Saturday, March 7, 2015

The Big Picture


Each day I spend an hour or two scanning the stories and memes that are circulating that day, and then maybe another hour thinking about how they fit into the big picture. Everything is, of course, connected, and aside from filtering out the nonsense and the noise, putting it all together into a single comprehensive and cohesive picture is, IMO, the only way to understand what is really happening.

Without such a context, it can seem like nothing makes sense, like we live in a madhouse where inexplicable things just happen out of the blue. But of course it all does make sense; you just have to tune out the nonsense and understand how the rest fits together. You can jump down to the conclusion now if you'd like to see my big picture, or you can bear with me as I explain and then string together a few different memes on the way there.

A recent meme has been how a number of countries are running down their dollar reserves. As we've seen in the monthly TIC reports, official support is basically flat, but now we see a few primarily oil producing countries like Saudi Arabia, UAE and Russia running down their reserves. This is, of course, related to the decline in the price of oil which has made otherwise-strong net-producer currencies weak relative to the dollar. But the declining oil price is only half of the equation. The other half is the rising price of the dollar. They are not just two sides of the same coin, but two different-yet-related things that are happening simultaneously.

Russia has recently declared a clean float while Saudi Arabia and UAE both still peg to the dollar, yet all three are now supporting rather than weakening their currencies due to the double whammy of weak oil and a strong dollar, which means selling dollar reserves to buy back their own currencies. Back in early 2008 when oil was strong and the dollar was weak, both the UAE and Saudi Arabia considered adjusting their pegs and revaluing their currencies upward, but they didn't, instead planning on a GCC monetary union by 2010 which still hasn't happened. So, for the time being, everyone is responding as they see fit to the current state of affairs as if it is a temporary state of affairs, which of course it is.

Another recurring meme over the past few months has been this $9T in foreign, dollar-denominated debt. The problem with this debt is a little more complicated than just the lack of dollars available, and it cannot be solved with a simple currency swap. The problem is that most of this debt was contracted on the basis of an emerging market growth story that is now failing to play out as expected.

This is non-bank debt, meaning the borrowers are not banks, and most of the borrowers are not in the financial industry either. They are real companies, mostly in emerging market countries like Bulgaria, Brazil, Chile, China, Colombia, Czech Republic, Estonia, Hong Kong SAR, Hungary, Indonesia, India, Iceland, Korea, Lithuania, Latvia, Mexico, Malaysia, Peru, Philippines, Poland, Romania, Russia, Singapore, Slovenia, Thailand, Turkey, Venezuela and South Africa, that borrowed in dollars over the past five years because it was cheaper than borrowing in their local currencies, and they did so by issuing bonds.

About half of this $9T was borrowed from private bond investors, and ¾ of it came from lenders outside of the US. And now a few different things are happening to this debt all at the same time leading to a vicious feedback loop that could blow the whole thing up. One thing is that the strong dollar means these companies' local currencies are relatively weak, so you can imagine the impairing effect on their balance sheets as their debt burden grows relative to their local currency-denominated assets and income. Add to that the fact that their growth prospects have diminished over the last five years as well, and you can understand why Western asset managers are now pulling money out of these emerging market bonds.

Pulling money out of these markets means selling bonds, which drives down bond prices and drives up their effective yields. These higher effective yields then compete with new bonds being issued which drives up borrowing costs to the same rate as the effective yield on old bonds. This rise in borrowing costs eliminates credit growth, and exacerbates already-sluggish real growth by causing these companies to tighten their belts and cut back on capital expenditures, which causes more asset managers to pull more money out of these markets, and therein you have the basic vicious cycle. You will find it explained with more detail in this BIS presentation pdf.

Another meme that has been making the rounds is an increase in US oil production even as the price of oil is tumbling, some say contributing to the glut that is causing the price to tumble. It certainly makes sense that a glut or oversupply of a commodity would cause the price to tumble, but I want to explain to you a different causal relationship, where a declining price actually causes some producers to increase production, leading to another vicious feedback loop.

The curse of the commodity producer (as opposed to the producers of end-user products) is that the price you can obtain for your production is out of your control, determined on global markets, and thoroughly detached from your input costs. If your expenses exceed your income because the price of your product drops below your costs, then you're simply out of business, right? Well, not necessarily. That's probably true for a rational operator like yourself, but not necessarily true in the irrational world of the $IMFS with debt-addicted publicly-traded corporate shells operating on slim profit margins and beholden to both creditors and shareholders.

In the $IMFS, many companies not only operate at a loss, but they actually increase production when operating at a loss, and they do so for different reasons. One reason is government subsidies. The rational thing to do with a company that is operating at a loss is to shut it down and liquidate it, selling it off cheaply enough to someone else so that it, or at least its capital, can become profitable once again. But for some industries, primarily labor-intensive industries like auto making, governments will often subsidize losing businesses just to keep people employed in what become, essentially, make-work jobs if the company is operating at a loss. But I don't think that's the case with US oil.

Oil, unlike cars, is a commodity and is not as labor intensive to produce, and in the US, unlike in Saudi Arabia, it is a debt-addicted, publicly-traded industry operating on a relatively slim profit margin. Now, even if you can't turn a profit for your owners, you can still at least service your debt while running at a loss. And even though your reserves are limited by definition, you can actually reduce your short term losses by increasing your long term losses, i.e., running down your limited reserves faster at a loss than you were at a profit.

We see this in the gold mining industry as well, where the large, publicly-traded and debt-financed mines ramp up production on their lowest-hanging fruit right when it is least profitable to do so, because the alternative would be bankruptcy. I think this is why we saw new mining supply rise when the price dropped below their cost of production.

This has been happening in China in a whole slew of different industrial sectors for a few years now, ever since emerging market growth potential within the current $IMFS peaked and the commodity bear market began. The Chinese government itself has identified nine key sectors that are now operating at a loss in China just to service their debt, some with the help of government subsidies. Those nine industries are steel, aluminum, rare earths, cement, electronics, pharmaceuticals, autos, shipbuilding and industrial agriculture.

Think about this for a minute. Would you buy a business whose price is so high that it would not be profitable for you to operate? You might, but only with the intention of reselling it to a greater fool and not with the intention of operating it indefinitely at a loss. I actually did this once, and barely got out alive! Any of you who have bought or sold a business know EBITDA, which is often used to compare the relative profitability of comparable businesses. It's kind of like a P/E ratio.

Imagine buying a car wash that's priced so high that it would take you decades to break even, or if the operating costs associated with it were so high that you'd be operating at a loss and never turn a profit. Imagine you had to pay your car dryers $50 per hour as per union rules and couldn't reduce their numbers or hours. That's operating a business at a loss. It's not that a car wash isn't necessarily a good idea in that neighborhood, but just that its price or its related expenses simply make it unprofitable.

My point is that prices determine what is profitable and what is not. In the car wash scenario, maybe you go bankrupt with your unprofitable car wash and it is liquidated for pennies on the dollar. The new buyer who gets it for a song could then operate it profitably because his income will exceed his costs. In this latter case, isn't the neighborhood better off having cleaner cars?

This is an overly-simplified example, but just consider whether or not much of the world today is completely priced out of profitability. Think about my simple example of a neighborhood car wash. If owning the business itself is priced too high, either its purchase price or its operating costs (not the price of getting your car washed), then it will probably either fail or never get started in the first place without a government subsidy. If the employees have to be paid too much, there will be either fewer jobs or no jobs at all, so few in the neighborhood will even be able to afford a car wash, let alone a car.

To what end does such a system lead, in which asset prices are driven so high that the businesses themselves are not profitable in the real economy? It's called a Ponzi or pyramid system, in which profits are made not from the real economy but from the greater fool, the greater fool in aggregate being the savers. Which brings me back to these companies that should be going out of business but are instead ramping up production to service their debt and stay in business long enough for the insiders to get the hell out and pass on the greater losses to the savers.

This ties in to my next and final trending meme, which is corporate buybacks. The buyback meme is a true sign that we're in the final Ponzi phase of this system, in my opinion. Buybacks are a way for corporate shells to fall on the grenade while the insiders get out. They are also a way to juice stock prices that would otherwise be falling.

I'll get into this more in the next section, but if we look at specifically who is profiting from the most recent outrageous buyback trend, it is not the oil companies. Some companies are really profiting from the outrageous buybacks. From the top-ten list of buybackers, Apple is at the top and its stock is up 40% YoY. Others in the top ten are Cisco Systems, up 35% YoY. Oracle, up 20%. Intel, up 53%. Microsoft, up 30%. Wells Fargo up 27%, Home Depot up 30% and Pfizer up 6%. Exxon Mobil is third on the list, and it's down 7%, which I read as it would have fallen harder than that if not for the buybacks which were to slow the decline giving the insiders time to GTFO.


It's not that I think US oil production will end, just that it's currently unprofitable even as production ramps up at record rates, presumably to service the debt and keep the shares trading while their shell corporations borrow more money to buy back some of the shares (from insiders?) even as the share prices decline. Or maybe it's a conspiracy by the USG to hoard a bunch of cheap oil in old tanks so that it can continue to wage war and dominate the ROW even after the ROW turns against us (j/k ;). Exxon (the shell corporation and its employees) is not giving up, BTW, but that still doesn't mean its shares are a good store of value right now for its owners. There is a difference.

And that brings me to my final meme or story that is just starting to circulate, which is these corporate buybacks, where debt-addicted, publicly-traded companies are taking advantage of extremely low interest rates to issue bonds and then use the borrowed money to buy back their own shares. Sounds positive for business, right? I don't think so, but it's probably helping to levitate the stock market.

Buybacks have been happening at the incredible rate of $46B per month for the last year, nearly the same rate as our trade deficit!

(Bloomberg) -- The biggest source of fresh cash in American equities isn’t speculators or exchange-traded funds -- it’s companies buying their own stock, by a 6-to-1 margin.

Chief executive officers, who just announced the biggest round of monthly repurchases ever, executed about $550 billion of buybacks last year, according to data compiled by S&P Dow Jones Indices. That compares with a net $85 billion of deposits by customers of mutual and exchange-traded funds, the biggest gap since 2012, data compiled by Bloomberg and Investment Company Institute show.

If you sell a share of stock in the U.S. market, there’s a fair chance the buyer is the company that issued it -- and it’s buyers who’ve been on the right side of the trade since 2009. Buybacks are helping prop up a bull market that is entering its seventh year just as investors bail out and head back to bonds.

“Buybacks have come up in every meeting with clients and always have, because of the observation that the largest buyers of stocks have been companies themselves,” Dan Greenhaus, chief strategist at BTIG LLC in New York, said by phone. “For the last few years, that’s been the right call.”

Repurchases by U.S. companies averaged $46.1 billion a month in 2014, compared with $7.1 billion in ETF and fund inflows. Investors have pulled more than $10 billion out of equity funds in January and February and sent $38 billion to bonds -- even as companies announced $132.7 billion more in buybacks. February’s total of $104.3 billion was the highest on record, according to TrimTabs Investment Research.

Buyback Index

Companies with the most buybacks are beating the market. The S&P 500 is up 1.6 percent on the year after falling from a record on Monday to 2,092.21 as of 11 a.m. in New York. The S&P 500 Buyback Index, which contains the 100 companies with the highest repurchase ratio, has climbed 4 percent this year.

“It’s amazing that people are still sitting on the sideline getting zero-something percent returns,” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said in a phone interview. “Usually when you get where everyone says we’re in a bull market you see big money coming out of lifeboats and chasing yield, yet we haven’t seen the mass money come in.”

The reluctance of investors to pile into equities has left corporate America the larger source of cash throughout the bull market. [thanks to capital inflows from the ROW which financed low interest rates for corporate bonds!] Buybacks exceeded inflows [from actual investors] by $468 billion last year when the S&P 500 climbed 11 percent and $318 billion more in 2013, when the gauge had its biggest advance since 1997.

Companies in the S&P 500 have spent more than $2 trillion on their own stock since 2009 [$2T is comparable to the $9T borrowed outside the US], underpinning an equity rally in which the index has more than tripled. They were on pace to spend a sum equal to 95 percent of their earnings on repurchases and dividends in 2014, data compiled in October showed. [Why not all on dividends?]

Buyback Incentives

Not everyone is convinced buybacks are good. They’re used to boost per-share earnings in a way that enhances the pay of chief executives, according to William Lazonick, a professor of economics at the University of Massachusetts Lowell.

“Companies use a phony ideology saying if you maximize your shareholder value you somehow increase the efficiency of the economy,” Lazonick said in a phone interview. “But the only justification for doing it that holds water is that executives [who are employees, not owners, other than the restricted portion of their compensation that is locked in shares] get a lot of their income from buybacks.”

Home Depot Inc., Comcast Corp. and TJX Cos. were among 123 companies that disclosed repurchases in February. The increased buybacks came as plunging oil and a strengthening dollar threaten to stall five years of earnings expansions. [So they borrowed at almost no cost and used the new debt money to buy up the publicly-traded share price which increased their bonuses even as earnings stagnated or declined? Brilliant!]

Profits from S&P 500 members will decline at least 3.2 percent this quarter and next [but hopefully not share prices!], according to analysts’ estimates compiled by Bloomberg. For the full year, growth will be 2.3 percent, down from 5 percent in 2014.

Profit Contractions

Buybacks will boost per-share earnings, with the potential of helping avoid the first back-to-back profit contractions since 2009, according to Yardeni Research Inc.

“In the last earnings season, the strength of the dollar clearly had a negative impact on earnings guidance by a lot of companies,” Dan Miller, who helps oversee $23 billion as director of equities at GW&K Investment Management, said by phone. “In some cases, the announcement of buybacks was perhaps meant to soften the blow a little bit. It shows the management is committed to their own stock.” [Yeah, sure. That's the interpretation "management" wants its owners to think. ;D]

Switching Positions

Corporations and investors have switched positions as the bigger buyer of stocks. Inflows from equity funds exceeded corporate buybacks every year in the late 1990s, contributing a total of $640 billion over the three years through 2000. That compared with $418 billion from share repurchases. [So the roles have reversed in this particular stock market run-up. It's not being driven by actual investors like all rallies were in the past!]

Companies have since taken the lead, with buybacks setting a record $589 billion in 2007. Last year, corporations beat all other groups as the biggest source of fresh [-ly borrowed] cash to the stock market, according to a January report by Goldman Sachs Group Inc., which tracks money flows from pension funds, foreign investors and ETFs.

The S&P 500 will increase about 7 percent to 2,238 by the end of 2015, according to the average of 21 equity strategists surveyed by Bloomberg. The Nasdaq Composite Index closed above 5,000 for the first time in 15 years on Monday and is within 2 percent of a record.

S&P 500 companies hold $1.75 trillion in cash and marketable securities, data compiled by Bloomberg show.

“These companies do this because they can,” Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion, said in a phone interview. “So many have tremendous amounts of cash historically and the investment rates on short-term cash are not too attractive. It’s good for the company and good for stockholders.”

Here's my take on buybacks. The shareholders are the owners of these companies, and if the company is making a profit it should go to the owners. If the owners agree to take on a new interest payment in order to concentrate the shares by reducing the number of shares outstanding, those interest payments come out of profits, so total profits go down by the amount of the new interest payment. So a bond-financed buyback is a transfer of some portion of total profits from owners to creditors at the very least.

If a company buys back its own shares with cash profits, in essence it is using its profits to reduce the number of shares outstanding rather than paying its owners a dividend (a profit). So the owners see their percentage of ownership in the company increase while the liquidation value of the company declines (because it either used up some of its cash for the buyback or it contracted some new debt). That's what owners (shareholders) actually own, the liquidation value of a company as well as the right to the profits (dividends).

As outsiders (non-shareholders), we see the price of the shares rising, but that's an illusion because what has actually happened was the equity (the liquidation value) of the company was reduced by either decreasing cash or increasing debt, and the number of outstanding shares was also reduced at the same time, a net-neutral operation. A company holding its own shares is like a bank holding its own liabilities, or like me holding an IOU to myself. The net asset value remains the same, only the percentage that each share represents has changed.

Think about it in reverse. If a company that bought back shares decides to reverse that action and sell them for cash, that is essentially the same thing as diluting its outstanding shares to raise capital. So buybacks are essentially reducing capital (actually reducing liquidation value, either by decreasing cash or increasing debt) in order to concentrate shares.

The problems with this, as I see them, are manifold. Since this is really just a rebalancing of net liquidation value versus share concentration, the optics of a rising share price send a false signal to the market. And if this is the driving force "underpinning an equity rally in which the index has more than tripled," then perhaps the rally was an illusion.

If a company has surplus cash, why not just pay out dividends to the owners? It doesn't matter how many shares are outstanding because their price can change, just like it doesn't matter how much gold exists. From a net asset value perspective, nothing is gained in a buyback, just like from a market capitalization perspective nothing is lost in a stock split.

In fact, these buybacks are done for a purpose. They are done to boost employee compensation at the expense of the owners. The answer to cui bono in a buyback is certain employees, not owners, of the company, more specifically the executives (the CEO etc...), the managing employees. This is a way to convert net asset value into executive bonuses right under the noses of the owners, even at a time when the business is not profitable. It is also done to boost share prices more than they would otherwise rise, or keep them from falling as fast as they would otherwise decline.

In my view, buybacks are little more than a bookkeeping trick used by CEOs to fleece their unsophisticated owners (shareholders), kind of like a body that begins consuming itself and concentrating its energy in the core while starving the extremities, just to maintain the status quo of its heart a little bit longer. Yet if it happens en masse as it has been, due to cheap corporate debt financed by a flood of foreign capital, it's not just the shareholders who'll end up getting hurt—it's everyone invested, saving or speculating in any kind of paper.

Conclusion

What is happening is a massive inflow of private capital into the US and the dollar. This is not new surplus revenue being invested in the US right after it is earned, nor is it (any longer) the result of structural support or the systematic weakening of foreign currencies, also known as neomercantilism. This is, as far as I can tell, a massive shifting of existing private investment funds from other places into the US and its dollar. The simplest way I can put it is that it seems to me like the world is running into our bomb shelter that's rigged to blow up once everyone is "safely" inside. I suppose from another angle, still using my own past imagery, we could call it the head-fake.

The reason for this massive capital inflow is, I think, quite simply that the rest of the world has become unprofitable under this dying $IMFS, so you want to move toward the focal point where presumably everyone will be moving in order to capitalize on being early to the bubbles that will ensue. And in this case, the dollar and the US markets are the perceived focal point, with AAPL at the very center.

What we've seen with foreign currencies is that, whether loosely or strictly pegged to the dollar, their foreign reserves tend to correlate inversely to the strength of the dollar. Whenever the dollar is weak, their foreign exchange reserves rise, and when the dollar is strong, they decline. Comparing a chart of the USDX with Russia's foreign exchange reserves shows this quite clearly.

An inflow of capital into the dollar makes the dollar strong, and an outflow makes it weak. This is a function that is peculiar to the $IMFS, because in a different system the dollar's capital account would be subservient to its current account or physical plane trade balance. But similar to how paper gold drives the price with the physical gold market being subservient to the paper one, so too is the US physical plane trade balance and the price of the dollar subservient to the paper markets and capital account flows.

When capital is flowing, it affects two things in combination. It affects the US trade deficit and it affects the price of a dollar on the DX. It is a combination of these two that is the result of the flow in the capital account. If the DX is not moving, then the trade deficit represents the entire net flow in the capital account. If the DX is moving, then the capital flow is either more or less than the trade deficit. If the DX is rising, then the capital inflow is greater than the trade deficit, and if the DX is declining then the capital inflow is lower than the trade deficit. And, of course, in the past, structural support worked in tandem with private sector capital flows to keep the DX and the US trade deficit more or less stable, but right now it's private sector flows that are driving everything.

As private sector capital moves into the US, it needs dollars to buy US assets. So first it sells its foreign assets for foreign currency, then it uses that foreign currency to buy dollars needed to buy US assets. This drives down the local currency and drives up the dollar. The local CB can absorb some of that pressure by providing the dollars its locals want to buy from its foreign exchange reserves. This neutralizes the locals' effect on the FX, and this is how countries like Saudi Arabia and the UAE keep their currencies pegged to the dollar.

Any reduction in their foreign exchange reserves represents a net outflow of private capital, since their currencies are hard pegged to the dollar. These are still strong currencies, it's only the $IMFS that is making them appear weak. Even though the oil price has declined dramatically, all three of the countries I mentioned are still running a positive balance of trade, but in the $IMFS as I said, the capital account is in the driver's seat.

Even the dramatic decline in the price of oil is attributable to the $IMFS. As I've said in the past, speculative paper markets (futures markets in particular) when properly subservient to the physical market, absorb and reduce the risk and price volatility that real producers and real consumers do not want to be exposed to. But in the $IMFS the opposite is true; the paper markets actually cause the risk and volatility, simply because this system promotes saving in money and its derivatives.

"Capital flows" is really just another way of describing all this paper money sloshing around from one thing into another, causing the risk and volatility that real producers and real consumers would rather not be exposed to. It's just that when it crosses foreign exchange currency boundaries, you have to be careful when thinking about it because the currency effects can be confusing.

Many things changed through the financial crisis in 2008, and one of them was the driver of dollar-denominated credit expansion outside of the US. Before 2008, non-US dollar credit growth (sometimes called Eurodollars) was driven mostly by banks making the loans, but in 2009 the banks pulled out of that sector and private sector capital flooded in. That's why half of that $9T in foreign dollar denominated debt is held by private bond investors today, and why "capital flows" or "all this paper money sloshing around from one thing into another" is such a dynamic problem for that debt and those stagnating economies. If that debt had all been bank credit like before 2008, then interest rates would move slowly in concert with interest rates elsewhere. But because today it is private money, capital outflows can cause interest rates to be much more volatile and deadly.

Now think about how that $9T in debt meme—$4+ trillion of which is in private bonds which asset managers are pulling out by selling those bonds—might relate to the corporate buyback meme. As that money is being pulled out of emerging market corporate bonds, where do you think it is going? Could it perhaps be going into US corporate bonds?

The article above says that US corporations have bought back $2T of their own shares since the stock market started rising in 2009, and a quarter of that, half a trillion, was bought back last year alone. And it was largely financed by issuing bonds and borrowing that money from the bond market. So you see, everything is connected! A massive capital inflow into the US bond market can result in crazy-low interest rates while also, as the article says above, "underpinning an equity rally in which the index has more than tripled." Isn't the $IMFS great? ;D

Sincerely,
FOFOA



The picture's far too big to look at, kid.
Your eyes won't open wide enough.
And you're constantly surrounded
By that swirling stream of what is and what was.
Well, we've all made our predictions,
But the truth still isn't out.
But if you wanna see the future,
Go stare into a cloud.
And keep trying to find your way out
Of that maze of memories.
It all sort of looks familiar,
Until you get up close,
And then it's different, clearly.
But each time you turn a corner,
You're right back where you were.
And your only hope is that forgetting might
Make a door appear.
Well, is it your fear of being buried
That makes you so afraid to speak?
An avalanche of opinions,
Like the one that fell that I'm now underneath.
It was my voice that moved the first rock,
And I would do it all again.
So, I mean it's cool if you keep quiet,
But I like singing.
So, I'll be holding my note,
And stomping and strumming
And feeling so very lucky.
And there is nothing I know,
Except this lifetime's one moment,
And wishing will just leave me empty.
So you can try and live in darkness,
But you will never shake the light.
No, it will greet you every morning,
And it will make you more aware with its absence at night,
When you're wrapped up in your blankets, baby-
That comfortable cocoon.
But I've seen the day of your awakening, boy,
And it's coming soon.
So, go ahead and lose yourself in liquor,
And you can praise the clouded mind.
But it isn't what you're thinking, no,
It's the course of history,
Your position in line.
You're just a piece of the puzzle,
So, I think you'd better find your place.
And don't go blaming your knowledge on some fruit you ate.
Cause there's been a great deal of discussion, yes,
About the properties of man.
Animal or angel, you were carved from bone,
But your heart, it's just sand,
And the wind is gonna scatter it,
And cover everything with love.
So, if it makes you happy,
Then keep kneeling, momma,
But I'm standing up.

Because this veil, it has been lifted, yes,
My eyes are wet with clarity.
I've been a witness to such wonders.
Oh, I've searched for them all across this country.
But I think I'll be returning now
To the town where I was born.
And I understand you must keep moving, friend,
But I'm headed home.
Yeah, I'm gonna follow the road
And let the scenery sweeping by easily enter my body.
And I'll send ya'll this message in code-
Underground, over mountains,
Through forests and deserts and cities.
All across electric wire, it's a baited line.
Yeah, the hook's in deep, boys,
There's no more time.
So you can struggle in the water-
Be too stubborn to die.
Or you could just let go
And be lifted to the sky.

473 comments:

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One Bad Adder said...

We're seeing a quick-time retracement here with $IRX, which MAY spill over into negativity ...and stay there.http://stockcharts.com/h-sc/ui?s=$IRX&p=D&b=5&g=0&id=p73458434997.
In any case, next weeks Auction will be "interesting" http://www.treasurydirect.gov/instit/annceresult/press/preanre/2015/A_20150319_2.pdf

One Bad Adder said...

We're also seeing some serious fire in the loins of Silver these last couple of days, which is dragging $PoG along for the ride.http://goldprice.org/gold-silver-ratio.html
30:1 can't come quick enough ;-)

Michael dV said...

OBA
Sometimes I feel like we are following a breadcrumb trail...in a bakery.
I think the unraveling will come as some kind of a surprise...to us anyway.

One Bad Adder said...

@Michael: - At least we have the conviction / scepticism / curiousity etc. to go forth and explore what the future may entail...
...and when it (the future) arrives at least we can say - I saw (or didn't see) THAT coming.
Most here (and elsewhere) "on-the-Trail" seem to expect some form of "official" re-cognition of Golds worth to the World. I myself OTOH wait in anticipation for Golds gestalt moment ..via market-driven forces.

Reality Show said...

Time

Phat Repat said...

@OBA
Thanks for sharing the link and for the information you provide. Looks like things have settled a bit and back to the grind down.

I continue my quest in trying to understand the set of events or conditions for the FG singularity. ;-)

Canadarob said...

Reality show.

Thanks for the nightmares

High 5 said...

I have enjoyed this blog for many years....not only FOFOA posts but many of the comments. Having said that, can anyone defend the longstanding argument of eurodollar survival and dominance through this massive transformation?

How can the euro possibly survive, much less dominate?

tEON said...
This comment has been removed by the author.
High 5 said...

Varafoukas thinks the euro is on death row.

M said...


Syriza's crusade against Canadian-owned gold mine puts thousands of jobs at risk in Greece.

Greece’s radical-left government has promised to roll back privatisation of state assets. Now thousands of jobs are under threat by Athens’ crusade against a Canadian-owned gold mine.

Panagiotis Lafazanis, the environment and energy minister, has vowed to stop the expansion of the Skouries mine – one of the biggest foreign investments in Greece since the crisis.

Vancouver-based Eldorado Gold has invested more than €350m (£259m) in the mine in the peninsula of Halkidiki in northern Greece. About 2,000 people work there, with Eldorado Gold saying they will hire another 1,000 this year. But Mr Lafazanis said this week that he would try to halt the project.

Phat Repat said...

The return of control/ownership of gold mines to the state should be of no surprise to anyone here. Look for it to happen in the US in the not too distant future; among many other places. Knowing what is coming, being long miners has got to be one of the riskiest bets in like 4-evah. Picking up pennies in front of a steamroller. ;-)

burningfiat said...

Phat, +0.01$

tEON said...

Ethiopian jets attack Canadian gold mine in Eritrea

Ethiopian jets have bombed the Bisha gold mine in Eritrea, that is majority-owned by Vancouver-based mining company Nevsun Resources (NYSE:NSU, TSX:NSU), according to media reports from the East African region on Saturday.

Edwardo said...

tEON,

I think this report is confused. The Ethiopian jets are merely moving dirt around as part of the mining operation ;D

High 5,

No offense, but if you've been reading this blog for many years I'm surprised that the answer to your question isn't well ensconced in your freegold trained brain.

The approximately 10,000 tons of physical gold that is displayed at the top of the page on the asset side of the ECB's balance sheet can and will be be mobilized should an existential threat present itself. As I see it, nothing short of an absence of physical on the asset side of the ECB's balance sheet (and/or some sort of threat to humanity as a going concern) stands a chance of derailing the Euro from fulfilling its mission. It's mission, of course, is to provide a fully functioning alternative to the dollar upon its inevitable demise.

I know things look less than swell in the EZ these days as a Grexit looms as a distinct possibility. What's more, no one can be sure that should that take place, or even if it doesn't, that, France, for example, might not experience a political evolution that impels them towards the door. Such an eventuality would, to my mind, represent a clear and present danger to the Euro. However, well before any such outcomes transpires be mindful that the ultimate reason any country would choose to leave is because they simply can't (or don't want to) make the payments. All other considerations pale next to debt concerns in my view. It's not about sovereignty, as that is merely a noble sounding cover for a much more fundamental and less lofty issue.
The ECB can take care of the debt problem tout suite by mobilizing gold. The thesis here, as you should know as a long time reader, is that the ECB would very much prefer avoiding taking any such action because no one wants to get blamed for the attendant great disruption. However, if faced with the choice of oblivion or causing some considerable measure of disruption my view is they will opt for self preservation. In the meantime, I am sure that the folks in charge hope that the dollar faces its own existential threat before one manifests in the EZ.

PeaknikMicki said...

How can the Euro zone mobilize gold to save itself?
Selling gold is hardly a solution. The alternative is to introduce a gold backing for the Euro and most here would argue that is not a (preferable) solution. Freegold as I see it cannot be mandated at will it is merely a natural outcome of certain conditions.
So what other options do they have to "mobilize" their gold?

Edwardo said...

PeaknickMiki,

Someone has some reading to do. Who, other than you, said anything about selling gold? The relevant parties would, as both buyers and sellers, make a two way market for physical in size at a price vastly higher currency denominated price than today's paper constrained bid offer spread.

burningfiat said...

Micki, we here usually think that the ECB has a "nuclear option" if all else fails.
The ECB "mark to market" its gold reserves, hence a rising gold price would strengthen its balance sheet...

So the ECB could say: We will now begin to purchase physical gold. Our bid starts at €10,000 per ounce. Just wait and see where the market takes the (new) price of gold then. Yes? :)

Contrast that with the FED. An institution that owns no gold...

Indenture said...

The ECB could offer to buy gold at 50,000 euros.
Setting a new euro price of gold would be a solution.

How do you think the rest of the world would react?

The Jackalope said...

@burningfiat If that was a realistic option for the ECB, what are they waiting for? Are they waiting until two or three generations pass with no work history or job skills? Are you saying the situation has yet to become bad enough for the ECB to detonate the nuclear option? If not, how bad does it have to get for them, exactly? Because it looks pretty bad from here to me.

burningfiat said...

@Stu

I also think it looks pretty bad. I recon they should do something before the whole Eurozone breaks up. I would except an institution like the ECB (with a fine new HQ in Frankfurt) to care about its own survival.

But if in few years Greece and maybe other countries has left the zone and ECB's primary mandate about price stability is broken significantly (either to the up or downside), well then I'll consider my current belief in a realistic nuclear option disproven...

Let's watch.

tEON said...

Gee, Stu Ungar surfaces to make a post relating to timing - how unusual.

Yes, the ECB is being very selfish... don't they care that some of us have to buy pimped out ranches? It's like they don't want to be branded the entity who blew up the system for all history. Geez... think about the other guy will you.

The Jackalope said...

tEON,

Not surprising you missed the point. The ECB is destroying its own citizens, an entire generations life is essentially ruined. If it was an option, and they operate in their own self interest, why not use it?

Or is it not even an option?

tEON said...

If not, how bad does it have to get for them, exactly?

So when you exactly know how bad it must get - then you can time it. Snap!

Never underestimate how bad it can get - but we've been through the timing thing over and over.

Come back in a month and ask essentially the same question in a different way.... again. No one can give you the answer you are looking for. The best you can say is that 'it' gets closer... "How bad must it get?" It's all relative.

If no one wants to be recognized as the one who pulled the switch - perhaps it will take a collapse before a response is issued. Which snowflake...

Sam said...

Economies are not the same as currencies. Currencies age and eventually die because of debt. Essentially the debt grows beyond the ability of the people that back the currency with their goods and services to ever pay back, even going out several decades into the future. The dollar is way ahead of the Euro in this regard

That being said these European Union worries are silly even if they wasn't fallacious. If Europe was the US it would be like Texas loaning money to Illinois in exchange for Illinois getting its fiscal act together except in this hypothetical the US would be running a trade surplus. Europe may have economic problems due to political mistakes but its currency is just fine and the dollar is not. Any country that wants out, Greece included, can either leave and be later judged by history as one of the biggest blunders ever, or if they are lucky, will be invited into a meeting and made to understand the plans that have been baked into the Euro cake.

Anonymous said...

teon, actually it's incorrect to say the timing thing has been discussed over and over, it hasn't, other than vague notions of "sit still and be firm and watch events".

Sorry, doesn't cut it anymore. If you go back and read Another and FOA, they thought an event was imminent. If you go back and read FOFOA from the early years of the crisis, he thought an event was imminent.

Interestingly enough, this makes freegold people not unlike the can-kickers themselves, demonstrating conclusively how captured we all are. Sometimes, I wonder if the people here actually want freegold at all (if it did occur, gold would be much more expensive and you will lose the thrill of discussing something that is always on the horizon, the thrill of the chase).

Gold could decline in purchasing power terms for decades ahead and you will all be high-fiving each other, counting how many coins and bars you are accumulating.

It's getting closer to now or never.

Canadarob said...

"Its getting closer to now or never"

Ummm......that's not how logic works

Canadarob said...

It not more or less likely of an event based on your personl timing assumptions. Have you witnessed so many currency failures, and this one is just "taking longer then it should" according to you? And eventually we will hit a day where it has taken longer then you felt it should and past that day everything will be fixed.

Of all the ideas on this blog the timing gets discussed way too much.

FOA, "I own gold in proportion to all my other wealth"

If the timing is what you are worried about, you own TOO MUCH gold.

tEON said...

Sorry, doesn't cut it anymore.

Why is that? We throw out logic because some believe it is around the corner?

If you go back and read Another and FOA, they thought an event was imminent. If you go back and read FOFOA from the early years of the crisis, he thought an event was imminent.

Let me explain something to you. Some events are not time-able. No matter how much you want them to be, no matter how impatient you and others are, no matter if everyone tells you it's tomorrow, no matter if all the, so-called, signs point to a specific date.

Gold could decline in purchasing power terms for decades ahead and you will all be high-fiving each other...

Yes. Many realize this. And your point?

Forget about understanding FG, you should start with understanding why you own Gold. Because if it's for trading for lotsa $s - I suspect you may suffer some big disappointments in the short, or medium, term.

PeaknikMicki said...
This comment has been removed by the author.
PeaknikMicki said...
This comment has been removed by the author.
PeaknikMicki said...

"So the ECB could say: We will now begin to purchase physical gold. Our bid starts at €10,000 per ounce. Just wait and see where the market takes the (new) price of gold then. Yes? :)"

That is not really freegold then right? That is a central bank set price. And ECB would have to print print print to buy the gold to bring the price level up. Price is not going to E50K just because ECB says so. So to reach that level they are actually not mobilizing their gold reserves but the printing press.
If selling dries up as many expect, then ECB would have reserves but once again moibilization of these would be in form of selling or as collateral (and get more in debt).

(Is there no way of editing posts?)

Phat Repat said...

burning
I'll take it, if it's a 1913 wheat penny in mint condition. ;-)

Aaron said...

That is not really freegold then right?

It depends on your definition of Freegold. It sounds to me like you are conflating fractionally reserved gold lending with FX intervention.

That is a central bank set price.

It's an initial offer.

Price is not going to E50K just because ECB says so.

It is if the ECB opts to devalue the Euro. The rest of the world will get there via arbitrage.

So to reach that level they are actually not mobilizing their gold reserves but the printing press

That is correct, but it seems you are still trying to understand your own observation?

Michael dV said...

Random
for me gold has just been the most probable best holding. I own it as I understand it. I had to decide how to hold my wealth and except for a few vehicles that I just would not consider (such as Forex) I looked at them all. I lost faith in stocks and bond, even cash scared me. I needed some of course but hold a large percentage seemed risky too.
I'm underwater on gold but have the opinion it is still better than the rest. If I think I may need to convert some to cash I buy a hedge (DGLD) and lock in a certain price. If gold does go to 300 I will almost break even on the hedge and will not suffer the pain of selling phyz at that price.
No one made me any promises. The decisions I had to make were real The risks both ways are real. If we here are correct then many friends and family will suffer badly. If we are wrong i could be us who suffer.
It is all about trying to figure out what is really happening.
FG is not faith based. There is some hope involved. Ya just gotta make yer best choices and keep reassessing your moves.
Good luck, it is a jungle out there and things might get really nasty.

Anand Srivastava said...

Edwardo:

If the timing is what you are worried about, you own TOO MUCH gold.

+100

Yeah. If you are worrying because you are in gold, you have "invested" incorrectly. The whole point of gold was to buy and forget you have it, and live as you would, without gold. Maybe buy more when it is cheaper and you have a surplus.

The whole point is to sleep peacefully without worry. If you are worried you need to get out of gold. No point in getting an ulcer over it.

JJ said...

Timing - How long dows it take for people to understand that their wealth is not the numbers in their accounts? Just look at Cuprys. A shift in perception from "not being invested when holding cash" is being forced through bail-ins.

How long does it take for people to understand that their pensions are not there? Just look around you for confirmation. A shift in perception is happening here also both from "I have my pensionfund" and "gov will provide".

Regarding nuclear option. Nuclear option works best as a deterrant. Once used, and the people of the worldpolice state are pissed off. It is no longer a deterrant. Best push people towards making their own decisions and then just withdrawing offers. Regarding printing to get the pog up.., do your math! How much does 1 trillion buy at present pog? Compare that to ECB QE. Then it is just a question of price.., set by frontrunners.., and then probably managed by governments.., for the good of everybody.

Ethiopia and Greece preparing for stateowned production of wealth? Is Greece forcing FG by the default option?

Anand Srivastava said...

I would bet against the nuclear option being on the table.

Not that it will not work. Just that their own people would hate them for it.

fftastic said...

For your entertainment a Freegold riddle:


Who am I?

I was born in 1910 in Ohio and I died in 2006.
I was american to the core.
I visited the School of Law and Diplomacy at Tufts University and in 1939, I went to Harvard University for graduate work in economics.
After a stint at the Massachusetts Institute of Technology during World War II, I joined the Board of Governors of the Federal Reserve System as an economist.
In 1948 I served first as adviser to the Secretary of Finance of the Philippines and then , at the age of 39, to the Minister of Finance of Ceylon (now Sri Lanka) on the establishment of central banks.

Between 1950 and 1953, I was the founder governor of the Central Bank of Ceylon. In 1953, I became the division chief for the Middle East at the International Bank for Reconstruction and Development. In 1954, the Federal Reserve Bank of New York appointed me vice president in charge of international banking and precious metals operations.

I left the New York Fed in 1959 to join First National City Bank (then the world’s second largest bank) as a vice president. The next year I was promoted to senior vice president. As an international monetary adviser for the bank’s International Banking Group I had special responsibilities for relations with foreign central banks and governments. In 1972 I took early retirement to become a private consultant.

I was a member of the Council on Foreign Relations, the Committee for Monetary Research & Education, the Mont Pelerin Society, and the Pilgrims of the United States.
Some folks called me "a central banker for all times", a hardcore goldbug in the truest sense and an intellectual giant. I made my fortune on gold in one day. I firmly believed that paper has no value as a store of value. The only thing that could give the dollar value is the promise that it can be exchanged against a valuable asset by the person who holds it.
That sooner or later the public will realize that the dollar is worthless. As the crisis intensifies, debtors begin to default on their debt; and when will settle depression and deflation, gold will again play as a store of value par excellence.

At the age of 85 I decided to write down my condensed knowledge in order to send certain european folks an "anonymous" message about gold and the structure of the Euro. I knew they would listen.
Later on the heart of my message became known as the solution to "Fofoa's dilemma".

So who am I?

DP said...

(Is there no way of editing posts?)

Yes, there is!

Here it is, what you've all been waiting for…

You edit your comment offline, only post it when you're happy, and you own it when it was substandard.

You are welcome.

tEON said...

@fftastic

HERE is an interesting interview with John Exter and HERE is his inverted pyramid.

One Bad Adder said...

If he were alive today, I'm sure JE would refine his Pyramid somewhat ....given the advent of Digital Currencies, FDIC caps etc.
The gist of his systemic prognosis is still intact tho ....and certainly (surprisingly) quite similar to my own PoV.

Once one comes to terms with the Timelessness of GOLD, ie: NO interest / risk EVER! ...the "price" ceases to be a salient issue.
Silver OTOH (or more precisely $XAG) is Another kettle of Fish altogether.

Anand Srivastava said...

Oh! that comment was by Canadarob, not Edwardo. I don't know where the two switched in my mind :-(.

Muad'Grumps said...

"Countries have until 31 March to decide whether to seek membership of the AIIB."

Why March 31st?

China's new regulations for gold kick in April 1st.

Roacheforque said...

FWIW, owning physical gold and "waiting for freegold" are possibly 2 different things.

When I drive down the street and I see McDonalds and Burger King trash laying about the sidewalks, it annoys me, but I don't throw my trash in the street because I'm tired of waiting for FreeCLEAN.

Whether people have the sense to do what is right for themselves and "clean up their mess" or not doesn't matter to me - they may NEVER.

But I do what I think is right, because if everyone did it, the world would be a better place.

Kinda like Freegold. If everyone made the commitment to own physical gold, cash in their 401Ks (like I did) and hide away some physical, Freegold would happen and the world would be a better place.

But people will still throw trash in the streets, and out their mouths, trashing gold, without ever making the commitment to hold it as a wealth reserve asset, long term, without agonizing over "lost yield" day after day, and bitching about FreeGOLD never coming "as promised".

Perhaps the best thing about Freegold, if it ever happens (which it may never FYI) is that if and when it ever comes, the detractors will have to take out their trash once and for all.

And beyond that, if you can't be content with "doing the right thing" in terms of TAKING THE POWER OF TOTAL CONTROL OVER THE VALUE OF ALL THINGS away from PEOPLE who are guaranteed to ABUSE THAT PRIVILEGE ... and giving it back to GOLD, a fair and proven way to enable FREE MARKET capitalism, as defined, then you will have to live with the fickleness of your own true nature, and the master you choose to serve within those confines.

I pity the debt slaves in the great casinos for the lust that defines their very nature - the lure of something for nothing. Gambling for yield against the house, under the lure of DEBT!

You will NEVER WIN!

Roacheforque said...
This comment has been removed by the author.
The Jackalope said...

They never win? tell that to the millions of pensioners that continue to live quite well on their pensions and stock market gains.

I feel the desperation in the comments, as if anyone who wants freegold in their lifetime doesn't "get it"

I get it. I get that losing purchasing power in gold over the course of decades would be a losers game, and anyone who even attempts to explain that as nonsense has shown themselves to be RELIGIOUS about freegold, and not worth listening to.

Muad'Grumps said...

Russia will probably join last so as not to paint the AIIB movement as a harassment of US policy.

M said...

@ Stu Unger

"The ECB is destroying its own citizens, an entire generations life is essentially ruined. "

The ECB became essentially a failed project once the Americans ousted Jean-Claude Trichet and replaced him with Goldman scum. I could be mistaken but there was not one interest rate cut under Trichet.

M said...

@ Sam

" Europe may have economic problems due to political mistakes but its currency is just fine and the dollar is not. "

Exactly. But how come nobody will point this out ? Not even Zerohedge. Not even David Stockman. Rickards is the only one who quietly does.

David Stockman just wrote an article about how the "USD is the best house on the rundown block". Not based on numbers or anything. Just the usual off the cuff BS. Even he cant see it. The EZ is a net creditor. Germany has trade surpluses with China. Hopefully one of these days, this epically lopsided trade will end like all lopsided trades do.

KnallGold said...

FSL: and which announcement did we miss, the other day? There are quite many these days...

The most interesting thing about the AIIB is the anglo-saxon participation. Maybe it doesn't mean that much but then...

SDR: will it have the same silent destiny as the Goldfranken GFr. from the BIS (it ended 1. April 2003?

http://en.wikipedia.org/wiki/Gold_franc

Muad'Grumps said...





http://www.chinadaily.com.cn/hqcj/zgjj/2015-03-20/content_13403696.html

" People's Bank of China said on Thursday, according to the national macroeconomic demand, the number of central bank gold and gold products will be restricted import and export approvals, import and export of gold and gold products, the implementation of a permit system, since April 1, 2015 onwards implementation. Import and export of gold and get qualified market players should bear the physical gold market supply and demand balance of domestic responsibility."

Maybe that's why there's a March 31st deadline for joining the AIIB. The AIIB could be the currency reset in which certain pegs are removed.

Here's another article: China's central bank on gold import and export policies will affect the entire market

http://money.sohu.com/20150323/n410151911.shtml

"It is said that, according to the National People's Bank of China macroeconomic demand, the number of gold and gold products will be restricted import and export approvals, import and export of gold and gold products, the implementation of a permit system, and since April 1, 2015 onwards implementation.
Macquarie Group (Macquarie) said it would affect the entire gold market.   According to China's central bank and the General Administration of Customs jointly issued regulations, qualified miners, metallurgical enterprises, gold producers and all the State Council approved the Gold Exchange member banks, gold import and export transactions can be carried out.   The regulations take effect from April 1. Eligible miners, including gold mining in the amount of more than 10 tons, and gold mines overseas investment of more than $ 50 million in business."

Not exactly what you guys had in mind.

Unknown said...

Definitely not a freegold point of view, but Perter Schiff's comments on timing are worth a listen.

http://finance.yahoo.com/news/peter-schiff--the-dollar-rally-will-end-in-tears-and-gold-will-soar-235520038.html

Roacheforque said...

We often hear about pensioners who live "quite well" on their "stock market gains" ... but when all is said and done, do they truly WIN?

In Charlie Sheen terms?

But I am "religious" about liberty, free will and freedom of choice, therefore certainly not worth listening to.

The only desperation I sense is that of those who feel compelled to comment in a blog about X, denouncing the logic or value of X.

Take a little advice from Deepak Chopra and channel your energy into something more positive. Instead of being against that which you deplore, be FOR it's opposite.

Like MADD, it's a great organization, but they are against drunk driving. they'd actually be more effective if they were FOR sobriety.

So instead of being AGAINST Freegold, be FOR the current debt-based system. Be FOR fascism, wealth inequality and debt as a wealth reserve asset.

Be FOR wealth by decree, paper gold, corruption, collusion and middle class destruction.

SO much better for the Karma ...

Edwardo said...

Read with a modicum of discernernt, the announcement from the PBOC is boiler plate, nothing to see here, stuff.

One Bad Adder said...

Todays $IRX Auction -http://www.treasurydirect.gov/instit/annceresult/press/preanre/2015/R_20150323_2.pdf
Lower than a snakes belly and ...to all intents, at Zero (Yield).
Contrary DX is under the pump however - one ...or the other has to reverse here. I'm thinking DX >100 by the end of the week.
Let's watch!

High 5 said...

I don't understand why a fiat currency would survive and thrive just because the issuer decides to offer a high price, in that currency, for gold trading. The main issue with any fiat is political. The eurozone has a fiat issuer with central monetary control and no central fiscal control. This is creating unsustainable tension between vastly different cultural and economic regions speaking different languages.

When the plans for the euro were being hatched the players new it would not work without a central government in control of fiscal policies and laws. The problem was that europeans would not accept a strong central government. They figured it would bepossible to create such a government in the future by taking advantage of a massive economic crisis.

It appears it is becoming less likely that europeans will accept a strong central government. IMHO this is the reason the USD has the advantage, especially during global economic turmoil.

Jeff said...

Sheiks preparing to go to full production:

http://www.reuters.com/article/2015/03/21/saudi-oil-drilling-idUSL6N0WM33S20150321

Jeff said...

High5, you're right, you don't understand. The world doesn't need more central government, it just needs a good SoV.

FOFOA: The Achilles' heel of the $IMFS is that debt is the system's official store of value and foreign exchange reserve. And bearing this flaw, savers, currencies, banks, governments and even entire countries are all vulnerable to the inevitable failure of the debt.

The problem with debt performing these functions is that debt is a derivative of the currency itself. Currency moves opposite the flow of real goods and services. And with a derivative of the currency acting as the only counterbalance to uneven trade, there emerges the exact opposite of a natural adjustment mechanism for correcting trade imbalances.

With debt as the store of value and official reserve asset, the party producing more real goods has no way to record his net production (savings) other than lending that excess currency back to the consuming party, encouraging him to consume more, and recording the new debt. A true adjustment mechanism makes the balance swing back and forth. But the debt system requires an infinite debtor. So the system is designed to fail. The debt backing the system is designed to fail. And as the official store of value and reserve asset, the savers, currencies, banks, governments and even entire countries are destined to fail in the end… under the $IMFS.

Jeff said...

FOFOA: (...)

Triffin's dilemma highlights two flaws in the dollar and its use as the global reserve currency. Flaw #1 is the dollar being a national currency and also a supra-national global reserve currency. Flaw #2 is the dollar trying to be as good as gold in the store of value role via US Treasuries. What I mean in flaw #2 is that the dollar's credibility is hurt by a rising price of gold and, therefore, it must systemically manage that threat by backing the fractionally reserved bullion banking system which eases the natural supply constraint of gold.

The euro has eliminated both of these flaws in its fundamental architecture. It is not a national currency and it does not oppose a rising (in the present case) or a free floating (in the future case) price for non-fractional physical gold reserves. I have written extensively on this topic, and the bottom line is that gold is not yet free floating, even today, because its market is encumbered by many forms of gold IOUs that trade at par with the physical stuff through the support of the dollar system.

You can obviously resolve Triffin's dilemma by removing both flaws. But removing #1 alone is not enough, while #2 alone is enough.

Triffin's dilemma observes that when a national currency also serves as an international reserve currency (as the US dollar does today), there are fundamental conflicts of interest between short-term domestic and long-term international economic objectives. But this is only the case if that currency does not embrace a "secondary media of exchange" that is allowed to float in value in a quantity not managed by the currency manager (i.e. physical only), and can be purchased and stored in lieu of retaining debt denominated in the primary medium.

Imagine, if you will, the euro supplanting the dollar's role as the globe's super-sovereign currency unit. This is (at this point) merely a conceptual exercise for all you anti-conceptual mentalities. Let's compare the two with regard to Triffin's dilemma.

How often do we hear euro critics repeat that the euro, a currency without a country, has no political union to back it and is therefore worthless? The US dollar has a country, but in its role as the world's currency it also functions just like the euro, without a global political union.

The fundamental difference between these two units of account (the dollar and the euro) is their relationship with gold.

If you have followed my blog at all, you know that the euro has Freegold, the wealth consolidator and "real money" with no country, no links and no political union to back it. So which unit of account (€ or $) is closest to gold? Which currency, of these two, is most likely to be preferred as the global reserve currency next to Freegold in the wealth reserve role?

The point is, once "Freegold" (nature's wrath) inflicts itself upon us all, it won't really matter what is chosen/used as the super-sovereign or supra-national currency to lubricate international trade. It could be the euro, the yuan, the SDR, Facebook Credits or even the dollar! Triffin's dilemma will be gone. And you shouldn't worry so much over the transactional currency question, because that will be chosen through the market forces of regression, the network effect and game theory's focal point discovery at the international level.

Indenture said...

High5: "I don't understand why a fiat currency would survive and thrive just because the issuer decides to offer a high price, in that currency, for gold trading."

Instead of looking at it from the 'survive and thrive' point of view of the Euro try and look at if from the 'wither and die' point of view of the Dollar. If the ECB pushed the nuclear button and bid for gold how would it affect the strength of the Dollar? If 1 ounce of gold could buy you 55,000 euros or 1200 dollars what would you do? And after the button is pushed, in just a few short seconds, the rest of the world would make the same choice, and since it is an impossibility for the dollar to match the bid, the dollar collapses.

Gold bidding for Euros doesn't make the Euro stronger, it makes the Dollar worthless and then the Euro becomes stronger.

Bullion Baron said...

If 1 ounce of gold could buy you 55,000 euros or 1200 dollars what would you do?

Sell all my Gold for Euros and then buy half of Greece.

But seriously, at US$1.9B per tonne how much could they really buy if the world turned up at their doorstep, Gold in hand, ready to sell?

They'd want to be very sure the rest of the world was ready to move with them on a revaluation...

M said...

@ High 5

States within the dollar bloc can't print their own money either. They all have separate bond markets. Different cultures ect. The Euro isn't much different then the USD in that way.

The USD is simply living off the cred that it gained from being backed by gold. Nothing else.

Indenture said...

Bullion Baron: "But seriously, at US$1.9B per tonne how much could they really buy if the world turned up at their doorstep, Gold in hand, ready to sell?"

They, the people, could buy all the currency they wanted because in the process of purchasing Euros the people would be showing the strength of the currency! Being able to trade currency for gold (and vice versa) shows the currency is functioning.

Question: Why wouldn't the ECB print Euros to buy gold?

And the ECB doesn't need the rest of the world to be ready to move with them. If the ECB moved the rest of the world would be forced to move also. Unfortunately for the Dollar such a move would destroy it and the Euro would be even stronger.

It's a win win for the Euro and the ECB. Just remember, no one wants to be blamed for the inevitable chaos so the ECB bidding for gold is the last plan of attack. Everyone would rather watch the Dollar die from it's own bloated weight.

High 5 said...

If the ECB were to offer €50k /oz they would need to "print" a shitload of euros. After getting the euros for gold it might be prudent to trade them as quickly as possible for a stable currency, or other asset, before the euro collapses in value as compared to real goods.
The massive printing and selling of euros could strengthen the USD against the eurodollar.

High 5 said...

Anyone holding euros or euro bonds would take a serious beating.

Indenture said...

High5: What makes a stable currency?

JJ said...

@ High5

"If the ECB were to offer €50k /oz they would need to "print" a shitload of euros. After getting the euros for gold it might be prudent to trade them as quickly as possible for a stable currency, or other asset, before the euro collapses in value as compared to real goods.
The massive printing and selling of euros could strengthen the USD against the eurodollar."

What if ECB said they would use just one months QE, 1,6T, to buy physical gold? Where would the price go do u think?

fftastic said...

thx Jeff, you are a highlight.
Did you catch the implied proposition/suggestion of my riddle? ;-)

Jeff said...

'...before the euro collapses in value as compared to real goods.' You mean, like the dollar? But what if it doesn't?

FOFOA: Here is an important question: Is it theoretically possible for a fiat currency to devalue, or more precisely, to hyper-depreciate against only one single asset without affecting the price of a can of peas?

Of course it is! Just look at any number of investments that have appreciated quickly by an order of magnitude or two. Look at GOOG! Or how about AAPL? When an asset appreciates against a currency can we not also view it as the currency depreciating against that one asset? Or more precisely, can we not say that the asset was awaiting massive revaluation based on market recognition of its value?

Now, what if the revalued asset is gold, a monetary asset held by Central Banks? What could such a revaluation do to today's dynamics of national debt?

(...)

And what is the ONLY solution to this? What is the pressure release valve? It is different depending on whether you are a sovereign net creditor/saver or if you are a sovereign debtor. For the creditor/savers the ONLY solution is CUT OFF THE CREDIT and thereby FORCE AUSTERITY. If you are a debtor, the ONLY solution is DEVALUE THE CURRENCY, or more precisely, ALLOW the currency to hyper-depreciate. Yes, default is an option, but not for a sovereign that prints its own money, and not for any too-big-to-fail entities under the umbrella of such a sovereign...

The US dollar MUST devalue (one way or another) against the entire physical world. Think about this. The euro, on the other hand, might just hyper-depreciate against only one specific asset. An asset that happens to also be a MONETARY asset held by its member debtors.

"Devaluations always happen by necessity. They can be triggered either intentionally internally, intentionally externally or unintentionally naturally. They happen because they are ultimately necessary to both parties and to nature itself. But the party that feels the pressure most, enough to trigger the devaluation first tends to profit the most from it...


The hyperinflation of the dollar is already a done deal. It has been since the 90's at least. Massive quantities of perceived dollars already exist stored in debt held globally and inside the US. Europe knows this. They have known this was inevitable since at least the mid-90's when they changed plans and went with higher gold reserves for the new ECB. They have always been willing to wait for it to happen naturally, unless the EU itself faces an existential threat from debt brought on by the $IMFS. And in this case, I believe their only option is a targeted hyper-depreciation of the euro.

By "targeted", I mean that the euro devaluation would be targeted to go only into gold. Gold can absorb a devaluation if you do it carefully, and in turn devalue the debt without causing inflationary havoc.

Of course this would cause the hyper-depreciation of the dollar as well. Only the dollar's collapse would be against all of creation, not just one asset."

db said...

High 5, you do have some reading to do …..

If the ECB was to bid EUR 50k/oz (only Physical here), it would have to print Euros, so what?, if you take a look at the asset side of the ECB’s balance sheet you’ll find that line #1 Reserves is Gold, which is MtM’d quarterly.

If you have any accounting knowledge, you’ll know that Assets = Liabilities

When you print EUROS you increase your liabilities, which have to be counterbalanced with an increase in your assets.

While doing QE, it’s Gvt. Debt that goes into the Asset side to match your increased liabilities, but if you buy gold at 50k/oz it’s the price of gold that goes up (which balances your balance sheet since you MtM your gold), that for your newly purchased phyz + also for the 10.000 Tons you already had

Presented with this incredible arbitrage, the whole world would turn to physical to sell it to the ECB, but paper gold being so leveraged it’d implode in a heartbeat killing the dollar, if you can’t understand it:

1. You believe that gold is useless and that all the 170k tons ever mined would go to the ECB and then price would collapse causing HI for the EUR
2. You think that breaking the gold paper market would have no implications for the USD
3. You are a troll

The Jackalope said...

@Rocheforque There is a difference between opposing freegold and questioning the inevitability of freegold. Or at least its inevitability in any kind of relevant time frame. I am clearly not doing the former, but I am heavily into the latter. Its just that so few people here attempt the latter, many assume those who do are the former.

Unknown said...

In re-reading the FOFOA quotes this morning, I had a light bulb moment.

What if the 'Nuclear Option' isn't an attack mechanism, but rather the ultimate support for international trade.

What happens to liquidity when the $IMS collapses? Suddenly, not enough money to trade with. Yes, there are butt loads of $s, but they stink, nobody wants them right then. The euro could fill that void, but there would be need for trillions more of them to satisfy international trade (for oil) without causing shortages in other markets. So, instead of front lawn dumping, the ECB says, "We will do QE by bidding for gold." The balance sheet balances, the euros are printed.
Trade continues. Win-Win.

M said...

@ Stu Ungar

Are you concerned that the current state of affairs will last another 10 or 15 years (ZIRP, NIRP, King ex priv) ?

Not saying you are wrong. Just wondering.

fftastic said...

@Tom R

Fofoa:

"This transfer of wealth that is coming is not a direct and equal transfer. It is not like pouring one pitcher into another. It is more like flipping a switch on the virtual matrix. Turning off the monetary plane that hovers over the physical plane and claims to tell you how much "stored purchasing power" everyone has. When you turn it off, all that purchasing power disappears in a flash. And then what lies beneath is exposed in daylight, the real physical world. No real capital is destroyed, only the myth is destroyed. But true capital is exposed and revalued."

Indenture said...

fftastic: Great quote!

High 5 said...

@db...you should change your handle to lf. Logical Fallacies.

Anonymous said...

It is interesting speculation on the Euro no doubt. But I'll believe it when I see it, when it actually happens.

The Eurozone just isn't as big as people think. Big and important no doubt, but most European countries are in demographic and cultural decline and haven't yet shown that they are anything but gutless wonders that do whatever the United States tells them to do.

They would, ahem, have to grow a pair to actually take the option that is suggested here.

db said...
This comment has been removed by the author.
Woland said...

Caixin Online, Mar 23, 2015
Kissinger: China, U.S. must 'lead in cooperation'
worth reading, regardless of post $IMFS power shifts

db said...

High 5, you've convinced me with your irrefutable argumentation.

Thanks for such insightful and enlightening comment,

Muad'Grumps said...

There is something going on behind the scenes the English media is ignoring.

http://news.gscn.com.cn/system/2015/03/24/010962171.shtml

Hong Kong joining

http://finance.ifeng.com/a/20150323/13573062_0.shtml

Look at what I found here:
http://www.nbd.com.cn/articles/2015-03-21/904567.html

Such a huge demand for funds, both US-dominated World Bank or the Asian Development Bank, Japan dominated, are currently unable to fill. Asian investment bank is targeting a piece of treasure, hoping to use China’s financial strength and ability to integrate resources, and lead us together, “Gold Rush.”

Canadarob said...

Its amazing, that with so much insight this blog brings, that readers here still just gobble up the news trough that is fed to them. THERE IS A FULL OUT WORLD WIDE EFFORT TO MAKE THINGS SEEM AS THEY ARE NOT.

Muad'Grumps said...

Some of you really have to look beyond the narrow focus of this blog and simply observe what's happening.

Indenture said...

Flat: No we don't. On the other hand some of you can't 'look beyond the narrow focus of this blog' and should find salvation elsewhere. The regulars here enjoy the narrow focus of this blog.

Muad'Grumps said...

It's one thing to engage in fantasy, another to deal with reality. There's nothing on the horizon to lead one to believe this thought experiment of freegold is emerging.

The yuan peg is going to go, but it doesn't want to be flooded with the hot spec money arbitraging currency pairs.
Instead this money will have to stay in Asia to finance this infrastructure buildout. It will be enticed by what they call the Asian-Pacific development dividend. This is what this Global Investment Strategy 2.0 is all about.

Of course, this probably means gold is not going to the moon. We might have to happy with sub 5000 gold. In that case the miners will be the right bet. The AIIB is going to offer a lot of investment options with lucrative yields.

Woland said...

Au IQ: In 2014,
The largest "official" (non private) gold buyer was Russia.
Who was the largest "official" seller? ( details at 11 )

Indenture said...

"There's nothing on the horizon to lead one to believe this thought experiment of freegold is emerging."

"Everyone knows where we have been. Let's see where we are going!" -Another

A better understanding of the past might help some visualize our future.

Anand Srivastava said...

FSL:

Some of you really have to look beyond the narrow focus of this blog and simply observe what's happening.

Actually to understand what's happening you need to have the correct view point. Otherwise your interpretation would be wrong. This blog does that, provide the right "Lens".

It is analogous to how you would view the Dark Matter problem. If you are looking through the conventional lens, you think that there is a lot of dark matter in galaxies, and possibly a whole lot more Dark Energy filling up the void.

Once you look it through the lens of MOND (Modified Newtonian Dynamics). You understand that GR is not really very good at predicting how the galaxies function. Even though there seems to be a lot of Dark Matter, when viewed through MOND, the discrepancies disappear, and you realize that there is no need for Dark Matter. This means that GR is needs another correction. The fact that much of the cosmologist reject MOND, points to the fact that their livelihood depends on not accepting MOND as an empirical falsification of GR.

You are just viewing the events around you, and probably interpreting them through flawed lenses. We think that the lens this blog provides gives us a much more consistent picture of the world, than all other available lenses.

I think you just do not know how to use this lens. Re Read the Fine Blog. Or learn to ponder on what others are saying. Understanding doesn't come easy.

Jeff said...

Perhaps the paper vs. physical contest is oil:

http://oilprice.com/Energy/Energy-General/Saudi-Arabia-Ups-The-Ante-By-Upping-Production.html

Zebedee said...

@ Jeff

'Perhaps the paper vs. physical contest is oil'

Perhaps the paper vs. physical contest is in iron ore too.
Perhaps the paper vs. physical contest is all things real.

I feel a squeeze going down

Roacheforque said...

It IS TRUE that the world is changing, and that events are transpiring in a slightly different way than A and FOA envisioned, but at the core remains the true purpose of gold, re-emerging to fulfill it's historical role of re-denominating defaulting debt.

How the currencies operate quite frankly doesn't mean diddly to me. It's interesting, but not central to the core. Therefore, whether the Euro fulfills IT'S central premise or not, is really just a matter of timing.

In my opinion, the longer it takes for the current system to collapse, the less the Euro will absorb US debt overhang proportionately. Perhaps distributing that overhang more evenly across various currencies (SDR?) is gaining more consensus, if the masters of the universe can indeed control that feat of "wealth" re-distribution as well.

Contractual debt can certainly run to Yuan, or SDR, or Euro if the parties believe there is a better equity stake in the future of that currency. It is still just a place for debt to hide in where it's value is "re-derived" from the currency's backing.

Eurasion bloc currencies will have the backing of gold, production capacity, land mass and resources and working classes.
Developed currencies will have the backing of "old money", debt, technology and surveillance and military might.

The current FX regime, whereby all currencies derive value from the dollar, will obviously change. FOFOA has written about this extensively. Perhaps a reminder of those posts would help shed light on near term movements

Roacheforque said...

Also oil and gold as an instrinsic pair is changing. The energy landscape is changing. So some old dogma there is becoming less relevant as time marches on ...

Sherlock said...

http://www.bloomberg.com/news/articles/2015-03-25/munger-says-prepare-for-harder-world-as-purchasing-power-slides

Charlie Munger: “You can count on the purchasing power of money to go down over time. And you can almost count that you’ll have more trouble in the next 50 years than the last.”

Hmm...doesn't sound like money is a long-term store of value.

One Bad Adder said...

"Consumed-commodities" (Oil, Iron-ore, Silver etc) Paper-v-Physical dynamic pricing is, in-the-main impacted by Supply/Demand of the physical commodity...whereas $GOLD ...due to it's officially sanctioned status as a "currency per-se", is (currently) largely subject to the whims of management.
With Physical Gold, ...and whilstever the status-quo is maintained, the bulk of "demand" ie: inter-gov't / Central-bank trading - is really only quasi-demand (the same stuff sloshing around within the system to maintain said status-quo)

This "price-control" dynamic can ...and will change in a heart-beat when Physical demand external to the System hits critical-mass ...however (initially) this won't necessarily be reflected in rising-prices ...IMHO.

Knotty Pine said...

Sherlock said : Charlie Munger: “You can count on the purchasing power of money to go down over time. And you can almost count that you’ll have more trouble in the next 50 years than the last.”

Hmm...doesn't sound like money is a long-term store of value."

That is why we all need to play in OG Warren's casino! :</

Harpua said...

"You add gold to the game and suddenly the banks don't have this symmetry anymore that they can just play around with the exchange rates and it doesn't cost them anything."

A fun analogy of economics and physics. Amazing how close some people get to the truth, without realizing the implications.

https://www.youtube.com/watch?v=RznZ_e6aDHc

M said...

Airline liability payouts , under the Montreal convention, are denominated in SDR's.
http://en.wikipedia.org/wiki/Montreal_Convention#Damages

cool

Jeff said...

That's what I call insider selling:

http://www.reuters.com/article/2015/03/26/oil-price-saudi-reserves-idUSL6N0WS4BU20150326

https://www.youtube.com/watch?v=WM7-PYtXtJM

Unknown said...

@ High 5,

"If the ECB were to offer €50k /oz they would need to "print" a shitload of euros. After getting the euros for gold it might be prudent to trade them as quickly as possible for a stable currency, or other asset, before the euro collapses in value as compared to real goods."
ECB will not offer €50k/oz until the big boys cannot deliver for $1.2K/oz. When the physical flow stop at $1200, POG (physical) will move either gradually or overnight to €50k/oz regardless of the COMEX's paper gold price. In a much smaller scale, it had already happened in India when the Indian government restricted gold import, folks there were willing to pay over 30% of the COMEX's paper price for the real stuffs.
When the ECB is willing print €50k to pay for an ounce of physical, people will question the worth of $1.2K/oz gold ETFs. That will be the emperor has no clothes/gold moment. The €50k which the ECB printed will be back by an ounce of gold when the $1200 digital recorded paper gold will be back by promises of delivery at $1200/oz of imaginary gold.
The different is something (€50k, 1000å…ƒ, 100 öre or 10 aurar) back by an ounce of gold and $1200 back by $1200/oz of GLD. If that happened, which is a more stable currency? €50k, 1000å…ƒ, 100 öre, 10 aurar or $1.2K.

Unknown said...

In FOFOA's free gold, that €50k will add an ounce of gold to the reserve of ECB rather than the aforementioned fixed ratio of €50k/oz, which translates to extra ounce of stability to the euro if the global debt bomb exploded.

Unknown said...

@ Marco Polo,
"I'm trying to figure out if there really is a shortage of supply, the dealer is being evasive or what."

I don't know about Krugerrands in Johannesburg, but I just received 3 American Eagles in New York. The delivery was made after approx. 2 weeks after the order was made. All of them were minted in 2014 - I was expecting 2015.

It doesn't seem to be a shortage here.

Anand Srivastava said...

Jeff:

It seems they are going for the maximum impact. Withdrawing from banks and reducing their solvency instead of just selling treasuries.

DP said...

Of course, them spending doesn't necessarily mean that many $deposits have been removed from the banking system.

… But in all likelihood, that many $deposits have shifted category, from "hoard" to "hot".

#Velocity

#FickleMarkets

Georgiew89 said...

Some of you older readers will be dead before we ever reach freegold. Keep living in your delusions whilst others GROW their wealth via leverage. We have plenty more room for debt, just a little restructuring and passing the load of debt around to other nations and voi la! 10 more years at least of this debt game.

t au said...

G 89

Wow - thanks for the very thoughtful heads up.

Leverage, leverage, leverage - yes, I'm sure that's the ticket.

And history be damned.

Dim said...

Georgie - why come on to a blog dedicated to freegold just to troll with only three sentences? Where is your analysis?

This blog isn't about growing wealth with risk. Read the blog.

Glad I discovered FOFOA at 23. I have a very long time to accumulate real wealth, risk free.

Bullion Baron said...

No asset is without risk Dim.

Physical Gold has confiscation risk.
Physical Gold has theft risk.
Physical Gold has price risk.
Physical Gold has missed opportunity risk (arguably what Georgie touched on).

You can stack some physical and make a prediction that it will eventually be worth 30x what it is today and there will be no need to access the capital between now and whenever it's revalued, but life has a funny way of proving us wrong at times.

Dim said...

Confiscation: "Boating accident".

Theft: Only significant for those game enough to store gold at home.

Price: Somewhat agreed, but as I understand from this blog this is only temporal. When the paper system fails then price risk will not exist.

Opportunity cost: Doesn't this depend on what your priorities are? If one's priority's are to preserve wealth rather than multiply wealth then I don't think opportunity cost is a risk.

Anand Srivastava said...

Georgiew89

When we die we will be leaving some shiny rocks for our children. You will leave them debt. Thanks for reminding me that I am actually doing something positive for them.

ampmfix said...

Here i go again, damn, can't help it.

To all the "timers": i started thinking about deep-storage savings when I had my first kid at 48.
i wouldn't mind that FG does not arrive in my lifetime, so it will be all for them.

After loosing 50% of my hard earned savings of a life time in the stock market, i decided to look for a store of value, i almost chose watermelons but the saint spirit gave me a hand and I found gold.

Saving means "not expecting to spend it ever". The foundation of wealth.

Cheers dudes.

ampmfix said...

here, one more comment, a masterpiece: https://www.youtube.com/watch?v=t1AmhyjN2Ys

The Jackalope said...

@Dim How has gold done preserving wealth over the last 3-4 years?

Anand Srivastava said...

Stu Ungar:

If you are thinking of 3-4 years as a long time. Then I guess you don't understand saving.

The Jackalope said...

OK, how has it done since 1981? Thats almost 35 years.

Knotty Pine said...

Here we go again....

Anand Srivastava said...

It has done very well, thank you. I am in India, you should look at that chart :-).

burningfiat said...

Anand, clearly some commenters here think the dollar is more special than the other fiats and will stay special forever...

PGA's know better. In the end gold will price dollar down to its inherent value :)

ampmfix said...

sorry the cosmic debris
https://www.youtube.com/watch?v=Dp6LT2MdaPI

Muad'Grumps said...

Yes, look at the Indian gold chart and you will discover that goldholders lost their ass over an 8 year stretch. 50% of PP down the drain while savings accounts beat CPI over that same stretch. Gold was by no means a SoV. The currency earning interest was. Go check it out flatlanders.

KnallGold said...

Gold since 1981? lol, please try at least a little bit harder, as not to insult our intelligence.

Not that we already called the Charade (from Russia with Love :-)

Muad'Grumps said...

Jan 1993 the SPY etf....$29 adjusted for dividends
Mar 2015 the SPY etf..$208 for a gain of 600%

Jan 1993 gold $330
Sep 2011 gold 1920...500% gain
Mar 2015 gold 1200...250% gain

Canadarob said...
This comment has been removed by the author.
tEON said...

It was Bill James who introduced into sabermetrics the distinction between peak and career value in baseball players. Really short term and long term valuations. What player might you want for a season or a World Series playoff stretch and what player would you want on your team for his entire career? The dollar, like all great long-retired players, will be like all fiats before it - where the 'value' reaches zero. Despite this season's impressive DXY - it is at the end of its career - looking like a savvy veteran because the other currencies, it is measured against, are all injured players.

Gold, though has no career value - because it spans time, but the USD will peak and go into valleys in relation to paper Gold - while they both still exists. As long as you realize you are gambling... that is okay. Just don't come here to gloat when your player has a good night, or good season, at the plate, because you should be smart enough, by now, to realize the ending. If you have Babe Ruth or Nolan Ryan - even they can't beat time. Gold, on the other hand, can.

Indenture said...

No matter how many times you try and teach someone the difference between Saving and Investing it will, in the end, be up to the students to alter their own perceptions.

When the teacher speaks of intergenerational wealth being Saved in gold, and the student's rebuttal is to quote figures over a few decades, it is obvious the lesson was lost.

https://www.youtube.com/watch?v=GGrHhyzKLRY

Archer said...

How has physical gold done since you were potty trained? How has it performed since your mother's lovely chestnut brown hair turned gray? How has physical gold done since you graduated high school, or at least were of age to? Don't bother to respond.

Cherry picking time frames is transparently asinine, or at least it ought to be. From the Nixon Shock, including the next twelve to sixteen months that followed, until January 1980, saw a nominal rise in physical gold of 20x.

From January 1980 until 1999, physical gold retraced/lost approximately 73% of the gains accrued between the early seventies and January 1980. From the summer of 1999 lows until the summer of 2011 highs, physical gold experienced a nominal gain of 7.6x

Permit me to clue some of you in. Because physical gold is effectively just another paper asset, by virtue of the existence of a gold derivative complex, "gold" like any other asset class one can name, whether it's sports memorabilia, antique cars, common shares, bonds, residential and commercial real estate or works of art will experience "bear and bull" periods.

That's the bad news, well, at least for some of you.

The good news, for the those of you who have genuinely acquired the lens painstakingly and meticulously provided by this blog's host, is that the existence of paper gold- a relatively recent phenomenon in monetary history- is, to put it frankly and bluntly, a big, fat, aberration.

The thesis of this blog, in case you either missed it, refuse to accept it, and/or are something akin to an anal wart, is that because of some insurmountable flaws in the $IMFS, (where, among other untenable conditions, there is no mechanism to control debt creation and where everyone, well, almost everyone is turned against their own natural proclivities and best interests into a terminally twitching yield chasing chimp) the paper gold complex, an aberrant entity which was designed to maintain the now well past its sell by date $IMFS, must, as a matter of necessity, be abandoned. Pardon the run on sentence. Now here's the key takeaway, so listen closely:

Until the time when, by hook or by crook, the paper gold complex goes softly into that good night, "gold" will behave in ways that will make it an easy target for those of you who, by dint of a lifetime of training and indoctrination would slate it for not winning the capital appreciation sweepstakes. That's it. And I do hope you grokked *it. And if you don't like *it then I strongly suggest you do the decent thing and get lost and stay lost.

Muad'Grumps said...

Uhhh, Archer. Paper gold isn't going anywhere. I don't know if you've been paying attention to what the Chinese are doing.

Archer said...

Uhh, Flatulance, were you paying attention, and had you a decent lens with which to parse the data, you would see that paper gold is already well on the way towards obsolescence.

Archer said...
This comment has been removed by the author.
Canadarob said...

Any one check out big bens new blog?

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low

Jeff said...

10/10 verbal beatdown. Would lol again.

The real Stu Ungar was a compulsive gamber who died broke in a flophouse, and our Stu is living up to his namesake. Degenerate gambling isn't the path to long-term success, and 30 years of a very special set of circumstances won't change that basic fact. Allow FOA to explain.

FOA: "If you are as sure as you say, why not bet the farm"?

I have learned a great deal about conservative living. And I learned it from some world class wealthy people. It was put to me this way:
"If you have a nature to bet the farm and you win, the winning will not change your basic negative character of farm betting. In time, you will bet all of it again! Conversely, if you do very well with an appropriate investment decision (with your family in mind), the
winning will reinforce a positive character of prudent wealth building. This you will carry for all your days."
Dallas, trading some of your currency (yen? mark? dollars?) for another currency (gold)is not investing! It is the prudent use of playing the history of gold against the history of paper money. It has worked for others for thousands of years and will work for you.

Canadarob said...

Obviously the stock markets have been decent. No one is disputing that in dollar terms you would have received more dollars over the last couple.........you know what? Screw it. If you don't get it by now you will never get it.

Canadarob said...

Flatulance. Not a single person has claimed that gold is a store of us-dollar-price. Its a store of value. They are different. You can ask those living in Zimbabwe if gold is a store of Zimbabwe-currency-price.

Anonymous said...

Actually many of you don't get it. Maybe its swimming in different circles, with different fish, but let me clue you people in on something.

Even as you were dutifully stacking little coins and bars all of these years, the "traders, speculators, and gamblers" were making fiat gains beyond the dreams of avarice. Using those gains, they simultaneously:
1) enjoyed life immensely, spending freely on all sorts of products and experiences that the world has to offer
2) secured an inheritance for their children
3) putting just 5% or less of their wealth into real, physical gold, acquired more gold than you or your children will in a lifetime of hard work

Do you get it? They won. They've been winning for 30+ years, and after freegold, they still win, because they have more real, physical gold than you ever will.

You might ask how I know this. Let's just say that even though I'm not in that class, I know people in it and I know how they operate. And, in fact, you make the very same claims to second hand truth. You've been theorizing for years on "two tier markets" and "euro replacing hyperinflated dollar" and denouncing "conspiritards" as if you were at the center of international finance, rather than being the middle class dreamers that you are.

Look, I'm one of you. But some introspection is in order. It's much more important to be able to realize the truth and accept defeat.

Yes, many of you will win with freegold. But it's not a true victory. I cannot emphasize enough that the people who truly won have so much wealth that they, and their children, are 1000x more secure than you will ever be.

I'm sorry, that's just the way it is. It's been a great run and I really appreciate the efforts of FOFOA and others, but we've lost. I know this to be true, even as I plan to benefit.

tEON said...

Hedge Funds Are Shorting Gold at Highest Level Since 2006

That's as far back as the data goes.

Georgiew89 said...

By playing in the paper casino you grow your wealth which you can then convert into MORE bullion. And as i'll state again - freegold is NOT going to be here for a very very LONG TIME. The debt games can and will continue with massive policy changes happening this year, right now to ensure this is the case. A lot of people on this site remind me of people that follow other 'religions'. Except that your god is gold. And your faith in gold saving your life is all it is, faith. And don't give me the "i'm a moral citizen" for not playing the game garbage. What does that even mean? You're here because you wanted $50k gold lol, what a load of tripe. Bankers are winning gentlemen. Debt restructuring will continue, and more debt will be used to hook more people and countries into debt. What do you think the AIIB reserves are for??

tEON said...

...the "traders, speculators, and gamblers" were making fiat gains beyond the dreams of avarice...

All of them Random Man? Yes, there have to be some winners. That is how the Ponzi scheme perpetuates because it requires and seduces gullible followers like yourself - who believe in the paper Gambletron. But for every winner there are a stack of losers; stressed, divorced, balding 35-year olds that look like they're 55. "How does a guy sink that low?" "He aimed too high!" Yes, even the lotteries showcase the big winners holding giant novelty checks, not the cat-food eating single-Mom who blew the milk money on a scratch and win. But they exist in droves - just the same.

I find it quite sad that you (and various Lions) equate
...enjoyed life immensely, spending freely on all sorts of...
this as winning. Do you say it like Charlie Sheen?
You must find it incredulous that others could find happiness (or 'winning') without all the glitter of a yacht, a helicopter, a pimped-out ranch - but a stress-free life avoiding the Casino's trappings. I sleep like a baby with a Gold Maple under my pillow every night. Winning!

Seems you see Gold as a lottery to make more USD - instead of security and protection from USD.

and this
putting just 5% or less of their wealth into real, physical gold, acquired more gold than you or your children will in a lifetime of hard work
is just a lie. Once you are indoctrinated into the paper scheme - you never see an ending or you wouldn't have entered the Casino in the first place. Why own the dead asset Gold? - when they can use that to money to gamble and profit more? Traders, generally, don't hold physical Gold, buddy. Not for long if they do.

- freegold is NOT going to be here for a very very LONG TIME.

GeorgiePorgie is still timing... it's a guarantee, people! Didn't you hear him? Thanks George. I do wonder what the '89' represents? Birth year by any chance?.

Anand Srivastava said...

Flat Shoe Lance:

Yes, look at the Indian gold chart and you will discover that goldholders lost their ass over an 8 year stretch.

Which 8 years are you talking about?

http://www.bemoneyaware.com/blog/wp-content/uploads/2012/09/gold-prices-1925.jpg

I guess you are talking about 1996-2002, but that is only 6 years. Yeah you win some you lose some. But it is so simple. Buy and forget. And when it is cheap or not so cheap buy more.

These trader types who envy other people's lifestyle forget that money is not everything. There is something called happiness. Which comes by being satisfied with what you have. We are already much better than others. The golden rule is never spend more than you can earn, and never spend more than you need. Also the needs should be pared down so that you can live with less in case. Not being a miser, but not being a spendthrift either.

I don't really care about show-offs. They will burn themselves to ground just like the Real Stu Ungar. That is a well chosen name I guess.

Canadarob said...

Georgie,

The debt pile up is going to continue for a long long time? According to who? Gerorgiew69? Hmmm sounds pretty credible. I think I'll bail on a/for/fofoas timeless message and grounded theory for a panicked internet traders sage advice.

Jeff said...

FOA (12/4/99)

I suspect most of you have been in a casino at one or more times in your life. Perhaps a Bains in Monaco or one of the many in Las Vegas. It was years ago in one of these gambling establishments that an old gentleman once gave me an education about people. He invited me to sit down at his private spot and observe life "on the edge". Here is what I learned. In some ways it can be seen as a parallel to investing in our modern gold market. I adapted it a little for today's thoughts and actions.

You can discover the most about someone's character when they are losing their money. To a lesser extent we can understand their feelings as they are winning. I watched and listened as one player was winning. He gave advice and addressed how his timing was absolutely to the point.

The short term winner:

" " "All right! I just made 50% on that investment and it took only five minutes. I've been doing this all night, so all you "want to be's" gather around and watch how it's done. Before long, I'll clean them out and be rich. If you watchers are smart, you'll catch my "developing record" as it points out that I know what I'm doing. Done this before, some years ago and I'll do it again. All you other players at this table, give up on those losing hands and follow my lead. As you can see this crowd is behind me, so I must know what I'm doing! " " "

My friend pointed out: This guy had indeed beat the house before and made a bundle. Even though the crown around him was growing large, none of them had watched his play last week, or last year, or five to ten years ago. He was cleaned out several times and will never get all his money back. Just like our modern markets, the tables are rigged against him. He wins just enough to keep his hopes up. We cannot tell his record by watching the crowd. Watch the pit bosses (monsieur in some classy casinos) and the cameras instead, as they are "not" focused on him. The house isn't worried about this type of player, doesn't care what he says and neither should we.

I watched an listened to a player who was losing. I also saw that the house cameras weren't on him either. He addresses his problems in a covert fashion by looking for flaws in others, even the quiet player next to him.

The "I would be right if everyone else wasn't so wrong" loser:

" " " When this thing turns the money will come rolling in. It's just that right now the cards are wrong, the house is wrong, the waitress is disturbing me. Mostly, it's the way this guy next to me is playing the game, that is throwing me off! No wonder I can't win with someone sitting next to me playing so conservatively. He even expects to make a chunk of money, if he ever bets. And has the audacity to tell anyone that will listen! Hey, don't you know others are watching you! Your actions are affecting them as much as it is me? None of us can win if you keep playing that way. Look at this, not only are the cards coming up wrong, my gold stocks are going down again. Who do you think you are, sitting at this table with "professional" gamblers? Then there is that guy who keeps saying "I don't care, I'm betting more"! Is everybody watching this? No wonder this isn't working, these kinds of people are dragging us down." "

My friend pointed out: He must be getting killed! Can't change his strategy because he only wants to play his "paper cards". Typical gambler; he wants to prove to everyone that they can win using the "house deck"! People like this keep the modern system going. If you think he is bad now, wait till the others start winning as his hand keeps folding. I've seen this before and it's best to move to a different table before his end comes.


Jeff said...

Then there was the simple quiet one at the end of the table. He had not made anything, but his phones were tapped, mail monitored and weird people followed him at night. Six monsieurs stood watch on him as he played and the cameras were well focused on his game. Even though he talked funny, a few people understood what this guy was about. His actions could bring down the house, even all of Monte Carlo! Clearly, something was very wrong with this picture. I walked to the table and talked. I was seen then as the only publicly known observer that knew of him.

" " " FOA: Sir, I see that your people keep bring in "golden chips" and stacking them on the table. For years, you just sit here and watched this pile grow. Still, you have yet to place a bet.

Another: My friend, I only bet when my play will win.

FOA: Sir, how can you win if you don't play the "paper cards" like everyone else?

Another: I do not intend to play the "rigged paper game of fools". I will bet but once.

FOA: Sir, Excuse me, but you have to play if you are going to win, no?

Another: I will bet only once and that will be enough.

FOA: But sir, how will you know when to bet?

Another: When the stakes are so large the house cannot afford to accept my wager. You see, I will play "my game" in "their house". In that day, in that time they will be the ones that fold. It be for the benefit of this new marketplace.

FOA: But how can you win if this house fails.

Another: Presently, this gaming house plays with their chips and their cards. Not real are these. This action has imparted the false value on the world money many use. The closing of this marketplace will impart a new value on my holdings and the holdings of all that know what is real.
The game I play is the game "ALL" win! It is "the good bet", yes?" " "

FOA: I get your drift, my friend. Let's stay in touch as I want to follow how the politics of this plays out.

Another: We watch this new gold market together, Yes?

FOA: Yes!" " "

My friend in the booth pointed out when I returned: Did you notice how he didn't get excited or mad as the value of his chips went up and down. That's because he is not betting yet. Everyone that hasn't taken the time to talk to him thinks he's nuts for building that chip pile. They think he is losing his shirt while waiting to bet. Still they are being taken to the cleaners as the "house politics" keeps changing the card game right under their nose's. Don't think for one minute that this guy works alone. There is a huge amount riding on how this plays out. The rise and fall of nations are being bet on that very table. What a game of human interaction this is. All the other players at the table don't know that this old, little man controls whether they even have a card house to play in.Hope you enjoyed my view from this seat, FOA? "Yes I did. Hope to return in five or ten years, say 1999 or 2000, and visit again.

burningfiat said...

Well done Jeff. A classic. Very appropriate and understandable for the gamble-hearts too, I imagine.

DP said...

this old, little man controls whether they even have a card house to play in

Muad'Grumps said...

Anand,

I can't find the file I did on India right now, but I think the years were from 1990-1997 or 1992-1999. Gold had finished running up a good deal then plateaued for 8 years while CPI raged on and on until after 8 years the general price level had doubled yet gold remained nominally flat.

Imagine a new retiree at the beginning of the 8 year stint counting on gold to at least keep up with inflation. He would have been screwed! 50% PP loss is not something to poopoo. There is risk to holding gold. It's not an inflation hedge.

Indenture said...

Flat: Did you even read Archer's spectacular post? For those who want to understand the flaw in Flat's conclusions please go back and read Archer's comment.

Muad'Grumps said...

Again, have any of you been keeping tabs on the International Board?

Canadarob said...

Jeff,
You just turned on the lights and the cockroaches scurried away to the dark corners.
But they will be back, and in greater numbers too!

Indenture,
The cockroaches have been proven wrong on a number of occasions or at least shut down when they couldn't provide a solid rebuttal. But infestation doesn't listen to reason.

JJ said...

"Imagine a new retiree at the beginning of the 8 year stint counting on gold to at least keep up with inflation. He would have been screwed! 50% PP loss is not something to poopoo."

Am I the only one thinking that a new retiree has saved for decades? Point being - How has the pog fared during those decades up to his/her retirement?

I can imagine that retiree and hope to be in his shoes the day I decide to retire.

Indenture said...

This talk reminds me of one of Another's quotes about watching traders splashing in the shallow ocean waves. Anyone have the quote handy? (I bring this up because I always imagine our discussions are being read by many non-commenting people interested in the concept of Freegold and you never know what will spark a 'ah-ha' moment)

Muad'Grumps said...

Let's say at the beginning of the 8 year interval the retiree has 62,339,981 rupees or 1 M USD equivalent in gold savings. That PP would have been cut to 31M 1990 equivalent INR after 8 years.

Now let's translate that to us after the revaluation. 100K in gold before revalue. 3 Million in gold after revaluation then after 8 years 1.5 M in Year 0 equivalent currency. There is the possibility gold's PP will be at a peak never to be seen again in our lifetimes upon revaluation. After the great Deflation against gold, the system may Inflate leaving gold behind for a few decades. Even if the BRICS use gold to settle trade.

Lisa said...

Indenture - here's a couple of FOA quotes located in "Freegold In The Proper Perspective" posted 12/8/2010

This is where the dollar has drifted into dangerous waters these last ten or twenty years. If you have read most of Another's and my posts, it comes apparent that preparation has been underway for some time to engineer a new currency system. A system that will evolve into the dollars slot once it dies.

Out here, in deep water, we can feel what the Euro makers are after. No one is looking for another gold standard, or even something that will match the long life and success of the dollar. We only know that the dollar's timeline is ending and a new young currency must replace it. No great ideals, nor can we save the world! But a reserve currency void is not acceptable.

Now look back to shore and watch the world traders kick ankle deep water in each other's faces over the daily movements of Euros. From here, up to our necks in blue water, you ask "What the hell are they doing?" I'll tell you. They are trying to make $.50 on a million dollar play! Mostly because they are seeing the chess game one move at a time. (smile) Truly, their real wealth is in long term jeopardy.

AND

We must view the world in a broad context, just as much as in a detail perspective. The larger perception can be just like looking at a river in the valley from the ridge above. From far away it's easy to see what direction national trends are flowing. The whole body moves as one, always towards the sea. The problem comes when we get too close and interpret things using only a small river section in front of us. More often than not, the white water we see only hides a deeper flowing truth.

In like sense, national governments and society in general, are the same as those boulders and eddies in the river. Seen up close, they sometimes give the impression that the river is flowing up stream or sideways, when it's only one small section of a larger political will. The same is true in the modern gold markets. The largest part of the river could be flowing in one direction with an unstoppable purpose, but the various swirls and eddies make it look like it's going in circles.


Indenture said...

Thank you Lisa.

Muad'Grumps said...

noticing a pattern here...whenever their faith is challenged the acolytes retreat the some ancient anonymous blog posts.

burningfiat said...

Don't flat'er yourself Flat. Your gambler-opinion means nothing to the folks here compared to significance of the FO/FO/A body of work.

Thanks Indenture, Lisa and others for providing quality material for non-retard commenters and lurkers!

Dante_Eu said...

For the record, I've never heard about broke gold owner. But I've heard about broke stock owner. A lot.

I know of one person who bragged in 2000 and in 2007 about making big money in stocks. The same person bragged last year also (some Canadian biotech stocks). His sons are in it too this time around. If history is any lesson...it ain't ending well.

Anyway, some five odd years ago when I acquired most of my gold, my thoughts resonated with these guys. No more boxes on top of each other. I still buy some crap from time to time, but find pleasure in how much less crap I have thanks to the shiny yellow ones. :-)

Franco said...

Flatulence:

You have this bitchy attitude, like you are annoyed at something. So, what exactly is it that bothers you?

burningfiat said...

Always appreciate your input Dante!
Only thing I would be worried about with the minimalist approach was if I forgot to remove the gold from the moving boxes before giving them away to charity ;D

But yes, preference for small dense shiny objects generally keep the crap at bay... :)

Motley Fool said...

FSL

Why do you think the worst possible historical scenario you can find should be considered the normal or expected scenario?

Furthermore why are you using recent history as your guide when the premise of this blog is systemic change?

TF

JJ said...

"noticing a pattern here...whenever their faith is challenged the acolytes retreat the some ancient anonymous blog posts."

What is ancient about my reply? And since u seem to have the charts.., what is the return of the investment for a retiree retireing in 1991 if he had saved an equal amount each year for 40 years? In rupees or usd would be interresting for the sake of staying with the topic.

Muad'Grumps said...

I'm not a gambler. I'm a saver with irritable bowels. A saver can utilize real inflation hedges by using index ETFs. This minimizes the risk of one company going bankrupt. The index is always being reconfigured with some added, others dropped. The gambler wants to beat the market, the saver wants to merely ride the K-wave. If one is really anal about capital preservation then buy in November and take out the original investment in May leaving the gain as "free shares".

Of course I wouldn't do this now. This would be after the systemic debt writedown.

Or if you are real worrywart then park the stash in laddered CD's or GO muni bonds ( again after the debt purge). Real rates will be positive. The Chinese want real positive rates, but they know gold is there to rejigger the debt markets when needed as a counterbalance, a low or even negative beta asset.

Motley Fool said...

FSL

So you do not consider currency risk to be relevant?

A 'debt writedown' would have no impact on currency value in the present climate?

TF

Muad'Grumps said...

And speak of the devil...

http://finance.sina.com.cn/china/jrxw/20150401/023021859411.shtml

Michael dV said...

Flats
You would fit in at CNBC, you got all the moves. Some of us are worried about a big bump and we do not have the timing skills. We worry we will wake one morning and it will be all over....or we wake to a big drop and not be sure if this is the beginning of the end or a great buying opportunity...or we will....get the picture?
I agree those who act rationally in the current paradigm are doing OK. The question is will they keep that purchasing power of lose it suddenly in a history making day on Wall Street...

Dante_Eu said...

Thanks burning, likewise. :-)

This person I know of, somehow always manages to show up bragging at the top of the market. I witnessed it myself in 2000 and 2007 but last year he visited my parents so my parents told me. The poor man never sells at the top and if by some chances he do, he immediately buys other shares that crash and burn with all the rest. I actually never heard him say anything about losses.

Jeffs comments about the casino players are spot on, from my own experience. Just like the gamblers, they remember winning hands but forget about losses. And if you don't know about person's past history, you may get carried away. The sad part is one of his sons, a successful programmer, is quitting his job to become....?....you guessed it, daytrader! Oh my...what can go wrong?

Muad'Grumps said...

Man, some of you have no concept of changing circumstances or cycles. It's either black or white, no sliding scale, no sense of risk management. Do any of you leave the house?

They won't ring the bell at peak gold valuation. I expect it'll take me 5 years to reallocate from being overweight gold investments to K-wave Spring assets.

Dante_Eu said...

FSL,

I'm not talking about successful investors like yourself.

Rather about ordinary savers who think they are investors. Actually quite many out there.

Unknown said...

Dante, the real trouble befalls those who think they are savers, but are actually investors.

Michael dV said...

Flats
Many of us here are adults. We have kids, grand kids, employees and do not plan to eat generic cat food when we retire. You can go no and on ...(and on) but we need to make real decisions that have to work out in our life time.
What happens to a guy in his 60s who gets wiped out by this insane system (for the third time in 15 years?!!!)
You take your luck and your awesome skills to the market if you like. Watch those indices rise and rise as the Fed pumps...inevitable is the word I'm looking for...you go claim your winnings.
You may be for real, you might be a 22 years old kid who has never handled real money...and lost.
The best way to avoid mistakes is experience...and as they say mistakes make the best experience.
Read Fofoa's comments about why he started this blog and what led him to another and FOA. It was not gold lust, his wedding ring is platinum (or some white metal). He saw, that in what they were saying, was the answer to why we have had, 1987, 2000 and 2008. The system is terminally ill. It is like a patient with small cell lung cancer...gunna die...maybe te patient is tough and beats the odds for average survival. Barring a miracle it is not going on much longer.
If you do not understand that then you will not understand much else that is said here. You may be bright but it sounds to me like you are trying to sell the patient life insurance.
...be sure to respond before you read this...

Georgiew89 said...

Many of you speak of timing... yeh yeh on a long enough timeline... yes, ok. But, Sometimes that timeline is longer than would deem appropriate for you bloggers here to not to be placing your allocation of wealth into other asset classes, elsewhere. Ie. the yield producing ‘casino’. The level of 'real' reserves being allocated by the majority of the world's most powerful nations (eg. China, Euro, USA, RUS) and banks via this new global collutionary paradigm, is rather huge. It is being collated into a new consolidated structure (AIIB, IMF etc) that will extend this timeline for much longer. There will be plenty more stored energy to fractionally loan out by TPTB - plenty of real wealth available to hook more governments and civilians into servicing this entire debt-based system. It will even be givin an allocation of gold in order to maintain integrity and stability. Look at Australia– it has low public debt, a perfect future debt slave to suck dry. Or Africa, another future debt slave to plunder. And etc etc. There are still many places around the globe that still have not been emptied out so to speak – there is more stored energy to plunder. So what TPTB will do is get them all hooked on infrastructure building projects and other loans in order to get more people hitting up the gravy train. There are still enough players outside of the casino to lure into playing poker inside. These new players will be also suffer the same fate as many this generation have - to be hooked onto the gravy train, their energy sucked out and funneled back to the top to service this entire debt-based charade via their interest repayments.
History can change. Just like we have innovated in producing new physical goods and technologies that completely changed the world, so too can we innovate to the same extent with economic policy. Never have we once had an entire planet united and colluding as one, in order to kick the can down the road together, arm in arm. Since when have we ever had China, the USA, Japan, Russia and Euro working together to pump something with all their efforts combined? The red team vs blue dichotomy is being put to rest for now. They are working together in mutual interest to service this global debt bubble. Do you not realise how many hyper intelligent people, as well as how many $billion/trillion organisations, governments, and banks have worked all day EVERYDAY to try to work out another can-kicking solution? These thousands of heads working together do it for a living all day, every fucking day! Whereas most of you only go as far as sitting here blogging on the internet and think you know better than they do – kinda comical. You all act like you’re outsmarting entitites that too have seen what you have in the past (and more). They know more about gold than you do or the markets than you do. They work behind the curtain. As organisations or states (governments) they outgun your purchasing power, intelligence and capacity. They will use everything they can to keep this going and they still have the ammo.
‘Another’ wrote his work thoughts a long time ago. The story changes in life like it always does. Imagine trying to make a prediction in 1938 for what 1958 would have looked like. Impossible. Things change a LOT in 20 years.

Franco said...

And your point is...

Archer said...

Risk management? Changing circumstances? I think it's time to rename yourself Flathead or, better yet, FlatEarth to better capture the nature of (what passes for) your thinking when it comes to the subject under discussion.

The changing circumstances you unwittingly allude to are the end of the $IMFS. Everything else someone of your ilk might be concerned with as it relates to money, see the AIIB, is massively subordinated to that changing circumstance.

I won't bother to reiterate how physical gold will perform when the $IMFS finally goes belly up hook, line and sinker. As for risk management, I do who wonder who you think you are fooling-other than yourself-when you trot out the term risk management.

The entire idea, let alone the practice of risk management in a monetary environment characterized by permanent ZIRP, and/or (worse) negative rates, and serial QE wherever failing debt is sold-that would be pretty much everywhere- makes a complete mockery of the practice of risk management. If you think you can assess risk in this environment, except to characterize the situation as being in a constant state of incalculable risk, then you are an even bigger jackass than I thought.

As for cycles, goodness knows, even the folks who theorized phenomenon like the Kress, Benner and K-Wave cycles found their own devices unwieldy if not downright unreliable, but we are supposed to believe that a gasbag like you has it cracked. Silly boy. It's way past time for you to go play in another sand box, because your indiscriminate intellectual incontinence has become intolerable.

Canadarob said...

Georgie.
Where should I put my wealth? Please tell me. The stock market can crash any day now. That's been proven. Houses are over valued. My currency has dropped in value by 15%. Please tell me what I should be holding instead.

Anand Srivastava said...

FSL:

I can't find the file I did on India right now, but I think the years were from 1990-1997 or 1992-1999.

You would be mistaken. We had a major devaluation in 1991. Nearly 20%. Imagine holding govt debt or Fixed deposits (as I was doing before gold) at that time :-). 20% wiped in a couple of days and nearly 50% in a couple of years. From 17Rs/$ to 30Rs/$.

Tables of historical exchange rates

I think the period you are looking for is 1996 to 2002 (where Gold got to parity in Rupee terms), and then a couple of years to beat the CPI. So yes in those 8 years Gold did not perform as well as Rupee+CPI, but it did get back.

Imagine losing with Govt bonds, you never get it back. Actually the Stock market is better in that respect, you have a chance of getting it back. But it is like Russian Roulette :-). That is why they tell you to put your eggs in different baskets. So at least you would come out alive after losing a leg or two.

The only regret is that I started saving too late, before I was investing in Fixed Deposits. I started saving when the peak was reached. Not exactly the best of times. But its better late than never.

Jeff said...

But it's not too late. At least you aren't a yield chasing monkey holding his wealth in stock etf derivatives of stocks, which are derivatives of the most overvalued currency in history. Now that monkey is gonna find out just how far off his perception of wealth and value really are!

FOA: Today, we have come to the "edge of reality" in believing that our paper contracts (cash included) are actually more valuable than the the THINGS we buy with them! For most individuals and national governments, our net worth is denominated in contracts of Delivery. The cash in your pocket is a receipt for the delivery of one dollar. Your stocks are contracts for a share of the profits in a company. Bonds, cash in the bank (CDs included) are contracts for delivery of future cash. The only value found in all of these securities comes from selling them to someone else. A game that is played using the value judgment of another. Take your time and think slowly through this. The laws of supply and demand are muted by the accepted concept that "paper securities can all be converted into real things at the present price of real things". In the end, this is the value judgment that everyone basis their holdings of paper wealth on. The Thought that, "someone else wants my paper assets because THEY can convert them into the things THEY need at today's prices". How easily would this fragile confidence be shattered if suddenly the payment for these Things required "Things in payment"? Would this not create a realignment of the value judgment of paper, worldwide?

Here, one confronts the Reality that during our long life, we did not create as much excess worth from our endeavors as we thought. Truly, all these years the Western economies produced no more assets than many Third World Countries! I ask you, for the future, in what world class money will you hold the savings of a lifetime? And more importantly, will others judge it to have value? Will you continue to "trade gold to make more paper currency" or "will you trade paper assets to acquire more gold"? Most will agree, the choice will impact one's net worth for the rest of their life!

https://www.youtube.com/watch?v=zHVKndMZIwI

Indenture said...

Georgie: "They will use everything they can to keep this going and they still have the ammo."

What ammo are you talking about Georgie?

Motley Fool said...

Georgie

I thought it worth remarking that you are in for a rude awakening. Those in power are neither omniscient nor omnipotent, despite the illusion thereof presently.

TF

Unknown said...

Fool! You must bow to the God of MMT, or suffer the consequences.
Boowa ha ha ha ha

tEON said...

March 31st, 2015 (h/t Vizeet Srivastava)

The Chinese government just announced that on May 1, it will launch an insurance program guaranteeing bank deposits, much like the US’s Federal Deposit Rate Insurance Corporation, which was instituted in 1933 to prevent bank runs.

Today’s statement hints that a long-delayed plan to free up the current cap on deposits may finally be nigh, a possibility China’s top central banker, Zhou Xiaochuan, recently alluded to. The insurance system is a prerequisite for interest rate liberalization, perhaps the most critical of the long menu of reforms promised by president Xi Jinping back in November of 2013.
[...]
One big question is what happens to the deposits that aren’t guaranteed. The insurance system will guarantee deposits of up to 500,000 yuan ($81,000). That suggests that about 99.6% of deposit accounts will be covered, according to Richard Xu, an analyst at Morgan Stanley.

But thanks to China’s grossly uneven wealth distribution, the remaining 0.4% of accounts hold nearly half of the total value of all Chinese bank deposits, estimates Wei Yao, an economist at Société Générale. If, come May 1, some of the holders of those gigantic accounts decide to move their savings somewhere safer, it could drain cash from the system abruptly, throwing the banking system into tumult.

Canadarob said...

Flat shoe lance likes to pick these periods of time where gold didn't perform that well in currency terms. But neglects the massive stock market crashes that wiped out seniors retirement plans and forced a lot of people back to work.
He also only responds to comments he has a rebuttal for and ignores all the comments that clearly put him in his place.
A real intellect.

Muad'Grumps said...

Anand,

Then it's probably from 1992 thru 1999. Remember you have to deflate the nominal charts with the CPI data to get the real price of gold. So even if gold had a nice move after the 91 devaluation what happened afterwards. That's my point of caution. The nominal price only rose about 10% while inflation really flew. I did a quick tally this morning and I came up with a number higher than 100% for the 8 years of CPI. I've gotta check that again b/c that's not what I recall from my original work. Plus the site I got the deposit rate data for that period is now gone. There's another site but there's a paywall.

When I started this project I was looking for evidence of gold doing well when real rates were negative. I found that. But what was really shocking was what gold did when real rates were above 2%. That was a wakeup call! Beforehand I was planning on holding onto my gold after the reset. Not anymore. Look what happened after the 91 devaluation in India. The real price of gold went down at least 50%.

Muad'Grumps said...

Oh and Israel has now signed on to the AIIB.

Lisa said...

Flat Shoe Lance

I guess it's the difference in our lenses, but I see the AIIB developments as totally consistent with the premise of this blog - another step away from the IMFS and the control of the USA. (And that is my opinion despite your probable response that the initial contributions to the AIIB appear to be in dollars).

There are so many things happening at an international level that seem consistent with the end of the dollar as the reserve currency - (to name only a few) huge connections between Russia and China (see the Double Helix article that Woland linked from The Saker blog recently), agreements between so many pairs of countries to trade with their own currencies without using the dollar as an intermediary transaction, the many currencies which have started to float freely, the accumulation of gold by the CBs of many emerging countries, etc etc.

Many of us use the lens provided here, and see these things as the positioning of the rest of the world to be able to continue to trade internationally whether or not the dollar is the reserve currency.

So when you say " Oh and Israel has now signed on to the AIIB, my thought is "yes, another country getting ready for the end of the dollar as the reserve currency, and preparing for big changes down the road".



Muad'Grumps said...

The Freegold lens uses the wrong frame of reference. It assumes gold will act as a stable SoV. It also makes the mistake of many economic theories in assuming economies can stay in a state of equilibrium.

What I notice in a lot of the responses is a lack in differentiation between before and after the reset. Few of you really think of what you're going to do once you catch the car. Okay, gold goes up 30X. Then what? We stay in permament crisis?

The frame of reference really should on the debt markets, on that cavitation between the present and borrowing from the future. That cavitation is the miracle of fiat currency. It works for awhile, serves as a functional SoV and yes, needs periodic reboots but the stuff & ideas that got built/discovered largely remain. Ownership just changes. Debt for equity swaps for example. Civilization advances.

Motley Fool said...

FSL

Dynamic equilibrium is possible in a complex system like economics.

Saying that since other models weren't stable this one can't be either is a fallacy.

Permanent crisis? Is this your view of our views?

I'm sure it has escaped your non-paying attention, but focus on stable debt loads is one of the aspects we take into account here.

TF

Ps. I expect you will ignore this just like my other polite queries. That's ok. It is written for the benefit of others who you may be baffled by your bullshit.

Archer said...

FYI Flat is G 'tard.

Franco said...

The few individuals who as of late seem to frequently roam this blog with an axe to grind, they share this profile: they all "invested" in gold and they are now suffering buyer's remorse because a windfall revaluation hasn't happened, and other "investments" keep going up in price. They are the definition of weak hands. So, if you have buyer's remorse, why don't you just sell your flipping gold and invest the money in whatever you want? Just do it, man. Do it tomorrow without delay. You'll sleep better, I promise you.

The Jackalope said...

@franco It's easier to smear someone who may disagree with you than actually engage him so I'll look at your comment with a sympathetic eye.

I won;t sell my gold because I'd never need to. The current system supports me quite well do I keep gold as a kind of career/monetary hedge. Plus I look at gold as having potential asymmetric reward in the event of the big one.

It's just so easy to try and personalize the discussion. It;s a lot harder to break away from this echo chamber and actually question the prism of freegold given the benefit of 20 years time.

Instead we get sanctimonious drivel about how someone must have bought gold for the wrong reasons or the desperate claims that they are happy if freegold and 70 years in the future and all the opportunity cost is meaningless. Thats just human bravado protecting the go for the reality that the "moment" maybe isn't coming.

Maybe it is, but I am not a giant, and I want to maximize the purchasing power of my savings over my lifetime. I realize that some of you disagree with that approach. Does it really still need to be harped upon? Does the discussion about each and every persons personal choices advance the discussion or critique of freegold?

No, it's weak sauce and a shame that the comments here have devolved into that.

Xavier said...
This comment has been removed by the author.
Xavier said...

Here's an interesting documentaryon the Rothschilds some of you might enjoy, dont worry its not some crazy conspiracy theory nonsense, seems they had a hand in the establishing of the Euro. I seem to remember FOFOA speculating that Another was a Rothschild, after watching that I wouldn't be surprised!

tEON said...

Maybe it is, but I am not a giant, and I want to maximize the purchasing power of my savings over my lifetime

Then I'm sorry - FG will not fit your criteria - no matter how you attempt to force the round peg into the square hole. Since no one can give you a date for FG and most PGA's are content to exist holding physical without an imminent timeframe - then it becomes increasingly apparent that you are not a FG'er but are looking for a 'flip' - preferably a quick one. There are risks everywhere - the consensus here is that physical gold is the least risky, by a long shot, but accepting that comes with embracing the uncertainty of a timeline.

People hold Gold for different reasons. You should accept that we all don't have the same reason as you. Some see it as protection, some see it as insurance, some see it as the only wealth asset they want to hold in this economic environment, and then some see it as a lottery ticket they want to cash-in and buy sh*t.

Indenture said...

"I want to maximize the purchasing power of my savings over my lifetime." These are the words of an investor.

The Studebaker Effect

Indenture said...

"Investors and regular workers with a Western slant do not grasp what wealth is. Overwhelmingly they see their currency and paper investment portfolios on an equal footing in value with the same "real things" that raise our living standards. Yet, in real life, they cannot be equal because these paper assets are only an exercise able future claim on our "real things in life". –FOA

Indenture said...

ANOTHER: The gold market is made up of a very broad spectrum of investors. At the very farthest ends of this spectrum lie the persons with the largest influence on the physical bullion. The super wealthy at one end and the "third world no ones" at the other. The middle is occupied, mostly, by the "investors with western thought". The far ends buy bullion. And they don't buy it as a gamble or a game! It is a way of life that has worked, through thick and thin, even before the West was "The West".

Now, on the other hand, this "modern day middle of the spectrum"! Well, they have read why we need gold, but they have never "Experienced" the need for gold! Until that day, when they gain "Experience", most of them will make "A Gamble That They Never Intended To Take". Yes, they do invest in all forms of paper and or leveraged gold and all the while, expounding from the roof tops the coming currency crashes and stock market declines. Even looking for bank closures and bank runs, as they cling dearly to comex options and gold stocks!

Anyone, from the outside looking in can clearly see that "westerners" do lack "experience".

There is a "flaw" in this modern market that many do not quite grasp. In time, they will! There have always been people and companies that make a living dealing in gold. It is an ages old business. Today, we see a phenomenon that is "as none before". It is mostly done by the investors at the middle of the spectrum. The "trading of gold" has grown to a level never seen in history! You read every day, that no one wants or needs gold! In a way those statements are very correct! No investor wants to hold gold, but everyone and his brother ( and sister ) wants to trade it! The volume of paper trading, worldwide, on and off market is beyond belief! It has created a type of "Parallel Paper Gold Universe", existing side by side with the physical. The major "flaw" in this system is found in the makeup of the "traders" of this "paper gold universe". Without fail, the majority is made up by those in the "middle of the spectrum", those without "loss of currency "Experience" ". Mostly, they are of "western thought".
(continued)

Indenture said...

(continued)
"I have tried to offer these thoughts as a way for many to understand why this modern gold market is not as before. Most of these letters apply to investors at the far two ends of the market ( see my last post ) . Many, from other places, do understand these "expressions" as given. For many here, I resist the replies to questions that offer results for "gold traders". The intents and reasons are for persons to "consider" and "see" this market in a true light for today. Not for paper trades that will lead to certain loss for the future. I now believe, that by way of other posters, these thoughts are "in grasp" by many traders of "western thought". One may not "accept" the conclusions, but they can, "mentally experience the outcome" of the future. For this end I will now offer real direction. That of Why, When and How Much! I do this for those of "Family and Country", and persons of Honor. Those that live to help, not take, in times of change! Some say this knowledge should not be in a "public way", but I say secrets are for fools.

We must grasp that all commerce is done, at least, in the US dollar concept of "valuations of real things". In this way, " the true value of the purchase of real money" is hidden from view! Persons will say in the future, "how could gold be $500 one day and $5,000 the next"? I tell you now, it is already past that level, as in "present reserve currency dealings" it is not seen! Consider, that in all that you do and think, your "western values" are of paper concepts. From your birth, real things are not used to cross value themselves! When the battle to keep gold from devaluing oil ( in direct gold for oil terms ) is lost, the dollar will find "no problem" with $30,000 gold, as it will be seen as a "benefit for all" and "why did noone see this sooner"?

Indenture said...

"Yet, through it all, the revaluation must come as gold will return as money to represent all of this wealth many times over. For truly, all modern wealth will be directly or indirectly denominated in gold as our dollar reserve fails. To this end, the physical gold holder will stand "one step in wealth" ahead of every worldly paper trader." –FOA

"The removal of the political "world dollar settlement" price of gold will revalue this asset in terms that noone of "western thinking" can understand." –ANOTHER

"A poster on Kitco (I think his handle was AllenUSA) once did a superb job of explaining the dynamics of oil pricing during a currency collapse and gold revaluation." –FOA

"Both gold and currencies are traded with perceived future value in mind. Especially gold that is known to be revalued later." –FOA

"Later, gold will be revalued upward..." –FOA

"I fully well expect my wealth holdings to not grow one bit over the next twenty years!!!!!! But, I do expect the world markets to evolve and revalue my assets, showing their true worth. No, not near gold, not almost gold, not poor man's gold, not gold in the ground or other paper gold,,,,,,,,,,,, just plain old gold in the hand. An asset that will out perform every other holding in the times to come.

--------- The wealth of ages; a lifetime of work kept in a savings from our past. --------" –FOA

"Yet few considered the true ramifications if countries suddenly revalue gold not as money, but as a world reserve asset! We approach this dynamic today as world dollar debt has reached its limit. Exciting times for those that "walk in the footsteps of giants", awful times for those that have invested in the gold industry. It's not too late to change course and sail with the wind. With the direction of someone that understands, I have done just that! With the wind...........we are on the road now!!!" –FOA

"From this stance we can understand why many have viewed gold as a riskless holding that will be revalued. If it was part of your mix, the transition would always make up for any return lost from not holding other assets. Indeed, it is the very ultimate in a super leveraged investment. No other currency today could expect a 1,000% to 10,000% rise in value against the dollar, none." –FOA

"The current "paper gold market" is not a physical gold trading arena, as many here have observed and discussed. Truly, in every sense, it is a "currency market" as contracts are settled in the prevailing "currency values" of gold. It is through this process, that gold is purchased "as a stated value in currency terms", not in physical terms. It is known, that a switch to trading of gold to "physical terms" of the same volume as today, would not only bring a huge revaluation in price, it would also destroy the market." –ANOTHER

"If all the gold held by earth were placed in the hands as money, it would be used to revalue every "real thing" at a fair price. A tiny fraction of gold would buy much production of goods and services, on a basis equal for all men, not as a debt for later settlement, as currencies are now!" –ANOTHER

"Once fully understood, I think most would then agree with its inevitable outcome. Indeed, a "free gold market", based only on physical holdings would impact the world economic system unlike anything seen before it. And Yes, it's impact on the relative value of gold will make that metal the monetary wealth investment for the next thousand years!" –FOA

Brady said...

CR, that is the basic & fundamental question I was asking myself before I came across this blog and through A/FOA/FOFOA, the light bulb went off. There is no price tag on the peace that comes with understanding. Sure, I could gamble in the various casinos out there, but I choose not to & am content. But I also understand, in all aspects of life, to each their own & ones nature is what it will be.



The Jackalope said...

It's quite humorous when people use Anothers quotes as the source of proving Anothers thesis. Talk about circular logic.

Anonymous said...

Desperation here is palpable and increasing. Maybe a sign that we approach some sort of endgame.

I've told you people over and over again that I'm a freegolder, and yet you still come back with long winded posts about some sort of "distinction" that exists between you and others, when that was never my point in the first place.

It's like politics. On the extreme ends, the debate is fiercer than between opposing sides. Between so called true believers, and sell-outs or moderates. "You don't want to keep cutting taxes so you must be a democrat." "You are in favor of this war so you must be a right wing warmonger" etc. etc.

"You are a pessimist and don't think utopia is around the corner, and therefore a freegolder in name only". "You are a trader, a gambler, a troll, how dare you bring up irrelevant things like opportunity cost and timing, be gone from our midst." Etc.

You may not like it but it's criticism from the inside that you can't stand. I've been reading this material for years like you have. I have digested everything written by Another, FOA, and FOFOA. I have dedicated the past 5 years of my life to preparing for the freegold hypothesis.

And I've also studied many other subjects in detail as well, as many people have these days due to the wealth of information we now have available.

And I'm telling you, we all face a Pyrrhic victory. It's inevitable due to things being put off for so long. I know it's not want you want to hear, but deal with it.

tEON said...

Australia has run out luck… Now it needs a miracle.

Whilst leveraged property investors in Sydney and Melbourne are desperately hunting for a senseless “net-yield” that makes the yield on a German 2-year bund look rewarding, the Australian mining sector is screaming towards what may be one of the greatest; and colossal economic breakdowns in modern Western history.

Canadarob said...

I can see why another/fofoa/foa got so tired of the ears that bite.

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