Is it "different this time"?

[Kevin K.]

A very savvy friend of mine who invests in both the PP and a conservative slice-and-dice portfolio had this to say about what's happened lately with gold and Treasurys, in particular:

"In a manipulated market, old rules about asset diversification may be meaningless.  The Fed created a bubble and now they’re bursting it."

It's very clear that that at least a good part of the gold sell-off has been due to market manipulation (innumerable sources for this, but I find http://www.mauldineconomics.com/ttmygh/bulls-hit particularly interesting). As for the Fed printing money left and right, keeping interest rates at zero and thereby funding specilation in risk assets, that's old news by now.

The question in my mind is is manipulation of assets on this scale truly unprecedented, and if so what does that mean for the PP? For me, personally, it's not at all an idle question, being "all in" on the PP.

If this degree of manipulation really is new, it also begs the question of what, if anything, is a better alternative under the circumstances.

[craigr]

If this degree of manipulation really is new, it also begs the question of what, if anything, is a better alternative under the circumstances.

There's the rub.

The Fed is doing new things. But this is always the case and history doesn't repeat. The problem though is that nobody really knows the outcome of all of this. I have seen all sorts of predictions from gold to $10,000 an ounce to LT bonds at 1% to stocks reach new highs as things go back to normal, etc.. All the explanations sound plausible (ok well some of them at least). Some of these people will be right and look like geniuses. Others will be wrong and nobody will remember so they'll go on to predict something new. Around it goes.

But no matter what I read, I know that their predictions could be just flat out wrong. And not just wrong, but disastrously wrong if I bet everything on what they are saying.

What I fear is that the Fed's efforts to smoke out the savers into chasing after yield and stock returns is that they created another stock market and other asset class bubbles. As interest rates climb, we could find the recent stock buyers lose their affinity for stock risk and start to move back to higher yielding bonds for more safety. So in a way this could cushion interest rate  increases and we won't see the massive spikes some predicted. But it could also kick off a major stock market decline.

But I can't prove that either. 

So I just am buckled in and riding this out. The Fed has created another mess as usual and I can see the markets breaking any number of ways either good or bad.

[Roy]

I wonder how many times those five words have been used—and will be used— to justify the abandonment of a good plan. 

Nevermind what emerges as the supposedly corrective ersatz plan.

[sophie]

A very savvy friend of mine who invests in both the PP and a conservative slice-and-dice portfolio had this to say about what's happened lately with gold and Treasurys, in particular:

"In a manipulated market, old rules about asset diversification may be meaningless.  The Fed created a bubble and now they’re bursting it."

It's very clear that that at least a good part of the gold sell-off has been due to market manipulation (innumerable sources for this, but I find http://www.mauldineconomics.com/ttmygh/bulls-hit particularly interesting). As for the Fed printing money left and right, keeping interest rates at zero and thereby funding specilation in risk assets, that's old news by now.

The question in my mind is is manipulation of assets on this scale truly unprecedented, and if so what does that mean for the PP? For me, personally, it's not at all an idle question, being "all in" on the PP.

If this degree of manipulation really is new, it also begs the question of what, if anything, is a better alternative under the circumstances.

Really good (though veeeerrrrrry long) article.  It is worth noting that Mauldin invests in physical gold on a monthly basis, and it sounds like he has no plans to change that.

The gold crash/correction/whatever you want to call it will hopefully not change too many minds about investing in gold.  I'm looking forward to my end of month accounting to see if I've crossed a rebalancing threshold.