investments to bomb shelters and squirel commodities.

#84 Grantmi on 05.22.09 at 9:22 am

WOW! Blown away at the Welfare stats out this morning in BC. Front page news in the Vancouver Sun.
Up 47% since last year!!!!

Couples and Couples with kids coming in for welfare because they can’t pay their car loans, credit cards and MORTGAGES!!! Holly Crap!

http://tinyurl.com/ppec84

#85 Nostradamus jr. on 05.22.09 at 9:46 am

Foreign owners of US Treasury Securities (January 2009)

Country… $ billions of dollars … % percentage

People’s Republic of China 739.6 24.07%
Japan 634.8 20.66%
Oil exporters 186.3 6.06%
Caribbean banking centers 176.6 5.75%
Brazil 133.5 4.35%
United Kingdom 124.2 4.04%
Russia 119.6 3.89%
Luxembourg 87.2 2.84%
Taiwan 73.3 2.39%
Hong Kong 71.7 2.33%
Switzerland 62.1 2.02%
Germany 56.4 1.84%
Republic of Ireland 50 1.63%
Singapore 38.3 1.25%
Thailand 37.2 1.21%
Mexico 34.9 1.14%
India 32.5 1.06%
Turkey 31.3 1.02%
Korea 31.3 1.02%
Norway 21.9 0.71%
France 17.9 0.58%
Israel 16.9 0.55%
Egypt 16.9 0.55%
Netherlands 16.8 0.55%
Italy 15.6 0.51%
Belgium 15.5 0.50%
Chile 15.2 0.49%
Sweden 12.4 0.40%
Philippines 11.6 0.38%
Colombia 11.3 0.37%
All other 179.4 5.84%
Grand Total 3072.2

#86 Davinci on 05.22.09 at 9:54 am

Garth said:
“You sound like a shrill, insecure little weenie.”

So you name call and insult in stead of debate. Way to respect your readers Garth.

Your statement assumes I’m a screaming whining child. Yet the last time I checked, children make fun of other peoples statements to hide their fear and insecurity.

Let me help you, so you don’t sound like a child, here are some short statements to your belief that ‘cash is king’.

“I do not see it the way you do.”
or
“You feel strongly about your belief of paper money, you should step back and reevaluate it.”
or
“Consider for one moment you maybe incorrect.”
or
“I believe in facts and the fact is unlimited amounts of electronic money can be created, gold can not.”
or
“Paper money is a game of confidence, you have confidence in government and central bankers, I do not.”

The above one liners are helpful and informative to everyone. You can change them and use them if you wish.

Cheers.

I understand why your best friends are inanimate. (How’s that?) — Garth

#87 smw on 05.22.09 at 10:02 am

#82 Got A Watch

Thanks for the reply,

I listen to Peter’s podcast regularly but he’s becoming a blow hard, doing more PR work defending his position and preparing for a senate bid.

Although timing is everything, and I have seen the WSJ report on a coulpe of his unsatified clients, I think he’s biggest mistake is as you state. That there would be decoupling and the loses in Europe and the USA would be just that and the rest of the world would go on ticking. I think long term he is right, but he should have seen the world wide crash coming and positioned his NEW clients, accordingly for the crash he kept calling, in more cash/gold then stock.

The decoupling arguement has merit, but its not a flick of the switch or something that will happen in 24 hours. We’re in that process now and I believe its USD deflation driving the markets.

You seem to have a handle on this so one more question for you:

Do you believe that gold at $850 – $900 is the new base price? Such that gold traded between $200 in 1974 to $250 in 1979, then of course, went to the moon later in 1979 and stayed between $300 and $400 for the next 20 years. I know the price has excelerated over the past 5 years, but we never paid the price for the .COM bust, and is probably making up for all that hidden inflation.

I don’t own it, don’t care to own it(like the gold stocks instead), but history says these price fluctionations are a signal for future interest rates; as stated before, people will have all their cash tied up in over priced realestate and those stil with a pot to piss in, could very well obtain 10% on that cash they stuffed in the matress.

Could be a savings oppurtunity of a lifetime!

#88 OttawaMike on 05.22.09 at 10:30 am

I’m going to just drink my gold holdings so I can piss them away later:
http://en.wikipedia.org/wiki/Goldschl%C3%A4ger

It appears to me that the gold bugs are trying to convince themselves that they are right. I can’t think of any other rationale for the wasp’s nest you’ve kicked here Garth.

#89 JoJo on 05.22.09 at 10:59 am

#84 Grantmi on 05.22.09 at 9:22 am
WOW! Blown away at the Welfare stats out this morning in BC. Front page news in the Vancouver Sun.
Up 47% since last year!!!!

Couples and Couples with kids coming in for welfare because they can’t pay their car loans, credit cards and MORTGAGES!!! Holly Crap!
http://tinyurl.com/ppec84

So what? Look at the Stock Market TSX and DJIA,again gain of real estate prices, Gold,Oil,Food prices.
Garth is this deflation with Zero interest.

Canada is a World Leader of quantitive easing in the world,and number One of supporting banks and corporations.Power of printing money is NOT DEFLATION. Garth did you see Railly on the Stock Market from 10th March till 8th May. Almost 40% gain.
At the same time Canada Stat. reported the worst informations in Canadian Economy. And last year Oct/08 Canadian Economy was still in very good shape
and we saw collapse of Stock Market.
Goverments and Banks made biggest financial scam.

http://www.myprops.org/content/EVIDENCE-OF-GOVERNMENT-MANIPULATION-IN-THE-STOCK-MARKET-Dan-Shaffer-explains-on-Fox-Business-News-video-and-transcript/

http://geraldcelentechannel.blogspot.com/search/label/Gerald%20Celente%20TV%20Interviews

(please watch Youtube video )
REP. ALAN GRAYSON SLAMS FEDERAL RESERVE INSPECTOR GENERAL ELIZABETH COLEMAN

http://www.youtube.com/watch?v=uUreWxKGOkY

#90 gold bugger on 05.22.09 at 12:27 pm

@please people: the reason commenters repeatedly mention gold in a favorable light is because Garth repeatedly bashes it. I assume he does so to keep readership up because nobody with his ability to think, invest and prosper could be so dense as to reject it outright. That’s cool. It’s an effective rhetorical device.

I’d also mention that Garth’s claim about “1,000 new price reductions at Home Depot” is factually wrong.

#91 CalgaryRocks on 05.22.09 at 1:52 pm

#83. There will be no election this year. Too many MPs are only 1 year away from their fat, hard worked for, pension.

I predict June 2010 will be the earliest but I am such a cynic. Besides, the Liberals just want to go in the same direction but kick it up a notch in terms of spending and new taxes.