On February 4 the Year of the Tiger transforms into the Year of the Rabbit, if you believe in Chinese horoscopes. According to the Chinese zodiac, the "Rabbit" is going to be a walk in the park compared to all the excitement of the past two years. Of course, when you consult with soothsayers it’s a good idea to read around a bit and get a second opinion. I saw that I Ching says, “In the year of the Rabbit without concentration you will fail”. So the secret to success presumably, is “laid-back-concentration”? This “second opinion” on Chinese astrology is a continuation of a discussion of bubble-dynamics of a year ago and re-jigged in June.
The Big Idea; (a) it is possible to recognise bubbles, (b) its also possible to figure out how big they are (goes to guessing how far they will fall), (c) post-bubble dynamics are predicated by the bubble that happened.
1: Gold
I’ve been saying gold is a bubble building for over a year. That line of soothsaying was based in the first instance on the historical relationship between gold prices and oil prices (at $90 oil gold “ought” to be $850 by that benchmark). So either gold is a bubble, or oil is under-priced (at $1,400 it “ought to be $150), or what’s happening now is a “new paradigm”.
Personally I’m a bit suspicious of “new paradigms”; I seem to remember that’s what they said about housing. Particularly since the logic behind stratospheric gold is the Fed is printing a lot of money, but yet, in the grand scheme of things the Fed didn’t print a lot of money.
The $1.25 trillion for TALF was supposed to have been “secured” by “assets”, which they say will turn around. Let’s see, that’s an interesting concept, given that the problem with TARP and PPIP was that the genius bureaucrats couldn’t figure out how to value a toxic asset. Looking at it another way, that was just an exercise in “forbearance” which says the problem was not about “solvency” it was about “liquidity”, as in The King Has New Clothes (let’s see about that too).
Either way, $600 billion for QE-II, well that’s just chump-change in the current scheme of things; you can’t even…
