There is a lot of pain still to be had in the equity markets, particularly aimed at the risky end of the spectrum. We think the fair value on the market is about a third lower in the U.S. . .
Volatility is a symptom that people have no idea of the underlying value.
Everyone asks about gold. This is the irony: just as Jim Grant tells us (correctly) that we all have faith-based paper currencies backed by nothing, it is equally fair to say that gold is a faith-based metal. It pays no dividend, cannot be eaten, and is mostly used for nothing more useful than jewelry. I would say that anything of which 75% sits idly and expensively in bank vaults is, as a measure of value, only one step up from the Polynesian islands that attached value to certain well-known large rocks that were traded.
I hate gold. It does not pay a dividend, it has no value, and you can't work out what it should or shouldn't be worth," he said. "It is the last refuge of the desperate.
Although value is a weak force in any single year, it becomes a monster over several years. Like gravity, it slowly wears down the opposition.
Volatility is a symptom that people have no idea of the underlying value-that they have stopped playing the asset game. They're not buying because it's a company with certain attributes. They're buying because the price is rising. People are playing games not related to any concept at all of what the long-term value of the enterprise is. And they know it.
The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value. We all need to adjust our behavior to this new environment. It would help if we did it quickly.
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