Economists spend considerable time fantasizing about a world than only exists in theory. If they become really good at it, they can move on to managing a speculative hedge fund. In that world,fantasizing has been elevated to a new higher level, one that uses computer algorithms. Because of that,the old joke from accounting has been adapted to the new paradigm of delusional valuation. Hedge fund manager asks, “How much is this CDO worth?” Math PHD replies, “What do you want it to be worth?” Fortunately, we don't have that problem when it comes to valuing the U.S. dollar. The global free market values it each hour of the day.
A popular fantasy of economists is that as the dollar depreciates the U.S. trade deficit will miraculously improve. That might be true if the U.S. trade deficit were not structural. One aspect of that structural nature is the importation of oil and petroleum products. Depreciating dollar will not cause oil to sprout magically out of the earth. Despite the grand effort to run cars on corn, the U.S. will keep on importing more oil. A more serious structural problem is that the U.S. increasingly makes little to sell the rest ofworld. The graph above is of U.S. manufacturing employment. The U.S. has had no net growth in manufacturing employment since the 1950s. Fantasy aside, the principal export of the U.S. is green dollars. With green dollars being the major export, the value of those dollars can only go down. With no visible end to the exportation of green dollars, the price of Gold has little choice but to rise over time. Fantasies are the only arguments for allowing your wealth to wither in paper assets. Reality is real assets, like Gold.
GOLD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. For a trial subscription email nwschmidt@earthlink.net
Ned will be exploring the Gold Super Cycle at The Wealth Expo in NYC, 19-21 October. For information go to www.wealthexpo.netTo receive copy of July issue of The Agri-Food Value View, an exploration of Agri-Food Super Cycle. write agrifoodvalueview@earthlink.net
Ned W. Schmidt, CFA CEBS is publisher of THE VALUE VIEW GOLD REPORT - Coverage of the emerging GOLD SUPER CYCLE. Explores the situation in Gold that may carry it to $1,225. To subscribe Click Here. A trial period is available by Clicking Here
Ned W. Schmidt, CFA CEBS is a nationally recognized authority and speaker on a variety of investment topics, including value investing and global capital flows. Currently, Ned is Resident of Schmidt Management Company in DeLand, Florida, specializing in financial engineering. The firm’s proprietary research influences about $15 billion in assets, and is investment advisor to the Argyle Global Equity Appreciation Fund.
Most recently Ned served as the Visiting George Professor of Applied at Stetson University where he taught institutional money management. Preciously he had been a Senior Vice president with a trust company where he had the responsibility for discretionary investments of $3.5 billion.
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