Thursday, December 11, 2008

FOA - Quotes from The Trail

Below are some gems from FOA that I especially like and that seem very appropriate today. Enjoy!

Within every social order, people have conflicting factions that try to dominate the whole. But if one can understand and pinpoint the logic and reasoning of several dominant groups, we can get a grasp for the overall eventual flow. We have seen throughout history and in our modern life that the human spirit, most always reaches for and leans towards natural conclusions to ages old problems. There is something in us that makes mankind flow this way. (2/23/00)

Few investors can "grasp" that in reality, our dollar has already been hyper inflated, but without the higher price effects. Years of deficit spending, over borrowing, debt expansion have created an illusion that the dollar was immune to price inflation. This illusion is evident in our massive trade deficit as it carries on with no negative effects on dollar exchange rates. Clearly other investors, outside the Central Banks were helping in the dollar support process without knowing they were buying into a dying currency system.

The only thing that kept this process from showing up in the prices of everyday goods was the support other Central Banks showed for our currency through exchange intervention. As I pointed out in my other writings, this support was convoluted at best and done over 15 to 20 years. (3/17/00)

We will all look back on this and see that most of our trusted measuring sticks were useless to decipher the situation. If we truly do not know what a "dollar credit" (DC) is, how can we know what it is worth in purchasing power? We do not even know approximately how many DCs are out there, let alone their demand to satisfy debt service. What is really starting to spook the big world players is that no one now knows what kind of currency intervention is in the pipeline at any moment in time. This is having the effect of making one's real debt in international dollars an "unknown". The same thing goes for dollar assets?

You could owe one million in value today, then find that an evolving political agenda has changed that amount to 5 million in real value tomorrow. All of this was glossed over for many years by employing derivatives to hedge. Now that arena has grown so large that there is a real threat that the derivatives need hedging too! I laugh about it but it's a real event, happening in real time. It's scaring the hell out of a bunch of people and they are not taking if as being funny.

The camp fire is burning now and everyone is here:

Did you ever see the movie "Havana" with Robert Redford? It was a great tale about a card gambler that often went to the casinos in Cuba. It takes place just before the revolution when Havana was a real swinging place. I don't remember the exact lines in the show but he often made reference the the laws of probability. Saying "anything is possible, just not always probable". To that end he explained to his girlfriend why there was a lump in the skin in his forearm. It seems he had a diamond sewed under the skin, "just in case"!

It was an excellent example of human interaction with the laws of probability. It seems that inside all of us lies a fear that what the world is telling us (the marketplace) may not be real. Just like ORO said what if "there is no spoon" and our financial process is the trading of illusions! We all expect life itself to be chancy, and fully expect to lose some in the effort. But no one wants to be "busted out" because of a freak, once in a generation "revolution in the way wealth is counted".

In reality,,,, in the real world,,,, big players never tell their whole tale,,,, not like the persona of our little trader/gamblers talking their book on the Internet. In the big arena that really counts,,,,,, real players all keep most of the wealth "off the table" and "under the skin". So what does this have to do with the BIS?

Remembering back:

Something that Big Trader or Another said a long time ago about trading gold off market in the thousands. Trust me, it's there somewhere way back in the pre USAGOLD days. It seems that gold was then and is today traded between countries, CBs, special accounts,,,,,,, at not only contract prices but in the "perceived prices" that would exist in a non dollar world. Hard to believe? Don't be so quick to laugh. We are talking about gold traded in large amounts on the "possibility" of a no dollar reserve world,,,,,, gold moved from "under the skin" to "under the skin" so to speak.

In some cases more than a few people have "done the math" and come up with some startling probabilities and possibilities. In some perceptions, it's a political certainty!

Imagine, if you will that gold,,,,, tomorrow,,,,,, was "marked to the market" and slated for 30 day physical settlement. Most Western thinkers and investors would say that there is plenty of gold out there to cover all that paper. At worst it's price would go to,,,,, say,,,,, $700 in the squeeze. Well, that is assuming this event happens in a world like today where the dollar and our US economy is still running.

But these Western investors don't understand the real human world. Gold being marked to market would be the result of an economic revolution of sorts. A currency transition, if you will.

Most of the big talkers you hear in the bar,,,,,, saying they would sell at $1,000 and buy some land,,,,,,, would be the very last scared kittens to cut that diamond from under their skin! Believe it!

Under the circumstances,,,,,,, miners would do their best to "stop mining",,,,,,, dealers would mostly be making a market on the buy side only,,,,,,, and our bar room paper gold trading friend,,, with all his bravado would be telling everyone,,,,,, "Gee, I sold too early and wish I hadn't"!! All the while wearing a long sleeve shirt on a 90 degree night in Phoenix,,,,, just to cover the lump that's under his skin!

The night is getting very still:

Today, gold is worth far more than it's traded contract price,,,, and has been for some years. That's the reason some players have owned it while giving up any interest and stock gains they could have enjoyed.

Listen to this and listen closely: "the real value of gold today is based squarely on the probability of whether the US dollar can survive as a reserve currency"! No problem, you say? Well, you may think a little different in a few weeks or years.

Considering the trade deficit of the US, CB dollar reserves and the interest they earn,,,, are worth between $.50 and $0 in real good buying power.

Now, would you sell your gold into the BIS system for dollars,,,,,, at the market price today to have it returned in Euro gold credits reserves at the real price much later?
Just as TownCrier says in his daily commentary:

the IMF gold leaves at one price and returns at "Another" ,,,,,,,, it travels far but never moves,,,,, while the BIS holds the value for a later use in time.

It seems a neat "gray concept" to have just popped out of nowhere, no? Was that plan already "in process" somewhere ,,,,,, someplace,,,,,,,, think about it?

Then think about the dollar price of gold today? In fact, "think long and hard about it"?

Fires out

Thanks for hiking. (be on the forum later or tomorrow)

FOA/ your Trail Guide (4/15/2000)

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