Monday, 9 December 2013

Contrarian Indicator: Albermale and Bond?

Here we go nearly Xmas, everyone is short of money for all those extra presents and to try and keep the kids happy. It's a the classic time to borrow money and get further into debt. Well, certainly in my household it is an annual tradition.

And yet today we can see that pawn broker Albermale and Bond is having a very rough time of it indeed. Their business needs restructuring, the profits have collapsed and they are having to sell shops. Of course, hubris as always has a nice role to play, just when Gold went into a price bubble they double down by opening more stores.

Now that gold has fallen back, to still historically high prices, they have been hit. It's hard to say what effect Wonga and other payday lenders are having too, after all, if you can borrow without offering goods as physial security then from a personal perspective that is a much better thing to do. Still, surely there is a supply of gold and unwanted watches for them to suck up?

Perhaps then it is a good indicator that the economic recovery is having some small impact - if only that the desperate are at least one notch less desperate than they have been for the past 5 years or so.


Demetrius said...

Shock horror, this will impact on the rate of increase in GDP as high cost money is replaced by lower cost spending by employed persons. This demands government subsidy for pawn brokers on the basis of taxpayer funding bail outs.

TheUsualName said...

By what measure is gold at historically high prices?

Youre not going to start filling the blog with intellectual skidmarks like this are you?

You might as well hire IK from the FT so she can repurpose Krugman/Roche pieces like some sort of journalistic human centipede

CityUnslicker said...

@theusualname - Look, go back over this whole centry and find me the average gold price, then tell me today is not over-priced.

Goldbugs may not like it and I myself had lots of fun with gold on the way up. But its in a downtrend and yet is still 3005 upon on a decade ago.

SameNameAsEarlier said...

Okay, if youre gonna make simpistic arguements fine.
I'll use these tools from
Measuring worth to see the value of money change over time. Variable depending on the method but sourced, documented and clear.
I will use Kitco for historical gold prices

Ready to begin?

In 1980 at the beginning of the gold spike, the price went through $500. This occurred again in 2005 after 4 straight years of rises.
This page ( indicates that to equal the early 1980 price the 2005 price would have to have been >$1k. "relative value of $500.00 from 1980 ranges from $1,030.00 to $2,290.00"

Suffice to say it wasnt, nor was it any where near that level. Gold was not in a bubble.

Similarily "In 2012, the relative value of $750.00 from 1980 ranges from $1,770.00 to $4,260.00."
As it stands now golds 1980 value would be about $375 or less than half its previous bubble price. Incidentaly thats where it stayed for most of the 1980s after the pop.
Some suggest if theres a bubble, you should see a blow-off, no?
A 1980 style caper would see a sudden 20-30% rise and THEN collapse. And we havent had that.
Even if we dont, current valuations are at a level maintained through the moribund post bubble 1980s.
No over pricing here.

My personal opinion is that gold is a bet against recovery. I hold to that and thats why I hold gold.
I look around me a I see families with 2 parents working barely getting by. I see closed shops. I see cars bought on the never-never because people cant afford to buy anymore. I see debt collectors coming to peoples houses. I see pension funds being emptied. I see commercial property dying on its ass. I see new build flats and offices never occupied.
I'm a big fan of the economist Eiseneers - hes the only one you can rely on.

CityUnslicker said...

samenameasearlier -

A debate, brilliant, thanks for the post.

Starting with the infamous Brown Bottom in 2000, gold increas in price over 600% to 2012. Now it has given up about 1/3rd of that. You coudl be right and we are part of wave, or you could be wrong. The prices of gold mining stocks are through the floor - physical demand has been obscured by paper demand for ETF's etc.

Seeing people scrape by; how does this tell us to buy gold? it is an asset class. Property will get you further in the UK, plus you get somewhere to live. but rationally you should own lots of different things so that you don't get killed on the next big drop.

Blue Eyes said...

I am not an expert by any means but I assume that the gold surge was based on an assumption by enough people that paper money was sure to collapse. QE has not had the inflationary effect that many (including myself) predicted. We seem to have returned to growth while inflation peaked at about 5%. Unless there is a major upset I would now expect people to invest in productive assets now confidence is growing again.

I will have no particular sympathy for the Year Zero types when the gold crash comes.

James Higham said...

I'm giving it a complete miss this year.

Anonymous said...

"QE has not had the inflationary effect that many ... predicted."


QE (or electronic money-printing)was used by the BoE to purchase UK Treasury gilts, which are still being held by the BoE, or supplied to the banks at nominal interest rates to shore up their balance sheets.

What happens when that phony money leaks into the real economy, or is written-off as a gigantic bad debt, remains to be seen.

YetAnotherSameNameAgain said...

This is turning into what I have long believed it to be - a contest of belief systems.
To that end, whether I profit or not, I am happy.
I am wholly opposed to the idea of Economics as having any basis in science whatsoever and this, I believe, is the key to its own demise.
In the first instance, inflation (as currently measured) is a joke. For example, on a simple level, it does not account for the much vaunted 'shrinkage' in the mars bar while prices remain the same. No inflation is registered here even though the 'I-get-less-for-my-money' experience is clearly there. Secondly, it doesnt allow for the 'I-used-to-pay-£1-for-carrots-in-Tesco-but-now-I-pay-50p-in-Aldi' scenarios.

To me, QE is an anti-inflationary measure but it doesnt account for changes in spending patterns. People are moving en masse to 'discount' retailers. Prices are crashing in response. Household budgets - cost of living budgets - are contracting hard; we are in a full on deflation. It is driven, indeed exacerbated, by govt action. Nobody with any wit would trust a unit of currency managed by people in such dire straits. You'd have to be a bloody fool.

But judging from the comments... some still are!

Nick Drew said...

Is it my turn now ?

as stated on these pages ad nauseam, IMH(and not so original)O, physical gold is a hedge against bad news

(not so different to our new friend's)

and I too am holding phys gold - just part of a very purposefully diversified p/f: my (paper) losses on gold this year are more than comfortably balanced elsewhere

I also very much like a contest of belief systems ... wholly opposed to the idea of Economics as having any basis in science whatsoever , having been known to make the same statement about price forecasting, on which I am with Keynes, Galbraith & Drucker

as it happens I know nothing about macro-economics, and have no great urge to acquaint myself, for the above reason

hovis said...

Interesting comments .. as an aside econmics never was a science - thats not a bad thing but people become to believe their own hype.

The wish to be "scientific" can be seem to the myths of our time shown by the coalescence of several modern myths of our time the myth of perfectability, scientism, and managerialsism.