Friday, May 28, 2010

Market Beat Takes David Einhorn To Task For...Talking His Book

"Everyone does it." So begins the entry, which invites the question of why Einhorn would be singled out for doing so. After parsing a recent Financial Times editorial penned by Einhorn, Matt Phillips ends with:
Again, we don’t blame Einhorn for using his bully pulpit to talk his gold book. And he might be right. Others are making big bets on the shiny rock. And Gold is up about 11.4% so far this year, as the S&P and Dow have fallen more than 3%. Still, we just wanted to call the book talking what it is.
Again, the question isn't answered. If everyone does it, then why make a big to-do about Einhorn doing it too?

There seems to be a different standard being applied here. Maybe it's because goldbug patter has a deeper root in alternate academia, which is expected to show some disinterestedness. Of course, there's another explanation that's handy. Gold as an alternate investment comes with a perspective which doesn't fit too well with typical Wall Street book-talking, whether real or thinly-disguised. It is harder for an investment firm to keep up a united front when the fellow placed at the desk by the photocopier keeps hammering away about the fiscal troubles of the mighty U.S. economy. Of course, this different perspective fits hand-in-glove with gold's historically low correlation with standard securities; that idiosyncracy is precisely what makes the metal a good hedging tool. Nevertheless, the gold guy doesn't quite fit in. And, of course, real or potential misfits are held to a higher standard because they're instinctively distrusted.

Oh, wait. My theorizing led me to forget one snippet that's a more succint explanation:
As a point of fact, it’s incumbent on us to point out that right now deflation should be the boogie man we fear, not inflation.
There we go. Einhorn isn't just a doomsayer, he's the wrong kind of doomsayer!


  1. As Gold continues to become more popular as an investment and as a hedge against inflation, I would expect that the squealing from Wall Street and it's sycophants to become ever more shrill. These stock pumpers have everything to lose if people start figuring out that owning stocks is, for most, just a way to slowly go broke - and especially if people figure out what they should be paying for Gold. A man that knows how to value Gold isn't going to be trapped in a Bubble, and he certainly is going to be suckered into buying any stocks Wall Street has to offer.

    Right now, Gold is trading at about a 20% premium to it's mining and refinement cost: not "cash cost", but "all-in" cost - the real cost. If stocks were to trade at only a 20% premium to the costs needed to recreate the wealth that company financials say is represented, the the Dow Jones Industrial Average would be trading closer to 2000 than to 10000. Because people would be basing a stocks purchase price on its "Net Tangible Asset Value" and not some Price/Earnings Ratio. Meaningful stock dividends that far exceed Bond or Inflation Rates would be expected, and any group of corporate officers who engaged in back-dating and stock printing would destroy the value of their company's stock.

    Instead, the average stock holder allows buys a typical stock at 4-5 times it's real value and is willing to forgo meaningful dividends and suffer the constant dilution of his holdings at the whim of the corporate elite. If things go bad and the company goes bust, then the stock holder stands last in line to receive value - and most often gets nothing. And...he suffers all of this - the degradation and sleepless nights - in hopes that some sucker will someday come along and buy his stock from him at a price that is much higher than what he paid. The whole situation reminds me of a very-warped Casino to me.

    Yeah...Wall Street in it's sycophants are afraid: they fear stockholders will one day realize how bad they are getting shafted. And...if that day comes, 100,000's of brokers, investment advisors/bankers, etc. will find themselves without work. So, like I have said, I expect the squealing against Gold to get much worse before.

  2. Stocks are tightly linked to the magnficent One-Hoss Shay that is the fiat currency system. Should the market plummet to those levels, there would almost certainly be a Greater Depression accompanying it. Interestingly, the same ideas that were fresh and new in the 1930s are now old and tired. They're also the ones that have contributed to the present mess.

    There's one reason why deflationistas have had a solider perch in Wall Street than inflationists: the U.S.-as-Japan model sells T-securities. The bond market is much bigger, and more popular, than gold's.

    There's also the political factor. It's a sure bet that the bailouts are a "quid" and Wall Street deflationist bias is a "pro quo." If Wall Street can't help keep Treasury interest rates down, what good are they to Washington insiders? There are other large donors that those insiders can smile on.

    There's a real opening for an all-American remake of the British comedy YES, MINISTER. Guess what department would serve as a substitute for the Ministry of Adminsitrative Affairs?