Gold prices topped US$860

[M.D. Holloway]

Gold prices topped US$860 an ounce Wednesday as a weak U.S. dollar coupled with a record-setting push to $100 oil spurred demand for the precious metal.

Other commodities also climbed, further boosted by an influx of money into the market at the start of the new year.

but if you adjust for inflation gold is more like $1500 and ounce...

[s_wilwerding]

What do mean adjusted for inflation? If you adjust for inflation, you have to do it in some year's dollars. Gold might be $1500 in 1980 dollars, but in 2008 dollars, it's $860.

[Porsche-O-Phile]

I'm betting it only keeps going up too as recessionary fears get stronger and the extent of the housing bubble idiocy continue to be uncovered. I certainly don't want a recession, but all the signs are there and frankly, America has been asking for it with their completely unsustainable "drunken sailor" spending-spree mentality the last few years. . .

I'm hoping for a more gradual slowdown that lasts a little longer, rather than a "crash", but who knows what will happen. . .

Very scary stuff out there.

[legion]

To me, a recession is kind of an economic house cleaning. It gets rid of all of the trash: bad investments, inefficient workers, crazy get-rich schemes, etc... For the period immediately following a recession (when the press is still talking up the recession), the economy is at its most efficient phase.

While I don't welcome a recession, I think a house-cleaning is overdue.

[Porsche-O-Phile]

Originally Posted by legion

To me, a recession is kind of an economic house cleaning. It gets rid of all of the trash: bad investments, inefficient workers, crazy get-rich schemes, etc... For the period immediately following a recession (when the press is still talking up the recession), the economy is at its most efficient phase.

While I don't welcome a recession, I think a house-cleaning is overdue.

Agreed, well-put.

The problem is recessions are not "surgical tumor removal", they're more like a chainsaw. A lot of times good people who aren't the problem get hurt too.

But yeah, I agree there are an awful lot of "get-rich-quick" idiots out there that seriously need an ass-kicking.

[legion]

I agree. While markets are efficient in the long-run, they tend to overreact in the short-term--which is where "good people who aren't the problem get hurt too".

I think that's where a lot of the fear of recessions come from: the overreaction. Or as you called it, the "chainsaw".

[cgarr]

I have to check my teeth? oh wait, thats silver, whats silver doing?

[trader220]

Crude over 100 too.

[Porsche-O-Phile]

Yep. Betting before the end of 2008 we see:

- DOW below 12,000
- 20% y-o-y losses in residential real estate (average)
- gold over $1,000/oz
- crude oil over $130/bbl
- regular unleaded gas over $4.50/gallon
- dollar falls to about 1.7500/1 euro
- unemployment rate jumps to about 6.5%, maybe more.

I hate to be a pessimist, but the signs are all out there. Those are my picks for this year. I think '08 is going to be a very rough year for the U.S. economy.

[trader220]

Wow Jeff, thats an ugly picture, I am not quite that bearish... Did I mention that one of the funds we run is pure hedge to long equity?

[Porsche-O-Phile]

Yea, it's a bit bleak but I think it's realistic. It could certainly end up worse than that, but chances are it'll end up a wee bit better, in which case I suppose I get the benefit of being pleasantly surprised.

A year is a long time and a lot can happen, but I just don't see things "bouncing back" in a meaningful way for several years. More likely we'll kind of bob along for a while and there will be a lot of jitters and fears and people hoping and praying that the wheels don't come off. In a few years when some of the toxicity has purged itself out, things will improve again. That's my unscientific opinion, whatever that's worth. . .

The economy is stretched REALLY thin right now and I think it certainly has the potential to get very, very ugly very quickly. I'm hopeful that it won't happen that way and more likely there will be a prolonged period of uncertainty and caution.

I liken it to fooling around with one's girlfriend back in high school. Now we're in the "morning after" phase going "oh *****! oh *****! I hope I didn't get her pregnant!" In other words, collectively speaking, we know we had a hell of a good time for ourselves, but we also were reckless and screwed up bigtime. Now there's a lot of panic about what the repercussions might be. I just hope that (1) things "come out okay" and (2) we wise up from it and learn to "use protection" next time.

[JeremyD]

You guys forget that we have a goverment that is in the business of not going in a recession.

When the federal funds rate is at .5% and we we still going in the *****ter, that when we need to worry.

[trader220]

Jeremy ask the BOJ and the people of Japan how well slashing rates to zero helped them. Its the system at this point.

[JeremyD]

I agree - and I am well aware of the Bank of Japan and their efforts to give money away, but we are far from a zero rate - and if anything - the people of the Grand Old USA respond in spades if they feel like they are getting a deal. Woo Woo!

I think we are in for a roller coaster ride. And I am glad that I sold my second house - but no, I don't think all is lost - yet...

[trader220]

No I hear what you're saying Jeremy, and I don’t see the same thing happening here. Society in the US is a lot different from Japan. Back in 1989 as a kid not to far removed from school, I was trader in the $/yen options pit and I remember the “Japan Inc” head line on the special pull out section of the Financial Times. That was the top for the Japanese economy. The savings rate in Japan and the refusal of the banks there to write off bad debt held them back for a decade or more. I don’t see the same prolonged period here by a long shot. IMO you're right on the money, the general population and the corporate population will spend if the cost of money gets cheap enough. It’s a matter of time more then anything. Cleaning out of corporate balance sheets and settling in the credit markets will take time and toll.

[Porsche-O-Phile]

You can thank "Tweedle-Dee and Tweedle-Dum" (Mr. "there-is-no-bubble" Greenspan and Mr. Bernanke) for putting rates where they are now.

There isn't all THAT much room to cut. 4.25%, if they do it in 1/4 point increments gives you 17 moves. A recession could easily drag on for 17 months. Hell, it could drag on for 17 QUARTERS given how many problems we have right now. And it's possible the markets may not even respond to rate cuts at all, as we saw a month ago (friggin' ingrates!) But there it is.

Maybe a bit simplistic, but I think the roots of this go right back to 9/11 and the recession afterwards. A lot of people seem to forget that in late 2001 and 2002, the economic picture in the U.S. was pretty lousy. LOTS of unemployment, terrible jobs creation numbers, sagging retail sales, etc. Greenspan slashed rates in an attempt to buoy up the economy, which worked - sort of. It did create growth and jobs, but it had the (perhaps unintended) consequence of making rates SO low that any idiot with a pulse could suddenly get credit - with predictable consequences - the bubbly "spending spree" and orgy of stupidity and no accountability that followed. . .

Enter Bernanke.

Sharp guy, but in a difficult spot. He really can't do too terribly much. He's inherited an economy that's being held together with duct tape and baling wire, and being asked to drive it 100 miles an hour. I feel for the guy, but ultimately what can he really do other than keep chopping rates and hope it's enough to keep the wheels from coming off - which might create yet another subset of consequences that show up 5-10 years later. . . And so it goes.

[on2wheels52]

It hits $1000 and the chain on my neck goes with the scrap.
Jim

[trader220]

Jeff,

I am not defending the FED at all but low rates does not equal easy credit. The greed of Wall St. fed the monster the FED just left the food in easier reach. Look at the big bucks desks were making with with CDO's and repackaging of risk. They needed fuel for that fire and that came in the form of their own buddies on the floor below them getting out the sales force to create more loans. They eased credit and borrowing restrictions.

[JeremyD]

Come on Jeff - they drop the federal funds rate to 2% do you realize how many people would be refinancing their houses (and yes, I know they are not directly related) and buying new cars ?? That's what makes this country great my man. I see you haven't been keeping up with your people magazine. And to think LiLo was trading spit with three different guys in a 24 hour period - you guys sure don't have your finger on the pulse.

Yeah we should be having a hangover, but I guess you never heard of "hair of the dog"

Bunch of buzz killers you guys are..........................................

[JeremyD]

There were borrowing restrictions? Where?

Eased? they eliminated them - shame on them. They should be the ones with the hangovers - greedy bastaards. I bought a used car this week - the CU actually checked my employment reference... How novel.