A Gold Idea

Source Tudor Management

This is a chart that shows the market cap of gold in relation to the global money supply [blue](proxied by M2 of the G-20) and the US money supply [orange.] So relatively the metal is still cheap, even despite it's recent run up.



I took a long position in it in mid-December 2008 and feel it will be a good hedge until we (the market) can determine the austerity of the monetary/fiscal/political regimes in place around the globe. For a quick example of my dire view of the regimes here is David Rosenberg commenting on the US,

CASH FOR CLUNKERS CLUNKED
The government thought it could buy some time with this gimmick but of the 690,000 units that got sold, only 125,000 or less than 20% were truly incremental buying (according to Edmunds.com). In other word, the payback on future sales performance is going to be significant. Instead of wasting time and money trying to prevent households from kicking the spending and borrowing habit, shouldn’t the government be concentrating on helping the population save for retirement; helping the youth solve this 20%+ unemployment rate; finding ways in the fiscal system to promote growth in the capital stock, and improve skills and productivity enhancement?

That fact that equity markets are anal over whether an $8,000 tax credit for first-time buyers is extended or not should not be the focus of policymakers because this subsidy does not address the real fundamental problems in the economy, which is a defunct credit system, a jobs crisis, an massive overhang of vacant homes, apartments, shopping malls and office buildings — not to mention an economy that is becoming dangerously addicted to government
stimulus. As an example of what the government can do without adding further to what is already a burdensome debt load is to reverse the dramatic downtrend in skilled-worker immigration flows (have a look at the front page of the WSJ — slump Sinks Visa Program). Part of the problem — “the anti-immigrant tide in Washington.”

We see on page 2 of the FT, that the Obama team is now contemplating tax credits for new jobs created by companies — a gimmick that Jimmy Carter tried in the late 1970s (if we recall, two recessions followed quickly thereafter). But are companies really lacking in cash right now? Is that why they are not hiring, or is it a subdued and generally uncertain economic outlook? Or the fact that bank credit is contracting at a 15% annual rate and impairing the small business
sector’s ability to secure working capital. Or maybe domestic demand is just plain soft, notwithstanding a brief Q3 bump. A company may well use a tax credit from Uncle Sam to hire a worker, but if business is slow, what is the new worker going to do? File papers? Clip booklets? How does that add to productivity growth? The country needs a job and skills strategy for the future and here we have politicians still pulling out tired gimmicks from failed
presidencies. No wonder confidence is as low as it is.

We may seem overly critical, but if all this fiscal short-termism is what we can expect out of the Washington economic brain trust, then the prospect for a durable economic recovery and the transition to the next sustainable expansion will prove even more elusive than we currently think. The deficit is already 10% of GDP and government debt as a share of GDP is quickly approaching the 100% milestone. The budget plan for the future, at this point, has to be
carefully thought out because we are running out of fiscal bullets.