A few people have reported problems accessing the second page of comments, so here's a new thread for new comments. This link should get you to the 2nd page of the last thread:
fofoa.blogspot.com/2012/01/yonder-thur-be-dragons.html?commentPage=2
Some of you only read comments in the popup window, but you can also read them right under the post. If you click on the name of the post at the top, here's where that page 2 link appears at the bottom once the number of comments reaches 201:
Sincerely,
FOFOA
PS. Here is the link to the second page of comments on this thread:
http://fofoa.blogspot.com/2012/01/open-forum.html?commentPage=2
I see we're on page 3 now. To get there, just change the two to a three in your browser bar if you still can't see the links at the bottom. Or try a different browser.
http://fofoa.blogspot.com/2012/01/open-forum.html?commentPage=3
454 comments:
«Oldest ‹Older 401 – 454 of 454Whoh - lots of responses!
Blondie - "Gold is also the valuation and settlement mechanism inside each one too, is it not?"
Maybe. The Euro is used in Europe, in the past the USD has been used in Mexico unofficially, sometimes the Real is used in Argentina and the Rand in other parts of Southern Africa. I was looking at the chances of the trading blocks settling in the strongest regional currency unofficial at the small business level and gold being a layer above that for larger organisations and for inter trading bloc trade. Is that not also a realistic proposition for the smaller players? Localised reserve currencies for those who aren't giants and gold for the final clearance. I can see how that goes against settlement best practice (all gold) but human nature being what it is, I can also see it happening regardless. At some level I just can't see these trading blocks coming online and TPTB missing the opportunity to install the strongest members currency system into it.
"Is it another way, or is it the way?"
I was trying to say that as we move toward trading blocks, there is an organic move away from the USD as reserve as well. My thoughts had been that the euro will bid for gold, or the USD will be overspent and damage its credibility to the point of rejection but hadn't considered that regional trading blocks (as are already developing across the globe) will also have no need for the USD. It seems all roads lead to the inevitable!
@DP Yeah, funnier than a barrel full of monkeys
@AD Do I understand that the thesis is that once confidence in fiat is lost, no new fiat will be accepted?
If that's the thesis, 2 things to refute it:
- after every hyperinflation in modern history (fiat), the new fiat was accepted, provided it was backed and freely exchangeable into something real (preferably gold, but USD/marks would do it too in the good ol' times)
- The test you describe above will still be performed. People don't change. The test will be: can I freely buy gold with my fiat. If so, fiat is ok as medium of exchange, so carry on.
"in "life on the ants farm" FOFOA described the "brain" of the superorganism. So the consequence would be when the monetary plane is completely out of sight, the physical plane will as well slowly die."
The "brain" is real smart, not real dumb. The point is when the current system doesn't work, the brain finds a way. And the current system dies. Because it doesn't work.
I'll even take it a step further and say that a monetary and financial system that uses compounded interest cannot afford to compel all savings into the hands of debtors. It must have a means of hoarding wealth outside of the system in order to constrain the exponential growth function, or else the entire system will become retarded and then collapse. In return, this constraining function of "gold the wealth reserve" will restore intelligence to the human superorganism. Intelligence that has been sucked dry by Wall Street's systemic aggression against a free-floating physical gold price.
VtC - thanks for your ledger walkthrough, I have always been stuck when I look at money as being a unit of exchange rather than looking from the banks balance sheet assets and liabilities.
I think i have been making the mistake of seeing credit money as a medium of exchange when it is really a near money asset balanced against the banks equity statement. to default on a credit money loan is to cancel the banks asset and the banks shareholder equity, rather than the liability. but what of the credit money used from the loan? Perhaps this is the key to how 'credit money pyramids on base money'
Costata - "So now there is bank credit money in the system which is unbacked by a performing loan." This is exactly what i was trying to work out - is this possible? the saying is that all money is backed by debt - but what about in this situation? Have you released credit money and the banks assets and equity must change to accommodate it?
Gary said 'You are assuming that the loan you had for $50 remained in cash, and so was preserved.' if you purchased something for the $50 than the seller now has the $50 and you have an asset or object. is that what you were referring too?
"But I do feel if someone buys a property for $200,000, with a mortgage of say $180,000, and then the value drops to $150,000, someone has lost money!" i see this as someone losing an asset that was potentially convertible into money, but not losing money.
costata,
"In this hypothetical, costata is saying that oil would judge currencies as more and more valuable with respect to oil."
"No he isn't Michael H."
I'm sorry I was mistaken in the paraphrase of your position. I tried to make it clear that I was working under an assumption until you had a chance to respond, but as the discussion progressed that caveat dropped by the wayside.
Thank you for your response; I'll re-read through it and respond later.
A bit off topic, but I am revisiting the ‘Sixteen Cents’ piece by John Hussman that vtc posted a while ago:
http://www.hussman.net/wmc/wmc110124.htm
”it turns out that the liquidity preference function can be estimated fairly accurately. Using the 3-month Treasury bill ("i") alone, the relationship in post-war data is well described* by:”
M/PY = .094 - .022 * ln(i)
Here are the current numbers I could find:
2011 Q4 GDP, nominal: $15,300 B
2011 Q4 GDP, real: $13,400 B (2005 dollars)
2011 Q4 deflater: 1.14 (based on nominal and real GDP numbers)
Jan 2012 M2, $2680 B
3-month T-bill, Jan 2012 low: 0.01%
3-month T-bill, current: 0.075%
Plugging in the 2011 Q4 numbers gives deflaters of:
i = 0.010% ---> 1.024, which is 0.90 times the current deflater, implying 10% price deflation
i = 0.075% ---> 1.324, which is 1.16 times the current deflater, implying 16% price inflation
Of course, the effect would not be immediate, and this could very well be noise. Hussman states:
”Historically, it has usually taken an extended period of such inflation pressures (sustained over 6-12 months) before the implied inflation pressures are actually reflected in price levels. Temporary differences between the actual and implied GDP deflator are not very informative unless they are sustained.”
I played around with the spreadsheet and found another interesting tidbit. If we keep the GDP numbers the same and set 3-month rates to 0.01%, M2 can be $3000 B for zero inflation and $3100 B for 3.7% price inflation.
OBA, the log of a negative number is undefined, so if $IRX crosses negative, none of this applies.
High VtC - i have been playing with your ledgers:
Bank:
Assets:
$100 Cash
Liabilities and Capital:
$100 Common shares
Now you take out a loan.
Assets:
$100 Cash
$50 Receivables (loan to Matt)
Liabilities and Capital:
$100 Common shares
$50 Liabilities (Matt's account)
You buy a car from Jim via a bank transfer
Matt:
Assets:
Car
Jim
Assets:
$50 credit money in bank
Bank:
Assets:
$100 Cash
$50 Receivables (loan to Matt)
Liabilities and Capital:
$100 Common shares
$50 Liabilities (Jim's account)
Finally, you phone in and say you will never pay it back. They write off the loan:
Matt:
Assets:
Car
Jim:
Assets:
$50
Bank:
Assets:
$100 Cash
$Nil loan receivable
Liabilities and Capital:
$50 Liabilities (Jim's account)
$100 Common shares
-$50 Accrued capital gains/losses
So - the money supply $100 cash and $50 credit while the shareholder's bank assets have reduced by $50 in exchangeable value - the economy has shrunk by $50 but the money supply hasn't - asset deflation with monetary inflation!
Please tell me if this is right or I am missing something??
costata,
”PS. I don't recall describing Russia as a swing producer. If I did I would like to correct that now. I don't hold the view that they are a swing producer.”
Here is the relevant comment. Maybe I mis-interpreted the cotext:
http://fofoa.blogspot.com/2011/06/open-letter-to-ron-paul.html?showComment=1307609586903#c2202494633184524449
”I understand that the oil pipeline between Russia and China is near completion or completed. Next comes a gas pipeline.”
“I think Rubin has the Iran vs Saudi Arabia feud right. Reading between the lines it is now Russia that is the swing producer not the Saudis.”
Working on the final position of this some more, if Jim withdraws his credit money for cash, the final proposition from above:
Jim:
Assets:
$50 in credit money
Bank:
Assets:
$100 Cash
$Nil loan receivable
Liabilities and Capital:
$50 Liabilities (Jim's account)
$100 Common shares
-$50 Accrued capital gains/losses
BECOMES:
Jim:
Assets:
$50 in cash
Bank:
Assets:
$50 Cash
$Nil loan receivable
Liabilities and Capital:
$Nil Liabilities (Jim's account)
$100 Common shares
-$50 Accrued capital gains/losses
--------------
So after a default, credit money is cancelled at the point it is exchanged for cash?
The whole final picture is that Matt has a car, Jim has $50 in cash, the bank has $50 in cash and shareholders have investment worth half what they originally put in.
AD,
Is your point that you believe that the faith which supports the current fiat system will not falter?
If so, then I find it interesting that you would give an example of people going to the bank to check and see if their money was still available. This denotes doubt, rather than faith does it not?
If your premise is that a loss of faith would constitute a global resistance (rejection even) to the reestablishment of a new fiat system upon reset, I would say that assumption is silly. We are certainly not headed for a global barter system (at least not as far as governments are concerned).
So that means that your premise is that the current fiat system would not implode, but simply morph into the next without gold playing the role of point of reference.
So then I would ask, what is the point of reference that you see the superorganism having faith in? If you are saying it is TPTB, then how do you explain TPTB acquisition and adherence of gold?
------------------
Also, I need to make an observation. I notice that your voice changes from post to post. Are you a ventriloquist?
I'd also like to take a moment to apologise for clogging up the posts with my workings
VtC - if you could review my position and add any insights you may have that would be greatly appreciated!
Matt,
Your car loan was unsecured, we presume?
costata,
”This is how the commodity oil responds to recessions. The price falls. It peaked at around $145 and fell off a cliff. Only finding solid support around $35. The V-shaped recovery in the price to $100 is the thing that requires a good explanation IMHO.
And when I say a good explanation I mean an explanation that doesn't involve reference to the monetary plane. An explanation from the physical/tangible plane.”
As I alluded to in my first brief response, oil market dynamics can explain the rise to $145 and the cliff dive to $35 much better than the supply-demand of the business cycle. vtc had a good summary in his comment above, and this piece by Chris Cook has more detail:
http://www.nakedcapitalism.com/2012/01/chris-cook-naked-oil.html
”What goods were so desperate to exchange "themselves" for oil that it pushed up the "price" as measured by the UoA from UoA $35 to UoA $100?”
ANOTHER: ”As long as growth in the production of economic goods outstripped dollar price inflation, the dollar could be expanded to match the unrealized value held in oil.”
I think there is plenty of ‘unrealized value’ in oil, even at $100.
And more precisely, the ‘v-shaped recovery’ brought the price of oil up to ~$80, which matches well with what vtc wrote about the futures prices. Oil didn’t get back to $100 until early 2011.
So how about this: the commodity value of oil was in the vicinity of $90 in 2008, but oil market dynamics pushed the $-price to $150, then recession hit and the market dynamics collapsed the $-price to $35 and the commodity value to $80. ZIRP, TARP, QE, etc. has contributed to the subsequent rise in oil to $100 (whether in nominal commodity value or in market-driven-$-price, I can’t say).
hahaha clyde frog,, let me just check the paperwork on that,, yep unsecured and being my only net asset,, below the value of undertaking bankruptcy proceedings.
DP,
perhaps it will be one to explain this curious phenomenon?
Velocity? Hold on tightly.
Matt,
yes, your ledgers are correct. If the commercial bank has accrued losses on their balance sheet, there is indeed credit money out there that is not backed by any loan (but rather by a loan that has already defaulted).
According to the rules, the bank needs to write it off against their equity first. If the balance is still negative (and the deposit insurance is also insufficient to cover it), this implicitly means that either the Fed will have to bail out the commercial bank with newly created base money or the government with taxpayers' money. So the negative equity position of the bank already anticipates that someone will have to come and fix the situation.
Victor
costata,
I was shaping my discussion around the ca. 2000 time, as in: what if gold started to rise post-WAG, but oil did not (or actually fell in currency terms)?
After reading your responses, I went back to look at the gold:oil charts. Here are some pages with charts I found (and if you have any better ones to suggest, please do so):
http://scottgrannis.blogspot.com/2010/12/oil-prices-reach-post-recession-high.html
http://www.321energy.com/editorials/mckenziebrown/mckenziebrown031108.html
And the free stockcharts version of the weekly, past 3 years:
http://stockcharts.com/h-sc/ui?s=$GOLD:$WTIC&p=W&b=5&g=0&id=p95259891404
Here is what I see from these charts:
1. From 1985-2000, gold/oil was in the 20-30 range.
2. From 2000-2005, gold/oil was in the 10-15 range.
3. From 2005-2008, gold/oil was in the 8-11 range.
4. In 2008, gold/oil spiked up to over 20, dropped to 15ish, and then either a) settled into a 13-18 range or b) settled into an upward trend, currently around 16-18.
I find this very interesting, since I thought that we were supposedly over-paying for oil via cheap gold in the pre-Euro, pre-WAG 1990’s. But gold got even cheaper in oil terms post-WAG.
Now, in light of this, I can better interpret your comment:
”Forget what oil producers want. Think about what the buyers of oil want. The most oil for their money. If gold gives them more oil then logic demands that they exchange dollars for gold in their reserves.”
So the falling gold/oil trend from 2000-2008 means that gold was losing value with respect to oil. However, the dollar was also losing value with respect to oil because $-prices of oil were rising. If oil buyers want “The most oil for their money”, which should they have held through this period, dollars, or gold?
Worst case, gold/oil ratio falls from 15 to 8 --> 50% reduction in gold’s ability to purchase oil.
Dollar price of oil rises from $20 to $80 --> 75% reduction in the dollar’s ability to purchase oil.
Further, since 2008, gold’s ability to purchase oil has risen back into the 15 range. Should this prove to be an uptrend in the gold/oil ratio, gold reserves would buy more and more oil. If the $-price of oil continues to rise, then this combination would be the worst case for the buyers of oil who hold USD reserves, as the USD would buy less and less oil. So why haven’t all oil buyers abandoned their dollar reserves yet?
Thank you Victor,
"If the balance is still negative" You are referring to the bank's equity balance here (losses are greater than net equity)?
And am I right in stating that - post default, the credit money exists until it is exchanged for base money?
(or am I missing something implicit in the banks loss position that automatically cancels the credit money?)
Many thanks by the way, I have had a grey area on this for about a year now.
Matt, if I may,
The credit money continues to exist in the economy since it has been spent.
Normally, the bank taking a loss would remove that credit money, but if it's bailed out then base money papers over the loss, and now we have more base money (from which to create credit) and the original credit.
In one way, it's a real credit to FOFOA and his Freegold blog that the number of "comments" seems to confound the blog process, making it difficult to access - very frustrating tho!
Good grief, Charlie Brown...
Judging from some of today's featured news items, we still have plenty of work ahead of us, folks.
Item #1)
States seek currencies made of silver and gold
@ http://money.cnn.com/2012/02/03/pf/states_currencies/index.htm?iid=GM
Related Item #2)
Ron Paul's Views on The Gold Standard
@ http://finance.yahoo.com/video/companynews-18928726/ron-paul-s-views-on-the-gold-standard-28186762.html
The leverage these little movements can achieve with some firm (yet misplaced) idealism is nothing short of amazing! But truth will out, and in that I take a great deal of comfort when assessing the many fine minds arrayed here -- a formidable force of intellectual acumen and integrity the likes of which is rarely to be found gathered together in this age or any other. Speaking of timing, as China now celebrates the Year of the Dragon, the punctuation couldn't be more appropriate... Yes, there be dragons!! But where dragons are, great treasure is sure to be underfoot -- presenting a quest of liberation that calls to men of great heart and sound mind, be they 3'6" or 6'3"!
Let's ride!!
Gold. Get you some. --- Aristotle
P.S. My hat is certainly off to FOFOA... did everyone check out that nifty video he posted of FYC -- Suspicious Minds? There is some keen monetary insight and wisdom to be found in the words, and some excellent symbolism coming through in that spectacular shining suit worn by Roland Gift front and center! He makes it look so easy and well-scripted... yet just another day of routine magic, of pulling rabbits out of hats by the incomparable and inestimable FOFOA!! Thank you!!!
Aristotle, welcome Sir!
Welcome Aristotle,
Cool, you've finally decided to show up again...
I expect the "Gold as official Medium of Exchange" crowd to get a monstrous lesson in Gresham's law once things turn really bad. Should be fun to watch.
/Burning
Welcome, Aristotle!
And a 'welcome back' to Blondie as well, who had been silent for a while.
DP: -
I hope to get to it over the weekend but I'm afraid I won't have too much more to add - having basically "shot-my-load" these last couple of weeks.
You might like to think of the $IRX Chart as representitive of an essentially dead road accident patient in the back of an Ambulance -
Paramedics (read management) are working feverishly to pump life back into the corpse but I'm afraid she's GONE DP ...and the Paramedics should probably save their energy to concentrate on the Freeway catastrophe Dead ahead IMHO.
@all: first of all I like to clarify that my native language is not english. So I apologize if I sometimes screw up grammar, sayings and reediting the sentences back and forth in a hurry, sometimes things are not that perfect and lost misunderstandable.
To describe my stand: I dont claim to know which crossing on the trail will be taken, but I claim to be able to take a (hopefully) neutral perspective on describing on how people marched in the past and therefore most probably will march in the future, trying to underline that with what has happend in different times in different cultures.
I personally thing, that americans are very limited to get that feeling (sorry to those adressed for being so arrogant).
@JR
"In return, this constraining function of "gold the wealth reserve" will restore intelligence to the human superorganism."
Oh really? You know(assume?), I know(assume?), everybody reading this assumes that, or is that that this is what we want to see? But why is the train only filled with 0.8% and 2% of seats adding per year? But why do you conclude that the superorganism will conduct to that? Who knows, but there is no automatism. Just remember after WWII, Germany did not need any kind of gold to recover: After HI they just called the "Rentenmark", leading to Reichsmark...
As already mentioned on MF blog, I am wondering of a store of value can really exist. As Aristole says "live your life and save the rest in gold" is at least a good approach. But still I am wondering if that is the last wisdom...
One other note goldbugs should acknowledge: That "monetary fog" covering the physical plane, gold is where? Let's face it, it is a few gold atoms flying around in that water fog, except not being inflated, but still also part of the fog, here to stay, but still part of that fog.
Greets, AD
Hello and Wecome Home Aristotle -
The years haven't dimmed your ability to get the point across it seems - carry on (and often ;-) good Sir.
I hope we can speak at length later as time allows.
OBA,
That was my take too. I hoped you might show me I was wrong. Oh well, too bad eh? :-\
http://www.youtube.com/watch?v=LGer5kg07X4
Victor,
Indeed.
Off to get drunk now. Bon weekend mes amis... et bon chance.
MichaelH, you might enjoy this post(?).
http://barondayne.blogspot.com/2012/02/deflationary-depression.html
Welcome to Aristotle and thanks to all others for sharing their knowledge with us common folks lurking here on the sidelines.
Michael H,
Thanks for the quote and the link for context. What I said then was simply wrong.
I was commenting after reading this piece by Jeff Rubin:
http://www.jeffrubinssmallerworld.com/2011/06/08/forget-opec-russia-is-key/
Rubin's thesis is that OPEC will consume increasing amounts of its own oil. He also maintains that SA cannot increase production ie. act as the swing producer.
He also observes that Russia has increased its oil production by a larger amount than any of the other major producers over the past decade. Rubin writes:
Prime Minister Vladimir Putin has made it a national priority to maintain Russian oil production at over ten million barrels a day for the next decade. Let’s hope Russian oil giants like OAO Rosneft are up to the task.
Because if Russia can’t produce any more oil, don’t expect OPEC to do it.
This high level of production doesn't make Russia a swing producer. To do so they would need to be able to increase production quickly and get it to market.
Russia as a crucial producer? Sure but not a swing producer.
The other player in this game to watch (IMHO) is the USA. Over the last couple of years America has managed to increase production for the first time in many years.
So I think this leaves us with a question. Can the Saudis produce more oil whenever required or not?
Matt,
Think of it this way in regard to a bank. When they go bust the assets no longer provide enough cash flow to service the deposit interest and debt.
At that point someone that can perform is willing to bid for the assets and assume the deposits.
The assets generally fetch about 70% of their recorded accounting value so here's what happens...
They book the loans at market (30% less than the failed operation) so equity holders are SOL since they represent about 7% of the capital base. The bondholders go next and would also get nothing since they represent the next 5% of the capital base.
When you get to the depositors this dynamic changes and the USG writes a check for whatever the remaining shortfall is to make sure the guaranteed portion of the deposit accounts is made whole.
So what happened here? credit outstanding contracted by 12% to reflect the wipeout of equity and debt but base money replaced the the other 18% that depositors would have lost.
Part contraction, part substituion and the buyer has a lot more liquid reserves that can be leveraged and require no production to service.
Aristotle welcome (back) I have very much enjoyed and learned from 'ye posts of olde' and look forward to continuing the process.
Michael (of Vegas, not H and not the other unbranded Michael who appeared on these pages a while back)
Michael H,
Let me grab a couple of quotes from one of your replies to illustrate what I am driving at:
...oil market dynamics can explain the rise to $145 and the cliff dive to $35 much better than the supply-demand of the business cycle.
...And more precisely, the ‘v-shaped recovery’ brought the price of oil up to ~$80, which matches well with what vtc wrote about the futures prices....
There seems to be a disconnection in many markets from the physical/tangible plane. I think these price signals are coming from the monetary plane. These tangible goods have been "financialized" through 'paper' markets. Have they also been hypothecated? In the same vein, what is the difference between a naked position and hypothecation?
In relation to the "unrealized value of oil" quote should we take note of the price of oil when Another wrote the piece you quoted?
Also how do we explain the massive price difference for a comparable amount of Btu in natgas? Gregor Macdonald seems to favour the time lag for changeover between energy sources as an explanation. In a PO or PCO world why is there so little sense of urgency among those who have access to accurate data?
This energy market we seek to understand seems totally disconnected from reality. Perhaps Dick Cheney was telling the truth when he said "we make our own reality".
Welcome Ari-
Funny you should post the link to that CNN article. Looks like this morning someone decided to get all uppity @7:06 about Washington State's latest endeavor. ;-)
--Aaron
Michael H,
Just caught up with this comment from you:
http://fofoa.blogspot.com/2012/01/open-forum.html?commentPage=3#c6177506331317269918
Very interesting numbers. I don't have better charts but you might find that this analysis presents an interesting perspective on the oil market and the price of oil:
http://www.wtrg.com/prices.htm
I can't answer your final question but that may not be necessary for the purpose of this discussion. I think we have a sound case for alleging that the price of oil has been managed alongside gold. I would take this further and assert it is being managed for the same reason. To maintain the $IMFS.
Aristotle,
As I was scrolling down through the comments I had to do a double take when I saw your name. Great to see you here.
Welcome!!
Advocatus diaboli, your desire for neutrality is admirable, but sometimes I wonder if you are not in fact Stramineus Homo in disguise. Let me give you the benefit of the doubt, and suggest you read this excellent post of FOFOA’s, just one of many on this site which explain why a store of value must exist, and why it is gold.
How Much Gold Is China Producing?
My emphasis
http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=144643&sn=Detail&pid=110649
Nichols avers that China's domestic gold mine output is, without a doubt, much higher than reported. Actual gold mine output could easily be close to 400 tons and possibly more for the following reasons:
The China Gold Association (CGA) numbers reflect production by their members only -- but omit gold mined by non-members. These include many small, unofficial mining operations some of which are illegal existing in the "underground economy".
The CGA data also excludes production from mines owned and operated by the military, which is significant according to sources. Not to be overlooked is by-product output from copper, silver, and other metal mining activity. Again, this is significant though hard to know just how significant.....
Apparently the accuracy of the figures on scrap gold are also questionable.
Another potential reason for wanting high oil prices, raising the stakes in the currency war?
http://www.zerohedge.com/news/europe-celebrates-its-latest-recession-record-high-gas-prices
Belgium's Beursduivel notes that the national average price for a liter of petrol (gas) has reached a Euro-zone record high of EUR1.76 which equates to a US (not imperial) gallon cost of (drum roll please) USD8.75 (given current EURUSD levels).
Can any of our European readers tell us if the price of diesel is following the same trend?
Cheers
costata,
I will get back to your responses, but at the moment I have something else I want to post, before Aristotle puts out something brilliant that blows us all away.
...
(No pressure or anything, Ari)
One of the pieces of evidence put forth by people who believe that the gold and silver price is being suppressed is the presence of price ‘smackdowns’: sudden large sell orders executed in such a way as to run the price lower. The thinking is:
1. If you want to exit a large position, you sell it piecemeal so as to maximize the sale price.
2. Therefore, the large block sale orders are designed to run the price lower.
3. Thus, these orders are meant to suppress the price of gold and silver.
Items 1. and 2. above are correct, but item 3. does not necessarily follow. I have an alternate explanation to propose. This thinking is much the same as what costata put forth in his ‘Silver open forum’, but perhaps he can let me know if he thinks this is plagiarism, or if there is some original thought contained herein:
1. Who is entering these large block orders? Let’s assume it is the BBs, who have been described by costata and Bron as ‘spiders in the web of the PM markets’. They see the standing buy/sell orders, and they see the order flow as well.
2. What do these BBs want? They want to book some profits today. So they’ll try to use their position at the center of the web to make money (at your expense).
3. How will they make money? They will be able to tell which way the market is trending thanks to the order flow, and if they see standing orders about to be triggered, they’ll also be able to predict if the market swing will intensify. So:
a. Market is trending in a certain direction.
b. BBs see lots of standing orders about to be triggered.
c. BBs place lots of orders, triggering the standing orders and combining with the market trend to form a large price swing. BBs exit their position at a profit before the swing reverses on them.
d. Easy money.
4. Which direction are these swings more likely to go: up, or down? Are there more standing sell stop orders, or buy stop orders? Are traders/investors/suckers more likely to want to exit positions to preserve a profit / avoid a loss, or to enter positions to jump on a price breakout? Which is more powerful, fear, or greed? I find it likely that the standing sell stops usually significantly outnumber the standing buy stops.
5. Are any of these sell stops “trailing” stops? I.e: sell Y amt of gold if the price drops X dollars from the previous high price. This could matter because, with the gold price trading at new relative highs, the trailing stops could tend to cluster just below the current price.
6. Add the ingredient that victor and I discussed: the gold price tends to be higher in Asian trading, and lower in NY trading. This is likely because of there are more buyers than sellers in Asia, and vice versa in the West. So we have a somewhat predictable daily price tendency: Asia is open so gold price rises, NY opens so gold price declines.
7. Now combine 4, 5, and 6. On a day when COMEX opens after the Asian market bid gold up to new relative highs, you will have:
a. More sell stops than buy stops in the order book, as usual.
b. Trailing stops clustered below the current new high price.
c. Trading flow tending to more sellers than buyers, thus lower prices.
Perfect ingredients for ‘smackdown stew’!
Further, the best time for this ‘smackdown’ is as soon as the price starts to decline on its own accord, which might very well be the minute that the COMEX opens.
Or, maybe traders at different BBs get together and decide that at 8:25 or what have you they will all pile on, so that they get a nice big fat price move and they all get to pad their P&L for the quarter.
DP,
Thanks for the post. I like the chart :)
costata,
” In relation to the "unrealized value of oil" quote should we take note of the price of oil when Another wrote the piece you quoted?”
Yes, I know that oil is now ~$100 vs ~$15 when ANOTHER penned those words. But I still think there is much ‘unrealized value’ in oil, at least to those in developed countries. Think of the oil:labor ratio. How much cheaper is it (in developed countries) to hire one man with a backhoe to dig a big hole, vs. 20 guys with shovels?
”Also how do we explain the massive price difference for a comparable amount of Btu in natgas? Gregor Macdonald seems to favour the time lag for changeover between energy sources as an explanation.”
I’m sure time lag of energy changeover plays a large role in the price difference. Time lag in the infrastructure to transport the fuel itself to where it is needed probably also plays a role.
Qualitative differences between Natgas and oil play a role as well: oil is much more energy dense and thus a better transportation fuel. In Argentina, the cabs from the airport all run on NatGas – foreign tourists have trouble fitting their large suitcases in the trunk, since the NatGas tank takes up most of it.
Does it take energy to compress NatGas for use in transportation? Would this affect the Btu calculation?
Overall, though, I agree with you that short-term market forces, aka influences from the monetary plane, are having outsized influence on prices of physical-plane goods.
”In a PO or PCO world why is there so little sense of urgency among those who have access to accurate data?”
Remember the quote from ANOTHER, where he says that the ‘planners’ expected the gold forward-sales to lead to a fivefold increase in the amount of gold mined? I’m sure the same applies here.
This ‘why isn’t anything being done about it’ question has more to do with the structure of our society and monetary system than it does with the underlying geology. In short, there is every incentive to maximize resource extraction and use now, and many dis-incentives to plan for the possibility of peak oil.
On the politics side, who will vote for the peak oil candidate? “I will treble gas prices so we as a country learn to conserve the world’s resources.”
On the economics side, how many CEOs will forego an opportunity today because the energy used would be better saved for the future?
I think the Saudis are aware of PO, if not scientifically then at least philosophically:
“My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel.”
” I think we have a sound case for alleging that the price of oil has been managed alongside gold. I would take this further and assert it is being managed for the same reason. To maintain the $IMFS.”
Agreed.
Thanks for the wtrg link. I’ll have a look.
I see Aristotle has indeed arrived. Thank you Aristotle for joining this blog.
Michael H,
Dimitri Speck says the interventions started on August 5, 1993. He understands a lot about statistics, in contrast to GATA and all the usual suspects. Speck has statistical evidence for three dates on which the market behaviour changed:
August 5, 1993
November 21, 1996
May 18, 2001
Seen the latter two dates before?
http://www.geheime-goldpolitik.de/english/
Victor
Nice to meet you, Aristotle.
Victor
New FOFOA post
http://fofoa.blogspot.com/2012/02/glimpsing-hereafter.html
Michael H,
so are you suggesting basically that the BB's are front-running large trends, and taking advantage of clusters of stops?
I think this is essentially the same claim that others are making with regards to manipulation of the market, with the exception that they accuse the large short holders rather than BBs.
I probably stand somewhere in the middle - if the large shorts find it in their power to manipulate the market to their advantage in such a way, I'm sure they would find it difficult to refrain from doing so! But it sure is curious the way gold (and silver) get hit before major news announcements that would otherwise be expected to send them rocketing.
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