Long Position on Silver and Gold?

[Sawin]

That is one of the things I do not understand. QE inflates the USD, silver and gold should be going up b/c it takes more inflated USD to purchase the same quantity of metal that uninflated USD bought years ago.

Oil is down because OPEC is pumping more, OPEC has 2 problems to resolve, countering potential US oil exports and drive the price down to hurt Russian oil income.

You have it backward... QE does not inflate the USD, it deflates the USD, in turn causing inflation of goods/services.

Think about this way, they're printing more money, injecting more dollars into circulation, reducing the "buying power" of each USD.... Having less "buying power" in each dollar, means the cost of products and services go higher.

[roberth]

You have it backward... QE does not inflate the USD, it deflates the USD, in turn causing inflation of goods/services.

Think about this way, they're printing more money, injecting more dollars into circulation, reducing the "buying power" of each USD.... Having less "buying power" in each dollar, means the cost of products and services go higher.

Thank you - I should have said "inflates the number of USD in circulation which reduces the value of each USD in circulation". I gotta be more precise with my words, clarity is my friend.

My point still stands, it should take more USD to buy an ounce of silver, not less like we're experiencing now.

[rbeau30]

Forgive me if I am not getting this right. I am kinda just getting to learn about this stuff.

But, isn't stock indexes act like a fake indicator? In much the same way as the value of the USD goes down, stocks become more expensive. So in the long run "The DJIA hit 17K, etc." would be bad news right? It takes more USD to buy a share of stock.

[roberth]

Forgive me if I am not getting this right. I am kinda just getting to learn about this stuff.

But, isn't stock indexes act like a fake indicator? In much the same way as the value of the USD goes down, stocks become more expensive. So in the long run "The DJIA hit 17K, etc." would be bad news right? It takes more USD to buy a share of stock.

No sweat, I'm learning new things every day and I've only been watching for a couple of years. There are other people on this board who know WAY more than I do, I just post alot in here because I'm interested in all the things that drive the topic. A good place to start is Investopedia - http://www.investopedia.com/ Glad you've taken an interest in this topic and hopefully economics as well.

I cannot speak to your question about the indices being fake or not, I just don't know enough to make that call. I can only say that the stock price used to be a very good indicator of the financial health of a company, I'm not so sure about that anymore due to FedRes/FedGov intervention and regulation.

Your are correct that due to QE the one dollar bill you hold in your hand right now has less value than it did 7 years ago, so yes, the dollar itself, having less value would be contributing factor to why stocks keep going up because it takes more lower value dollars to buy the same share of stock than it did in 2007 assuming of course that the company stock you're talking about is a company that is producing new and wonderful things we want and need.

I recently ranted about finance companies being part of the Dow Jones 30 Industrials index, finance companies don't belong there because they don't produce anything, they are services not manufacturers. I'm just old-fashioned that way.

[MrPrena]

Forgive me if I am not getting this right. I am kinda just getting to learn about this stuff.

But, isn't stock indexes act like a fake indicator? In much the same way as the value of the USD goes down, stocks become more expensive. So in the long run "The DJIA hit 17K, etc." would be bad news right? It takes more USD to buy a share of stock.

No, it is not fake indicator. Dow Jones Industrial Average (^DJI) consists 30 different industries. However, since random sample is small, and they substitute companies, it is not the best way to measure the performance of overall securities market.
Here are the list of 30companies. http://finance.yahoo.com/q/cp?s=%5EDJI+Components

I mean, if DJIA is at 8,000 from 10,000 and kick an under performing companies in the past like AOL-Time and substituted with good performing stock, going back to 10k would be different than before.
This is why if you want to see overall stock market, you gotta look at Wilshire 5000 Total Market Index. S&P500 for top ~500 biggest companies, and Russell2000.
DJIA is calculated by pts, not the %, so their pt gain/loss are little different.

"value of the USD goes down, stocks become more expensive. So in the long run "The DJIA hit 17K, etc." would be bad news right? It takes more USD to buy a share of stock."
Depends on the situation/intl fi/macro/elasticity/consumer conf/ppi/cpi/etc etcetc. If excessive change (in this case, increase) in Money Supply into the economy, there are people who can hedge against commodities or precious metals. There are some people who wants to invest in the market as well. IF you see the housing past 5-6 years, there were not too much activities in commercial or residential real estate relative to 2000-2006. Bond yields are low. Consumption went up a little (can be due to inflation, or just actual change in demand depends on elasticity and type(s) of good(s)). Some investors thought the most logical investment was securities.

I don't know it is a bad news. Hypothetical situation. If Macy had a P/E of 14 THEN AND NOW; EPS of 1.10/share around 2008, and $4.03 earning per share now, it will have basically same price per earning. They made more money, so price of Macy's is higher. Of course EPS is just one fundamental measurement of share price out of 10,000+ ways. (this was just an example).