Tuesday, October 16, 2012

Debriefed #6 – Aaron

Instead of an introduction for this fantastic interview, I feel it is time to repost one of my all-time favorite quotes from FOA:

I (we) expect none of you to consider anything said here as credible. Everything is given as I understand it. If you came with a notion that I am someone who sees the future; grab the children and run far away. For these Thoughts, and my ongoing commentary, are meant to impact exactly as the "gentleman" said they would. People hear them, and whether believed or not, the words leave a mark. A mental mark on the trail, if you will. And later, after the world turns, our little "stacks of rocks" will be easier to understand next time you are passing this way. In fact, your ability to find your own way will forever be enhanced for having seen this path in a different light.



273 comments:

«Oldest   ‹Older   201 – 273 of 273
Franco said...

I have a question for anybody who doesn't save exclusively in gold: what else is there to save in? This is not a loaded question. I am genuinely curious to know how else people save. Thanks.

ampmfix said...

Franco, from an engineer to another, aside from gold and other metals, basically real assets, the next easiest one is probably real estate, unless you want to store oil, steel, etc...

Anonymous said...

I save in rare records and art. We bid on some nice art at auction last night, but it went too high for my liking. It was quite the sight and bidding war, haha. There were only four of us at the auction who knew exactly what it was. The auction house didn't even know what they had, nor did the owner of the art;) Woulda looked super nice on display, but I'll scoop up a better collection in the future...

A very good portion of my savings sit in gold, though. The (limited) art and records (shit-tons!) I enjoy on a daily basis - the gold hides off site.

ampmfix said...

A member of my family had years ago saved 50 x 200 liter barrels of diesel, as a result of the bad oil experience during the 70s, not much, but he drove on that for years. That doens't take that much space.

ampmfix said...

SV, art is nice to the view, but so fragile and prone to personal taste, probably difficult to unload, margins at art brokers are enormous.

ampmfix said...

Another idea, buy huge steel beams if you have a piece of land where you can just dump them, it will be difficult for thieves to take (or to realize they have value, rusty and all).

Anonymous said...

True, ampm, but I don't plan on selling my art, gold or records, at least not anytime soon:) They're things I intend on saving and stuff I dig, it's a win-win.

Anonymous said...

M,

concerning the question of why did the ECB not stop the credit expansion in the periphery, I know that R Werner asked Trichet in Davos in 2003 why they were expanding the credit volume like crazy in the south whereas they restricted credit expansion in France and in Germany. Trichet must have fully understood this question and why it was significant, but he just replied some BS to Werner.

This is why I guess there was more to it. By the way, Werner seems to think (or at least to consider the interpretation) that they did this deliberately in order to force Europe into a crisis and into policy changes.

Victor

Unknown said...

Hi VTC,

could you please provide a link?

costata said...

Jim Sinclair blows up the COT experts here:

http://www.jsmineset.com/2012/10/19/how-a-metals-dealer-works/

This is so good I think we need to record some of this in the comments for newbies. Let's step them through it. In the following extracts JS explains the "structural" framework on which the spread trade is based i.e. strong dollar/weak gold and weak dollar/strong gold.

...What is the "Strong Dollar Policy" of the US Treasury? The answer is it is a policy of support of the dollar at key technical points so that the dollar will decline in an orderly fashion. This has been in place since the dollar was trading in the mid one hundred and twenty-five area on the USDX.

In comparison the "Weak Gold Policy" has been in place since $248 which means gold’s appreciation will not be an insult to the dollar by spiking to $3500 and beyond, but rather rise in an orderly fashion...


For the metals traders it's a simple business and risk free if you have deep pockets, expertise, good sources of information and friendly regulators.

..This opens the bonanza to the metals dealer to run what looks like a huge short.... the big short that is always being screamed about by the so called gold experts, and COT is a crock. You are looking at least seventy-five percent at a managed spread position.

What happened at $1800 then at $1775 and again at $1750 was the long side of the spread was dropped, leaving the short side exploded and the gold banks pounding the market to make a 50% profit by putting back on the long side of the spreads, locking the huge physical long versus the Comex short into a no risk position that reads on COT like the greatest short in human history. The same is true of silver...

Then they reverse the tactic to profit on the upside of the volatility. Simple!

..Here comes the "Golden Truth." When the gold banks perceive that the gold market is about to go ballistic, just like any bull market does, they need only reverse the strategy in place from $248 called "The Weak Gold Policy" in how they handle the 75% risk-less spread. Now when gold falls you takes off the short aside of the spread with gusto and let the long run...

What does the COT report tell you? SFA

..All the COT numbers are nonsense and a means of operating the markets. COT experts give buy and sell signals which help the physical metals dealers profit on their spread trading....

.... Wake up experts, you have been had and your comments to the community are helping make sure they are had. You are tools of the gold banks and do not even know it. Your sage comments when I hear them from readers makes me sick because it is ignorant of the business...


Cheers Jim and thank you on behalf of the newbies. For any reader who still isn't getting this - massive (visible) paper short = massive (invisible) physical long and vice versa. In silver the bag holders are primarily the industrial users and (increasingly) over the past few years the silverbugs.

In gold the patsies are both longs and shorts who get shaken out of their positions by margin calls, false data feeds/interpretation and their emotions (weak hands).

Nickelsaver said...

http://www.sovereignman.com/expat/four-alternative-stores-of-value-8966/

1) Ammunition and Firearms may be the new whiskey, especially in North America. FBI firearm checks have been going through the roof in the US over the last few years, and each one of these represents another buyer of weapons and ammo. Consequently, both have handily withstood the effects of inflation. According to ammo.net, for example, the price of Remington .223 rounds rose 224% from 1999 through 2011.

2) Watches. A single watch can be worth tens of thousands… even hundreds of thousands of dollars. Imagine putting $200,000 on your wrist and leaving the country– it’s an easy way to move wealth. As with most collectibles, scarcity drives prices higher in the watch market. Most watches are like cars, they depreciate. But scarce models (of cars, or watches… like a Patek Philippe) hold value.

3) Rare coins. Gold and silver are excellent, traditional stores of value. But while millions of new ounces are pulled out of the ground year in, year out, there are only a certain amount of 1907-1933 St. Gauden $20 gold pieces in the world… and they can’t go back in time to make more of them.

4) Agricultural property. Few asset classes are as inflation-proof as high quality productive land… because, no matter what, it will always have value. Human beings will always need to eat.

Winters said...

thanks for the pointer to the Invergordon Mutiny, Woland. A surprise punchline at the end after what I thought was just a description of some naval sailors striking due to pay cuts:
The Invergordon Mutiny caused a panic on the London Stock Exchange and a run on the pound, bringing Britain's economic troubles to a head that forced it off the Gold Standard on 20 September 1931

re: Real Estate as a store of value. Not sure what the conditions are like in Spain but in Australia the current price of real estate is backed by 80-90% bank credit. In a post transition scenario, bank credit would be much harder to come by and not handed out for outbidding your neighbour on some McMansion. I suppose though if you need a hedge for things 'muddling along' then it would be ok but it seems at big risk of a haircut to me.
Yes there is agricultural land but agland is high maintainance. Fences, roads, equipment, paddocks all need tending to. Not a set-and-forget proposition but something that needs active management and attention.

shortrib62 said...

costata wrote (from JS):

"The long side of the spread was dropped, leaving the short side exploded."

Does he perhaps mean, exposed? If not, pray tell what does he mean by "exploded"?

M said...

@ Costata

I thought JS was one of the followers of the short conspiracy. This is getting confusing.

If the bullion banks manage the rise in price too slowly, then they will destroy the mining industry. They are destroying the industry now. Judging by the earnings of the miners, the price is lower then production already.

shortrib62 said...

JS definitely promulgates the idea that there is a lot of jiggery pokery where small cap mining shares are concerned, and that the hedge funds are the primary perps.

holdinmyown said...

Hello VTC, Costata, M and all others interested in central banking

Here is a link to Merv King's 2005 Mais Lecture in which he discusses the use of inflation targeting as a monetary policy guide. Quite interesting.

Michael H said...

costata,

Thank you for the JS link. As far as the COMEX what he writes seems legitimate: buy OTC and sell on the COMEX. But this is a flow operation. Gold in must balance gold out. How can changing the spread position push the market to $3500 or $12k? What he describes doesn't create or destroy supply or demand but merely creates a glorified mark-up. Or am I missing something?

RJPadavona said...

Franco,

I know this may sound crazy around these parts, but owning shares of stock in certain companies can also function as a store of value into the new monetary system. But you have to go to a little extra trouble to ensure that it will store value. And I would only recommend doing this with blue chips that are well established and can weather the coming storm.

We frequently say "all paper will burn", but what I'm talking about would literally have to be set on fire by someone. I'll use Coca-Cola for example. Let's say you own shares of Coke stock in your brokerage account. Technically, these shares aren't owned by you, they're owned by your brokerage house and they have these shares "assigned" to you. But there is a process that is very inexpensive where you can request that these shares are registered in your name and you will receive the stock certificates in the mail (in the physical plane!). This process is probably different for each brokerage house, but all you have to do is call them and it can be done for a small fee. So, if your brokerage house becomes the next MF Global and THEIR paper burns, the shares of stock that you own will still be flame-resistant ;)

Now, don't get me wrong, I'm not comparing this to owning gold, but for the sake of diversification and not putting all your eggs in one basket, this is not a bad option. And it's much more liquid than trying to sell your hoarded canned food and toilet paper on the black market ;)

Although Coke stock won't give you that possible 30 bagger that physical gold will, I still think it will keep up with price inflation for the most part. Sure, there may be a period where we don't know the actual price of a share of KO, but the same thing applies to gold too, right?

Disclaimer: If you think we're going full-on Mad Max and people will stop drinking Coca Cola post-FG, then by all means, disregard this comment.


SV,

Speaking of vinyl, I hit the honey hole the other day.......
I had a cousin who killed himself about 15 years ago. He would've been about 65 now if he had lived. Anyway, he had a walk-in closet full of albums. Quality stuff too.

I've always wondered what happened to his record collection, but I never asked anyone because I didn't want to seem like a vulture. But lo and behold, his mama called me up out of the blue a few weeks ago and asked me if I wanted it. She remembered how much he used to enjoy the fact that I was so much younger than him and would come over to his house and listen to all that old music with him. She had mourned long enough and wanted her son's most prized possessions to go to someone who would appreciate them.

The collection she gave me was well over a hundred albums. All the Sabbath LPs, Rainbow, Dio, Zep, Floyd, 13th Floor Elevators, Motown, Oldies, etc were there. But the one that stuck out more than all the rest was an autographed GG Allin 'Carolina in my Ass' EP still in the plastic sleeve with a $5 Repo Records price sticker still on it.

So whaddaya think? Will something as vile and immoral as a GG EP store value into the next monetary system? ;)


RJP




Beer Holiday said...
This comment has been removed by the author.
RJPadavona said...

BH,

Owning stocks is definitely not my first option, but Franco asked of other ways to store value besides gold. 

Liquor, guns, and ammo would be my first choices. I was just offering up another option that could at least protect a decent percentage of his wealth.

An actual stock certificate shows that you own a share of stock. I tend to believe this contract will be honored post-FG. All I'm saying is this would be an option that is better than owning Treasuries, commodities, or cash. Especially if you have money tied up in retirement accounts that you're not legally allowed to touch. Coca Cola ain't going anywhere and KO stock will be easy to get rid of whenever you want to. 

And yeah, Warren B sucks D.

Anonymous said...

RJP,

Right on, man. Very cool your cousin's albums went to you, as someone who will appreciate 'em.

I'm a friggin' vinyl freak, I mean... hoarder:) hah! Proud of it.

Honestly, I do think original, first pressings will indeed hold their value/appreciate over time. I look at them the same as I would paintings and shit, they're not making any more originals.

I'm drooling over here on that 13th Floor Elevators album.

Great stuff and actually might be worth quite a few bucks. Check out collectorsfrenzydotcom for an idea of what albums are selling for. Should give you a good idea of what the collection is worth.

Roky rocks


Beer Holiday said...
This comment has been removed by the author.
Anonymous said...
This comment has been removed by the author.
Anonymous said...

Yeah, I spilled some wine on that post...

The Atomic Rooster made me do it.

Anonymous said...


Here is some more reading from the BIS' 75 anniversary meeting (h/t Mortymer):

http://www.bis.org/publ/bppdf/bispap27.pdf

I found the following particularly interesting:

Opening Remarks by W. White on supporting Bretton Woods, Comments by Volcker, esp. the very end about price stability in the U.S., Comments by Yamaguchi about lowering interest rates to support the dollar.

Victor

M said...

@ Costata

So there is a difference between JS view and GATA's view now ?

I thought they were usually on the same page.

I bought 3 oz today. Im a little perplexed with the weakness in the market at this time of year.

Naughty Slumdog said...

Most of you are talking very relaxed about the hyperinflation. Did any of you really lived in such an economy? Most of did not, I assume.
Let’s have a quick walk into accounting (http://www.iasplus.com/en/standards/standard28)
“Characteristics of the economic environment of a country which indicate the existence of hyperinflation include: [IAS 29.3]
- the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power;
- the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency;
- sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short;
- interest rates, wages, and prices are linked to a price index; and
- the cumulative inflation rate over three years approaches, or exceeds, 100%.”
And some concrete examples of countries:
“Countries with three-year cumulative inflation rates exceeding 100%: Belarus
Countries where the three-year cumulative inflation rates had exceeded 100% in recent years:
Democratic Republic of Congo
Venezuela
Countries (a) with projected three-year cumulative inflation rates between 70% and 100%; (b) where the last known three-year cumulative inflation rates previously exceeded 100% and current actual inflation data has not been obtained; or (c) with a significant increase in inflation during the current period
Ethiopia
Sudan
Guinea
Islamic Republic of Iran
Republic of Yemen”
All the paragraphs set forth in the standard refers to concrete cases of not-so-small, not-so-savage countries. Ex Sovietic block, Brazil, Turkey.

The above extracts are from acounting regulation. The accountants made all this analytics to render some credible financial statements, which are the basis, together with national statistics, of any sort of economical studies and policies. That’s not quite political shit.

costata said...

shortrib62,

Sometimes Jim Sinclair's language is confusing. I guess "exposed" would substitute, as in, exposed to their downside strategy.

M,

Sinclair has lambasted the games in the mining stocks. I don't recall seeing anything from him that indicated he held the same view of the Comex short position as GATA. The post I linked is the first time I have seen him give a complete description of how the BBs fleece the punters in the paper-physical markets.

Regarding the cost of production: 'Old Investor', yours truly and several other people came to the conclusion a couple of years back that this was the floor under the gold price. If the BBs flirt with this level I don't think they can afford to do so for long.

I watch for the gap between these two price levels closing as one indicator that the price of gold is going to move to a higher trading range shortly.

costata said...

HMO,

Thanks for the link.

Beer Holiday said...
This comment has been removed by the author.
Naughty Slumdog said...

1/2
I somehow get from your posts the belief that with a higher inflation the US economy will become more competitive. However, significantly higher inflation brings the following:
All the interest will grow. They have to be linked with inflation. Hyperinflation is not only big, it is as well unpredictable. The lender has to charge a big interest, to cover his risks of losing money through inflation. Who will take a loan with high AND unpredictable interest rate?
The employee receives periodical raises, to compensate for the purchase power lost through inflation. The higher the inflation, the higher the required salary increases. But such increases ARE NOT automatically linked with inflation, they are negotiated and pending to company performance as well. Large part of the pay is some sort of educated gamble. Motivation for the employee is minimal, and the integrity towards company’s assets fades away, from cleaning lady to CEO.
The lender risk and the employee’s risk are so high, that typically the credit is alienated. Only credit given is the governmental backed credit, injected in areas of interest for government. With consumer credit sort of gone, the reasonable and legitimate loans for decent housing, for cars and even the bloody cash for a holyday in some resort are incredibly difficult or are abandoned. Here is the role of the external “hard currency”, to avoid this. If there is available an external, hard currency, some sort of dual economy is developed.
The savers will either save in some sort of hard currency, or their savings will be lost. I mean like totally lost (remember: 100% inflation in 3 years ….). Some of this savings are medical insurances and pensions, are “survival” savings, not just wealth, the government need to step in, or watch people die. Nr 1 action: raise tax. Turning the country in a “social state” become not a matter of choice, but a matter of survival for a significant percentage of population. And the state does not have other choice … (http://www.youtube.com/watch?v=OT2rb7ac3_4)
Loans for investments are doomed either. Because of instability, many companies go bust. Many are rescued by the government, with funds that derives from, you get it, printed money! The rest are from taxes, another good one. With reduced capital investment over a couple of years, ANY economy will lose competitiveness.

Naughty Slumdog said...

2/2
As one can see, inflation acts as some sort of taxation: it automatically detach wealth from ALL savers, and it puts in into the hand of government, the source of “cash”, and redistributer of savings. And the government needs to be careful how it redistributes the wealth. The “wealth” it is provided to the most aggressive and dangerous groups, not to the most sound economic projects. (Turkish army http://www.youtube.com/watch?v=tsVIs98Mh1c , http://www.youtube.com/watch?v=DmJT7TmevRU and coal miners from Romania, as there are some many here http://www.youtube.com/watch?v=Cbe3VSlAOTI , http://www.youtube.com/watch?v=TACd0t9lIRc&feature=related)
Generally speaking, all long cycle activities are lame. Any long cycle, from the production of a sea vessel, to mining to R&D and back to higher education and NASA will rather fail. The quality and predictability are gone, it does not worth to start as you will most likely have finance cut in the middle of the project. Business and people CAN NOT sustain long term financial commitments …
I would not drag you into the perverse effects of inflation in taxation. In a hyperinflated economy, all lenders/creditors/debtors would need their money on the spot. Government being the number one creditor, taxes have to be collected several times per year, so government appropriates some more valuable cash. Delays with no huge interest are pure loss for creditors, they become bankrupt if they fell into such traps.
Non cash transactions become frequent. I was in meetings with four to five accounts, from four to five different companies that have some business all together , all of them with their stack of bills, and counting how to better settle off on paper most of the balances. The result was a magnificent pieces of paper, with signatures and seals, and with list of bills that were netted off against each other ….
Speed of deploying ANY WEALTH surplus into a tangible asset is paramount. It requires however excellent connections, education, quick thinking and very good mental flexibility. Coming back to Weimar times, in the context described, with the skills above, who do you believe would hoard more wealth, the average israeli or the average german? Well, this is partly how it started the wicked story of WWII …
So guys please: speak respectful of the Devil ...

costata said...

Michael H,

Perhaps it's because I'm tired but I found your comment about the Jim Sinclair post confusing.

Rather than a buy-sell in OTC and Comex respectively I read Sinclair's meaning as they trade both but only the position they want on display appears in the COT reports.

You wrote:
How can changing the spread position push the market to $3500 or $12k?

My comment was intended for newbies. I cut out a lot of material that I thought might confuse them. The passage you referenced is a good example of stuff I wanted to avoid. That paragraph needed more explanation than Jim Sinclair offered IMHO.

JS writes (my emphasis):
You must note how central banks are either buying or protecting their gold reserve positions now. This is total about face two years ago. There is another change coming which is a replacement monetary system and the need for some asset on central bank’s balance sheets to have positive value, especially in the USA.

Soon all that is required is a change in spread management by the gold banks and you will have whatever price the gold banks want from $3,500 to $12,400.


I think he's talking about the time when the US dollar is finally toast - weak dollar/strong gold (demand). I assume he expects the paper gold market to survive the transition (as it did after 1980) whereas many here do not.

When he says "whatever price the gold banks want" I think he is lumping the BBs and CBs together. I think that passage I quoted could be rewritten as whatever price the new monetary system demands. As I said to 'shortrib62' sometimes Jim Sinclair's prose is a mite confusing.

You wrote:
What he describes doesn't create or destroy supply or demand but merely creates a glorified mark-up.

Agreed. I think we have to infer that he means gold demand will be sky high and at some point the BBs will lift any trades designed to play the downside and let the price run to the upside.

ampmfix said...

RJP, BH: stocks are inherently untrustable from the moment you are not in the board of directors (maybe not the case for Buffet...). They will always be insiders one step ahead of you, and that, if no foul play is present!

Winters: I am not talking real estate in Spain but ww. The real wealth of kings was not gold, it was land. Real estate: you buy apartments and rent them or LIVE in them or you buy land and rent it or grow FOOD out of it. The only catch with land is that it is not transportable wealth, just my personal preferences of course.

costata said...

ampmfix,

The real wealth of kings was not gold, it was land.

Amen

Woland said...

And if you need proof of Costata's statement, look no
further than that marriage arranged by the King of the
Swamp Castle for his feckless son:

Son: But dad, uh don't love her.
King: But she's got HUGE TRACTS O' LAND!!

Beer Holiday said...
This comment has been removed by the author.
Woland said...

Thanks, Beer. That was fun! Hadn't seen it for so long, I
had completely forgotten how nice the acting was. As for
my user name, you're not far off, either. The second scene
in Master and Margarita takes place in Jerusalem, between
the Procurator of Judea, centurion Mark Rat Killer, and of
course, Jeshua ha Nosri. A virtual match! Just no Woland
in that scene.

Beer Holiday said...
This comment has been removed by the author.
Flore said...

http://online.wsj.com/article/SB10000872396390444734804578064660899712092.html

Beer Holiday said...
This comment has been removed by the author.
burningfiat said...

Beer Holiday,

I see! Does that mean FOFOA is more likely to be a Mathematician than an Engineer? You know, with his Gaussian bell curve centered at $55K and all? Guess we'll find out once FOFOA is debriefed...

Franco, I think you wouldn't have made that comment about significant digits, if you had seen the bell curve illustrations in the old articles... Am I right?

And what is the correlation between posting as "Beer Holiday" and the likelihood of coming up with extremely smart comments? Absolutely loved your "Number of gold mining co shares issued" comment at:
http://www.bullionbaron.com/2012/10/mystery-chart-guess-what-it-is-win-free.html#comment-form

Took some brain coupled with some insight to figure that one out! Nice! I'll now go drink some beer and hope it affects my brain in the same way as it obviously did yours :D

/Burning

Beer Holiday said...
This comment has been removed by the author.
Michael H said...

Franco,

I'm not sure what you are trying to bait me into, but everyone knows that there is no such thing as a 'bajillion'. Now, if you meant bazillion, then the implied tolerance is +/- 5.27%. Don't ask me how I know this.

Not bad, but if you want me to believe you, "Don't ask me how I know this" won't quite cut it. You should add some appeal to authority, insults to those who disagree, and a few credentials to boot. Like this:

...

FOA (the real, breathing, 2012 FOA) told me that there is no such thing as a 'bajillion', but the implied tolerance of a bazillion is +/- 5.27%. No doubt if you guys weren't all a bunch of intellectual lightweights, he would have surfaced by now and told you so.

Sincerely,
Michael H, MD, PhD, RNA, PQX

Motley Fool said...

Franco

Wrong. It's obviously 6.26%.

Don't ask me how I know that. :)

Teh, F. ool.

Michael H said...

costata,

I agree with most of your points on the JS piece.

...

ampmfix and costata,

The real wealth of kings was not gold, it was land.

True, but the power of the landed aristocracy declined when the chief economic driver changed from agriculture to industry.

...

Naughty Slumdog,

Have you read any of FOFOA's posts on hyperinflation? No one here is claiming that it will be a walk in the park for those involved.

Beer Holiday said...
This comment has been removed by the author.
burningfiat said...
This comment has been removed by the author.
Dante_Eu said...

@Beer Holiday:

Take is easy with the alcohol even though it's weekend. :-)

Michael H said...

costata,

Specifically, I'm not positive the BBs play games with the COT. Rather, I find it more likely that the open COMEX positions most likely to be profitable, given the difference in supply/demand between COMEX and OTC.

This still means that the COT doesn't necessarily tell you much about the supply/demand of the market as a whole, but with the caveat that the COT is not intentionally misleading.

After all, if the COT was intentionally misleading, wouldn't this constitute a market signal of a sort?

holdinmyown said...

Hello Costata. You said:

For the metals traders it's a simple business and risk free if you have deep pockets, expertise, good sources of information and friendly regulators.

Here is a link to an article that explains how this works for industrial metals at the LME.

Hello M. You wrote:

If the bullion banks manage the rise in price too slowly, then they will destroy the mining industry. They are destroying the industry now. Judging by the earnings of the miners, the price is lower then production already.

From the article linked above I think that the LME warehousers (or BB as with gold on the LBMA) are using their non-symetrical information and LME rules to squeeze both the producers AND the ultimate users of the metals (manufacturers) by widening the spread.

Hello Michael H. You wrote:

But this is a flow operation. Gold in must balance gold out. How can changing the spread position push the market to $3500 or $12k? What he describes doesn't create or destroy supply or demand but merely creates a glorified mark-up.

I believe that this is a timing issue. One leg of the trade is delayed for some time. So by buying the metal (physical) now and delaying placing the short (or vice versa) they really are creating artificial demand or supply for a short period while the imbalance exists.

HMO

burningfiat said...

Everyone,

I just want to state that my previous comment is truthfully meant as a total compliment to Beer Holiday and his comments. I'm really sorry if that wasn't obvious!

I wanted to encourage more comments from Beer Holiday with this comment, instead he deleted them all :(

English is not my first language... Sorry again, Beer Holiday, I'll buy you a beer next time you're on vacation in these parts of the world...

/Burning

Woland said...

Thanks Victor for the BIS 75th link (via mortymer)

I particularly liked a snippet from the Volker talk near the end:

"Against that background, it was really a remarkably fruitful
period for innovation. I am referring to some of the things
that have been mentioned before - the IMF's general arrange-
ments to borrow, the swap network, the Roosa bonds, repeated
rescue operations, occasional intervention, the gold pool, the
two tiered gold market - all in the space of less than a decade."

Yup. a great decade spent in the emergency room.

Woland said...

Hello Costata;

I enjoyed the Jim Sinclair piece you posted above, and read
some follow up comments by his readers. I would be interested
in your opinion of the following advice which he gave;

Reader: "Jim, today's article responding to your reader about
how spread trades work was great. Readers would really
appreciate a simple, visual trading example on how it works.
What can the average retail investor do to counter these
spread trades other than going long and holding position in
allocated metal."

Jim's Answer; "Simple. Sell a little on every rhino horn. Buy
a little on every fishing line."

My interpretation, for which I would appreciate any thoughts
from the group, is that if you have, say, 100 oz physical in
your possession, feel free, on a "parabolic run", to short one or
2 mini 10 oz contracts, knowing the whole purpose of the game
is to manage a gradual decline of $ against gold, and cover and
buy the same small percentage following the expected smash.
You thus "earn" a little on your physical as it sits quietly beneath
the daisies. (You know a runaway surge won't be ALLOWED to
damage your short position, and a runaway short must stop at
cost of production +, which you can settle for cash, and will
mark the end of the paper markets, as physical disappears.)

Naughty Slumdog said...

Ok, summary of my long stuff: hyperinflation DO NOT GET economies more competitive.

Economically US IS NOT in hyperinflation, even if monetary you may be there.

I think that the dollar will rebase. It would be a one shot action (e.g. would snap, if I properly understood FOFOA). I believe it would be some differentiated parity of old USD to new USD, pending to amount of paper held and class of dollars owner (e.g. Californian pension funds would get a better parity than Central Bank of Namibia).

FOFOA said...

A live demonstration of Perception versus Reality?

Beer Holiday (if you're still reading), I liked your post yesterday to RJP, especially the link to the puzzle you solved, even though someone else got the prize. I was, in fact, surprised that more people didn't comment on it, but I was pleased today to see that Burning Fiat noticed your accomplishment.

I also liked your comments today, and so I was really surprised at your reaction to the nice responses you received. Perhaps you expected to be flamed, and so that's what you saw? I don't know. But here's what I saw.

First you asked Woland about his pseudonym and if he was a woman. Woland responded in his normal fashion with a hint meant to lead you to the source of his handle, a Russian novel written in the 1930s titled The Master and Margarita woven around the premise of a visit by the Devil to the fervently atheistic Soviet Union. In it, the Devil appears as a magician named Woland.

Then you reposted your link to Biggus Dickus. I didn't quite understand why you did that. I guess you thought that Woland didn't understand your reference the first time, and that you didn't understand his reply.

Next you posted a comment directed at Franco which I thought was quite witty. And Burning Fiat apparently thought so too, because he immediately complimented you on it. But somehow you read his comment as an insult. I'm still trying to figure that one out. I've read it like three times now, and he's clearly complimenting you.

But you came right back with, "That's pretty mean. Good luck with that." And then, "It was a mistake coming back to this blog."

Burning Fiat then tried to make light of your strange reaction with, "LOL!!! Welcome back buddy!" And Dante did the same with, "Take is easy with the alcohol even though it's weekend. :-)"

But it was too little too late, apparently, because you went on to delete all of your comments. It's funny. It almost feels like you came here today with a chip on your shoulder expecting to get flamed and then run out of town. So you took any comments directed at you as insults and then ran away. It's funny because I don't remember you ever being treated poorly here before.

On a lighter note, at least someone appreciates the friendly atmosphere here. My inbox was full of new YouTube subscribers today. I had to go and change my email notification settings. I don't need a separate email for each new subscriber, especially when 70 of them come in over a matter of hours. My YouTube subscribers more than doubled! What happened was that Silverfuturist just discovered "Debriefed" and he made a video response to our new interviews.

He had some very nice things to say. So thank you, Silverfuturist, and welcome to all the new silver bugs arriving today!

Sincerely,
FOFOA

Woland said...

Hi Fofoa: Yeah, I don't get that either. Beer Holiday provided
a link to the Bigus Dickus clip, which I watched, and then I told
him how much I liked it. The woman question really was "woman",
as Michael Palin pronounces "Roman" that way, because of his
character's speech impediment. So I knew that was what Beer
meant. I Dunno.

costata said...

Michael H,

I think the COT report can't be used as an indicator because the BBs play the market in both directions. And the COT report only displays part of their book.

Woland,

I interpreted Jim Sinclair's advice to readers more or less the same way you did. I can't comment on how to structure a trade to take advantage of the manipulation. That's not an area in which I dabble.

HMO,

Thanks for the link on metal market manipulation. Business as usual.

Re: Land

It's still the biggest hard asset game worldwide. The shift from agriculture to industrialisation changed the emphasis as populations urbanised.

The ability of land to absorb inflation and debt expansion remains high to this day. Unfortunately this collides with constraints such as affordability periodically and causes market crashes. (And affordability is only one of the constraints.)

The article about William R. White that VtC posted goes to the heart of the problem. A basic, systemic flaw in the banking system that various stakeholders have been trying to paper over (and exploit) for hundreds of years. My emphasis in this extract from that article:

It (the development of imbalances in the financial markets)was created by what the two BIS economists called the "inherently procyclical" nature of the financial system. What they meant is that perceptions of value and risk develop in parallel. People suffer from a blindness to future dangers that is intrinsic to the system.

The better the economy is doing, the higher the ratings issued by the rating agencies, the laxer the guidelines for approving credit, the easier it becomes to borrow money and the greater the willingness to assume risk.


BTW I don't agree with White's management strategies, proposed solutions to the problems he describes or White and Borio's dating of the starting point for this instability to deregulation of the financial markets in the 1980s. The problem is systemic and as I said above it has been present for hundreds of years.

The fact that this is not the case at the individual firm level masks the problem if you only look at individual banks and infer the system from there. In this area aggregates matter.

However, you can make a good case for circa 1980 as the starting point for the destruction of the rule of law in relation to financial markets. If I had to nominate the primary cause and the direction of causation here I would point to the $IMFS beginning its terminal phase as the culprit rather than the financial system.

Michael dV said...

fofoa mention half way down the page..
http://www.dowtheoryinvestment.com/2012/10/not-all-gold-is-born-equal-gold-and-dow.html

Michael dV said...

here is the paragraph
high praise is how I read it...

Gold, all the critics notwithstanding, is a very important asset. Extolling the virtues of gold and why it should definitely belong to the investor’s portfolio is the subject for a book. Those really interested in understanding gold, should go to Fofoa's blog, which you can find here, and read all his posts. The greatness of Fofoa is that he is not a gold bug but by being rigorous in his analysis, he makes a very compelling case about the virtues of gold and its vital geopolitical role. No need to resort to conspiracy theories, no need to bash JP Morgan, just plain analysis. Fofoa, IMHO, is one of those rare instances of really good “fundamentals." However, understanding Fofoa has many angles, and it takes lots of time to finally “get it." The reward, if Fofoa is proven right in his analysis, is beyond what the most ardent gold bug may expect.

Anonymous said...

The latest from the other JR...

Jim Rickards - Currency Wars Simulation

RJPadavona said...

Hey BH,

If you're still reading, I wanted to respond to your comment from last night. Sorry for the delayed response. I've been busy today making people's dreams come true, one haircut at a time :)

I totally agree with you that real assets like land or rental properties are much better stores of value than stocks. You have to remember that I'm speaking from the vantage point of a super-shrimp who doesn't have the kind of money lying around to make purchases of that size. Everybody ain't Big Pimpin' like you, BH ;)

Let's say someone new has found this blog and they have maybe $50,000 in savings. My first recommendation would be 90% gold, 10% other real assets like guns, ammo, or other non-perishables.

But most likely they wouldn't be comfortable with putting that large of a percentage in gold. Maybe they'd feel comfortable with 50% in gold. They couldn't buy much real estate with that remaining $25,000 and even if they did, they'd probably have a hard time selling it when the time came. So, IMO the next best thing would be to own some blue chip stock (and request delivery of the certificate) that would keep up with price inflation for the most part.

I know it's best to think like a Giant, but sometimes it's hard to act like one when you have a shrimp sized wallet ;)

PS: I hope you haven't taken your ball and went home for good. If you won't listen to us, maybe you'll listen to your homeboys.


RJP

Anonymous said...

I guess that vid I posted isn't all that new...

The whole thing is here

Aaron said...

Hi /SV/-

I have read Rickard's book, but I hadn't seen the video so thanks for posting it. I'm watching the full video now. Good stuff.

costata said...

Jeff, SV and Aaron,

Having watched that Rickards interview with Max Keiser again and viewing a couple of other recent Rickards vids I have changed my mind about Rickards. I doubt he has any blind spots.

The apparent contradictions are more likely due to his selective emphasis depending on his audience. Rickards discussion of the Great Depression in the Keiser interview suggest to me that he has deep insight into the causes of the depression (and economics more generally).

I find the depiction of these currency war gaming scenarios disturbing. It looks like the foundation for a propaganda campaign to create a scapegoat for the coming HI in the US dollar.

Aaron said...

Hi Costata-

I find the depiction of these currency war gaming scenarios disturbing. It looks like the foundation for a propaganda campaign to create a scapegoat for the coming HI in the US dollar.

I'm curious if your thought above derives from JR's interview that Jeff pointed out or the longer video /SV/ posted.

It seems to me when all is said and done the USA is going to try and blame someone else no matter what. But I don't get the sense Rickard's intention is to lay the groundwork for said blame. For instance, take a look at Nixon. He just blamed the speculators. No sophisticated logic or fancy explanations. It seems to me the subset of folks paying attention to Rickards, FOFOA, etc already understand the game afoot and as such would of course see straight through the propaganda. But the general population, well let's just say I think they would be less than interested in opinions supported by Rickards' assertions or ideas coming from this blog. In general I think the less complicated ideas generated by the MSM are quenching enough to satisfy their viewers. My guess is Rickards is doing nothing more than what we are doing and that is describing/interpreting world events as best we can within our perpetually limited understanding given our lack of access to more interesting data.

What's up Jim? You want to chime in on this?

--Aaron

costata said...

Aaron,

Of course you could be dead right and there is nothing more to this than Rickards et al promoting a commercial venture that offers genuine benefits for subscribers that has no other agenda.

On the other hand look at the range of potential candidates for the role of scapegoat that were canvassed. To me it felt like they were putting up trial balloons.

For instance, take a look at Nixon. He just blamed the speculators.

But the impact on the average American's wallet from Nixon's move wasn't immediately obvious. The HI of the US dollar will hit most people in the States like a hammer blow to the head. I think the scapegoat will need to be more credible than "speculators".

Another thing that struck me in the currency war vid was the assertion that China wants the Yuan to replace the US dollar as the world's reserve currency (at the 29.40 mark and elsewhere) in the presentation.

It's difficult for me to accept that Rickards truly believes this BS. I'll bet that none of the discussants here have ever been shown a credible "roadmap" for the Renminbi to get from where it is now to the global reserve currency replacement for the US dollar.

It's ludicrous if you examine the obtacles even if China was dumb enough to want to attempt this. Just one example - China would have to run persistent trade deficits - to "export" Yuan in size.

Internationalizing the Renminbi through currency swaps, for example, is a nice fit with the Euro Freegold-RPG architecture. It's not consistent with a single reserve currency IMFS MkII plan for the Yuan.

Aaron said...

Excellent points Costata. I should add I only just now got the to end of the one hour video and realized he was selling a package of booklets providing financial investment advice.

Anonymous said...


costata,

I find the depiction of these currency war gaming scenarios disturbing. It looks like the foundation for a propaganda campaign to create a scapegoat for the coming HI in the US dollar.

That's what I thought. How convenient that the ECB doesn't have to intervene in the FOREX market "thanks" to their government debt issues.

So far, however, the Fed would end up being the major scapegoat: Bernanke wants the dollar lower. Ooops. He got a lot more than he wanted. Idiot. Let's dismantle the Fed. Monetary policy is so important that it must be controlled by the government. There we go...

Victor

Beer Holiday said...

Sorry about the randomness everyone, too much beer, and a bit of a melt down that has nothing to do fine the nice people who post on this blog.

I just wanted to suggest that more caution with stocks would be a very good idea, and I guess I should have stuck to that and actually explained why.



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

Beer Holiday,

Here's a stock that might actually interest you.

(sorry got the symbol wrong last time)

euronext:abi

costata said...

Beer Holiday,

I think FOFOA is right. A misinterpretation nothing more. Water under the bridge.

Cheers

VtC,

I noted the pasting they gave the Fed. And I agree that it looks like they are laying the ground work for this:

Let's dismantle the Fed. Monetary policy is so important that it must be controlled by the government.

It's hard to see how the Fed could continue to be the currency issuer after HI. Besides the Treasury owns the gold and IMO the perception will be gold=credibility.

Cheers

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