Friday, June 1, 2012

GLD Talk Continued


As many of you know from the comments here and on Twitter, Victor The Cleaner just completed a great new post called GLD – The Central Bank Of The Bullion Banks. The timing was pretty neat. Lance Lewis' GLD Puke Indicator delivered a buy signal on 5/22 and Victor and I have been emailing extensively ever since that day discussing my view of the GLD Pukes.


During our discussion Victor conducted an analysis of the Puke Indicator using a hypothetical trading strategy based on buying spot gold at the puke and selling once the gold in GLD is replenished and found that it optimized at a puke size of about .5% of the inventory. Using 250,000 ounces as the puke size, he found that the $PoG climbed four times as much (annualized) in only one-third of the time (between puke and replenishment) as it did during the remaining two-thirds of the time. This was a significant finding which, at the very least, showed that the Indicator really does work. Using Lance's 1% threshold the trading strategy was a little less optimal, but perhaps Lance's higher threshold is more immediately predictive of big moves like today. I don't know.

But that's some timing, huh? Vic finally got his post up late last night and then today we have a jumbo up-move of more than 4%! At the very least I think it demands a little bit of attention.

Costata really enjoyed Victor's post and he emailed me with a few comments about it. I felt that Costata had maybe missed some of what I thought was an important thrust in the post and so I tried to summarize in one short email a few of the things that Vic and I had discussed over nine days of long emails. Not everything we discussed made it into Victor's post. Victor is meticulous in his exposition while I often try to cover too much ground, requiring me to just touch on some things which, if it was Victor writing, would require a toy model, some characters with alphabetical names, and a fancy chart or three.

Anyway, Costata suggested that I should post my email and JR concurred, so here you go, with minimal polish:

Costata: "It also occurred to me just now that if this analysis is correct, it makes the possibility of a run on the unallocated accounts with the LBMA clearing members even more remote. The "large buyer" at the LBMA that VTC speculates about appears to be extremely disciplined - the BIS perhaps.

Thoughts?"


Me: No, VtC divided it into two possible theories. Large buyer who knows the bottoms in the markets is one theory, an unlikely one. The second theory he called “speculative interpretation” is the real message.

If the BBs are redeeming GLD shares to fulfill allocation demands, that implies that they do not have enough 400 oz. bars outside of GLD to fulfill those demands. And that also implies that the BBs are using GLD shares as reserves.

Obviously 400 oz. bars come and go. They come in from mines, scrap and hapless investors and they go out to allocation demands and deliveries. That’s the flow. So when we see a GLD puke, we infer they were essentially out of 400 oz. bars at the time. There is no other reason for a BB to redeem GLD shares, even if it is performing the arbitrage. GLD shares, for all practical purposes, are as good as 400 oz. bars not in GLD from the perspective of a BB. As shares, the BB reserves can even be lent at interest to those who want to short GLD. In fact, the BBs could potentially have only GLD shares as their reserves, which is why Randall Strauss called GLD a “central coat-check room” for the BBs. The pukes suggest to me this may be the case.

That flow from the mines to investors is the flow. Remember when there’s not enough supply in that flow is when the stock to flow ratio explodes toward infinity. With this view, we can infer this may be what is happening with each puke.

We can’t really look at the size of GLD and the size and frequency of the pukes and extrapolate a timeline. If you look at Lance’s chart, the size of GLD peaked in 2010. If we suddenly see a puke of, say, 10% of the GLD inventory, I’d say it’s game over starting there. The largest puke so far was about 4% over two consecutive days last August. That was about 50 tonnes when the PoG was around $1,800. That was HUGE. Almost $3B.

So when the pukes happen, that is BB heart attack time, but then the price rises and eventually (so far) the puke gets replenished. So as the price rises, the reserves are stretched and so is the inflow. As Victor said, the inflow of gold from the mines is relatively constant by weight but the outflow is normally constant in currency terms. So they raise the price until the puke is replenished and then they stop. That’s the message in the post.

How they raise it, which he didn’t go into, is a little more interesting. From that LBMA survey, we can see that the LBMA had net sales in one quarter of 7,575 tonnes of paper gold. That’s a gross increase in the amount of paper gold in existence over only three months. 100:1 actually seems conservative in this light. That’s most likely FOREX use of gold as a hedge or a currency play. But even still, the BBs have to hedge their price exposure when selling that much paper gold. Without a hedge, that would be a 7,575 tonne naked short position for the BBs.

So that net increase in paper gold is also a net inflow of cash for the BBs, cash which they use to hedge that net exposure. In fact, we can see from the LBMA survey exactly how much cash it was. It was $338B. That’s over 3 months, so it’s more like $5.4B per day inflow. That’s a small percent considering the daily turnover in paper gold used as a FOREX currency is $240B and the daily turnover of all currencies is $4T. So in a $4T/day FOREX market, that’s a $5.4B/day net flow from other currencies into gold. That was $5.4B per day in Q1 2011 that needed to be hedged by the BBs.

There’s no way they hedged all of that in the “gold” market (Comex/mining forwards/GLD). It’s simply not big enough to absorb that rate of flow without rising a lot faster than we saw it rise. So the BBs must be hedging this exposure the way they hedge net positions against other currencies in the FOREX market, simply using complex formulas and derivatives that look at correlations between different things. Correlations change slower than raw price changes which (they think) gives them time to adjust their hedges if the correlations start to exceed the model parameters.

Anyway, that is a plausible way they are hedging their exposure to the price of gold without doing so in the “gold” market per se. But they can also hedge some of that exposure in the gold market as well, by going long gold on the Comex or some other way. So if they want the price to rise in order to stretch the physical side and (hopefully) replenish the GLD puke, they would simply shift some hedges from complex derivatives into Comex.

So even though they have some control over the price of gold, they are still relying on other market players from the physical side to respond as expected. And from the view of GLD as their reserve pool, we can see that reserves are not only quite finite, but they also peaked almost two years ago.

A/FOA said the ECB/BIS strategy was to “expand and support” the dollar paper gold market so the dollar would eventually “bankrupt itself” just to keep the gold market going and stay in the game with the euro.

FOA (08/13/01; 07:24:30MT - usagold.com msg#96)

A very large part of that war strategy, employed by the ECB/BIS, was to let the dollar / IMF faction hang themselves by expanding and supporting the whole arena of this dollar paper gold market [the ECB/BIS is supporting and expanding paper gold as a strategy]. Inflating the gold market place with so much "paper gold" that we would eventually have to bankrupt ourselves just to keep the dollar in the war game against the Euro.

[…]

So, don't count on this destruction of our paper gold market to mark the real value and availability of physical gold; that ratio will split somewhere down the goldtrail. This action will scare most harden gold investors to death; especially the ones in leveraged gold stocks and lesser white metals!

The war between gold and the dollar has been over for a while now. The action, today, is between the dollar and the euro arena and this is what will break the price lock on gold. Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to! The casualty on this battlefield will be the world gold market as we know it. A market caught between how Western perception thinks gold's price should be "discovered" and at what price level trading in physical gold craters the entire paper structure. A structure of American based "paper gold".

We have been saying for some time that this will be "the" show to watch unfold; but only if your holdings allow you to stay still in your seat as it happens (smile).

They shifted their war on gold to become a war on the Euro,,,, only too late. Now, knowing that the Euro is a fact, we must have a super gold price if the dollar is to stay in the game! The question becomes one of supporting a cheap paper price for the sole function of keeping the market and all its bullion players alive. With the war on gold over, they need to turn their tanks around to face the real enemy but cannot.


So it seems that as the war switched from dollar v. gold to dollar v. euro, the euro side helped make the dollar gold market TBTF. But with a rising physical gold price/demand, the dollar paper gold market has to keep up because it’s TBTF now. Too many of those “gold” FDIC stickers out there! If those stickers fail, the dollar loses. So the “gold” market is TBTF. Remember this from FOA?

FOA (10/9/01; 10:05:48MT - usagold.com msg#117)

What doesn't seem to be obvious is the "why for" the paper market grew so large. It grew to dominate because worldwide dollar expansion reached its "non-hedged" peak. In other words, the dollar's timeline was ending as its ability to produce non price inflationary economic gains came into sight.

In order to push dollar holdings further, international players needed and purchased "paper financial hedges" to balance their risk. Within their total mix of derivative hedges were found "paper gold price hedges"; modern gold derivatives. The important thing to remember is that these positions are not and never will be used to demand physical gold. They are held to buffer financial and currency risk associated with holding any form of dollar based asset. To work these items don't need to really perform "dollar price movements" in the holders favor as much as they are present in the portfolio to act as insurance stickers.

In that truth, these paper gold positions act like FDIC insurance at our banks. It can and will manage only a small determined portion of bank runs,,,,, not a full scale failure of the banking system. In a real full banking failure we would all get, perhaps, 80% of our covered $100,000 and 10% of the rest.

The same is true for these gold position's performance; real gold delivery along with true price performance, matching real bullion trading, would be only for the very few. For that matter, an actual functioning paper gold marketplace would be for the very few, too! But, in the same way a bank account owner understands the credibility of FDIC insurance when times are good; the international dollar asset owner will not grasp that modern paper gold hedges cannot be allowed to work until after a real serious price inflationary run begins.

For the first time in this portion of the dollar's timeline and our lifetimes, such an inflation is about to show its face!


So the paper gold of the bullion banks is now TBTF. Of course that doesn’t mean it can’t fail. It either fails, or the USG hyperinflates the dollar as prices rise. They are related, and each will likely cause the other almost immediately, but either one could end up being the initial cause IMO. If price inflation forces the USG to hyperinflate then the paper gold insurance stickers will have to fail to perform. And if these price rises in the gold market fail to manage the flow (demand) of physical as they have so far, we’ll likely see a 10% or larger GLD puke at some point. That would signify more than a 120 tonne allocation demand, a system-busting size. They might think they can rocket the price at that point and get it back, but more likely we’ll see more allocation requests coincident with a falling (paper) "gold" price as the longs dump their worthless “insurance” while wishing they had the real thing.

FOA (06/12/00; 19:48:25MT - usagold.com msg#26)
Put your cards on the table!

The current paper gold world will die (burn) as its value to users erodes, not increases!

…Again, most everyone in the Western Gold bug game is running with the ball in the wrong direction.

…So who is in danger of being hurt as this unfolds?

That's right, the Western paper gold long! I'm not talking about just the US market! This is about the entire world gold market as we know it today. The real play will be for the ones that get out in front of the move by owning physical…

It seems every Gold bug sees only half the trade and has great faith that contract law will favor a short squeeze. Yet, none of them see where it is the long that will be dumping and forcing the discount!


As I have said in the past, gold is so oversubscribed through the BB's paper gold it's more of a wonder when the $PoG rises than when it falls. Perhaps now we have a plausible explanation for why and how it has been rising over a decade, and also how it will end.

Sincerely,
FOFOA

PS. I realize there's a ton of stuff I only touched on here. I hope that Victor will grace us with his presence and his meticulous Thoughts. ;)



"Effect And Cause"

I guess you have to have a problem
If you want to invent a contraption
First you cause a train wreck
Then they put me in traction
Well first came an action
And then a reaction
But you can't switch around
For your own satisfaction
Well you burnt my house down
Then got mad at my reaction

Well in every complicated situation
There's a human relation
Making sense of it all
Takes a whole lot of concentration
Well you can blame the baby
For her pregnant ma
And if there's one of these unavoidable laws

It's just that you can't just take the effect and make it the cause

[Chorus:]
Well you can't take the effect
And make it the cause
I didn't rob a bank
Because you made up the law
Blame me for robbing Peter
But don't you blame Paul
Can't take the effect
And make it the cause

I ain't the reason that you gave me
No reason to return your call
You built a house of cards
And got shocked when you saw them fall

Well I ain't saying I'm innocent
In fact the reverse
But if your heading to the grave
You don't blame the hearse
You're like a little girl yelling at her brother
Cause you lost his ball

You keep blaming me for what you did
But that ain't all
The way you clean up a wreck
Is enough to give one pause
You seem to forget just how this song started
I'm reacting to you
Because you left me broken hearted

See you just can't just take the effect and make it the cause

[Chorus]



405 comments:

«Oldest   ‹Older   201 – 400 of 405   Newer›   Newest»
JR said...

Hi Victor,

Great paper by A. Aslund. Thanks for linking!

"A major conclusion by the IMF is that nominal devaluation has neither been necessary nor beneficial for the regaining of competitiveness. On the contrary, if a country maintains a fixed exchange rate, it is forced to undertake more structural reform, and is more likely to do so. Fixed exchange rates prompted the greatest fiscal and structural adjustments in Central and Eastern Europe.

The crisis resolution of Latvia has proven that internal devaluation is a viable option and perhaps even advantageous. The fixed exchange rates did not impede adjustment but on the contrary facilitated radical adjustment. This applies also to the members of the EMU. Indeed, the role of exchange rate regimes seems to be overemphasized. Maurice Obstfeld and Kenneth Rogoff (2001, p. 373) pointed out “the exceedingly weak relationship between the exchange rate and virtually any macroeconomic aggregates.” Other policies are simply more important. Therefore, the need even for major cost adjustment is not a reason to leave the euro area."

e_r said...

Hi Victor,

That paper makes too much sense for a growth-obsessed, spending-obsessed, demand-obssessed world of mainstream economics.

holdinmyown said...

Hello VYC.

You may also want to read this

http://www.zerohedge.com/contributed/2012-06-06/central-banker-utters-truth

HMO

holdinmyown said...

Sorry, I meant VTC

Wil Martindale said...

I wonder if this question (to the Russian CB) recently posed by Lars Schall has any merit:

"What does the Bank of Russia think about the fact that some key Western central banks, e.g. the Deutsche Bundesbank, do not really control their gold stocks insofar (as) they are located at the New York Fed (compare: http://www.gata.org/node/10550)? How trustworthy is a euro that does not only lack a gold backing, but is also very unlikely ever backed by gold due to the fact that the gold of some Eurozone members isn’t available for them?"

While I would contest the issue that the Euro "lacks a gold backing" I do wonder about the physical location of every bar of gold listed on line one of the asset side of the ECB balance sheet.

The onion has many layers ...

costata said...

All,

I would tread warily about holding Latvia up as an example of the benefits of internal adjustment vs external adjustment. A comparison between Iceland, Argentina and Latvia may be highly instructive. There's a middle way that the creditor's "enforcer" (IMF) seems ready to ignore every time they produce a paper which looks at these issues i.e. creditors taking some of the responsibility for blowing up economies (and sharing some of the costs) along with the debtors.

holdinmyown said...

Is a US style LTRO the next attempt to prolong the life of the $IMFS?

http://www.merkfunds.com/merk-perspective/insights/2012-06-06.html?registered=yes&utm_source=cc_newsletter&utm_medium=email&utm_campaign=2012-06-06-insight

Victory said...

VtC,

From my understanding Volume is 1/2 of Turnover, what do you think this guy is referring to when he says volume is 5-7 x t/o?

Victory said...

...also if the lbma survey reports 7500 tones net in one quarter how long has that run rate been accumulating, at that pace the annual figure would equal 30,000 tones - which is approx. the total private investment hoard or Official hoard. Do you think that quarters' reported net sales figure is an anomaly or the norm. How much allocated do you suppose is outstanding?

-v

JR said...

Well said Costata,

The IMF's conclusions are very sketchy indeed:

The tentative proof of this thesis is the cumulative output loss from the pre-recession peak in the ensuing three and a half years in four countries—Argentina, Greece, Hong Kong, and Latvia. It is difficult to compose a more disparate group of countries.

Indeed, Asland demonstrates the chosen countries do not support the IMF's conclusion, and in fact suggest the opposite.

victorthecleaner said...

Victory,

concerning Barisheff's comment, what we know about volume/turnover is the Loco London Liquidity Survey:

http://www.lbma.org.uk/assets/Loco_London_Liquidity_Surveyrv.pdf

which implies a volume of about 2700 tonnes per trading day (allocated and unallocated).

7500 tonnes new net exposure per quarter is most likely not sustainable over a longer period. What we don't know either is what the balance was on Dec 31, 2010, i.e. whether it started from zero net exposure.

I wished there was some proper liquidity statistics ever month or quarter, but that's obviously wishful thinking.

Victor

burningfiat said...

I just read this small piece:

http://www.zerohedge.com/news/guest-post-gold-standard-how-are-interest-rates-set

Author finishes with:
When evaluating any proposed gold standard, one should ask the question: how will it determine the rate of interest?

Question is, what Keith Weiner describes about interest rates under a gold standard, should also basically be true for a Freegold "standard", right?

Kinda liked his focus on the marginal saver and marginal entrepreneur. That they both have "teeth" when gold is part of the equation.

FOFOA nugget:
Our monetary system, in an attempt to be HONEST, chooses mere digits and PAPER as its representational currency. And consequently, in an effort to act WISELY, we unabashedly use this currency for immediate transactions, whereas we SAVE for our livelihoods by acquiring GOLD.

We don't have to save exclusively in GOLD under Freegold. The mere threat of us (savers) marginally moving more into gold is enough to keep the system honest.
How can we move into gold if there isn't paper? Fixed rate gold standard wont work.

Victory said...

Barisheff's talking clearing #'s not trading #'s got it thanks I missed that.

I thought I remembered reading Another saying the BB system was short 15,000 tonnes of paper gold which was built up over many years but obviously that was some time ago. 7,500 tonnes in one Qrt is such a large #, like I said annualized that's the entire private or official gold stock. I was really surprised by the magnitude since I was using 15,000 over many years as a reference.

-v

Gary said...
This comment has been removed by the author.
victorthecleaner said...

Victory,

you are asking a good question. The 15000 tonnes mentioned by Another (I remember 10000 in a different context), and also the 10000-14000 tonnes of total CB leasing volume estimated by others (Veneroso, Speck, etc.) probably contain a substantial amount of political holders of paper gold, i.e. oil states viewing this as promise by the West to deliver mined gold in the future.

If currency investors today purchase 7500 tonnes in a given quarter, I doubt there is still a large amount of what I have called political investors. The forward-selling by the mines is over. The Euro is 13 years old. They cannot seriously expect to get the gold this way. I guess (but cannot prove) that the 7500 tonnes is largely currency trading similar to the EUR/USD etc and that these people are not in there for the gold.

Victor
PS: If the banking regulation would ever treat allocated gold differently from unallocated gold, this might trigger _huge_ allocation requests.

Victory said...

VtC,

I believe it was 10,000 and not 15,000 that Another mentioned, sorry. 'political investors' vs 'currency hedgers' makes a lot of sense to me. FOFOA explained the currency hedge to me but hearing your view on 'political investors' clears up a few things, thank you.

Speaking of banking regulation and gold, this is an interesting article talking about the recent web rumors regarding Gold being made a Tier 1 asset via Basel III.

http://www.ritholtz.com/blog/2012/06/capital-standards-and-gold/

-v

Aiionwatha's Nation said...

JR,

For all of the help along the way. May have posted it before but it comes highly recommeded from someone who knows the deal.

http://www.youtube.com/watch?v=NvFdfNt8plE&feature=related

Last I heard St. Stephen, I was on my way through the Mobile Bay listening on satellite radio. Underrated.

11-9 / 9-11 on Saturday.

CB's suck. Can't wait for the first leg to get kicked out from under this monstrosity. Dealing with reality will actually be a welcome event.

costata said...

Long time readers would be aware that I have no confidence in Mish Shedlock's analysis but he does come up with some useful observations from time to time.

These two posts have some interesting stats on oil tanker rates as well as oil and gasoline usage in the US and Europe.

http://globaleconomicanalysis.blogspot.com.au/2012/06/3-month-petroleum-usage-chart-for-march.html

http://globaleconomicanalysis.blogspot.com.au/2012/06/oil-tanker-rates-lowest-since-1997-as.html

One of his reader/contributors points out:

EU demand is dropping along the same lines as USA, six consecutive years of decline, now equal to 1996 levels. USA oil consumption is at 1998 levels.

Have we hit Peak Oil Demand Destruction yet?

costata said...

HMO,

That post by Axel Merk on the the policy options open to Ben Bernanke (which you linked at June 6, 2012 1:30 PM) was very interesting. Thanks.

Edwardo said...

Costata,

We may very well have hit PO demand destruction in the U.S. and Europe. I suspect, as usual with such phenomena, the storyline is complex. I mean, which came first, oil usage decline subsequent to steadily deteriorating economic activity, or deteriorating economic activity subsequent to higher oil prices. Well, it's a feedback loop as we are likely to find out yet again now that China has thrown in the towel this morning with their first rate cut since '08.

In the meantime, all the risk on assets, oil being one of them, are being goosed as a result. Personally I think the jig us just about up-I know we've heard that many times before-but, what I mean is that the inevitable coke hits are set to cease working as before. Having said that, I imagine that the next round of white powder administration will be the biggest yet. It will fail miserably, but if it's big and bad enough-the coke hits always have to be bigger until the patient expires- it will buy some time. And even with something in the cards of truly unprecedented scope and size, my view, (not that you asked for it) presently, is that this time things will unravel in record time. So, instead of months to years, it's days to weeks.

costata said...

Very Off Topic

Land drives RE values (prices). The nominal bottom in US residential RE is in. Cash prices BTW not market "value" for non-distress sales where short sales and foreclosures are selling for 20 per cent less. In a deeply distressed property market the market clears for cash and that price is the market "value".

Another telltale sign is when en globo land prices turn upward from the lows. That's the market bottom in the rear view mirror.

http://www.lvrj.com/business/las-vegas-land-sales-show-dramatic-rise-157424385.html

I think this situation begs the question: Is there a way to acquire, or profit from retaining your existing US residential RE, without risking your gold or risking a loss due to a policy response to HI?

Like I said off-topic but questions along these lines have been raised in these pages from time to time.

costata said...

Edwardo,

I'm always interested in your opinion requested or not. I still think this game has a ways to go. The PTB haven't run out of options yet IMHO but the ice grows ever thinner.

Cheers

AdvocatusDiaboli said...

Hi costata,
"risking a loss due to a policy response"

jep, that's, what I guess, we are all looking for, and one of the most perfect reason to hold physical gold, regardless of (H)inflation or deflation talk.
I am still keen on playing some stocks. Now e.g. regarding France, Holland took over:
1.) decreased the retirement age (obligations)
2.) today plans on punishing companies for laying off people (what is already almost impossible in FR...)
Made it finally easy for me to say goodbye to France and press the SELL button on all FR stocks that are in the positive right now.

So sooner or later you run out of alternatives to gold :(

On RE: Read history, always RE owners had to pay the party in the end in one way or the other. So I wonder why this should change.
Greets, AD

Woland said...

Edwardo:

Re: the coke hits: In the US, pension funds are allowed to
use a projected rate of return on assets held of 8%. As bond
yields have tanked, and stocks have failed, by and large, to
perform, large unfunded liabilities have accrued. There is a
3 year allowable window for corporations, govt. entities, etc
before shortfalls have to be met by topping up with cash.
The only way around this dilemma is to goose the market
in risk assets. Since bond PRICES cannot go much higher
from here, and real estate is plagued by huge shadow
inventory on TBTF bank books, the only game left is to
drive stocks higher, by any degree of coke hit necessary.
It makes me think of a blowfish. In defense mode, it
greatly swells in size, but it's still just a blowfish, when
you have to eat it. (And watch out for the liver-very toxic)

JR said...

Hi Aiionwatha's Nation,

Thanks for sharing, your friend is wise ;)

I like the concept of a world not short on answers as to who has plenty of "wealth" and why. A world not short of harping on the "ills" of what was traditionally "wealth." I think about how FOFOA touched on these themes in Yo Warren B, you are so OG!.

And amidst a transition in these understandings as we escape "modern dogma" to embrace "The Pure Concept of Wealth", I hear words that hearken back to a more traditional age and their offer of simple wisdom and I smile:

Answers aplenty in the bye and bye
Talk about your plenty, talk about your ills
One man gathers what another man spills


=========================

Date: Sun Oct 05 1997 21:29
ANOTHER ( THOUGHTS! ) ID#60253:

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

[...]

The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that going nowhere, at least in currency terms. ( if one can only see value in paper currency terms then one cannot see value at all ) The problem for the CBs was that the third world has kept the gold market "bought up" by working thru South Africa! To avoid a spiking oil price the CBs first freed up the publics gold thru the issuance of various types of "paper future gold".


Yes:

"The Western public will not hold an asset that going nowhere, at least in currency terms."

"One man gathers what another man spills"

e_r said...

Costata,

On that note of Peak Oil Demand Destruction, here's an article that may be of interest.

GDP Fudging happens everywhere.

India's growth though positive, is still lesser than inflation which means India is shrinking.

Recently, they hiked Petrol prices too causing much social angst.

Indenture said...

JR: Prepare yourself and you can smile. http://www.youtube.com/watch?v=tkAzMiEUUQ8

Edwardo: Can you explain more on why we have 'days or weeks'?

jojo said...

Still remember where I was and what I was doing when Jerry died...
These guys are in the same vein and this song brings a smile to my face every time I listen :)

Edwardo said...

Hi Indenture,

I think the risk is high that whatever the monetary authorities cook up this time in response to a global economy that is, again, teetering badly- and, therefore, (most importantly where CBs are concerned, threatening to a chronically fragile big banking sector-that we are fast reaching a vanishing point with respect to managing that most crucial of all variables associated with the maintenance of our system, namely, confidence.

The various schemes that The Fed has heretofore enacted, i.e., QEI- swapping cash for trash, QE2- buying up treasuries, and, now, if Axel Merk is correct, some sort of LTRO, we are, to repeat, (well, sort of) deep into the law of diminishing returns with respect to CB coping strategies. And, as I remarked sometime ago in a prior thread, my view is that none of these gambits have had anything like the efficacy of the suspension of mark to market accounting. And that most appalling and fantastic gambit of all is, with each passing day, becoming more and more threadbare itself.

At some point-obviously I think not too far off in time- genuine financial reform must be honestly and effectively implemented and our economic ills honestly addressed. All else is just badinage, and none to amusing badinage at that. As some former GS operator-now a private money manager, if my information is correct,- observed, the most recent recovery, (if you can call what has been going on for the last few years a recovery) failed to recoup the losses incurred from the last downturn. By definition you can't have had a recovery when that which was lost wasn't restored.

In short, to quote The Shrub, this sucker is going down, literally. The trend is clear, and, the action in the stock market over the last few days may, in retrospect, be a harbinger of what I am imagining. To be specific, this blast higher is clearly the result of an expectation of CB intervention. But I am not convinced that liquidity, in whatever amount, is going to trump a global economy in the process of doing a face plant. As such, with respect to the next shock and awe campaign by the monetary authorities, don't be surprised if-now that we have had a buy the rumor experience, that we don't subsequently experience a sell the news event when they finally announce whatever desperate plan they have in mind.

P.S. I'm not a deflationista though I imagine I sound like one just now.

enough said...

Hi Costada,

you stated........

"Is there a way to acquire, or profit from retaining your existing US residential RE, without risking your gold or risking a loss due to a policy response to HI?"

I'm not sure what you mean by this? Are you implying "confiscation" of gold as a policy response? Confication of property? both?

FYI A few years ago I bought 40 acres of old growth wooded land with about 10 acre of pasture. Land like this in the rural SE of the USA is still very cheap at $2000 per acre or even less. Very productive land with long growing season, mild winters with plenty of water. Lots of deer and turkey. Property taxes are incredibly low at $300 per anum for the 40 acres with a 1800 SF workshop and small home I built on it. Also plenty of places to hide gold out there :-)

Best, E.

holdinmyown said...

Hello Edwardo.

"In short, to quote The Shrub, this sucker is going down, literally. The trend is clear, and, the action in the stock market over the last few days may, in retrospect, be a harbinger of what I am imagining. To be specific, this blast higher is clearly the result of an expectation of CB intervention. But I am not convinced that liquidity, in whatever amount, is going to trump a global economy in the process of doing a face plant. As such, with respect to the next shock and awe campaign by the monetary authorities, don't be surprised if-now that we have had a buy the rumor experience, that we don't subsequently experience a sell the news event when they finally announce whatever desperate plan they have in mind."

FWIW I agree with all you have said above. My point previously was that this dog may still have some legs left yet. I don't know how it will unfold but I do not underestimate the ability of TPTB to extend the life of the $IMFS nor do I underestimate the stupidity of the shrimps to believe that what has worked for the past 100 yrs is bound to work for the next 100 yrs.

Let me be clear ... I do not expect this system to last another 100 yrs. Hell it probably won't last more than 3 yrs. But the general population is not even contemplating much more than a short-term recession at worst. There is still a lot of confidence (credibility) out there. Rome wasn't built in a day and it wasn't destroyed in a day either.

There may be several risk-on/risk-off periods to come (even large ones) before the ultimate waterfall occurs.

HMO

costata said...

This notion of a Fed sponsored LTRO program instead of QE3 is intriguing to Uncle costata. Let's put the three articles below together and see what we have. Firstly the article linked by HMO earlier:

http://www.merkfunds.com/merk-perspective/insights/2012-06-06.html?registered=yes&utm_source=cc_newsletter&utm_medium=email&utm_campaign=2012-06-06-insight

In this article Axel Merk discusses some unconventional policy options outlined by Ben Bernanke over a number of years (including the period before he became Fed Chairman). The notion of a Fed LTRO style program is one of the options canvassed.

Now let's put the Merk paper together with this article discussing the Fed dollar FX swap programs as a kind of $IMFS sourced inter-bank LTRO program:

http://www.businessinsider.com/what-are-the-odds-of-a-global-coordinated-intervention-2012-6#ixzz1x9cLf5cW

And with fears about bank runs in Spain escalating, some analysts expect some kind of coordinated central bank action similar to that which we saw announced last November to lower dollar swap rates between banking systems.

This article discusses the original swap program launched during the initial phase of the GFC:

http://www.businessinsider.com/credit-swap-line-extension-new-round-of-qe-2011-12

The link to this second article is introduced thusly:

That program lowered the rate at which the Federal Reserve loans dollars out in exchange for foreign currency and gets them back at the same exchange rate plus interest. Central banks currently pay 50 basis points above the rate at which U.S. banks can hedge against currency risk, but lowering this premium could help struggling banks to meet dollar funding demands.

Now take into account that most, if not all, of those orphan US dollars outside the USA aren't coming home. There's no point as there are no assets large enough that those dollars are permitted to buy that would make a difference to FX reserves. So its USG debt at ever lower rates or nothing. Now unlike QE those swap dollars have limited inflation potential inside the USA.

Of course they have the potential to increase the float of US dollars outside the USA and therefore (if you accept the quantity theory of money explanation for inflation) they could lower the US dollar exchange rate and provoke dollar price inflation.

But that could be a double win from the Fed's "save the banking system" perspective. Firstly a lower US dollar. And a dollar LTRO program of this type insulates the US banking system from failure to repay dollar denominated debt by foreign banks.

And for the EU perhaps a further quarantining of those EU bank dollar liabilities into the Eurozone. Certainly not a final solution but it places the problems inside the currency zone rather than outside it.

This leaves a problem for the Euro issuer of course. How do you sterilize the increase in Euro issuance through those Eurodollar swaps? One way of doing this would be for other US dollar holders to exchange their dollar holdings for Euro. An increase in Euro invoicing and use in trade would help with that international Euro issuance sterilization quite nicely.

So let me leave the Euro-sceptics with a conundrum. I assert that the only viable international trade currency alternative to the US dollar is the Euro because of the US dollar. (Bi-lateral swaps are in their infancy and of limited use in multi-lateral trade anyway.) The Euro-dollar market is the only "pool" big enough to ensure that you can always hedge your FX exposure in either direction. If you want to exit the dollar for trade then the Euro is the only other game in town.

Last, and by no means least, note the relative stability of the Euro + other currency cross rates as the Euro moves up and down against the US dollar. Quite important if one can disengage from a US-centric view of international trade for a moment or three.

Cheers

costata said...

enough,

Are you implying "confiscation" of gold as a policy response? Confiscation of property? both?

Neither. Questions about RE have cropped up in these pages regularly. If, as I assert, the US RE market overall has bottomed then this is crunch time for people mulling over a decision about whether to act unless they think that HI will not affect the replacement cost of housing (buildings and other improvements that is). In other words, HI in food but not in, say, nails, paint and glue.

If land has bottomed then the asset inflation has been squeezed out of the land component. (Heads up debt deflationists - at least for the RE "asset class" that's your 15 minutes of fame done and dusted.)

If you have a mortgage then in order for HI to "pay it off" in depreciated dollars you need to be able to hand over the dollars. If you enter into a mortgage with a hedge in gold designed to take advantage of the revaluation of gold then you need to be able to convert to dollars for the same reason.

So my question comes down to this: What could stop you from being able to do this?

I threw out a couple of suggested talking points (e.g. policy) nothing more. I wasn't implying anything specific.

costata said...

Primary Budget Balance

If Avinash Persaud says so I believe it (my emphasis).

Aggressive restructuring of Greek debt within the Eurozone, not departure, is the best path. A path made more possible now that Greek austerity is delivering a budget surplus before interest payments.

Game changer if the Greek politicians have the will to seize the opportunity.

http://www.voxeu.org/index.php?q=node/8043

Now onto Spain to see if the current account balance can be parlayed into a primary budget balance by the government.

AdvocatusDiaboli said...

"One example of an aggressive restructuring would be for Greece to announce that it is swapping all of its outstanding debt with a 20-year, euro-denominated bond that would pay a 0.50% interest rate."

Which is basically a default on its obligations, but kicking the can down the road: The next bond obligations will again be exclusively financed by the ECB.
So actually this does not really matter, problem not solved at all.
Greets, AD

Texan said...

Costata,

IMO resi RE in the US far from bottoming. It's a very complex topic, but I think the two main reasons are massive shadow supply (banks holding back on sales) and declining median income in the US. The upwad price blips you are seeing in places like Phoenix and Texas are due to rental investor bidding competition (good luck to them - WB's favorite investment idea, apparently, of course he owns Wells Fargo) and relocation arbitrage out of California.

The main issue with resi RE as an investment (as opposed to a primary residence) is that the rental yield requires being able to take advantage of the depreciation tax break, which in some cases creates negative income for tax purposes, ie a passive loss, which is then used to cover other passive income from other sources. If you don't have that - you can't effectively use the deduction and the economics are quite poor, in general.

. Cash-on-cash, the rent barely covers property tax and basic annual maintenance, so if you have to pay for real maintenance (nex boiler, a/c, roof, etc), and/or you have frequent turnover on your lease (so you have to pay rental commission and endure dead months). And that's assuming no financing cost - which I would put most properties near zero return and probably negative. The simple math is 4-5% mortgage (invest property finances at higher rate) + 1-3% property tax + 1-3% maintenance + 1% broker fee.

Texan said...

Which leads to your HI idea. I do think land is a very good hedge if it covers it's taxes, and if it is productive farmland even better. But the "trade" is already happening, with class a soils in Illinois and Iowa up 25%+ last year alone, and basically up 300-400% since 2000 ( tracks gold pretty well, actually).

But resi RE is going to see you non- fixed "cost vectors" such as maintenance and to some extent property tax go up with HI also, while your tenant sits ther paying you $1,000 a month to the end of their lease. Even assuming you can re-lease, I think the property will start to go upside down pretty quickly.

Of course you can sell it, but the market will be very illiquid and I doubt there will be much financing available. So yes it would be better than cash, but I would choose your property very, very carefully - and go with land that has some production value if possible. Or maybe an apartment building.

But that's just me. If you create enough scale and enjoy managing tenants and doing house repairs etc, and you have the time for it, I can see it working. But not anywhere near as well as gold, or even silver

Texan said...

Costata,

I missed the "policy response" part of your question. One scary possibility for a landlord would be the government might freeze rents and prevent evictions in the instance of HI. There are still plenty of units that are rent-controlled in NYC for example. It might even be a likely response. So yet another reason I don't like it as a "transition vehicle".

AdvocatusDiaboli said...

"One scary possibility for a landlord would be the government might freeze rents and prevent evictions in the instance of HI."

Its not a possibility, it is a fact that this will happen (already standard in socialist EU(RO) land, even in "peace times").

With farmland, in the EU the farmers today are already basically slaves on their own land, due to price&production&planting controls by the EU-agricultural-politbureau.
So even you are the proud holder of the ownership title, fact is, you dont OWN it, the state owns you.

As long as there is no rule of law, you only own it, when you hold it in your hand:
http://www.youtube.com/watch?v=cVdI4Kx8TdY

Texan said...

AD, I have no idea about EU farmland, but I suspect that even with all the restrictions/taxes it's made it's owners (by and large) a decent return.

The same could happen here, but the farm lobby is very, very powerful since it covers almost every state. If anything, I would say that US farms enjoy very favorable subsidy and tax break opportunities.

Not to say it couldn't be quasi-nationalized ultimately, but I suspect again that would be be done through price controls of some sort.

AdvocatusDiaboli said...

Texan,

the EU agricultural politbureau has a 7yrs. plan. No joking, it is exactly just like in former EastGermany/UDSSR. It decides precicely who gets what kind of benefit on what land on what product at what quantity. It even determines benefits on land not to farm.
So it can be good but it can be bad as well, it has nothing to do with a free market. So in a certain way, it is a gamble.

Now what is the reason to do so? Sure, it gives "favors" to the farming lobby, that's what the lobbists think. But only at first site. The farmers would be better of in a free market or founding their own "Food-OPEC".
In the end it comes down to this: The state takes over the market to make sure that the working slaves get feeded to continue working in total dependency for the statism.
http://en.wikipedia.org/wiki/Common_Agricultural_Policy

It even states officially the objective:
"to provide consumers with food at reasonable prices."
Which is in the end the nice translation of "price suppression".

Greets, AD

P.S.
The US have the most perfect example of such interventions, see the old "Agricultural Adjustment Act".

Texan said...

Thanks AD. I learn something new everyday on this blog.

The spirit of the AAA if I am reading it correctly was to raise prices by paying farmers not to plant. That lives on in the Conservation Reserve Program, more affectionately known as CRP. Basically it's rent payments to landowners to not plant, and usually CRp ground is more marginal. I happen to think it and the other conservation programs are actually quite beneficial, but that's a subject for probably another topic and another blog.

Woland said...

FOA on real estate:

"We all have trouble understanding how there is no value
known for physical gold. Yet, if we look at another market
we could grasp the issue. Take American real estate:"

"We all have an idea what that house down the street sells
for. But consider that the price does not reflect the true
value of the physical house. Just watching the 30 year loan
rate tells us where most home prices are going. I think (as an
unreal example) almost every person would agree that if the
Fed went into the market to buy any and all 30 year house
loans until the rates fell to 1%.... home prices would explode.
Conversely, if all credit for houses were shut off ..... cash
deals only ... home prices would crash.
How does this reflect on the gold market? We can see where
a cash house is worth one price while a credit house is at a
different level. The physical is the same even though the
means of trading and owning it generate an illusion of value.
You don't REALLY own a house bought on credit, in this light
we can see that you live in something actually owned by the
bank. But you benefit from trading it if the price rises. Actually, currency profits from ownership illusion."

I wonder if FOA could have imagined, when this was penned,
that the Fed WOULD go into the market and buy ALL 30 year
paper, not at 1% (yet) but at close to 3.5%.

Edwardo said...

I basically agree with Texan that, in the main, RE's going nowhere in the U.S. Now, having said that, Texan's talking a certain amount of rubbish since, for example, rental commission is paid by the renter. At least it is where I live. Also, all RE is local, local, local and, just about everything else is highly dependent on, drum roll please, supply and demand. As such, there are pockets of relative strength, considerable relative strength, all over the U.S. And, guess what, that will likely continue short of a complete economic collapse.

AdvocatusDiaboli said...

Edwardo,
you should add to your sentence:
"....dependent on supply and demand" OF CREDIT!!! IMHO the most important thing to watch out in todays market.

and:
"rental commission is paid by the renter"
you also have a misconception there: If the renter can/want/will only affort a certain amount to pay for the rent, in the end it does not matter who officially pays the commission, it is gone of the net surplus, transfered into the pocket of a third entity.

Biju said...

I disagree Texan.
Real Estate has bottomed in USA in my opinion.

(1) Price to rent ratio is at or near all time low level. Rents are going up
By 6%, so even if price remains same, the ratio will go down.

(2) Cash buyers from china is buying up here in bay area, ca. Even outside
Bay area in central valley. I was outbid last fall by csh buyer for $420K.

(3) the price of house is slowly creeping up in central valley CA from $105 per sq.ft hit last 2 winter season. This is less than the cost of production in my opinion. Cost of basic structuring is approx 80 to $90 per sq. ft. Add the land cost, dev cost and permits
Etc, it will come more than $120/sq. ft.

So I think price is going up.

Edwardo said...

Credit is only marginally involved in the rental property dynamic where the supply of rental real estate is static, i.e. composed of already existing homes.

Texan said...

Biju, it is precisely the cash buyers that worry me. Because in all the models I have seen, they turn into sellers at a certain price. Ie they are spec'ing on capital appreciation. They are also spec'ing on rising rents, and I think it's amuch harder game than people appreciate to keep tenants when rents are rising.

The Chinese I get - the Brazilians (and to some extent now the French) are doing the same thing in Miami and NYC. But that's a safe haven currency trade and people aren't entirely economic when making those decisions.

But hey that's why there's a market. If you want to buy a $420,000 investment property and clear 3% - 5% a year, more power to you. Not my thing.

Texan said...

My last postbfornow on the RE topic - the most important takeaway for me that we are even discussing rental property as a HI hedge (or just income earner) speaks volumes about FOFOA's HI thesis.

That is, there is literally now almost nowhere to put "meaningful amounts" of fiat savings and earn any sort of semi risk-free return. I think it was Credibility Inflation where he said the Hai had already occurred, and OBA and other have referenced the "trigger" as possibly being negative nominal rates - well, we are pretty much there.

All that cash looking for a home (get it?) to avoid negative rates. People are investing their savings to competitively bid for rental home properties. Yikes.

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

Texan :

No, I was not looking to buy an investment property for $420K but a primary home of residence with 10% down(I did not want to put down more since selling Gold was not an option) and I did buy last fall for $110/sq.ft.

Nowadays in bay area where rents are rising fast, you can make a 10% earning after expenses in a house. Not in the central silicon valley area(which is still over priced) but 30 mins away with excellent schools, buying is good in my opinion.

In my area - 50 mins from silicon valley but in central valley, inventories for selling has drastically gone down prev there was more than 200 properties , now 25. I think the Chinese are getting a good deal to offload their dollars.

Also you cannot refute that - price cannot go below cost, they will just stop producing new homes and work of the existing inventory. That is the case in central valley. Price can go down only if material cost goes down. Not happening especially with the Inflation picking up in USA.

Biju said...

Also regarding Woland mentioning FOA, that house prices go down if cash prices are lower than credit prices. I agree that as valid in 2000 to 2010, but in many areas the cost price = sell price now. prices have gone down by 70%.

If prices are near less than cost of production - what does it matter if it is cash or credit. Cannot produce less than that just like Gold oz below production cost there will be no production unless they are obligated because they sold some futures(for houses ??)

Indenture said...

What does the Fed do with all that 30 year paper it now holds? Does the Fed therefore own the properties?

Texan said...

Biju, I can't speak to your area. And yes, a primary residence is a totally different calculaton, one where you could easily beat rent in many cases.

But to your point on replacement cost, oh yes properties can go well below replacement cost - and stay there for quite awhile depending on absorption rate. Look at Detroit or Buffalo. And yes, it will shut off new builds. If i heard their CeO recently correctly, Radar logic estimates something like 11 YEARS of supply between stated and shadow inventory. And the problem is that you have about 25-35% of houses NOT on the market in negative equity position, so any drop in prices adds to supply, then add to that the 30-40% of recent buyers being cash investors! They in effect are evn more shadow supply, and will flip if there is any meaningful price appreciation. So they act like a cap.

Anyway, sorry again to post on this. FOFOA many thanks for your indulgence.

Motley Fool said...

As regards US RE, I think the bottom that is seen is due to the FED stick save. I think the observation that nominal bottoms are in, is likely correct. Personally real terms has always interested me more. :)

Biju said...

Texan :
(1) Cash buyers are strong hands, they don't liquidate below their buy price or they rent.

(2) Prices can go down below cost of production like detroit of buffalo only if there is an exodus of population. Not going to happen as a whole for USA especially with annual legal and illegal immigration. US still has highest birth rate among developed world.

Biju said...

I would like remind folks here that to write off USA's capability is wrong. USA is still very strong in medicines,food grains, fruits, mining, high tech, bombs&guns, ports and inland waterways, etc...

HI can make a dent for a short interval when USA will be cheap to buy. HI may even cause a small blip in immigration but long term USA has good advantages.

Edwardo said...

Since it's on topic, sort of.

http://www.zerohedge.com/contributed/2012-06-08/4-emerging-trends-housing-market

Sarah said...

This just in --- I'll Have Another is dropping out of Belmont Stakes race. Awww...I hope the injury isn't too serious and sustaining.

Gary said...
This comment has been removed by the author.
jojo said...

Sarah said...
This just in --- I'll Have Another is dropping out of Belmont Stakes race. Awww...I hope the injury isn't too serious and sustaining.


Drudge headline:


TRAINER: HORSE'S RACING CAREER FINISHED...

Motley Fool said...

Hmm

Brodsky on "Gold Monetization And The Big Reset"

;)

Motley Fool said...

Some ideas from teh above article :

"Asset monetization (and in, particular, gold monetization) would solve many more problems than it would create."

"An eight-to-tenfold increase in the gold price via this mechanism would fully-reserve all existing US dollar-denominated bank deposits (a full deleveraging of the banking system). An appropriate multiple of today’s spot price could fully-extinguish the public debt if desired."

"We are convinced policy-administered asset monetization would stop the global financial system from seizing, restore sorely needed economic balance, and reset commercial incentives so that real growth can once again gain traction."

ElaisaKasan said...

Where is the EuroGold?

The ECB has gold on its balance sheet, but is that gold in their vault?

Perhaps the ECB has paper pledges of gold from member states.
Perhaps the physical gold remains in the member country vaults that actually own the gold.

Paper promises will burn. So does the ECB have real gold on its balance sheet?
If the Euro is backed only by paper pledges of gold then the Euro too will burn.


Please correct me if I am wrong.

e_r said...

MF,

Very interesting read.

Would this be another form of perpetuating moral hazard? Superficially, it would be easy to conclude so; however, we think this conclusion would be incomplete. Such a “subsidy” is already embedded and institutionalized in the system. The key distinction would be that the system will have been reset to promote fairness and efficiency going forward. Given today’s circumstances, that should be a universal, non-partisan goal.

Sounds very close to Freegold to me. But this is the part where I'm a bit confused:

When they talk about "gold price peg" are they talking about defending a gold price a`la Jim Rickards or a fully free-floating gold price?

Jeff said...

hI Elaisa,

You are wrong. :)

FOFOA: The gold never moved. It's still wherever the NCBs had it stored before it was "subscribed".

Even the subscribed foreign currency reserve assets are still with the NCBs in most cases.

But all operations affecting foreign reserve assets including gold and foreign currency reserves within the Eurosystem are subject to approval by the ECB. So in effect, it is the consolidated amounts, not the ECB's subscription, that matters.

AdvocatusDiaboli said...

Hi Gary,
"No, my conclusion is the writer is some kind of quasi-communist, or is totally mad."

never thought that I would agree with you in my life ;)
But forget about the lunatic writer, what is really scary and distrubing to me about shit like that: THAT THIS CRAP IS PUBLISHED/PUSHED/TOLERATED.

What does that imply for the overall superorganism? I am thinking about that especially since there is a bankrun in the EU going on, never been anything closer over the edge, but still, physical gold available whereever you look and also price not rising, but bonds appear the focal point to be.
It is just crazy.
Greets, AD

Edwardo said...

Hi MF,

Fully reserving U.S. public debt sounds good, but fully extinguishing said debt is vastly better of course. And, in accordance with our host's outlook, it is the endgame where the great financial/monetary system reset is concerned. After all, why settle for simply arresting a disease when one can, in effect, eradicate it altogether.

It does make me wonder though if the revaluation will occur in stages. Since approximately 2000, we've been in stage one, a slow moving affair that, as revaluations go, amounts to setting the table. It's been a nice start, the creation of, as it were, the (RPG) launch pad. But now it's getting time to send the golden puppy into outer space, with, perhaps, a slight pause upon entering the stratosphere.

thedeadfauvi said...

RPG made in EU!!!

Breaking!!!
newdirectionfoundation.org/documents/public/custom_search/Time%20for%20a%20historical%20compromise%20-%20Speech.pdf

Gary said...
This comment has been removed by the author.
The Engineer said...

Interesting text from KWN: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/8_London_Trader_-_Staggering_515_Tons_of_Gold_Sold_in_4_Hours.html

Tony said...

I share Gary's struggle at reconciliation and would hope the regulars like costata, JR, MF and others chime in.

Motley Fool said...

Hmm

I think HI first, and then gold re-evaluation by the euro as solution during the crisis. And then adoption by other currencies of the solution.

Remember that none of the countries want to be blamed for the fall of the dollar from the pedestal of reserve currency, so no-one would force FreeGold, unless under duress.

So my opinion is that it would be reactive.

TF

costata said...

AD,

Did you read the paragraph you quoted from that Persaud post? (My emphasis)

"One example of an aggressive restructuring would be for Greece to announce that it is swapping all of its outstanding debt with a 20-year, euro-denominated bond that would pay a 0.50% interest rate."

You wrote (in italics here):
Which is basically a default on its obligations, Yes

...but kicking the can down the road: Nope

The next bond obligations will again be exclusively financed by the ECB. Nope "all of its outstanding debt" as above of a country with a balanced government budget which no longer needs to borrow.

So actually this does not really matter, It matters alright.

...problem not solved at all. Dead wrong.

Texan said...

Gary,

I will take a stab at this. If there is a sudden "reset" and gold goes up by a factor of 25 let's say (50,000/oz), we will have had "HI" - all at once.

The question becomes how does everything price after that. Even if oil is widened to a 100:1 ratio, you are still looking at $500/bbl. Which in turn will jack up the price of everything by orders of magnitude and presage a massive shift in purchasing power to gold-holding countries like India. Which geo-politically just isn't going to happen. Does the UK even have any gold left? Do you think they would agree to a pricing system based on a SOV they don't have? I don't think so.

I think if a voluntary reset was in the works, we would see more signaling going on. They can't even agree on how to bail out the Spanish banking system, or even slightly reduce the US deficit,, so voluntarily and secretly resetting the entire monetary system seems far beyond their capabilities, and probably their interests as well. Honestly, I can't imagine a better time than now to "launch RPG". And yet it isn't. Occams razor - there is no Plan B. .

costata said...

tdf,

What is the supposed connection between the Kerber paper and RPG?

My skim read of that paper has it as basically a competitive currency proposal with a Guldenmark as one of, or the main, "alternative" to the Euro. Basically the same as Ron Paul's proposal for the USA.

BTW the thinly disguised nationalism and undercurrent of rivalry with the French didn't add any value to Kerber's proposition IMO.

What benefit do you perceive this proposal to have for the EU?

And that's not an invitation to rehash the standard diatribe against Brussels and the EU either. Define some concrete benefit.

costata said...

Re: Batting order

My view of the sequencing given events of the past few years is that it will be US dollar HI first to devalue the debt and then Freegold-RPG revaluation to terminate the HI, if it hasn't already burnt out by then, in order to put the US government at the top of the heap again (but not alone this time around).

Re: US RE

Interesting discussion. I don't think FOFOA will mind if we explore this a little further. A few quick thoughts.

FWIW I thought Biju made a few interesting points. If taking on a mortgage is cheaper than renting and the difference is put into gold then I suppose it comes down to how quickly the transition occurs and whether the cash used for the deposit can be recouped in time to position for the revaluation.

I think enough's rural bolt hole doesn't need any justification if you fear that things might go Mad Max before this is over.

Anyone care to make a case for gold exclusively versus gold + an RE purchase of a principal residence as a transition vehicle? Perhaps touching on the risks as AD did in an earlier comment (as did Texan).

Cheers

thedeadfauvi said...

Costata,

it's not about paper money. In my view it's a way murmuration starts. Gulden mark it's another name for RPG because "all paper will burn", I'm afraid. I know your thoughts about the euro but I fully agree with the Texan and nobody not living in the EZ can imagine or feel the beats we now have around!

thedeadfauvi said...

BTW Costata
nationalism is stronger today than ever in peace times! Hate and violence rise by watching.

RE buying in such uncertain condition, well quite a bad decision. i know some quite rich people who stare at their money and are incapable to make a decision. ANGST is everywhere except by debtors. They want more and longer the same they are used to get.
From "gulden mark" to RPG is a very small pace to make and not by politicians, but by citizens/savers preparing for the reset.
the smallest pieces of gold /999,9 cost about five euro.

FOFOA said...

Hello Victor,

My reader who is a forex trader (mentioned here) sent me a response to our discussion/speculation:

"Hi FOFOA,

Re correlated assets:

All the big IBs have delta-1 desks. Do you remember the UBS trader that blew up and was big in the news last year? He worked the UBS delta-1 desk.

What is delta-1 trading? It's exactly what's described:

"The only answer I can think of is that they hedge it by going long correlated (but not identical) assets. What's correlated with paper gold? Silver, copper, euros, crude oil, interest rates, yield curve spreads, whatever."

The job of the trader is to use quantitative methods to build a synthetic instrument with a delta as close as possible to the desired underlying.

I made a quick delta-0.7 using some regression and eyeballing, with AUDUSD+(0.5*CADUSD)+(0.2*10YNotePrice) providing a good starting 'kernel'. Good enough that you could make up the other 0.3 deltas dynamically in the OTC/FOREX gold options market. Obviously any quants who want can build their own synthetic too. If they have access to OTC markets, it will be very very simple. Obviously the goal would be to 'long' this synthetic, to hedge the underlying short, to reduce deltas to 0 or near 0.

However, this has lots of problems in size, execution, modeling, etc. Problems a CB will definitely avoid at all costs. I bet you they will not use this technique, ever! It is only useful for a much lower liquidity scale and the complexity introduced adds a lot of risks! I think it's much more likely that the operations were conducted entirely in the FOREX/OTC gold options market.

If you are long/short the underlying and don't want the directional risk you can hedge your deltas relatively cheaply by trading around your position using options. If you are a big player in the market, you can actually make money doing this, using the options to get better prices for your underlying position that the market wouldn't be able to otherwise cope with.

This would also better explain the effect of price rising after the puke, as it is likely the result of a leg of the hedge being exercised/assigned or rebalanced. If you want to drive the price up you just sell more puts (puts being a good proxy for volatility). The Fed does sell puts in the Treasury market. I hear all the time in my daily trading that the PBoC is running some exotic options strategy like trying to get a better price for their USD to EUR reserve rebalancings with double no touch and similar options plays. They can do this because they have a large inventory net long/short in the underlying.

Just my 2c."


Anyone see that movie Margin Call?

Sincerely,
FOFOA

FOFOA said...

Here's a little more forex "inside baseball" from her for anyone who's interested:

"I also hear a rumour this weekend from a buddy that the ACB with bids in at 1525 was BoKorea. Not PBoC.

I have a feeling he knows the true size of the bid, but he isn't letting on.

Often-times what you can see in the order book isn't the whole order, traders might put in a buy limit just to let the 'auction' know there is liquidity waiting to bid at that price. They watch the reaction.

In this case it looked like the presence of the bid 'supported' the auction: other traders who saw the book front-ran the order and bought higher prices 'at market'.

In the case the bid is filled, the 'pros' at the bank will see how well the auction responded to the fill and do some 'market making' around the price to carefully increase the position until the 'true size' is filled.

Were they filled fast and at full size? Maybe the market was a little too quick to sell to them, they'll introduce resistance at the current price by offering chunks of long inventory and increase support at a lower level by listing new bids in the book at lower prices. Maybe they think there's plenty more for sale in the next few days and are happy with the price so they offer only small amounts and keep adding large buy limits until they are all filled.

Were they filled only 75% and it took 5 mins on the phone? They might stop filling other traders bids and push every offer in sight up to 1530 before letting the price drift down (stop pushing offers) and repeat until happy with size.

BoK is an interesting case because they do active FOREX interventions at much higher frequency compared to other similar size CBs, they will go out and buy USD/KRW or buy KRW/USD in big chunks depending on where they feel it should be. In Asian hours they might be selling USD they bought overnight, or they might start reacting to an overnight downmove in USD/KRW by buying in size and squeezing USD shorts in lower liquidity. etc/vice versa. So they always have this 'intervention surplus' of currency on the balance sheet they need to do something with. Who knows what they are up to."

victorthecleaner said...

This is fantastic information. Here we go. The BBs are indeed short **paper** gold and long only some synthetic hedge. This does have implications for how the BBs will eventually fail.

Do you think you can encourage the forex lady to get an anonymous account and then to start posting here?

Victor

FOFOA said...

"Right now, I want you to consider this. ‘But, this game of gold, it is not only hard, but will cost anyone dearly if they try it without all the facts!’

That quote was believed to be written by a banking insider who went by the pseudonym of ‘Another’. The background to Another’s ‘thoughts’ is a long one…it’s a fascinating story that I’ll endeavour to write to you about at some other time."


http://www.moneymorning.com.au/20120609/why-lower-gold-prices-won't-last.html

AdvocatusDiaboli said...

costata,
if history of the last 500yrs is just a very small indication, assuming that Greece will run a balanced budget in the next >20yrs, is probably the most dumbest unrealistic thing I have every read on internet. But if that assumption gives you a warm feeling, since lalala-Euro-gold and FO(FO(A)) told you so, go ahead.
Greets, AD

P.S. Except if GoldmanSachs will cook the greek books for the next 20yrs, like they did in the past...

Blondie said...

Canavan may find the topic of gold a little easier to understand (and to explain) if he considered it in terms of value (a term not present in his entire essay) rather than price.

Fundamentally this is all Another was ever really pointing out; that the truly wealthy have always employed this perspective (value before price/real before nominal), and thus through this lens their actions make sense. And he laid out some of their actions to illustrate.

When you share this POV, ideas such as Oil not storing their surplus value in gold just seem laughably naive.



1oz unallocated gold BB deposit: $1593.95
1oz physical gold: priceless.

Texan said...

Delta one is equity derivatives, primarily equity repo. They do not touch commodities. You can Wikipedia it and there are some links to more info.
That's not to say that BBs dont hedge paper gold with, say, paper copper. But they wouldn't do it off a delta one desk.

As to whether BBs hedge paper gold with other commodities? I am dubious that they do it in any sort of size, or run the trades open for long. That would be a very volatile p/l. And the banks don't like volatile.

That's good info on Bank of Korea. It's total speculation on my part, but I would not be shocked if they actually buy on behalf of China from time to time, as maybe PBOC directly bidding would have an outsized effect on price.

Motley Fool said...

FOFOA

Thanks to you and your forex lady. Those few comments helped put a few things in place in my mind, such as the inverse correlation between ZAR and gold I have noticed.

TF

FOFOA said...

Hello Texan,

You write: "They do not touch commodities… they wouldn't do it off a delta one desk."

So what, she's making it up? If you're calling her a liar, just say so. Are you a forex trader too? Did you even know that an ounce of gold has a forex code? And, by the way, that's not the XAU miner index.

What do you make of this? "At Royal Bank of Canada, we trade gold bullion off our foreign exchange desks rather than our commodity desks," says Anthony S. Fell, chairman of RBC Capital Markets, "because that’s what it is – a global currency…" Link

And what do you make of that LBMA survey put out by the Chief Executive of the LBMA? Is that $15 Trillion turnover in 3 months a commodity trade, or gold being used as a currency in the forex market?

You write: "As to whether BBs hedge paper gold with other commodities? I am dubious that they do…"

Good to know your take on it, Texan. Thanks! Not surprising, though, as you're dubious about most things having to do with Freegold, hyperinflation and the euro.

You write: "That's good info on Bank of Korea. It's total speculation on my part, but I would not be shocked if they actually buy on behalf of China from time to time, as maybe PBOC directly bidding would have an outsized effect on price."

Why, because they look alike? I like you, Texan, but please feel free to keep stupid speculation like this to yourself. Someone reading here might actually take it seriously, and that would be a shame.

Sincerely,
FOFOA

Texan said...

FOFOA,

I certainly didn't mean to give anyone offense, or call anyone a liar. From my read of her email, she was speculating also as in "it could be".

But let me try again. Delta one desks are effectvely financing desks, and they are for equities. This isn't controversial. They are called "delta one" because they are perfectly hedged. Ie they borrow a stock from one fund and lend iit to another. Ie, repo.

So even the concept of "delta one" - matched book lending - is not what you seem to be talking about, which is proxy hedging. And I don't think BB are running gold short positions hedged with copper or corn or oil. The correlations are not high enough or sufficiently stable. That's not to say that they might not sometimes do it, but I can't see large books of this. The p/l volatility would be too large. Even JPM''s CIO existencecame out as footnotes. If the BBs are doing this, it has to be showing up somewhere in the financials, even if it's only an oblique reference.

As for Korea, a common bidding technique is to use a straw buyer. And why wouldn't Korea and PBOC be talking or working together? I have been Reading about Japan and China recently transacting in their own currencies and bypassing the dollar - something I might add which is entirely consistent with your theories - so why not bid gold for the emerging superpower? Or maybe not.

costata said...

AD,

Take a look at Avinash Persaud's background and connections. It's fine with me if you want to hold yourself up to be a greater authority than Persaud but get your target right.

It's not a matter of "if that assumption gives (me) a warm feeling" the issue is whether or not the Greek government has a balanced budget net of interest costs. If this is correct, as Avinash Persaud claims, then his policy prescription is feasible.

That's the polite part. Now once and for all never speak to me in this fashion again you idiot:

"since lalala-Euro-gold and FO(FO(A)) told you so, go ahead."

Like the rest of the contributors here I don't get paid for giving my time to deal with questions, engage in discussion, collect and disseminate links to material that contributes to the matters we discuss here or provide my personal perspectives on the topics this blog investigates.

If "la-la-la-Euro-gold" is the best you can muster then take yourself off to the ZeroHedge comment section.

Jeff said...

You don't have to be a forex trader to see that all these synthetic hedges won't so much unwind as explode. Gold market will go from functional to locked up, as FOFOA points out. Makes Lehman look like nothing. Tick tock.

Anyone who expects Mad Max scenario (I don't) should avoid the cabin in the woods. In the woods, no one can hear you scream; see Zimbabwae, Argentina, and a I bet MF can tell some hair-raising stories about SA.

costata said...

Hi Texan,

I realize your comment was directed to FOFOA but I think I might be able to offer a perspective on your China-Korea speculation.

The Chinese would never deal via the South Koreans. Firstly SK is a US asset. The upper echelons of the US military literally command the SK armed forces - as in they report to and take orders from US senior brass. The agreement under which this arrangement operates was due to expire in 2012 but it was extended after the sinking of that SK naval vessel.

Secondly North Korea is an ally of China. (No doubt a huge pain in the ass to China as well, but that's life.)

Thirdly Japan would, technically speaking, "go apeshit" about that level of covert co-operation between the Koreans and the Chinese.

Lastly the Koreans would rather have their testicals dipped in kimchee* than be seen as China's errand boys.

*Red chili pepper flakes are now used as the main ingredient for spice and source of heat for many varieties of kimchi.

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

On a more positive note if you want to talk about co-ordinated intervention by the CBs of SK, China etc in a currency crisis then sure there could be co-operation between these institutions.

Motley Fool said...

Jeff

Yes.

My personal opinion is that a cabin in the woods is a very very stupid idea. The best bet in a worst case scenario is to blend unobtrusively into crowds.

Barring apocalyptic scenarios where power grids and water and sewage, etc in cities go down, you do not want to go to a remote location unless it is sufficiently remote.

If you can get there, then criminals can get there. And being all on your own in a remote location, all prepared and stuff, makes you a very juicy target that they have time to scope out, determine patterns of, and rob and murder at their leisure.

TF

costata said...

Hi Texan,

Sorry for the typo. It's late here but I hope you get my drift.

Texan said...

Costata,

BOK was approved this year and is buying Chinese Treasuries. As well as currency swaps and outright purchases of currency as part of their f/x reserves. So they are cooperating with them now, though I don't doubt you on their affinity for one another.

But I don't think it would matter who the bidder/buyer is -? point is there an Asian CB buyer(s) in size. Or maybe it does matter?

Texan said...

Costata I am the kingof typos thanks to typing on an iPad. I am also finding the edit function on my comments is a total disaster, after x number of words I am forced to go into edit over and over again to change a sentence here or there. It takes forever.

ChrisF said...

Motley Fool,

Please could you clarify why on earth ZAR and Gold should be inversely correlated in your view. I don't get it at all. Do you really suggest going long ZAR is like going short Gold?
My view is that ZAR is a peanut and will do what it wants irrespective of the POG although I note that recently there seems to have been some sort of inverse correlation. Thanks.

crunch said...

"In simple terms, the Delta One business involves banks trading securities that track an underlying asset, such as shares or silver, as closely as possible, which means it is often associated with exchange traded funds (ETFs) and swaps.

ETFs are collateralised equity securities designed to track indices, while swaps are a kind of derivative security issued by banks which offer clients exposure to indices, bespoke baskets of securities or other instruments.

In some cases, banks are known to deploy high-frequency trading technology and algorithms to make money from tiny deviations in product and asset values.

Delta One desks at banks can cover a range of asset classes – everything from currencies to equities and commodities."

http://www.ft.com/intl/cms/s/0/f4ea05a6-df8f-11e0-845a-00144feabdc0.html

Motley Fool said...

ChrisF

It's just something I noticed. As to why...I have guessed in the past that since the ZAR is such a small market, it is managed to keep the price of gold in ZAR terms steady, so as to not upset mining supply.

You will note that the other currencies used to create a quick and dirty hedge by our forex trader was AUD and CAD, two other gold producing countries.

TF

costata said...

Texan,

Buying each other's bonds, currency swaps and so on is consistent with the aims and objectives of the ASEAN countries (and Asia more generally) to facilitate trade, co-operation for mutual protection and ultimately to achieve their trading bloc aspirations.

But I would argue that buying gold on behalf of China would be way outside the bounds of probability. Especially when South Korea is adding to its own gold reserves

ChrisF said...

Motley Fool,

Thanks. Just to clarify, I think you mean that if the POG weakens then ZAR also weakens so that the local ZAR price remains sort of constant?
This implies they are correlated somehow and not inversely correlated.... an important difference!

Motley Fool said...

ChrisF

Hmm. When $gold decreases, ZAR weakens and vice versa. This means the ZAR-gold price stays steady. That is a inverse correlation is it not?

TF

Motley Fool said...

ChrisF

Numerically I am looking it from the perspective of a South African. $Gold weakening means lower numbers. ZAR weakening means higher number for the USD-ZAR exchange rate.

Perhaps this is where our POV differs. If looking at it from US perspective it is a correlation. From my perspective it is a inverse correlation.

Or perhaps one should rather say that a correlation exists between $gold and ZARUSD? Then there cannot be confusion.

TF

costata said...

MF,

I noticed the currencies used in that example hedge as well. I watch the AUD quite closely for a variety of reasons and it's surprising what seems to move it up and down.

Another thing I've noticed (and commented upon above at June 7, 2012 6:15 PM):

....note the relative stability of the Euro + other currency cross rates as the Euro moves up and down against the US dollar..

Another interesting aspect of the AUD is the volume of trading compared to its weighting in global currencies (around 3 per cent if memory serves me):

..the Australian dollar is one of the five most frequently traded currencies in the market.

http://www.investopedia.com/articles/forex/11/aud-fx-traders-should-know.asp#ixzz1xJ0pEm1B

It would be deeply ironic if ZAR, AUD and CAD (being the currencies of large gold producers for other readers) were being used to help to "manage" the price of this major export earner for these countries.

Good night all!

PS. It might be worthwhile looking at any currencies that are actively traded in multiples of their weighting in order to see if there is any volume correlation with the LBMA turnover. It might help to zero in on the kind of synthetic gold hedges VtC and FOFOA have been discussing.

Now it's definitely good night from me, and good night from him (DP ;))

Motley Fool said...

costata

Interesting.

Top 50

This list shows AUD at #5, CAD at #7 and ZAR at #11.

Australia represents 2.1% of world GDP, Canada 2.5% and South Africa 0.6%.

(from Wikipedia : http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal) )

So a factor of 3.6 for Australia, 2.1 for Canada and something less than 2.6 for South Africa ( NZ was 1.6% at that site, ZAR @ pos 11 wasn't given), for trading of currencies versus relative GDP.

TF

Beer Holiday said...

Thanks everyone, for the great discussion, especially JR for the Grateful Dead links.

It really blew my mind, like chain did :-)

crunch said...

FOFOA said:

Did you even know that an ounce of gold has a forex code? And, by the way, that's not the XAU miner index.

For anyone interested, you can learn a bit more about the FX (aka OTC) gold market here:

http://individuals.interactivebrokers.com/en/trading/pdfhighlights/PDF-Metals.php?ib_entity=llc

and here:

http://www.saxobank.com/trading-products/forex/gold-silver

These products (e.g. XAUUSD) trade like any FX pair (e.g. EURUSD) and can be traded by not just prop trading desks and hedge funds but any Joe Sixpack except where they are banned (it is illegal for residents (citizens?) of the U.S. and Canada to trade these products).

Note also that these products can be traded at up to 50:1 leverage. I suspect that most if not all of the violent "takedowns" that the gold bugs scream about can be attributed to overuse of leverage in these and other highly leveraged products.

This market will definitely blow up at some point.

enough said...

Hi FOFOA and TEXAN.

Supposedly Turkey is buying gold on behalf of Iran. I have read this but I cant know for sure.

I took Texan's comment in this context and it did not seem racist IMHO.

enough said...

Hi MF and JEFF......your comments below

"My personal opinion is that a cabin in the woods is a very very stupid idea. The best bet in a worst case scenario is to blend unobtrusively into crowds"

"Anyone who expects Mad Max scenario (I don't) should avoid the cabin in the woods. In the woods, no one can hear you scream; see Zimbabwae, Argentina, and a I bet MF can tell some hair-raising stories about SA"

HUH? who here mentioned buying an isolated property to hide from a world gone mad?

Is this the first thing that comes to your minds when discussing buying productive farm and/or timberland RE for investments and/or personal enjoyment?

As mentioned the value of productive land has risen dramatically in the USA over the past few years. Some of us like to grow our own food, own some livestock and hunt.

Does this make us survivalists? Your thoughts go directly to the dramatic and not the rational reasons for owning land. You must be city sissys.

There is also something very important you have both forgotten. It's called COMMUNITY !!!

My 40 acres is surrounded by other like minded farmers and timbermen. If in the unlikely event that foodstuffs became scare for a time , or security broke down, communities bond together as it is understood that as indiviuals we have a much pooer chance of defending our property than if we all go it alone. Working together provides a much better probability of keeping the community fed and protected via barter, generosity and common defense.

IT is YOU that are the survivalsits and loners !! Even as you live among the masses. Your total lack of understanding of community makes you that way regardless of how many person per square foot you have around you.

You are in lower in stature than the great balls of sardines that work together to protect their schools. You equate owning and working the land as isolationism and a danger to your person safety. You have no sense of community that even lower form of life on the food chain understand instinctively.

Lock yourselves in your 1 bedroom apt. 31B and all you millions can go it ALONE together !!!

Motley Fool said...

enough

You seem to be taking my opinion a bit personally. I am no 'city sissy' , and I do understand the value of community.

However.

When there is a large scale breakdown in society then law and order first starts to fray at the edges. Small acreage farming is that edge exemplified.

You may want to read up what happens when crime increases, to small time landowners. For example what happened(s) here in South Africa, or perhaps rather Argentina (during their economic woes) (as our local crimes are very racially driven).

I won't be hurling insults your way. I shared my opinion despite being aware of the risk that you may take it personally.

Someone here recently linked ferfal.blogspot.com, and I read some of it, from the start. He shares some thoughts on these matters as well. It may be worth your consideration.

TF

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

If I may interject, I think that going forward, resilient communities - as per the work of someone like John Robb- have much to recommend them. See the Global Guerillas website for details. This is what enough's rural endeavor sounds like it is about, more or less.

AdvocatusDiaboli said...

costata,
"Greek government has a balanced budget net of interest costs. If this is correct, as Avinash Persaud claims,"

1.) I dont give a damm, who some investment banker is, sitting around somewhere in the carribean. Or lets put it like that: I also dont give a damm about Krugman, although he has a nobel prize.
2.) If the Greek government might just have a "balanced budget" for 1second, says what? NOTHING!!! The question is will it keep a balanced budget for 20yrs?
Hands up from everybody here who thinks that, and will buy 1,2,10,20yrs government bonds. Oh I forgot, they dont need bonds any longer, since they have a balanced budget.... come on, seriously...
Greets, AD

Edwardo said...

For shits and giggles here's a bit of "correspondence."

Hello Jim,

You wrote,

"In time, the GLD share price will be 20% to 30% below the gold spot price."

This is errant, as the GLD share price falling even a minuscule amount below spot would see GLD's physical removed. As I am sure you know, when a party holds GLD shares above a certain quantity they can access the metal. Long
before a price discrepancy of the size you proffer occurred, arbitrage would have cleaned it up.

Jim Willie's response.

your view is errant the GLD price has consistently been below the spot price
GLD's physical inventory has been steadily removed by shorting practices on
its shares arbitrage is slowly cleaning it out
have you not noticed ?? the explanation you proffer seems faulty by the way, their bar list is a comedy of inconsistency and inaccuracy
the Sprott PHYS addition was equal to the GLD inventory recent removal anyone who believes the GLD inventory data is ridiculously naive
the link seems to delve into the PUKE INDICATOR, which I am aware of the list of authorized participants reads like Whos Who on Wall Street
cartel I believe half the supposed GLD inventory is paper certs if GLD actually purchased gold, then there would be a premium in share price
talk to any gold trader, and he would explain this

thanks, jim

enough said...

MF,

I dont take offense and I apologize if I offended. I just find the logic absurd.

Firstly the jump from a discussion about residential/industrial/agricultural RE as an investment to apocalypse now seemed "strange".

Is bunker mentality the first thing that comes to mind when discussing this corner of the physical plane?

And just to understand.........you recommend that in case there is some chaotic episode that those billions living in rural areas of the world seek out the safety of their nearest urban area? Where the population to resource ratio would be at the extreme worst?

Resource shortage combined with dense population is a much more combustible situaton than high resource, low population areas being over run by 'criminals" IMHO

Take a look at some old footage of those "safe" urban dwellers of New Orleans after Katrina.....where would you rather have been? Bourbon st. or out in the farming communities?

In those rural communities they got in their boats and went from house to house to help their neighbors. In the city, they looted and murdered and waited for the G Men to rescue them (for a long time).

We will just have to agree to disagree, best E.

Texan said...

Rural farming communities far away from larger cities seem to be a pretty good location to go to, if it ever came to that. They all know each other, have existing social hierarchies pretty well already established, and obviously are much moore self-reliant in terms of food and just making do with less in general. Usually have water supply also, ie river, lake, wells. Even better if it's a rural location with some coal or oil production nearby. It would be good to know some of them and have a place there already, if you are so inclined.

I have two questions in general about bug-out locations. First, is it going to make any difference? The US (and world) are covered in nuclear power plants. What happens to those if they go unmanned? I know this is an ignorant question, butit absolutely petrified me. Second, I would expect that within about a week, everywhere is going to be "remote" since there wouldn't be any gasoline. Does anyone think there would be roving bands? How would they get fuel? Would they spend fuel on dense locations, or out of the way spots? Or would they just walk/ride bikes/horses(?). Seriously - it always puzzled me.

I would not want to be anywhere near a big city - see LA riots or NO after Katrina. I recall about a decade ago NYC had a massive blackout and they were showing pictures of people walking home. Imagine 20 million people with no food supplies, potable water running out, etc. And really nowhere to go.

JR said...

Hi Gary,

The US will hyperinflate itself.

The path is set as a result of the removal of structural support and the USG's addiction:

That inflow of free goods that is structural to the status quo operation of the US government is more dangerous to a monopoly currency issuer than the war reparations debt in Weimar Germany. The USG is incapable of reducing that inflow of real goods voluntarily and so the non-hyperinflation of the dollar requires it to flow in for free.

[...]

That inflow of free goods that is structural to the status quo operation of the US government is more dangerous to a monopoly currency issuer than the war reparations debt in Weimar Germany. The USG is incapable of reducing that inflow of real goods voluntarily and so the non-hyperinflation of the dollar requires it to flow in for free


Moneyness

So what could possibly go wrong? The recession has already contracted the U.S. economy, all except the part that resides in Washington, DC. And just to maintain its own status quo (when has it ever been happy doing only that?) our federal government needs to insure our national business of exporting empty containers at its present level.

What could go wrong? Prices! If the price of an apple doubles, what do you think happens to the price of a full container? Those of you who think we are due for some more price deflation in the stuff that the USG needs to maintain its status quo should really have your heads examined. Even Obama is winding up to pitch the whole ball of twine at the problem. He just delegated his executive power to print until the cows come home to each of his department heads. I quote from Executive Order -- National Defense Resources Preparedness:

"To ensure the supply… from high cost sources… in light of a temporary increase in transportation cost… the head of each agency… is delegated the authority… to make subsidy payments"

In case you're having difficulty connecting the dots I've laid out (not) so subtly, I'm talking about a near-term dollar super-hyperinflation that will make your hair curl and make Weimar and Zimbabwe seem like child's play in the rearview mirror.


Peak Exorbitant Privilege

cont.

JR said...

cont.

Well, the USG emits about $9.8B per day while it takes in revenue of only about $6.2B. So the USG is a net-emitter of $3.6B per day. That's the marginal flow I'm talking about. And there's big danger in that daily flow of $3.6B.

In 2008, the US in aggregate (private sector and public sector combined) net-emitted $1.9B per day to the outside world. This is like a broken water main that cannot be shut off, and must be mopped up by someone. But that year the USG only gushed $1.2B per day. So the foreign mess we created was only 63% attributable to the USG. The other 37% came from private sector deficit spending. But ever since 2008, that broken water main gushing dollars abroad is 100% attributable to the USG alone. And not only that, but it's now spilling out here at home, on our own front lawn!

The USG today is spending $3.6B more than it is taking in, each and every day. That's a big mess of dollars flooding out of the USG. $1.5B per day is flooding outside of our zone while $2.1B is staying right here on our front lawn. This is all flow. It is ongoing and unstoppable. And it all must be mopped up by someone. And by someone, I mean either the foreign sector, the domestic private sector or the Fed buying up US Treasuries. $3.6B per day, an unstoppable, unending broken water main gushing out dollars. Marginal flow!

[...]

Sure, the Fed needs to keep interest rates from rising. Because what happens when interest rates rise? The value of the entire $35T bond market starts to collapse and bond holders panic. The Fed doesn't want that, so don't bet on them letting interest rates rise. But as I said, I'm not worried about the stock of dollars. I'm worried about this broken sewer line we call the federal budget deficit which means no one has to sell a single bond. In fact, someone has to continuously buy $3.6B more each and every day, including weekends and holidays.

And if prices start to rise as they do in a 'hot' inflation, I propose to you that the USG will not cut back in real terms. So if prices were to rise by, say, 10%, the USG net-emittance of dollars would rise by 10% to $3.96B per day. And because the trade deficit is 100% attributable to the USG ever since 2008, the trade deficit would also rise 10% to $1.65B per day. The USG will not be outbid for goods priced in dollars. Price is what determines who gets a scarce good, and the USG will not be deprived. They even said so in a recent Executive Order! And where are goods and services prices discovered? In the minds of investors with pensions and IRAs, or at the margin where dollars flow?


Inflation or Hyperinflation?

Okay, so that's the path things are on.

But then there's the paper gold market? Suppose that breaks - how does that fit in?

cont.

enough said...

Hi Texan,

I wont take this any further than this short post. Then back to freegold.

One could certainly view my "investment" as a good "bug out" venue but I just like it there. Even if there is never a need to bug out, I will alway enjoy this "investment" as it's near a massive lake, mild winters (low 40's) abundant wildlife. Great for mtn. biking, 4 wheelin etc.

The land is inexpensive to buy, taxes are low so all said,it's low cost recreation with super bugout capability.

I have solar panels mounted on the roof of the steel framed barn/workshop and now looking at battery storage technology. But I wouldnt be turning my lights on at night when everyone else is blacked out.I have a solar powered well pump. It's just a glorified hand pump powered by a solar panel.Thats backup to normal electric pump.

The place is an 8 hr drive and I believe the bugout place has to be a days drive and no greater. The most important thing for me and my girl has been the cultivating of relationships with our neighbors. We have them over often when we are there.

A while back we were up there and a brush fire broke out on a neighbors property. I got my tractor and dug trenches and cleared brush. The entire community pitched in and after 3 days we got it out. It took teams rotating 24 hrs. a day to make sure that ambers didnt get it started up again.

My property is at the end of a dirt road and there is only one way in. About 30 families/properties on the road. Bring down a couple of big pines at the entrance and no vehicles can get in.

Stangers could come 4 wheelin but we know our land, they dont.More importantly we know and trust each other and have common interest to work together to repel outsiders in the unlikely event it becomes necessary.

On the dirt road we have streams, livestock, corn and game. We know we need each other and we are the home team if strangers unwelcome come thru.

We are not preparing for chaos but everyone should be somewhat prepared to work together as a community in the event of various type of emergencies. If you've lived without power for a few weeks due to hurricane or tornado you would understand it does not have to be the end of civilization for a local community to step up and keep things going......best E.

JR said...

cont.

In brief, the paper gold market is a forex hedge held against the dollar.

A/FOA said the ECB/BIS strategy was to “expand and support” the dollar paper gold market so the dollar would eventually “bankrupt itself” just to keep the gold market going and stay in the game with the euro.

[...]

So it seems that as the war switched from dollar v. gold to dollar v. euro, the euro side helped make the dollar gold market TBTF. But with a rising physical gold price/demand, the dollar paper gold market has to keep up because it’s TBTF now. Too many of those “gold” FDIC stickers out there! If those stickers fail, the dollar loses. So the “gold” market is TBTF. Remember this from FOA?

FOA (10/9/01; 10:05:48MT - usagold.com msg#117)

What doesn't seem to be obvious is the "why for" the paper market grew so large. It grew to dominate because worldwide dollar expansion reached its "non-hedged" peak. In other words, the dollar's timeline was ending as its ability to produce non price inflationary economic gains came into sight.

In order to push dollar holdings further, international players needed and purchased "paper financial hedges" to balance their risk. Within their total mix of derivative hedges were found "paper gold price hedges"; modern gold derivatives. The important thing to remember is that these positions are not and never will be used to demand physical gold. They are held to buffer financial and currency risk associated with holding any form of dollar based asset. To work these items don't need to really perform "dollar price movements" in the holders favor as much as they are present in the portfolio to act as insurance stickers.


So the paper gold market breaks. The insurance sticker is not so hot anymore.

Enter longs dumping paper gold, yes?

but more likely we’ll see more allocation requests coincident with a falling (paper) "gold" price as the longs dump their worthless “insurance” while wishing they had the real thing.

FOA (06/12/00; 19:48:25MT - usagold.com msg#26)
Put your cards on the table!

The current paper gold world will die (burn) as its value to users erodes, not increases!

…Again, most everyone in the Western Gold bug game is running with the ball in the wrong direction.

…So who is in danger of being hurt as this unfolds?

That's right, the Western paper gold long! I'm not talking about just the US market! This is about the entire world gold market as we know it today. The real play will be for the ones that get out in front of the move by owning physical…

It seems every Gold bug sees only half the trade and has great faith that contract law will favor a short squeeze. Yet, none of them see where it is the long that will be dumping and forcing the discount!


cont.

JR said...

cont.

So they dump the paper hedge because its worthless, so maybe that leaves them open on the asset they were hedging - dollar debt.

So do you think people will want to hold dollars? Do you think the USGs trade deficit is going to continue to be supported by people soaking up the marginal flow of dollars by holding dollars?

So physical gold is in hiding (it hasn't revalued yet), the bond market is in panic as are basically all markets, and the USG defending its daily needs directly with the printing press because nobody is holding dollars.

So what's happening at the margin where the USG buys? OH yeah, people don't wanna hold dollars, they are looking anything that holds value. So we have those homeless dollars competing with the USG on the margin. So what does the USG do to ensure its junkie fix?

=======================

See how they relate:

So the paper gold of the bullion banks is now TBTF. Of course that doesn’t mean it can’t fail. It either fails, or the USG hyperinflates the dollar as prices rise. They are related, and each will likely cause the other almost immediately, but either one could end up being the initial cause IMO. If price inflation forces the USG to hyperinflate then the paper gold insurance stickers will have to fail to perform. And if these price rises in the gold market fail to manage the flow (demand) of physical as they have so far, we’ll likely see a 10% or larger GLD puke at some point. That would signify more than a 120 tonne allocation demand, a system-busting size. They might think they can rocket the price at that point and get it back, but more likely we’ll see more allocation requests coincident with a falling (paper) "gold" price as the longs dump their worthless “insurance” while wishing they had the real thing.

Sarah said...

Here's a dispatch from Doug Casey's research group.

http://www.caseyresearch.com/cdd/bernankes-bluff

Though he offers an interesting analysis of Bernanke's latest moves, the writer suggests that if people "have 20 to 30% of your portfolio allocated to gold and gold stocks (producing gold stocks)", then they'll likely financially weather the crisis fine.

His points on Bernanke makes sense, but looks like he's missing the mark on gold and what will be freegold. Any thoughts?

Aquilus said...

For the Twitter-less, a nice answer by Victor to Sandeep Jaitly (‏@Bullionbasis). My emphasis:

Sadeep: "What's strange about the action in #gold is that reactions lower see the backwardated observations go up. Same for silver. Vacuum of offers."

Victor The Cleaner ‏(@VictorCleaner): "No surprise. It's an outflow of physical gold constant in dollars versus an inflow constant in weight: GLD – The Central Bank Of The Bullion Banks "

Edwardo said...

Sarah,

The vast majority of folks who advise holding physical gold and/or gold shares are what are known around these parts as Hard Money Socialists.

http://fofoa.blogspot.com/2011/05/return-to-honest-money.html

These folks view gold's action as either indicative of a nascent revival of the old gold standard, or, more prosaically, as evidence of secular bull market behavior. Casey is definitely a member of one breed or the other. And while it's possible that Mr. Casey may have some inkling about Freegold, there is simply no evidence I am aware of that supports that notion. What's more, he would almost certainly dismiss the idea of a physical only market because it would mean the end of a lot of his business which is selling information on which energy and PM plays one should "invest" in.

Beer Holiday said...

@Sarah,

My conclusion from reading about freegold is to buy and hold physical gold only. Coins, bars, whatever takes your fancy and is near spot price.

If you look at the performance of gold stocks verses the paper gold price it's clear that they are two different beasts.

The gold stock topic seems to crop up here in comments regularly. Bron Suchecki had a very interesting go at explaining the difference.

Gary said...
This comment has been removed by the author.
FOFOA said...

Hello Gary,

"Devaluations always happen by complete surprise as to exert maximum leverage effect."

It is true! Have you seen this?

But then again, market-driven currency collapse is also devaluation. Who is most surprised when that happens?

Sincerely,
FOFOA

Gary said...
This comment has been removed by the author.
JR said...

Hi Gary,

I just described the paper gold market collapsing. In response you note that the paper gold market collapsing could bring down the system.

I know, I just explained that to you.

So what is your issue?

That the euro has a nuclear option if they are stuck that may allow them to devalue the euro but not go HI if they do it right. But the $ will go HI in such a scenario.

Or that the $ could try to revalue gold preemptively in an effort to avoid the worst of Hi?

It is always a market driven event, the only issue is whether Gs want to embrace it like the euro has tried to do. Or get run over.

You don't know Crackwhore gold it seems, yes?

John said...

@ Gary....

Gary, I do think you have made a very good point. there are substantial differences and causal outcomes. For example, a preemptive reset would surely induce the breakdown of the paper gold market and possibly create another unreckoned round of financial instability with respect to bank liabilities, etc. as much sense as a preemptive reset makes, I cannot get away that the occurrence of such an event requires the implicit policy decision from the very architects of our present financial disaster. I'm afraid we give them far too much credit. Having met several of these such persons I can personally attest to the stunningly imbecilic attributes they hold in common. I forsee a market driven series of events...and ones with considerable disruption and accompanying chaos.

Gary said...
This comment has been removed by the author.
JR said...

Gary,

Pipe down blowhard. Your query makes no sense, but your too busy foaming at the mouth to hear otherwise. But its okay, its what we expect from you.

I will repeat my post from before and explain your logical fallacy. Here it is again:

It is always a market driven event, the only issue is whether Gs want to embrace it like the euro has tried to do. Or get run over.

=================

This makes no sense:

You don't get a surprise at all if it is market driven

================

Crackwhore gold is directly on point, which is why I raise it. There is no G driven event. The euro nuclear option is about recognizing its market valuation, not the euro imposing its artifical valuation of gold on the rest of the world.

JR said...

The term FREEgold seems to be hopelessly confusing a great many of you, especially the ones suffering a myopic obsession with the "elite." So I would like to suggest a new name for this system, which is not really a system at all. It is more like the lack of a system: the dollar reserve system and the paper gold system. Without them, Freegold is what we have, along with whatever "system" develops. It is not something the debtors or the elite can fight. It's just a shift in the perception of savers. Can't change that.

So here's the new name I propose: CrackWhoreGold. Maybe this way all you NWO-types will stop associating it with whatever utopian concept you think TPTB will never let you experience. CrackWhoreGold works very well actually:

1. Always available at the right price.
2. Will go with any guy (or gal) regardless of nationality (subject to 1 above).
3. Gets high whenever possible and tries to stay high.
4. Has a pimp called Uncle Sam who wants her down on "the Street".
5. Milks big spenders for everything she can get but ultimately prefers the company of rich patrons.

So from now on, when you "elite-ophobics" come at me with something like ShamefulPath did here: "Freegold is like Valhalla to savers...", I'm going to insist that you call it CrackWhoreGold instead: "CrackWhoreGold is like Valhalla to savers." Maybe it'll make you think things through a little.

Sincerely,
FOFOA


One Tin Soldier

JR said...

So what is it gonna be Gary?

Do you want to keep running your mouth about what you think is going on, or can you put your ego in check for a second and admit that maybe your getting ahead of yourself? Can you listen to other people?

Maybe the problem is you don't understand what you are talking about *and* even worse, you're not interested in hearing otherwise.

I know all about your type:

"He may not always be right, but he's never uncertain."

So what is it gonna be Gary? Can you shut up for a second and listen to other people?

Because nobody likes talking to a brick wall.

JR said...

And for everybody else, do you see FOFOA's pint:

FOFOA said...
Hello Gary,

"Devaluations always happen by complete surprise as to exert maximum leverage effect."

It is true! Have you seen this?

But then again, market-driven currency collapse is also devaluation. Who is most surprised when that happens?

Sincerely,
FOFOA
June 10, 20


G's can either embrace whats coming or get surprised.

Edwardo said...

Aren't we forgetting something here that is integral to this discussion?

The issue was addressed in one of FOFOA's posts - I forget which one - not too long ago. It had to do with the legal impediment to the U.S. revaluing gold independently and proactively.

Now, unless I'm mistaken, gold will only be revalued when some entity, a central bank or, perhaps some outfit like the LBMA, steps up and makes a two way market for gold, but, because of the U.S. default forty one years ago, the U.S. is hindered from taking a lead role in what would amount to ushering in a physical only market.

Gary said...
This comment has been removed by the author.
Jeff said...

Edwardo,

FOFOA: By the way, that's post-hyperinflation I'm talking about. They may well lop 12 zeros off the dollar before making a market for it. Exchanging one trillion old dollars for one new dollar. But gold will still be at Freegold prices (e.g. 55,000 new dollars/ounce) and they will have to make a market for that new dollar or it will continue to plunge like the old one.

That's the choice. You can collapse your currency against the non-economic good gold, killing the paper gold market and driving up the price of physical in advance of hyperinflation by buying it up. This gives you some hope of avoiding the worst of hyperinflation by providing a real outlet for unwanted surplus dollars.

Or you can wait until your currency collapses against economic goods and then you will have to buy back your own currency with your gold, also at Freegold prices. Even if you start a new currency you will still have to make a market for it because your credibility will be shot by that point...

FOA said the US would eventually mobilize its gold at a much higher price. That means revalued, at the floating Freegold price. The US will ultimately have to make a market for its own dollars by buying them up with physical Freegold from Fort Knox.

When the trade deficit is no longer possible, the US will have to import all that inflation it has been exporting if it wants to keep oil flowing in. Real goods going out (gold) and less real goods plus some inflation coming back in. That's the reverse of today's trade deficit.

JR said...

Edawrdo,

The dollar was linked to gold, a promise was made that it was exchangeable for gold, but then that promise got broken.

So yeah, the US dollar can't be linked to gold.

But the treasury can revalue the gold in an effort to avid the worst of HI.

It's the Flow, Stupid

So you see, the Fed cannot mark the US gold to market. It cannot even revalue the US gold. Only Congress can. And even if Congress DID revalue the gold, it would not change the Fed balance sheet by one penny. The Fed only holds dollar-denominated certificates worth $11 billion, payable in gold, but not really. It's kind of like Aramco in 1945 who owed the Saudis $3 million, payable in gold.

If Congress DID decide to mark the US stockpile of gold to market today it would find it had a new stream of revenue. At today's price of $1,328 per ounce, the US gold would be worth $347 billion. Subtract the $11 billion already on the Fed balance sheet and Congress could immediately ask the Fed to credit the US Treasury with $336 billion new dollars to be spent.


Reference Point: Gold - Update #1

That's right! The Fed doesn't even have actual gold on its balance sheet that can be used as a reference point. It has "gold certificates" issued to it by the U.S. Treasury from the past monetization of U.S. Treasury gold at $42.22/oz. I suppose, technically, if the U.S. Treasury wanted to revalue its gold to the market price today, the proper yet antiquated process would be for the Fed to credit the Treasury's spending account with new dollars representing the difference in price. Today that would be about $355 billion fresh dollars for Congress to spend.

JR said...

Reference Point: Gold - Update #2

And then… the U.S. Treasury, under the daft guidance of the G-man, can issue new gold certificates to the Federal Reserve. As anyone with even a rudimentary understanding of double-entry bookkeeping knows, the balance sheet must balance. For every asset there is a liability, and vice versa. This is basic stuff. You don't need to be a banking "expert". And so far the Fed only carries $11 billion of the Treasury's gold on the asset side under the gold heading. Today we have room to add $370 billion more, and that means fresh Fed liabilities—also known as U.S. dollars—accruing as fully paid-up credits to the Treasury account for the government to use however it deems appropriate.

Again, I realize this doesn't solve any of the big problems, but it does buy some time. And furthermore, it is not a bad or reckless thing to do. It is the right thing to do! America has an untapped asset. You can use it without selling it for gosh sake! And just like the old gold certificates, the new ones will NOT be redeemable by the Fed or any other banks in physical gold. They will simply be an accounting entry on the Fed balance sheet. In the future, that gold can be mobilized, if necessary, in defense of the U.S. dollar. But only with the approval of Congress. The physical gold remains the property of the United States. It will simply be monetized by properly revaluing it as the monetary reserve asset that it is, and placing it—at its proper valuation, updated quarterly—on the asset side of the central bank's balance sheet, just like the ECB.

I want to be very clear here. This has absolutely nothing to do with Ron Paul's bill. Nothing against Ron Paul, but he may not like this because he has other plans. And this has nothing to do with a new gold standard, or legal tender laws or ending the Fed. You don't have to be a gold bug to support this. It is simply common sense. What isn't common sense is the U.S. having the only darn gold hoard in the world that's valued at the ridiculous price of $42 an ounce, having a Treasury Secretary then talk about selling that asset, and having a Congress that's about to shut down the government because it can't find some money.


Open Letter to Ron Paul

The Fed's "Fisher" was wrong [here] when he said, way back in 1997, that a revaluation of the gold would require selling off other assets to balance the Fed's books. Firstly, if Congress were to revalue Treasury's gold, that would not automatically revalue those "certificates". They have no market value because they are irredeemable, non-negotiable and obviously unmarketable! Secondly, even if it were to automatically affect the Fed balance sheet in some cartoon universe, selling off other assets is not the only way to balance a gold revaluation. The more logical way is for the Fed to issue new Fed liabilities, aka dollars, to the owner of that collateral that is rising in value.

Think back to when house prices were actually rising. If you bought a house for $250K and it was suddenly worth $350K did that revaluation automatically appear on your bank's balance sheet as an additional $100K asset? Of course not! But you, as the homeowner, could put it on the bank's balance sheet with a HELOC or a second mortgage.

Maybe you could call this gold revaluation a GELOC to tide you DC spendaholics over until you can get your act together later this year. And that (soon to be) $400 billion "bridge loan" will not even be debt in the traditional sense, and it certainly won't be "debt subject to the debt limit" any more than Bernanke's QE is subject to limit.

JR said...

comment to Open Letter to Ron Paul

"It should be fairly obvious that this post was not meant as a three page magic bullet. But it's not meant to be a trap either. I actually think it would be a step in the right direction. For a couple years now I have proffered that getting out in front of Freegold is the USG's only chance of avoiding the worst of what's coming. Of course, like anything else, it could, and probably would be abused by the spendthrifts in Congress. But I don't see how it could possibly make anything worse. Do you?"

JR said...

FOFOA said...
Hello Paul,

The legal problems the US faces with regard to past gold history have only to do with controlling gold to avoid real meritocracy moving forward. This is why another confiscation or a new fixed dollar-gold standard are simply not in the cards. Both are attempts to control gold and end-run meritocracy. The world will not tolerate that again. Fool me once, shame on you; fool me twice shame on me.

We can't turn back the clock. But we can move forward. The world would not resist the US revaluing its gold. There is no reason to. FOA said the US would eventually mobilize its gold at a much higher price. That means revalued, at the floating Freegold price. The US will ultimately have to make a market for its own dollars by buying them up with physical Freegold from Fort Knox.

When the trade deficit is no longer possible, the US will have to import all that inflation it has been exporting if it wants to keep oil flowing in. Real goods going out (gold) and less real goods plus some inflation coming back in. That's the reverse of today's trade deficit.

Sincerely,
FOFOA
April 17, 2011 3:56 AM

http://fofoa.blogspot.com/2011/04/forum-201.html?showComment=1303039555087#c6805182165543728758

JR said...

FOFOA said...
By the way, that's post-hyperinflation I'm talking about. They may well lop 12 zeros off the dollar before making a market for it. Exchanging one trillion old dollars for one new dollar. But gold will still be at Freegold prices (e.g. 55,000 new dollars/ounce) and they will have to make a market for that new dollar or it will continue to plunge like the old one.

That's the choice. You can collapse your currency against the non-economic good gold, killing the paper gold market and driving up the price of physical in advance of hyperinflation by buying it up. This gives you some hope of avoiding the worst of hyperinflation by providing a real outlet for unwanted surplus dollars.

Or you can wait until your currency collapses against economic goods and then you will have to buy back your own currency with your gold, also at Freegold prices. Even if you start a new currency you will still have to make a market for it because your credibility will be shot by that point.

This may explain some of the confusion between Blondie, JR and Casper as well.
April 17, 2011 4:25 AM

http://fofoa.blogspot.com/2011/04/forum-201.html?showComment=1303039555087#c6805182165543728758

JR said...

Key idea:

That's the choice. You can collapse your currency against the non-economic good gold, killing the paper gold market and driving up the price of physical in advance of hyperinflation by buying it up. This gives you some hope of avoiding the worst of hyperinflation by providing a real outlet for unwanted surplus dollars.

Or you can wait until your currency collapses against economic goods and then you will have to buy back your own currency with your gold, also at Freegold prices. Even if you start a new currency you will still have to make a market for it because your credibility will be shot by that point.


Do you know why? Because

From my 2010 backwardation post:

Dollars bidding on MSFT stock set the value of that stock. If dollars are frantically bidding on MSFT (high velocity), the stock skyrockets. If dollars stop bidding for MSFT all at once (low velocity), the price falls to zero. This is true for everything in the world **except gold**.

Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero.

[...]

As I said (because ANOTHER taught me), "Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero." So you see, there doesn't need to be a stampede into today's "gold" for real, physical gold to become "priceless". ANOTHER wrote, "Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies"."

So now I'm looking only at physical gold **IN SIZE**, the kind of size that represents entities that know WHY they are holding gold (i.e., not for paper profits). And I'm wondering when physical gold will stop moving through paper currencies, at least at parity with today's "gold", the $PoG.


Today's (quote-unquote) "Gold"

JR said...

Hi Gary,

That's nice and cute and all, but you're still a jerk.

JR, you're (perhaps deliberately) missing the point, which I won't make again.

ORLY? You think this

I'm not disputing that a surprise devaluation would get the maximum effect, I can see that.

I see it as contradictory to the market-driven collapse though, pre-emptive rather than reactive.


Whose missing the point blowhard? Oh yeah, this guy:

"He may not always be right, but he's never uncertain."

JR said...

You are too quick Jeff, well done.

e_r said...

Gary,

If I may-

You are considering the following two statements as axiomatic.

1. Market-driven event means that nobody will be suprised by it. ( For example you say... You don't get a surprise at all if it is market driven. )

2. Surprise events are always pre-emptive, rather than reactive.

Both are not necessarily true all the time.

I think that is what FOFOA was trying to convey, when he said: Who is most surprised when that happens?

Motley Fool said...

Gary

I do not see contradiction. Though there was perhaps a measure contradiction and wishful thinking in at least some of the presentation, I think.

A surprise revaluation may still be done during dollar hyperinflation. Of course, we would not be surprised, but many would be..seeing as the price of gold had crashed.

TF

Gary said...
This comment has been removed by the author.
Motley Fool said...

Gary

Your option one; that is the wishful thinking.

Neither can do it. Not the ROW who fears being blamed, nor the USA that fears legal implications. Both are stuck.

TF

Gary said...
This comment has been removed by the author.
AdvocatusDiaboli said...

FOFOA wrote 22.December 2008:

"...But I also see a 95% probability that it will change to very high inflation, or hyperinflation, or a collapse of the dollar (mere semantic differences), within the next two years at the VERY LATEST."

JR said...

FOFOa is arguing that Freegold is coming, regardless of what happens. That is the point of Crackwhore gold - t powers that be can't stop it or control it or prevents it form happening:

It is more like the lack of a system: the dollar reserve system and the paper gold system. Without them, Freegold is what we have, along with whatever "system" develops. It is not something the debtors or the elite can fight. It's just a shift in the perception of savers. Can't change that.

FOFOA's point is the euro saw this mess coming and built a currency to be prepared for it. BUt that doesn't mean the Euro group controls Fresgold. And the fact that they have taken preemptive steps because they know Freegold is coming is evidence that they are being reactive. That the Euro group might preemptively exercise their nuclear option of revaluing gold is *reactive,*

The euro nuclear option is about recognizing its market valuation, not the euro imposing its artifical valuation of gold on the rest of the world.

===================

Market driven events do not mean that no one will be surprised. As FOFOA made clear above:

"Devaluations always happen by complete surprise as to exert maximum leverage effect."

It is true! Have you seen this?

But then again, market-driven currency collapse is also devaluation. Who is most surprised when that happens?


Maybe those not prepared for the devaluation are who gets surprised.

JR said...

What's neat is if we read the quote that started Gary's misunderstanding in full context we see that FOFOA was referring to those who are not aware of what is coming as those who will be surprised, those who "thought" they were fully hedged will be wiped out:

"The central banks of the world are well aware of this. It is why they have slowly, inconspicuously changed from net sellers into net buyers. This gradual shift is extremely significant, because as net sellers they were supporting their own fiat regime. But now as net buyers, they, as a group, are stressing it. Why would they do this unless they knew it was about to reset?

This fractional gold reserve imbalance is the one imbalance the media and governments do not want you to know about. This is the one that will RESET the entire system. This imbalance, once corrected, will make central bank fiat currencies sustainable once again. This is why they are net buyers! Here at FOFOA, we like to call it FREEGOLD!

Do I think this magnitude of a reset could happen overnight? Yes, I do. Why? Because that is the way you get the most "bang for your buck". Surprise is the order of the day! "Devaluations always happen by complete surprise as to exert maximum leverage effect."

It matters not one iota how well you do in the stock and bond markets leading up to the reset. Neither does it matter what the "gold market" does between now and then. The ONLY thing that matters is how you are positioned on that one - fateful - day! Everything will be reset and surprises will abound.

Some of the entities that you think most deserve to be wiped out will turn out to be the BIGGEST beneficiaries of this "overnight" transfer of wealth. And others who thought they were fully hedged will be wiped out. These are the kinds of surprises I expect. I am truly in the mode of "expecting the unexpected" with a timeline shorter than a normal TV season. ;)"


Call Me Contrarian

Motley Fool said...

Gary

Ha!

Fair enough. My opinion stands, as it has since I first replied to this. I see that as a insignificant likelihood. Inconceivable almost, from a realistic point of view. Is it possible? Yes. Will it happen? I don't think so.

It is nice to imagine we can avoid dollar HI, and that the politicians can come to their senses. But, I fear, it is fantasy.

Remember that the reason the USA Needs dollar hyperinflation is to destroy their debts to eternal sovereign entities, so they can bring their gold into play again.

TF

JR said...

The point is that during times of transition, surprises are always the order of the day. Look to the consensus on both sides, optimistic consensus and pessimistic consensus, and expect a surprise different from that consensus, depending on which direction we go.
One of the few things we are confident about is, some very improbable things will happen. Surprises will occur so often they will become routine... I am sure this was only the beginning of a parade of shockers.

-Richard Maybury 06/09

This is true because the market CANNOT reward the majority for long. A zero sum game, the market must reward a minority. If too many people pile into one line of thinking, the market is primed for surprise.

JR said...

Gary

So, JR, your recent posts seem to indicate that it is indeed a choice, government (esp. the US) can choose to go the surprise route, surprise the world, and devalue against gold overnight, and avoid HI.

Or they can fight the market to the end and see the system collapse, along with HI.


Yes, Gary, they have a choice. Fight the market and lose or accept the market's decision and play along.

==================

When Fofoa states that he is absolutely certain the US will hyperinflate (as in many posts this year) there is a proviso, as stated above:

What provisio, he said the HI may not be as bad as otherwise if the revalue the gold preemptively. Can you read?

This gives you some hope of avoiding the worst of hyperinflation by providing a real outlet for unwanted surplus dollars

Avoiding the worst of HI does not mean avoiding HI, does it?

Motley Fool said...

AD

If you read the complete archives you will see many instances of FOFOA's perspectives evolving.

He no longer predicts timing. Smart move I say.

Look! He is fallible, you say.

We already knew that, he is human, we say.

TF

AdvocatusDiaboli said...

MF,

"He no longer predicts timing. Smart move I say.
Look! He is fallible, you say."

no that's not what I said, even you love strawmen :P
The wisest quote is from the master himself:
“In the Long Run We Are All Dead” - J.M.Keynes
how many years ago?

Greets, AD

Gary said...
This comment has been removed by the author.
JR said...

And then we get back to the key to HI:

The feedback loop of the USG addiction to the trade deficit.

The collapse of the paper gold market would collapse the $SoV as explained above.

The USGs reaction in order to preserve its consumption fix is what causes the HI feedback loop.

If the USG collapsed the paper market by revaluing its gold, then the HI won;t be as bad because:

This gives you some hope of avoiding the worst of hyperinflation by providing a real outlet for unwanted surplus dollars

Remember from Moneyness, Peak Exorbitant Privilege and Inflation or Hyperinflation that the issue is the USG is addicted to its consumption fix and thus is a net dollar emitter. The ROW is moving from supporting the $ by storing the dollar's net emissions.

The HI feedback loop is form the dollar's the US is emitting, so if they collapsed the paper gold market do you see how the HI might not be as worse, as if you collapse the paper gold market:

This gives you some hope of avoiding the worst of hyperinflation by providing a real outlet for unwanted surplus dollars

DP said...

@costata

http://www.youtube.com/watch?v=wLE07ISw4YM

And it's good night from him.

Gary said...
This comment has been removed by the author.
Motley Fool said...

Gary

Then we agree.

@AD

-sigh-

How is that a strawman? FOFOA predicted timing. He was wrong. He has learned from his mistakes.

...and that he was wrong was your implication, the reason for your posting.

My reply is. So what.

TF

JR said...

Gary,

I was just surprised at Fofoa's view (expressed as recently at the start of this year) that it is possible, likely even.

FOFOA's view is not what you think it is.

It would be better if you referred to "your belief as to what FOFOA is attempting to express."

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

Perhaps I am missing something, but isn't the sequence just like
that of a series of bank runs followed by a "bank holiday"? The
holiday never precedes the runs, it always follows. Likewise, a
market driven Hi begins and accelerates until, surprise! official
devaluation. I think that's what Hallmar Schacht did after he took
over from Rudolph Von Havenstein. Now I will run for cover.

costata said...

For the record, here's a comparison of sovereign debt levels across the EMU and EU. It puts the Ireland, Greece et al "stories" in a different light in my opinion.

http://viableopposition.blogspot.ca/2012/04/country-by-country-look-at-europes-debt.html

Kindly note who is carrying the majority of the overall debt.

...four nations are responsible for the lion's share of Europe's debt. The largest debt is, of course, held by Germany, the EU's largest economy. Germany had a total debt of €2.088 trillion euros ($2.714 trillion) at the end of 2011, the world's third largest nominal sovereign debt after the economic powerhouses of the United States and Japan.

In second place (within Europe) is Italy at €1.897 trillion followed by France at €1.717 trillion and the United Kingdom at €1.577 trillion. Between these four nations, they are responsible for €7.279 trillion in sovereign debt or 69 percent of the EU27 total and their average debt-to-GDP ratio is 93.2 percent, well above the average of 82.5 percent for all EU27 members.


If this German proposal to cap debt at Maastricht levels (60 percent of GDP) gets off the ground and the balance is placed into a central fund, backed by collateral including gold, to be paid off over 20 years then the chief beneficiaries will be the four countries listed above.

One analyst whose work I was reading recently speculated that this proposed fund might get off the ground offering an interest rate of one (1) per cent. (Remember this fund would have hard assets as collateral.) So with repayments over 20 years that's a P&I of roughly 5 per cent pa. Looking at the size of the EU economy that appears to be supportable to me.

Add in the possibility of Avinash Persaud's proposed solution of the weaker peripheral countries converting their existing sovereign debt to zero interest bonds and the numbers start to look better than just okay.

In closing I note that the British press and some named and un-named government "sources" have been very mouthy of late in their predictions about the collapse of the Euro and the break-up of the Eurozone. Consider the arithmetic if number 4 on that list of debtors is not invited to participate in this fund. It would improve the numbers considerably would it not?

So at the end of the day it might be a case of "my way or the HI-way" for the chaps in Whitehall and "the City" if they want to participate in this fund. Incidentally here's my prediction, the PTB in the UK will chose HI because they could not give a rat's arse about the effect on the rest of the citizens as long as it wipes the slate clean for the bankers and the government.

AdvocatusDiaboli said...

MF,
most probably useless to mention, if treated as religion of hyperinflation:

What are reasons that will prevent hyperinflation?

This is something the fellow cult memembers are never looking at. To give you just one (key) method: As long as the working slaves and physical plain contributors are indebted and continue struggleing to get out of the debt, there will be no hyperinflation.
BTW: AFAIR _all_ hyperinflations had this in common.
What is your take regarding this, looking at todays society?
Greets, AD

DP said...

+1 for 1% arrogance, 99% poor choices & 100% harsh lessons :-(

Motley Fool said...

AD

Well I don't mind, in fact I like contrary views.

Your precondition is simply another flavour of the reality that HI is impossible as long as enough confidence remains in the currency.

The problem here is simply the incredible tectonic strains. For countries like Argentina, say 70% confidence was good enough. That 30% lack of confidence simply meant high inflation. For the USA even 10% non confidence will have disproportionate effects on the value of the dollar, and it will simply cascade from there till no confidence remains.

FOFOA wrote a post on peak credibility; you may wanna reread it.

It's similar to stock markets, once sentiment is too far one way, then simply lack of additional sentiment is enough to stop the tide, and the slightest changes in marginal sentiment moves the tide the other way.

Think of it like a boat rocking because all people are standing on one side. At the moment the US$ boat has almost everyone on one side, and the boat is not tipping over. It can't move anymore that way, ans some people are moving the the other side...slowly.


TF

AdvocatusDiaboli said...

MF,
Just take a step back and forget about this "as enough confidence remains in the currency" and look at it from the other perspective: Demand for money in todays credit based money system is the need and force to pay off your debts (shall it be theft by tax as well), and of cause the belief to be able to do so.
So the more debts you shovel over into a "bad bank" instruments, the more you reduce this mechanism that gives FIAT value. FOFOA wrote something similair "default destroys paper money", right!!! The next step would be to consider how this apply to what's going on in the real world.
IMHO That is the key to HI, not the "money printing" itself (which we all probably agree is only a consequence, but not the reason).
So as long as you print money and lend it out to idiots that try to pay it off by contributing to the physical plain, everything will be fine, no limit there in printing. You might as well call it "serial bubble blowing".
Greets, AD

Motley Fool said...

AD

That is only part of it.

Debtors give fiat value by repaying income on debt.

That is the part you are talking about.

Savers give fiat value by holding it as store of value.

This you are ignoring.

The question then is what contribution each of these makes to the value of fiat.

The answer lies in the fact that if savers did not hold fiat as savings, fiat would have no value.

A debtor who does not repay debts, gets no loans. Their actions do not have as large an effect on the value of fiat as the savers.

And confidence in a currency by savers is what is important, more-so than debtors.

Do you see?

TF

AdvocatusDiaboli said...

MF,
sure I agree. The point is which side is the key that the supermarket shelves are being kept filled?
This is what I meant with "real world". How can the balance be shifted by guiding lines that we have those debt slaves?
I guess now you can follow my point: As long as you can keep the productive people enslaved, as long there will not be HI (and vice versa(?)). IMHO Therefore those are the points to look at, not the balance sheets of the money printer, thats just a secondary side show, an indication, not the cause itself.
Another perspective to what you said regarding my argument might be: The debt weighs more than the savings. Meaning: The marginal utility of FIAT money. Most "savers" will never spend everything, but be sure that the "debtors" are pushed to repay 100%, so there we have not a symetry, which gives also value to fiat currency or prevents it from HI.
Greets, AD

milamber said...

@ Gary

In reference to the "apparent" contradiction, keep this quote in mind:

“How did you go bankrupt?"

Two ways.

Gradually, then suddenly.”

― Ernest Hemingway, The Sun Also Rises

I think we are in the gradual portion right now. We won't know we are in the "suddenly" stage until after the fact.

I can't find it, but go back and reread FOFOA's response to Gregor about losing consciousness preceding death.

hth,

Milamber

Motley Fool said...

AD

Remember that debtors make payments on debt principle. For the USA for example the debt principle is now about 100% of GDP. That is roughly one year worth of production.

Savings exceed that that by multiples.

I don't disagree that your debt-slavery is part and parcel of what maintains confidence in the currency, but it is not the larger part.

What matters is the savers.

TF

AdvocatusDiaboli said...

MF,
"What matters is the savers."
Altough we will disagree on that one... ;)
Who are these "savers" you are talking about in the real world? (and pls dont gimme "China")
Also consider that many of those "savers" might be forced to hold that stuff by law (this is basically how the Euro works). Will that change? Realistically?
Greets, AD

Motley Fool said...

AD

You tried to imply that because for the debtors a large of their income flows to servicing debt, that it is a larger number than the savings. This is untrue, as my illustration should show. Their flow is paid on principle. We know what the value of the principle is, and it is of course the sum of all remaining flows to end it. We also know what the savings is.

Who holds large values of savings?

Shall we look at dollars?

Then yes, China does, so does Japan, and other sovereigns. But even they are dwarfed by the savings of people for retirement in US$.

You are correct that the funds that people invest in are legally captive. However people are not legally forced to put all their savings in such funds.

Milamber quoted something very apt.

“How did you go bankrupt?

Two ways.

Gradually, then suddenly.”

This change from dollar denominated savings is a very slow process that has been going on for a very long time.

Each dollar that leaves the paper system has a larger marginal impact on the loss of value of that currency.

It is simply a matter of time until a critical point is reached and a phase change occurs.

The above is also not a complete view. Bear in mind that physical gold for such savings to flow into ( all real assets really outside the paper system) are becoming less and less as it flows into stronger and stronger hands.

TF

Blondie said...

Another said:
"Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies"

If this statement appears the least bit cryptic, if it does not make 100% crystal clear sense, then little else written on this blog by either the contributors or the scant few commenters who do understand it will make complete sense to you, despite your best efforts.

You see, my friend, in this world there are two types of people: those who PRODUCE, and those who consume. YOU consume.

Those who PRODUCE, and there is perfectly good reason why it is written in caps, are giants. Everyone else, including YOU, is a shrimp.

Another’s statement above is the perspective of the giants, not the shrimps. So don’t feel bad if its inherent truth is not self-evident, you have simply never directly experienced life as a giant. No shame in that! That in itself means nothing at all.

Except that you don’t have the perspective from which to understand gold. So you'll have to build it from scratch.

In this case actually understanding gold means firstly having to discard an awful lot of fundamental beliefs about the way things work. This is also the single biggest barrier to discussing gold with anyone else… they will never understand without ditching some of what they hold as fundamental beliefs, so you may as well not bother. If you win anyone over it is ultimately only because of their faith in you and your perceptions, not their own understanding. But I digress.

You may appreciate that we need gold to fix our monetary system, but that does not mean you actually understand how gold really functions.

Gold functions as the ultimate store of value. Nice words, nice idea, but you are a shrimp. You’ve never had value in a quantity that needed storing. Sure you may have “savings”, but you’ve never personally experienced diminishing marginal utility to the degree that gold’s function becomes apparent, so it remains a theory. There is a monumental difference between mere theory and theory corroborated by experience. The latter has graduated from theory to fact.

This is the basis of my previous comment about ‘new money’ and the fact that it does not necessarily understand gold. New money for the most part believes it has its surplus value securely stored in various financial instruments. Old money (real giants) knows better. This perspective is also why the idea that Oil would not require physical gold for their surplus is preposterous.

Another told you that you could follow in the footsteps of giants, and you can, but if you want to see their perspective there’s a bit more involved.

cont.

Blondie said...

cont.

Newsflash: $US HI already happened. That’s what the ‘structural support’ since the early ‘80s has been in aid of, to avoid the conclusion of this process. As FOFOA has pointed out so clearly, as long as the marginal flow of excess dollars emitted by the US is absorbed into the market the dollar can continue to function. The devaluation of the currency is a market driven event, the final stage of every HI, but it does not occur as long as the excess currency is absorbed. Some entities have not wanted it to occur until they were better prepared, so they have, at no small cost, supplied the structural support to delay the final denouement. Obviously they felt the costs were outweighed by the benefits.

The revaluation of gold is a distinctly separate though concurrent event.

If you understand how gold works you will appreciate that the giants have no incentive to directly trigger either of these separate but simultaneous events… they already have their gold, and they already know its value (and who wants to be blamed for something that was completely unavoidable?). If you don’t need to access the value you have stored in gold, then it is really irrelevant to you what the market currently values gold at. They don’t need the shrimps to tell them anything; rather it is the shrimps who need to wise up. Shrimps are the same ones objecting to “austerity” aka living within one’s means. Doesn’t occur to them that the fantasy may have been the time when they lived over and above their means, does it?

I got a good laugh from this article, particularly the opening paragraphs:

”So what is it about money that the leaders of the eurozone don't get?

Money has been around for a while, and it's not terribly complicated.

The key element is trust. That was true when money was a piece of metal that you could bite or bounce. Now that money is just a piece of paper, it's even truer. Today's money is nothing but trust.

That's why the euro crisis is so bizarre. The euro is, in theory, one of the world's great currencies. And yet, as this crisis has demonstrated, nobody actually stands behind it. There is no lender of last resort. There is no "full faith and credit." There's nobody on the other end of the promise.

And it's as if the leaders of the eurozone wanted to go out of their way to prove it. They've taken us up to the velvet curtain and then themselves, with a self-satisfied smile, pulled it aside to show us that there is no Great Oz.

And in the process they've done major, and perhaps irretrievable, damage to their own currency and to the very idea of money in our time. If you can't trust the euro, what paper can you trust?“


Looks to me like the “leaders of the eurozone” get it fine… the author is simply under the presumption he understands money. Doesn’t seem to have occurred to him that he may not.
He’s definitely not alone.

FOFOA:
”It's just a shift in the perception of savers. Can't change that.“

“Savers”: those producers who currently do not understand gold.
Consumers (shrimps) are just along for the ride.

As I said at the top, if Another’s statement is not crystal clear you don’t understand gold, so don’t delude yourself that you do, and bear this in mind when you compose a comment.

I've no doubt my comments will upset some people. That doesn't mean they're not correct, just that you don't like it. A bit like "austerity" perhaps.

DP said...

#YAAaay! Go Blondie!

Gary said...
This comment has been removed by the author.
Blondie said...

Harden up Gary.

Your shortcomings are not DP's fault.

Gary said...
This comment has been removed by the author.
DP said...

Oh, Blondie! What will I do? How will I ever get over this anguish??? Gary doesn't love me back! Sob! :.-(

Will this pain ever stop?

Oooo l@@k! Scrollbutton! swEET!

Blondie said...

It has been observed:

" As you well know Blondie, the two types of people in this world are not those who produce and consume, but rather those with loaded guns and those who dig."

To which I respond that they are not mutually exclusive: the consumer has the gun and the producer is doing the digging.

Gary said...
This comment has been removed by the author.
milamber said...

@ Blondie

Thank you for that comment.

It really hit home (for me at least)! But I do want to see if I am getting more of it or still off base.

Blondie said (in two separate comments)….

“Some of this new money has been made as a function of this current system, by “trading” and "financial services". Most of this “wealth” will not move into gold because most of these “new giants” will follow their $IMFS confirmation bias (as “masters of the universe”) until there is no physical flow at a rate that will preserve their “wealth”.”

“You see, my friend, in this world there are two types of people: those who PRODUCE, and those who consume. YOU consume.

Those who PRODUCE, and there is perfectly good reason why it is written in caps, are giants. Everyone else, including YOU, is a shrimp.

FOFOA:
”It's just a shift in the perception ofsavers. Can't change that.“

“Savers”: those producers who currently do not understand gold.
Consumers (shrimps) are just along for the ride.

Do these statements mean that not *EVERY* PRODUCER is a Giant?

Meaning, can producers be divided into two classes?:

Giants
- Entities that long ago stored excess wealth in gold.
- And as it relates to stock/flow, still require some physical gold to flow their way.

Savers
- Entities with excess paper wealth (or oil, or land, or whatever), but for whatever reason do not store excess wealth in physical gold.
- Are some of these entities now (Now being since 1997) starting to realize that their goldish pieces of paper aren’t the same thing as physical gold?
- And it is these entities that will be destroyed when the paper burns?

Are these questions correct? Or am I barking up the wrong tree?

Thanks,

Milamber

Blondie said...

The entire foundation of this blog is in the header at the top:

A Tribute to the Thoughts of Another and his Friend
"Everyone knows where we have been. Let's see where we are going!" -Another


The very raison d'etre. It is a given that the contents of the blog are derivative of the perspective of Another and of the examples he gave in outlining that perspective.

Everything FOFOA has written has been self-evident from the perspective supplied by Another. Obviously it has also required no small amount of time, talent and insight on his part as well, but without the initial and ongoing perspective it would not, could not, exist.

Develop the perspective and most questions answer themselves.

It's not a case of "knowing it all", at all. More one of freeing your mind up so you can think for yourself, of ditching a limited point of view for a better one. If a better one presents itself, I'll be trading up.

Blondie said...

milamber,

My differentiating between giants and savers was in the context of FOFOA's quote ”It's just a shift in the perception of savers. Can't change that.“, so yes you appear to be interpreting my meaning as I intended it. The perceptions of those producers long since utilising gold ("giants") isn't going to change in any great fashion, in contrast to those producers with wealth "saved" in paper, and it is this latter subset of producers (shall we just call them "savers"?) whose perceptions will shift.

Actually, I think Gary has far more experience with the "savers" than I (extensive professional experience no less, check out his profile), so I will defer to him on what exactly their perceptions of savings and wealth may be.

JMan1959 said...

Ruh Roh,

Bank holidays declared in Italy? Any of you Europeans hearing about this yet?

Motley Fool said...

Jman, source?

byiamBYoung said...

MF,

RE:BNI bank holiday (Google translation):

http://translate.google.com/translate?sl=auto&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&layout=2&eotf=1&u=http%3A%2F%2Fwww.adiconsum.it%2FPages%2FNews.aspx%3Fn%3D1675%26AspxAutoDetectCookieSupport%3D1

Cheers,
Bradley

holdinmyown said...

To return to the original thread, I can't understand how any modern day "master of the universe" could be so stupid as to believe that a synthetic derivative construct could be used to hedge fat tail risks. Funny thing about hedges ... they maintain their correlation right up to the point in time that they don't. They can go from high positive to high negative in the blink of an eye (or vice versa). (This applies to all derivative assets as well come to think of it ... including paper gold.) This 180 degree switch is guaranteed to occur when you need it most.

So why pay all these quants the big bucks? Because you simply cannot entertain the idea that the entire system might fail.

milamber said...

Blondie said…

“Everything FOFOA has written has been self-evident from the perspective supplied by Another.”

Maybe to you & some others, but to this western shrimp’s mind, there is a whole lot of unlearning that I have had/am having to do!

Thanks,

Milamber

http://www.youtube.com/watch?v=dzm8kTIj_0M

Spoon boy: Do not try and bend the spoon. That's impossible. Instead... only try to realize the truth.

Neo: What truth?

Spoon boy: There is no spoon.

Neo: There is no spoon?

Spoon boy: Then you'll see, that it is not the spoon that bends, it is only yourself.

Blondie said...

milamber said:

"... to this western shrimp’s mind, there is a whole lot of unlearning that I have had/am having to do!"

I appreciate that, having been there too. To be honest, it's not as difficult as it appears. Like many others, it became clear to me a few years ago that big things were going down. I felt compelled to find out what. It wasn't a big step to see that this was entirely a monetary issue. When I thought about it, I couldn't produce a really good definition of money, so ... I had some work to do. Build yourself a good definition and Another's perspective, not to mention the world at large, start making a lot more sense.


Ben: Do not try to define the dollar. That's impossible. Instead... only try to realize the truth.

Neo: What truth?

Ben: There is no dollar.

Neo: There is no dollar?

Ben: Then you'll see, that it is not me that creates the dollar, it is only yourself.

RJPadavona said...

Wow! Just caught up with the last few days of Comments. I love watching our little Superorganism at work.

Although I hate watching my Friends argue, it's always a great learning experience for me. And if I may, Blondie, that last epistle of yours was Sermon on the Mount level material. I swear, no analingus intentions there at all. Just respect ;)


"There are so many things to learn about in this world
And so many people that can help us learn

Did you ever grow anything in the Garden Of Your Mind?
You can grow ideas in the Garden Of Your Mind
All you have to do is think, and they'll grow"


Garden Of Your Mind


RJP

milamber said...

Blondie said…

“…and it is this latter subset of producers (shall we just call them "savers"?) whose perceptions will shift.”

Blondie,

Thank you very much for that!

That just made something go click. And I think I see where I have been looking at this all wrong.

God, I hope this is right, or I am going to the bar for a week. :)

Here goes.

I submit that Freegold commencing has *NOTHING* to do with the Giants. I don’t know about the rest of the shrimps reading this board, but I have been so wrapped up in “following in the footsteps of giants”, that I have been viewing everything through my made up prism of “What are the giants going to do to usher in Freegold.”

Answer: Nothing.

The Giants already have their gold.
They already produce more than they consume. They really don’t give a rat’s ass if the western paper market “revalues” their gold.

Furthermore, the Giants (as long as the gold flows) could care less when the system resets. They recognize that the (comparatively) limited paper that they have WILL BURN, but that is irrelevant compared to the wealth of ages that they possess.

But FOFOA has written about two other parties in this play. And one of them is destined to usher in Freegold, simply by being.

The real freegold players…

One is the debtors/consumers/shrimps group. The biggest one is the US Gov’t that net consumes $3.6B/day. But for this comment, let the US govt represent every debtor for the purposes of defining this group.

Because unlike all other debtors/consumers/shrimps, the US govt can print its own currency!

The other group is the “savers”, as Blondie defined.

Most of these entities still choose to believe in their paper based wealth that is denominated in the IMF$ system. And why not, it has been very, very good to them.

These savers primarily have an “investors” psychology. But they also want to make sure that their investments are “hedged” correctly (with more paper).

The vast majority of these “savers” will lose all of their excess wealth but will probably do well nominally. This portion of the “savers” group are irrelevant for the purposes of a discussion about the Freegold transition. While “important” right now (as defined by the MSM financial press by being displayed prominently on CNBC, WSJ, FT, etc) they will not matter after Freegold happens.

They will move some of their paper into physical gold, but it will be *AFTER* the revaluation. The Superorganism effect will impact all!

But there are also some savers who, since 1997, have woken up to the fact that their goldish paper (that they have “just in case”) may not come through for them in a pinch.

Since 2004 some of these savers have been very grateful for GLD (as long as you can buy in a big enough block). Others think GLD is a fraud (but yet think Sprott’s PHY is as pure as the wind driven snow).

Some of these savers are trying like hell to acquire physical gold w/o running the price. And there are entities trying like hell to deliver them physical gold w/o a delivery failure.

-con't-
1/2

milamber said...

-cont-
2/2

Now that the two groups are defined:

- consumers/debtors/shrimps as represented by the US gov’t

- savers

This is how I think the phase transition occurs (based on my interpretation of what FOFOA has written)…

If the ROW stops soaking up the $3.6B/Day that the US Gov’t emits, then hello “Rip your skull off HI”, whether or not Gregor notices the loss of consciousness.

Quoting Fofoa again:

“I agree with Gregor that "hot inflation" is coming whether you like it or not, for all the reasons he explains and more. My only disagreement is that Congress will take it more hyper than we've seen in all of fiat history, so fast it will peel the skin off your face, because they are operating on a false premise. The miracle of the magical dollar theory premise is a false premise because it completely misses what's going on. And anyone who's waiting for those operating under a false premise to panic out of their dollar holdings before even entertaining this reality is like someone waiting for the loss of consciousness before entertaining the possibility of death.“

http://fofoa.blogspot.com/2012/05/inflation-or-hyperinflation.html

If this happens then at some point freegold happens when the US govt tries to stop the HI by offering something tangible (gold reserves)at a high enough price to make a difference.

But it doesn’t *have* to happen that way. And that is where the paper gold market comes in.

If there is a delivery failure to a GIANT or a saver, then we get Freegold due to the paper gold market collapsing.

And I am not talking about hearing about a customer of Egon Von Geyerz or ZH or Eric King hyperventilating about some non-conspiracy.

I am talking about a multibillion $ order for physical gold that doesn’t get processed. And a saver (or Giant if one is still doing Billion $ orders) gets pissed & it gets public.

Whichever one of these things happens first, then we start seeing Freegold play out.

It could be either or. It doesn’t really matter which one happens or when. Mathematically, one of them is going to occur. Another showed us that there are too many paper contracts written for too little physical gold (that is available for sale, especially at these prices).

And the US Federal govt shows us every day that there is NO WAY they are going to crash the US’s lifestyle.

Going back to the Hemmingway quote, I can see that this process *IS* very gradual because I am living in it every day.

And it will stay gradual.

Until one of the above two things happens, & then HOLY CRAP, WATCH OUT!

Anyways, that is this shrimp’s view.

Criticisms are asked for and welcomed; The flamier the better. :)

Milamber

costata said...

Milamber,

I think you have many of the key points nailed in that summation. There's always issues around personal expression. Others might express themselves quite differently yet with the same intent and meaning. Sometimes that leads to the appearance of disagreement and people talking around each other rather than to each other.

Cheers

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