Response to Professor Fekete’s Forward Thinking on Backwardation Part 1
First, I’d like to state that I greatly appreciate the public discourse on backwardation that Professor Antal Fekete has largely created through his own diligence and efforts. I would also like to thank the Professor for all that he has taught me in the past, continues to teach in the present, and will teach in the future. His suggestions, guidance and thinking have helped to greatly expand my own understanding of the gold and silver markets, monetary science and economics in general. I know there are numerous other people who feel the same way.
While it may be true that the Professor and I have some significant differences of both opinion and interpretation when it comes to gold (and silver) backwardation, I continue to subscribe to the Professor’s theory that persistent backwardation is a signal that gold is serving to fatally discredit the fiat currency in which it is nominally priced. By no means, however, does this mean that I foresee a doomsday scenario of lawlessness and decline of civilization. In fact, I believe the Professor’s own theories about the unmatched fitness of gold and silver for monetary purposes will ultimately herald a new monetary regime as a direct result of the permanent backwardation in gold. This is in stark contrast to the Professor’s latest emphasis on the dark future that gold backwardation portends but such speculation is not a subject I am prepared to discuss at great length because it is just that — speculation. In other words, I am nearly 100% certain that permanent gold backwardation will herald a major monetary and economic change but I have almost zero insight (as does everyone, else, the Professor included) as to what that change will look like.
With that generalization out of the way, I would like to address in detail the Professor’s recent critique of my own observations in his latest commentary, Forward Thinking on Backwardation.
Tom Szabo observes (see References below): ?If somehow short-term interest rates were to go into significant backwardation, it should be no surprise that gold and silver may go into significant backwardation. THIS WOULD NOT BE A SIGN OF IMMINENT MONETARY COLLAPSE [his emphasis]. In fact, a pretty strong argument could be made for the opposite ? that the negative interest rate is a sign of excessive monetary demand (in relation to demand for capital goods and investments). I?ve looked but have been unsuccessful in finding an historical example of a monetary collapse that occurred while money was actually in high demand. Of course, high demand for money could be extremely deflationary and the only known cure for this is to create a high supply of money, otherwise known as hyperinflation.?
While I would disagree with the use of the word ?imminent? in describing the coming monetary collapse, I must maintain my stand that a durable backwardation, such as we have experienced for two weeks earlier this month, is a premonition that there will be repeated episodes of the same kind, ever more frequent, ever deeper, ever longer, each episode significantly weakening the monetary system ? regardless of the zero or negative short term interest rate. (Let us leave the question aside that zero or negative interest rates in and of themselves show an alarming pathology of the monetary system!)
I’ll admit “imminent” was probably not the best word choice as I did not mean to imply that monetary collapse would be immediate but rather unavoidable. In other words, my point was that backwardation in gold resulting from backwardation (or nearly so) in interest rates would not mean an unavoidable monetary collapse was on the horizon. Other than that, the Professor does not seem to dispute anything that I say in this quote besides hinting that zero or negative interest rates “show an alarming pathology of the monetary system”. To this I would answer that Japan has effectively maintained zero interest rates for more than a decade without a collapse in its economy or monetary system. More on Japan in a bit. In any case, I have no beef with the Professor’s stand that an episode of “durable” backwardation is a recipe for more of the same. I do have an argument, however, with the notion that the recent backwardation, if any, has been “durable”.
I have argued that we must carefully distinguish between a fiat money regime with an undisturbed flow of gold to the futures market; and a fiat money regime where the flow of gold to the futures market has been blocked by an unprecedented surge in the demand for cash gold. In the first case confidence in fiat money is high; in the second, it is low and waning fast. In the first case paper gold is an effective substitute for physical gold in most applications; in the second, paper gold has been unmasked as a fraud, and discredited beyond repair. In the first case the economy works pretty well the same way as under a gold standard; in the second, all hell is turned loose as the exchange of goods and services is on the decline and autarky on the rise.
Assuming this line of reasoning is completely unassailable (it isn’t), we would still need to confirm the existence of an “unprecedented surge in the demand for cash gold”. In fact, no such demand currently exists. How do I know this? For one, “the flow of gold to the futures market” has not been “blocked” as evidenced by the meager December deliveries and the lack of movement of metal out of the COMEX warehouses. And even if such demand did exist based on the frenzied pace of retail bullion buying and the anecdotal stories about Chinese and Russian central bank purchases, the futures market would not be the only place to observe the movement away from “paper gold” to physical gold. For example, we should see a decreased appetite for the various “paper” ETF products. Yet for now at least, observable demand for ETF and other paper gold instruments is actually getting stronger, not weaker.
Tom says that ?it is incorrect to claim that gold and silver could be in true backwardation without at least some inversion of the futures price curve where the nearer contracts are trading at a higher price than the further out contracts. Well, exactly that?s what has happened at Tocom during the first two weeks of this month and is happening still. Tocom publishes its trading summary at the close of trading every day on the Internet: www.tocom.or.jp/souba/gold/index.html. I don?t understand how Tom could miss it. Backwardation is jumping off the Internet page covering the standard kilobar contract, even as I write this, on December 19.
First, and as the Professor himself points out later in his commentary, local gold prices (especially gold prices quoted in local currencies) are not to be relied upon in the study of backwardation. Thus, the Yen gold price on the TOCOM is totally irrelevant for the purposes of measuring gold backwardation as a prelude to monetary collapse of the U.S. dollar. Besides that, the TOCOM is actually a perfect illustration of my main contention, which is that interest rates by themselves can create backwardation in the gold price. The Bank of Japan’s discount rate has been under 1% since 1995 (it was 0.1% between 2001 and 2006) and, not surprisingly, for a significant portion of the time since 1995 TOCOM gold has been at or near backwardation.
I would add that gold trading on the TOCOM has a major skewing toward contracts in the outer months (currently the vast majority of contracts are in June, August and October 2009). One reason for this outward skewing is that future gold prices are not much higher than cash gold prices and often they are lower. Thus, making a deferred TOCOM gold purchase is seen as a form of “saving money” considering that the funds can be invested in the meantime to earn interest (even if it is a paltry 0.3% per annum). Of course, nobody in their right mind would make this sort of outer month purchase if there was a significant risk of contract default, which automatically defeats the argument that the current gold backwardation on the TOCOM is the result of “unprecedented surge in the demand for cash gold”. If that were the case, most TOCOM contracts open interest would be in the near, not outer, months.
Indeed, as the contango in COMEX gold has declined over the past several months, we have consistently seen a similar phenomenon of growing open interest in outer month contracts at the COMEX. The reason is simple. If you plan to take delivery of gold sometime in the far future or just intend to hold gold futures for a long time, why not buy December 2010 COMEX gold at 855.1 vs. February 2009 at 837.2 (today’s respective closes)? True, you are giving up $17.90 per ounce but that is not a bad deal considering you can forego the slippage risk of rolling each active futures contract as it expires (a total of 10 times between now and December 2010), not to mention the chance that contango will build back into the gold price (in which case the December 2010 contract will appreciate even if cash gold stays flat). In any case, just like with the TOCOM, if the (alleged) backwardation at the COMEX were the result of “unprecedented surge in the demand for cash gold” we should not expect an increase in the number of outer month contracts but rather a decrease.
Finally, allow me to point out that an examination of the historical backwardation in TOCOM gold was made by Reginald Howe of GATA all the way back in 1999. While I don’t agree with many of the conclusions or opinions in his paper, the description of the functioning of the gold market is accurate and proves that gold bugs need not fear to admit that backwardation can result from ultra-low interest rates as opposed to necessarily representing a harbinger of financial Armageddon.
Tom is complaining that the spot price for gold is difficult to ascertain: ?the spot price for gold is elusive? because they are third party quotes that suffer from a variety of problems that can make them unreliable and imprecise.? I disagree. I have asked my student, Mr. Sandeep Jaitly of Soditic, Ltd., London, U.K., who is tracking the gold basis for me, to explain. Here is what he had to say on December 15: ?Tom Szabo comments that spot prices are difficult to obtain. Not true! They are not. You just have to be plugged into the right feeds. My spot price quotes include all the five price fixers at the LBMA, plus everybody else worthy of quoting? The spot gold price I use is the best or highest bid (and the best or lowest offer) from 300 banks world-wide [list attached, not reproduced here]. The data I use is directly from the exchange, and the prints I see for the carry available are super precise. I can get 90? per oz profit on the December contract versus my spot quotes that come from every bank on earth?? Sandeep goes on, dateline December 18: ?Everybody of note is inferring that gold is in backwardation because of the zero interest. Let us explore that a little further. One can achieve 0.25% annualized by carrying gold for 190 days till June 26, 2009. 190 days in maturity is about equivalent to a 6-month T-bill with a current yield of 0.18%. The cost of carry for 190 days is 0.25 ? 0.18 = 0.07%. If we compare this with the cost of carry for 11 days till December 27, 2008, and, again, for 69 days till February 27, 2009, [calculation included, not reproduced here], then we get that the cost of carrying gold is as follows (all percentages are annualized)
for 11 days: 1.005%
for 69 days: 0.9%
for 190 days: 0.07%That is pathological without any need of further explanation! It costs more to carry gold for shorter periods of time than for a longer period ? according to the futures market. That puts a hole in the zero interest-rate argument, and explodes the explanation that the extra-low contango or outright backwardation in gold is nothing more than ?normal backwardation? of a non-monetary commodity!?
Spot prices per se are not difficult to obtain, and my point here is being misconstrued. What is difficult to obtain is spot prices that can be reliably used to calculate the basis. Sure, you can get “gold spot prices” via Bloomberg or Reuters trading and information services. As an alternative, if you have access to a foreign currency trading platform or FX price subscription (for example through eSignal, TradeStation, etc.), you can generally obtain gold spot prices based on trading that takes place on the EBS FX platform. Unlike Bloomberg or Reuters quote feeds, the EBS data is based on actual trades, but unfortunately the trading volume is a fraction of the total global spot gold and silver market.
In addition,Kitco and The Bullion Desk, among others, provide a spot price based on the same “composite feeds” available to Mr. Jaitly of Soditic, Ltd. The Bullion Desk publishes bid and ask data in “almost real time” and is “official enough” that the World Gold Council, the SPDR Gold ETF (GLD), the Barclays silver iShares ETF (SLV) and many others have selected it as their reference spot price. I note that Mr. Jaitly’s Soditic, Ltd. is a registered financial firm and therefore he very likely has access to either or both the Bloomberg and Reuters quote feeds. But, here is the rub. These feeds are not actual “trade data” of spot gold and silver prices as they do not represent actual trades in the market (spot trading data is proprietary and to my knowledge is not available at any price with the exception of trading that takes place on the EBS FX platform). Nor is it actionable in the sense that Mr. Jaitly can call up a specific bullion bank and get the quoted “best” bid or ask since each bank will naturally have its own bid and ask price. Here is the disclaimer about these feeds from the World Gold Council website: “The composite feed is formed by pooling prices from a collection of price contributors and therefore should not be construed as a tradable price.”
Moreover, As Mr. Jaitly rightly points out, his quote feeds represent bids and offers, which brings up the question of which one to use in the basis calculation. Perhaps to be safe one would use the average. Be that as it may, the spot quotes are not even time-stamped (they are periodically updated via the composite feed) and therefore it is not possible to precisely compare them to the COMEX exchange trading data. That vaunted “90? per oz profit on the December contract versus my spot quotes” is quitely likely to be unattainable given that spot gold prices are likely to have moved by more than 90 cents between the time that the last COMEX trade in the December contract took place and the time that the composite feed actually reflected a spot price that could be obtained in an actual gold transaction with a specific bullion bank or dealer.
Even if that weren’t the case, 90 cents per ounce is not enough to cover transaction and other costs that would make this a profitable arbitrage trade. Let’s talk if and when the backwardation is large enough that the arbitrage was there and yet still nobody chose to go after it. That would be truly something!
In addition, the quoted spot price feeds include neither market depth (e.g., the second and third best bids and offers) nor do they carry a bid or offer size (the number of ounces of gold or silver bid or offered), both of which are important considerations for those who wish to calculate the basis much less to actually trade backwardation for the arbitrage.
For the above reasons, I have personally been leaning toward utilizing the spot FX trade data available on the EBS Live platform because it represents actual spot trades with time stamps and trading volume which is exactly the same format of the trading data available for the COMEX futures. Using EBS Live and Historical data would presumably allow precise intermarket comparisons for calculating the basis (a theory I am still testing) although the EBS platform does suffer from some periodic price discrepancies and liquidity issues because of the somewhat limited amount of spot trading that it encompasses. Whereas COMEX exchange data includes 100% of gold futures traded in U.S. dollars, EBS includes at best 10% of total spot gold (and silver) traded in U.S. dollars. Moreover, gold and silver trading on the EBS is typically speculative only with no long-term commitment to positions or the taking of physical delivery. As a result, it is possible that spot gold prices involving trades on EBS could sometimes diverge from spot gold prices involving the physical purchase of gold and silver. Indeed, this divergence is most likely to be greatest when true backwardation starts to manifest itself.
In the alternative, I feel that the chart overlays that I have produced here in the past few weeks (and others that I have not produced) are a more accurate method for calculating the basis than reliance on spot price quotes and ad hoc calculations. These charts have the advantage of displaying price trends over a period of time that have a tendency of smoothing out the outliers unlike traditional basis calculations that rely on single snapshots in time that are often subject to pricing or timing discrepancies. I encourage Mr. Jaitly and others who wish to study and calculate the basis to utilize such charts.
Finally with respect to the gold basis calculation, as I have previously mentioned but have not yet been challenged, it is no longer appropriate to use the December COMEX gold contract when daily trading volume has declined to several thousand, much less several hundred, contracts. The fewer the data points, the more likely that gold prices have moved by more than “90?” between individual December gold futures trades, making such prices untimely.
Now let’s move on to the concept of the “cost of carrying” gold that Mr. Jaitly claims can explain away the role of low interest rates in low gold contango (or backwardation). In a sentence, most of the assumptions and calculations made by Mr. Jaitly seem to be incorrect. First of all, there are two possible “costs of carrying” gold. From the perspective of a warehouseman, it is nothing more or less than contango itself. Since contango (and backwardation) already encompass the interest rate, there is no point subtracting it. Think about it this way. Assume spot gold is $840 and gold for delivery in 6 months is $842. The annualized forward rate or “cost of carrying” is approximately 2/840 x 2 or 0.5%. End of calculation.
Nobody borrows dollars to buy gold that is then sold forward as suggested by Mr. Jaitly’s “cost of carrying” calculation. There is never any money to be made that way (simply because any profit is too simply arbitraged away via competition that keeps gold contango below the average cost to borrow) and no other conceivable reason for doing such a thing.
The only money to be made from “carrying gold” on the basis of borrowed dollars is when bullion banks lend or “lease” gold as part of filling a client’s forward purchase order. (Other methods exist but they all involve trading of some sort). This leaves the question, however, of how relevant such a “carrying” calculation would be when nobody is placing forward purchase orders. In other words, such calculation would become more and more useless as gold went further and further into backwardation.
Despite what various “experts” will claim, the gold carry trade from the borrower or “lessee” perspective is simply about a cheap source of financing and little else. The trade involves borrowing at the rate of U.S. dollar LIBOR (or less, if gold is borrowed in a currency with a lower interest rate than the dollar) and reinvesting the loan proceeds at a higher interest rate. Typically only the top banks can borrow at LIBOR but the “miracle” (or “curse” if you prefer) of the gold “lease” allows many other parties to effectively borrow at the same rate. It is important to note that there is almost never a naked short exposure to the gold price because the transaction is hedged using a forward purchase or offsetting receipt of gold. Thus, in this sense the “cost of carrying gold” is nothing more or less than the interest rate itself. Following is the formula for the gold carry transaction in U.S. dollars:
Cost of Borrowing Gold = “Lease Rate” (amount paid to borrow gold from central bank or other lender)
Cost of Gold Hedge = “Gold Forward Rate” (amount paid to bullion bank to purchase future gold for repaying the borrowed gold)
Cost of Gold Carry (Risk Free) = Cost of Gold Borrowing + Cost of Gold Hedge
Cost of Gold Carry (Risk Free) = “Lease Rate” + “Gold Forward Rate”
where “Lease Rate” = US$LIBOR - “Gold Forward Rate” (see why below)
Cost of Gold Carry (Risk Free) = US$LIBOR - “Gold Forward Rate” + “Gold Forward Rate”
Cost of Gold Carry (Risk Free) = US$LIBOR
Sorry for the formulas but they should be relatively easy to follow. Note that “Lease Rate” is equal to US$LIBOR minus “Gold Forward Rate” because lending gold at interest is functionally equivalent to selling gold and simultaneously repurchasing it for future delivery and then investing the proceeds. US$LIBOR represents the rate at which the gold sale proceeds can be reliably invested and “Gold Forward Rate” represents the cost of selling spot gold and simultaneously repurchasing it for future delivery. Also note that the Cost of Gold Carry (Risk Free) can be less than US$LIBOR if the transaction involves a different currency with a lower interest rate than the U.S. dollar (such as the Japanese Yen) or if the “lease” rate is negotiated below market levels.
The above explanation demonstrates a couple of the mistakes Mr. Jaitly has made. First, the 6-month contango in gold is currently more like 0.5% instead of 0.25%. Second, government borrowing rates (e.g., T-Bills) are not the proper rates to be used in gold carry calculations but rather the rate at which financial institutions can presumably borrow (which in the case of the U.S. dollar is LIBOR). The 6-month LIBOR is currently around 2% so the actual “cost of carrying gold” for “190 days” (which is really better expressed as a “cost of borrowing gold”) is approximately 1.5%. By comparison, Mr. Jaitly’s calculation shows a “profit of carrying gold” of 0.07%!
Even if the results were meaningful, it turns out that there is no need for Mr. Jaitly to calculate his “cost of carrying gold” because in essence it is the gold “lease” rate. Fortunately, such rate is already published by the LBMA and indeed this rate shows that the “cost of carrying gold” as defined by Mr. Jaitly continues to be more expensive for the longer maturities. Here are the “lease” rates for a recent 5 day period (1-month, 2-month, 3-month, 6-month and 12-month rates):
10-Dec-08 1.23 1.65 1.75 1.87 1.66
11-Dec-08 0.98 1.55 1.72 1.75 1.60
12-Dec-08 0.81 1.41 1.62 1.61 1.54
15-Dec-08 0.69 1.32 1.49 1.62 1.53
16-Dec-08 0.59 1.25 1.49 1.58 1.49
So yes, it still “costs” less to “carry” gold (borrow it) for shorter periods of time, as expected. Thus, the fundamental relationship between interest rates and gold forward rates cannot yet be dismissed. Note that the decline in the shortest “lease” rate between December 10 and December 16 can be explained almost entirely by a similar drop in LIBOR at the shortest maturities.
There is one item in the above “lease” rate data that bears a closer examination and it is that the 6-month rate is actually higher than the 12-month rate. When we look closer, it turns out that the gold forward curve itself is the source of this “anomaly”. Specifically, since October 22, 2008 (with a possible precursor around October 7), the forward rate of gold started to diverge at the longer maturities. Prior to that date, the shorter maturity forward rates were modestly higher. For the past two months, however, the 6 and 12 month forward rates have been substantially higher than the shorter forward rates. Then again on November 12, 2008, the forward rates were hit once more by an unseen force seemingly unrelated to interest rates.
Notably, the difference between the 6 and 12 month forward rates is greater currently than the difference between the 6 and 12 month LIBOR rates, which explains the inversion between the 6 and 12 month “lease” rates. But what explains the gaping difference between the 6 and 12 month forward rates? Clearly the shorter forward rates have been very heavily influenced by the massive drop in short term LIBOR rates, yet something happened to gold around October 7, October 22 and November 12, 2008 (among other dates) that cannot be explained by reference only to interest rates. This “something” impacted the forward curve in gold across all maturities but disproportionately on the short end of the curve. Thus, if gold’s current flirtation with backwardation turns out to be historically significant, I believe the date that will live in infamy could very well be October 7, October 22 and/or November 12 and not December 2 (the date backwardation in gold supposedly showed up for the first time).
One clue as to what the “something” that occurred on these dates is that gold forward rates are closely tied to gold “leasing” activity as I noted above. Specifically, the process of “leasing” gold will usually result in a purchase of gold futures (and vice versa) creating forward demand and helping, along with the pressure on spot prices from the sale of the “leased” gold, to drive gold forward rates higher (increasing contango) than they would otherwise be under a certain interest rate scenario. By contrast, the process of terminating a gold “lease” will result in the closing of the gold forward transaction which involves the purchase of gold in the physical market and the sale of a gold futures contract, the combination of which will drive gold forward rates lower (decreasing contango and perhaps even causing backwardation) than they would otherwise be under a certain interest rate scenario.
When I suggested at the recent GSUL 5 session in Canberra that curtailing of central bank gold “leasing” might be the most important factor in the gold market over the next few years, the theory was roundly dismissed. My suspicion, however, is even stronger now. So far, as little as a few tons of “leased” gold may have been curtailed starting in October as a result of the spreading credit crisis. Presumably the “leases” involving the worst credit risks — small jewelry manufacturers and the like — would be the first to get called in. Or to be more precise, these “leases” would simply be allowed to expire without being renewed. In any case, such “leases” would have been presumably shorter term (6 months and under), which would account for the observed inversion of the forward curve in gold with the short forward rates coming under greater pressure. And while we are probably talking about only a few tons of gold so far, a small decrease in gold “leasing” meant to reduce credit exposure is probably only the first step in what could ultimately add up to a curtailment of thousands of tons of “leased” gold assuming the gold carry trade will be abandoned and forward gold purchasing through bullion banks will be eliminated in the months and years ahead. I believe this could cause a phenomenal amount of demand for physical gold and become a (if not “the”) main driver for the gold price going forward.
Tom says that he does not see things evolving in the same catastrophic manner as I do. For example, he believes that ?there will always be willing buyers and sellers of gold in some quantity if the price is right.? Buyers ? si, sellers ? no! That?s just the whole point. The lack of credibility of irredeemable currency will be such that no one in his right mind will accept it in exchange for gold, the ultimate liquidator of debt. Previously, people were willing to trade their gold because they could always replenish their supply from Comex warehouses. That means, in other words, that the irredeemable dollar could still be used as a liquidator of debt (i.e., gold still has a competitor). But let them close the Comex gold warehouses. This is a quantum jump; it means that the irredeemable dollar can no longer be used to liquidate debt, e.g., debt incurred by those holding short positions in gold futures. It is essential not to belittle the import of this observation.
There will be sellers of gold for irredeemable currency as long as there are debts or obligations to be liquidated that are denominated in irredemable currency. For example, my mortgage cannot be paid off in gold, I must have dollars. Whether the COMEX gold warehouses are open or closed is irrelevant as far as my mortgage is concerned. If and when the dollar price of gold is right, I will sell gold and pay off my mortgage. Even after all dollar-denominated mortgages are paid off or defaulted upon, there will still be sellers of gold if the price is right whether that price is the price of food needed for survival or the price of a productive asset available for wealth creation. Taken to its ultimate limit, the very last loaf of bread is worth all the world’s gold given that the nutritional value of gold is nil.
I do not mean to belittle the import of short positions in gold futures (or any paper gold short positions unbacked by physical gold) not being capable of liquidation using irredeemable dollars but it seems to me that government edict or fiat could adequately deal with the situation even if the consequences for paper longs in gold would be disastrous. After all, isn’t the prospect of default or partial payment on paper gold the primary reason to avoid it like the plague? I don’t see how an uncollectable debt (that of the gold short) or one that is collected at pennies on the dollar can be the direct source of the second coming of the Dark Ages.
The remainder of the critique will be addressed in Part 2 of my response to be published in a few days.
…but the ?miracle? (or ?curse? if you prefer) of the gold ?lease? allows many other parties to effectively borrow at the same rate. ”
So how do I borrow at effectively 0%? Sounds like free money to me…
And now a message from the practical side from those of us who diligently read every word till it hurts and are grateful for those who toil on such profound things but I remain a old fashioned trader who uses simple things like trendlines and breakouts like The Privateer’s free point and figure charts which clearly show the third confirmation of the upward trend in the metals. The stocks outperformed on the downside and are outperforming on the upside. With Fridays $21 gains and tonights $15 gains (Sundays) in Gold the gold and to a lesser extent the silver stocks should do very well this week. I will dream about 15 percent moves in SA TRE AUY tomorrow. Pleasant dreams to all.
Andras. I agree my friend, it is better to fight for what we have while we have it
than to say ” I remember when…” I make it a point to spread my views on our countries present path whether people want to hear or not. I am either disliked or respected when I do but people start to think….
Tom, excellent points and analysis.
The back and forth between you and Professor Fekete is interesting.
Educational too.
I look forward to the professor?s public response, if any. He does come across a bit thin-skinned at times ? however brilliant. I wonder if he will concede to any of your points.
Tom, your arguments tell me that gold is still very much under the thumb of the CBs ? until it?s not.
Given the positive performance of gold this decade while ?under the thumb? of CBs and its relative strength recently, I cannot imagine where $gold and $silver will be in a few years as things unravel. Or correctly stated, where the dollar will be.
The basis work seems very insightful and is perhaps an incorruptible canary. But I?m sooo leery now of US markets and gold markets ? AND the ?authorities.? The corruption is endemic and unbelievable in its audacity. There is little integrity. All data now must be scrutinized with suspicion. I?m concerned that waiting for the bird to die might be too late in terms of acting in any meaningful way to protect oneself or benefit. We are way too deep in. Traders beware.
Interventional theory and CHAOS theory might be the best tools now to evaluate our ?markets? - held at politically correct levels with gum, tape and toothpicks. Anything is possible. The interventionistas cannot stop dollar disintegration. Foreigners are increasingly disgusted and seeking alternatives. Trust is gone among banks and brokers and soon enough among the public. Widespread feelings of disconnect and helplessness against systemic corruption is poison to trust. Without trust ?.
Silverax:
Regarding the daily tables of NYMEX warehouse stocks: I look these inventories up almost on a daily basis and I have my doubts whether the figures are (always) correct.
Severe and obvious accounting mistakes showed up early 2008 when the old site (via http://www.nymex.com) used hand-edited HTML tables. I - and I am sure other readers as well - then suggested that they should use Excel tables to do the math which were employed shortly after these major mistakes became obvious.
Even in this new form strange figures show up in these sheets - figures that seem very unlikely, like 100000 Oz of Au or 66 Oz of Au (!!). The small figures could be a correction of the large even figures, but who knows. The least you can say that their accounting is sloppy. They sometimes forget to publish new versions of these tables even for several tranding days and I sometimes wonder what kind of movements I missed and I wonder whether this is intentional as I found - in some instances -significant movements in the range of 10Mio Oz Ag (!) missing which only could be deduced from the subsequent tables.
Furthermore, I am quite sure that not everything “elligible” really is elligible because I see withdrawls also from the elligible portions which in my understanding normally should occur from the “registered” portions.
Finally, let me point out that a short-sequeeze (in Au/Ag) may also occur when the deliveries/withdrawls only reach a fraction of the “elligible” portion because the parties being short probably don’t own a large fraction of this portion. You may not “bust” the COMEX but a good short squeeze should be worth it (= taking delivery).
Tom in your analysis you wrote:
“In any case, just like with the TOCOM, if the (alleged) backwardation at the COMEX were the result of ?unprecedented surge in the demand for cash gold? we should not expect an increase in the number of outer month contracts but rather a decrease.”
I think increasing open interest in outer months would be another sign of strong physical demand. If I were a stubborn short and a little nervous about front month deliveries I just roll forward, way forward. With this belief, any rise in gold will be greatest in front months so I am limiting my losses due to backwardation by going out one year.
It may still be speculation, but a great number believe these comex shorts never intend to cover. Moving way out just prolongs their game.
Gold would not be sold for dollars to buy food with; gold would be traded for food.
[the issue of "the large and the small" would be dealt with by trading gold for silver and silver for food, not gold for dollars]
On the other hand taxes would presumably always be paid for with dollars.
[now that the presses are running why even have taxes? oh yeah, we're still pretending we're going to pay this all back]
As to the casual attitude of the clearing house statistical reporting I can only share my experience working for two major clearing members of the Chicago commodity exchanges. One was an old family grain trading company. The other was a huge commission house known for its positive attitude about America. I found myself, an un-bonded clerk, walking up Jackson Boulevard and across the Chicago River from our Board of Trade offices to the CME clearing house offices above the Union Train Station platforms on a snowy Friday afternoon in December of 1980 carrying bearer warehouse receipts for forty-five contracts of IMM gold mostly for the old Iron Mountain depository.
So the absolute exact moment that the US Dollar Empire came to an end [is it over yet?] will probably remain unknown but as always waiting for the definitive signal will mean the market will already have moved and one is too late to execute at the most favorable terms.
Tom,
I don’t think I was one of those who roundly dismissed your central bank gold ?leasing? theory. While some conspiracy theorist may believe that CBs will lend gold to anyone who wants to short gold, I think the reality is that there are at least some, if not the majority, who watch/manage their counterparty exposures and have been declining to roll leases or swaps in this environment.
As to your observation about 6m and 12m rates, this is not uncommon. I can find many occassions where not only does the lease rate curve invert, but that specific terms “spike” above or below the rest of the curve. This is a complex area and such anomalies are an interplay of CB lending to bullion banks usually at the long end (1y+) with bullion banks onlending at shorter maturities to shorts and for funding work-in-progress of manufacturers.
I am not surprised to see 12m lower than shorter maturities - those funding work-in-progress would certainly have no interest in locking in the current “high” lease rates when they have been used to sub 0.5% for the last 5 years. I will expand on these dynamics in my blog, save clogging this forum with boring technicalities.
You note that gold prices quoted in other currencies are not to be relied upon in the study of backwardation as a prelude to monetary collapse of the US dollar. I agree. But in my blog http://goldchat.blogspot.com/2008/12/gold-isnt-in-backwardation-usd-is-in.html I note that “while USD gold may be toying with backwardation, AUD gold is firmly in contango”. Do you think it is possible that gold will remain in contango in other currencies while the US is worthless (ie USD gold firmly in backwardation)?
I think your comment that “backwardation is not large enough that the arbitrage was there and yet still nobody chose to go after it” is crucial to this whole debate - to my mind the backwardation we currently see is just theoretical. Technical debate about spot prices etc is somewhat redundant at this point where contango is switching into backwardation. As you say, we need actionable arbitrage which no one is actioning.
From Bloomberg; ‘Tokyo gold futures fell 16% this year, the biggest annual drop since 1983′
TOCOM gold futures in backwardation with interest rates near zero (for a significant portion of the time since 1995), COMEX gold futures (at least) near backwardation with interest rates near zero.
What about the connection between the hoardability of gold and interest rates? The exchange of income for wealth and wealth for income? The efficiency of indirect conversion?
If it’s accepted that backwardation in gold indicates a drying up of supply, then it seems logical to expect that as interest rates are forced to zero i.e. bond prices increase to whatever heights due to government monetary policy, gold will go into hiding (backwardation) because it’s near constant marginal utility, thus hoardability.
Dismissing backwardation because interest rates are zero seems to me to be confusing cause and effect.
Felix, I worked for Stotlar & Co. in the 80’s down on the floor of the CBOT.
Gold bars on the cover of the December 2008 issue of “The Wall Street Journal Magazine/SmartMoney”!
Crowd is getting on board now…
Here in the UK the price of gold has risen by 40% in 2008 which means that it has been an outstanding investment, especially when you consider what has happened to the general stock markets etc. Part of this 40% rise has been due to the fall in value of the British Pound Sterling.
If you believe the US Dollar is likely to fall during 2009 (and many people do) then investing in physical gold and silver might be the best investment you US citizens can make. It has sure worked very well here for me in England.
Furthermore, silver has traded roughly flat here in the UK over 2008, showing a couple of percent gain, but doing much better than the UK stock market where the FTSE index is currently down by about 35% on the year, and at one stage was down over 40%.
Many UK stock market investors have been badly hit this year. Those with a strong gold and silver weighting to their portfolios, on the other hand, have done very well.
Tom
Gold was in backwardation in Japan for quite a significant amount of time. And this backwardation has not caused any monetery systemic changes in Japan. So, you should argue that a similar thing will happen in the US and gold backwardation is irrelevant. Why are you “nearly 100% certain” of a major upheavel in the monetery and economic scenario? Most likely before that, all the gold would have already been secretly transferred to Asia. With that, you would have dark ages for the West as suggested by Fekete & a literal golden age for Asia.
Secondly, a movement of money into ETF IS a movement into cash gold. Misguided. But certainly a definite move. For the Joe average, ETFs are a liquid means of holding the physical. So don’t read this signal wrongly. For the richie rich’s of the present world, holding a huge amount of the physical is a pain, especially when the friendly exchanges are falling over themselves to relieve you of your clunk.
A happy new year to you all! May this year be the year of the PMs!
The 24-hour trading chart of Ag on Dec. 31. with its $0.60 upward move looks quite strange. There may be reasons for this move I don’t understand (e.g. tax related issues). I would have expected another attack of the big shorts at the end of last year.
Thus, this $0.60 movement has the faint smell of an upcoming short squeeze. Let’s see.
An Unhappy New Year
In this new article by Professor Fekete he restates how a regime of falling interest rates causes a deflationary monetary sink into the bond markets, robbing capital for investment from elsewhere and destroying industry/jobs:
http://news.goldseek.com/GoldSeek/1230747392.php
The reason being is that the rising bond prices that result give greater “risk free” returns through capital gains than other investments. I disagree with Antal when he states that bond speculators are not yet ready to cut and run. Once Helicopter Ben’s monetization exercises cause a loss of dollar value that exceeds the capital gains through holding bonds then the game is up. Speculators may try to short the market. If the bonds are not rolled over then dollar devaluation will pick up speed with the resulting monetization exercises to keep the yields low. This could result in an accelerating downward spiral - a vicious circle leading towards hyperinflation. Near backwardation of PM’s is warning us of this possibility.
Discreetsilverbug,
The move in silver is indeed strange, but in the last weeks other strange moves in the silver price have happened too. At start of globex trading (midnight central European time (GMT+1) few times a spike down to 6 to 7 usd appeared. Few hours later that spike was not visible on the same charts anymore.
Was there someone trying to beat down the price unsuccessfully?
In my opinion this was/is the attack of the shorts you are looking for.
But, to me it looks like the weak (margined) hands sold already.
If there is a big short squeeze, what will be the effect on all derivatives around that loose value if the silver and gold price goes up?
Interesting times ahead.
Gunther
Gunther: I noticed them too. I wondered if they were bad ticks. But two consecutive days was very strange.
Is Fekete predicting a sustained dollar rally? Does that mean a collapse of the gold price?
will gold price go back and re-test the $750 range before shooting back up to $1650 range by Feb 09? I’m staying put for now but would welcome anyone’s read on the current situation, for short term oulook… pls share!
Keseri,
What I got from Fekete’s latest article was that he actually made a CONFESSION. And that is…..he did not see the FINANCIAL INSTITUTIONS being destroyed as well. He believed the interest rate cut policy of the FED would destroy the PRODUCTIVE CAPITAL of the ECONOMY, while benefiting the BANKS through their BOND HOLDINGS. Instead, Fekete stated that both were being destroyed at the same time.
I have to also bring in JIM WILLIE’s newest article in here…titled, “FALSE DIAGNOSIS OF DELFATION”. He picks apart the analyst who believes this is still a GOLD BACKED DOLLAR ECONOMY. You can find the article here:
http://news.goldseek.com/GoldenJackass/1230912000.php
Sure…there could be another DOLLAR RALLY as more of the productive economy collapses and more BRAIN DEAD INVESTORS rush their PAPER DOLLARS into PAPER TREASURIES. But this cannot last a great deal longer.
All LIES come to an end. The United States has enjoyed the NUMBER 1 WORLD STATUS for decades when it did not have the MEANS to do it. By DEFRAUDING the FOREIGNERS the USA grew LARGE, PHAT, WHITE and BLOATED. The DERIAVTIVES MONSTER is LARGE but the SYSTEM is DEAD…and no amount of MONETARY INFUSIONS will save it. As Jim Willie states….it matters not the amount of BLOOD INFUSIONS being pumped into the DEAD CARCASS. The BODY is DEAD and no BLOOD IS FLOWING in the ARTERIES and VIENS. Who cares if there is a PINT or 100 GALLONS of BLOOD ready to be PUMPED into the BODY….if the BLOOD won’t FLOW.
PHYSICAL will be KING again….and PAPER will be PAPER. PAPER will resume its vital function again in DAILY LIFE….and that is the use in wiping ones AZZ certain times of the day. GOLD, SILVER, ENERGY and BULK FOOD will become great INVESTMENTS and PAPER will be the asset of choice in our BATHROOM CLOSETS.
word…
Toilet paper is in fact a great buy and hold!
The TP/Dollar ratio is quite low, has turned up and has a lot of upside. The risk/reward is favorable.
If you prefer conventional cash then consider, TP compared to fiat is clean, has no ink, is properly thin and soft and comes neatly rolled.
TP might in fact make great money in some locals.
Could be a fine store of value in tough times. It?s not a bad ?unit of account? (that?ll be twenty sheets please..) It?s fairly fungible, it?s divisible, and sufficiently durable if kept wrapped. Older stockpiles can be ?consumed? while new supply rotates in to replace.
Could we indeed have a form of TP commodity money with a relatively small annual net growth of inventories as with gold?
Could a small counterfeiting operation even hide the production of TP from the authorities? I think that might be difficult.
TP?s one obvious drawback is its relative bulk or low density of value. Portability and storage is less convenient. Like silver relative to gold, this is just an indication of screaming value relative to dollars. TP is CHEAP and is a once-in-a-lifetime buying opportunity !
Some tinfoil hat types maintain there is active suppression of the TP market via dollar support. I won?t dive into that one. I will simply state that this is another bullish factor for TP as all manipulations eventually end, often with sharp moves the other way.
For the collectors among you, colorized editions of TP can be purchased as well as special designs for a higher premiums. I do not recommend these for investors as the premium over spot ?plain white? is excessive.
SRS
I believe that Fekete maintains diametrically opposite viewpoints - bond strength (bias towards deflation) & gold strength (BW of gold). In the long run, one has to give. Typical bond investors are a sophisticated lot with the backing of the government. And early gold investors, especially gold mine investors, are typically value investors - uber smart & maverick.
To whom does the future belong? Time for some deep insights, rather than the oft repeated one liners. Of late gold has been reacting a bit more to geopolitics, if not the dollar. Call it the geopolitical gold rally. If the bond bubble persists longer we have to brace for some pain - maybe back to $730 level where we began.
SRS
I read Jim Willie. There are a few noteworthy points in his analysis.
1. Don’t look at US Economy & draw conclusions. This is correct (Mish does this all the time). The US financial economy is more important - Bond market & Credit derivatives are where all the action lies. e.g, if you conclude that the dollar would weaken because of the weak economy you make a fatal error - the opposite conclusion would have been more correct.
2. Gold is not predicting deflation. I agree.
Now, I am wondering how all these wonderful analysts are forcing me to maintain contradictions.
1. Weak Economy = Strong Bonds = Strong Dollar
2. Strong Gold = Weak dollar.
I give up. Best thing would be to buy some coins & forget it.
Friday was another goofy day in the wonderful world of investing. Silver STILL trading as a commodity and not as money. The meaningless dollar index with the buck and the euro battling it out like a Tom and Jerry cartoon…a competition where holders of both come out as big losers.
One has to wonder if fundamentals instead of sentiments will ever again drive the markets.
“Rest in peace” is the only way to describe the tapped-out US consumer, yet a first quarter stock rally is widely predicted by the “pump and dump” insiders.
Looking back, gold was a great performer in paper or physical form but silver only in the physical.
My New Years resolutions include the following;
Convert all paper silver(SLV) to bullion at the best deal possible by the end of April.
Install tight sell stops on all rescource stocks that have reached a 60% or better gain.
Remember that I got into PMs as a way to protect my savings from the pernicious effects of inflation, not to get rich quick.
Happy New Year to you all.
SRS,
I agree with Keseri. I have not seen any signs of that “CONFESSION”. Fekete has a tremendous historic background. He understands that parasites can not outlive their hosts. They have to work out a symbiosis of some kind with their hosts to survive.
His parallel between the Western and Eastern Roman Empire is telling.
Interestingly, the Eastern Empire was less arrogant and aggressive, built its wealth on negotiation and trade (like the early US). Its Western counterpart, on the other hand, was built on concur by sword (like the late US).
Studies of history shows that the collapse of empires always come uniformly. First, overstretching and loosing monetary constrains then a military defeat.
Similarly, the current empire is overstretched but still held together by military might. The empire can still play its “little”monetary games but WATCH OUT for any perception of a weakening military. That will be the one that dooms the dollar. It does not even have to be an outright defeat. Remember, the US won the Tet offensive and still left Viet Nam as “defeated”. The US could come back that time, especially as its adversary, the Russians lost (the same way) in Afghanistan. (This country has the fame of breaking empires: British, Russian just recently.) And now the US is planning a surge there! It might be the final blow though I can not see any peaceful alternative but a Ron Paul type comprehensive overhaul. However, the people is still not ready for that.
andras,
You make some fine points….and I have to say….I agree. This is the part of Fekete’s last article that I am refering to when I commented about Fekete’s Confession:
——————–
Let me pause here to make a confession. If anything, I did not see far enough to realize all the consequences of the Federal Reserve?s driving the economy into the black hole of zero interest. I failed to see the simultaneous destruction of financial capital. I thought that the devastation would be confined to productive capital. In fact, I thought that the banks were the beneficiaries of falling interest rates. They were the vampire sucking the life-blood of the producers. The financial sector was siphoning capital away from the accounts of the producing sector. I should have seen that exactly the same argument applies to financial capital as to productive capital. They are both being destroyed piecemeal by the falling interest rate structure.
—————————-
http://news.goldseek.com/GoldSeek/1230747392.php
That’s from the horses mouth, Fekete. There has been not one person who saw this IMPLOSION of everything in 2008. Even Doug Casey, the infamous world class investor who has been to 220 countries and now lives in Argentina, said on an interview on GoldSeek Radio, that he didn’t see the BLOWOFF in gold, silver and the pm stocks.
What is interesting in FEKETE’s example….is that he did not see the FINANCIAL INSTITUTIONS like the Banks getting SLAUGHTERED as well. This I believe is why he is calling for a NEW DARK AGE when gold goes into Permanent Backwardation. Once the BANKS go….so does the society.
Andras….as for the MILITARY having to lose in BATTLES before the EMPIRE goes the way of the DODO BIRD…..that might be up for debate. According to Dimtry Orlov who wrote about the 5 stages of collapse, in which he compared the SOVIET UNION to the UNITED STATES, losing battles was not part of the 5 stages.
We have to remember, the Loss of all 5 INVESTMENT BANKS in the United States within 1 year was quite astonishing. The bankruptcy of AIG, FANNIE MAE-MAC and almost CITICORPSE was close to being over the edge. Now with the BIG 3 AUTO COMPANIES on BLOOD TRANSFUSIONS….its only a matter of time before they kick the bucket. If the DOLLAR gets devalued or loses its WORLD STATUS…..there is nothing left that can PAY the MILITARY in keeping all the US BASES abroad.
The SOVIET UNION COLLAPSES quite quickly….and it wasn’t because of RONALD REAGAN as many brain dead wanna-be conservatives think….it was because the SOVIET UNION bankrupted itself. I hate to say….we are in worse shape than the SOVIET UNION in 1989.
I give the United States between 2-5 years before it SPLITS up into regional states.
SRS,
Could someone define what is financial and productive capital? What separates them?
Is financial what financial does? The only apparent difference I see is the connection of their mammoths to the state. And I think that is the reason for the panic: when they go the system goes! By the way, small banks, the majority, did not leveraged their toxic assets as they could not. They are still viable and there would be enough of them to avoid a systemic collapse. However, they are not connected so they will be sucked dry like everybody else. The same happened in the 1930-es.
The Soviet Union was primed for collapse since its conception. Seventy years of rot came to the surface at the end. I do not think the US is in worse shape than the SU was. The very fact that we can freely communicate is a testament. And as I always emphasize The Constitution, the most revolutionary document of human history, is still the law of the land.
By the way, Reagen, the idealist was vital in the collapse of SU. He was the first president who did not do anything actively to save them.
I did not canonize D. Orlov. I believe the perception of weakness of the US military is crucial to discontinue the final bubble. Right now what keeps it going is the unshakable trust in the empire. See the flight to Treasuries as perception of safety. The military is what keeps the (money) satellites in line. It can go in months or it can take decades. It depends on the politicians. Scary indeed!
Forwill,
When you are in physical Ag, what is your end game?
Selling…when? How? Why?
andras,
Again….good points. According to Fekete and others, Productive Capital is what we call FACTORIES, PLANTS, MANUFACTURING, HIGH SKILLED LABOR and etc. Fekete goes on to say that the INTEREST RATE CUT POLICY of the FED has been destroying PRODUCTIVE CAPITAL for DECADES. We have shipped our PRODUCTIVITY overseas.
FINANCIAL CAPITAL is that which is in the from of US BONDS, BANK SHEETS, US TREASURIES and etc. For the last past 20-30 years, the real interest rates have been falling….thus it has DESTROYED PRODUCTIVE CAPITAL…..and good jobs have gone overseas. As this took place, the GOVT through the FED exported INFLATION so we here in the GOOD OL USA could still have our CAKE and EAT IT TOO.
During the Depression of the 30’s, Productive capital was destroyed while Financial Capital grew. This time around, Fekete thought that the PRODUCTIVE ECONOMY or CAPITAL would be SIPHONED off into the FINANCIAL CAPITAL. But…instead the FINANCIAL CAPITAL is being CONSUMED and destroyed as well. Basically we are getting SCREWED from the front and rear at the same time.
Lastly, we can debate the ENDING of EMPIRES all day long. Also, I am not cheerleading the end of the great american experiment….called the US CONSTITUTION. When the Govt goes back to using it….well that would be another story.
If you get time, try reading some of JAMES HOWARD KUNSTLER’s stuff. He’s been pretty DEAD ON for many years about the future of the United States and Suburbia. Unfortunately, it all comes down to math. Our system runs on 19 million barrels of oil a day….and we only produce 6-7 million. Russia runs on about 3-4 million barrels a day and it produces about 9-10 million barrels a day. It doesn’t take a brain surgeon to figure that one out. I wish the USA could run on DEBTS forever and allow other people to do their work for them….but soon we will awake from the great American dream and face the nightmare.
Director, I’ll sell when I need the funds or see a better opportunity in protecting or improving my standard of living. Selling bullion is as easy as buying it. Once the deal(w/bullion dealers,coin shops,ebay) is agreed to, the price is locked in regardless of future price changes. Some dealers allow you to trade gold for silver and vice versa allowing a guy to arbitrage trade without transfer of currency.
I believe a severe worlwide devaluation of currency is in the cards, and that’s the best case scenario IMHO. The worst case is a breakdown of society due to a suddenly worthless currency. The way things are shaping up, holding shares in the SLV ETF is an unacceptable risk.
The reason I want to be in physical is to avoid the inevitable problems with only being able to take payment in a failing currency or worse yet an outright default on the part of the SLV fund managers. Hyperinflation was defined by one pundit as a 50% per month devaluation in the currency.
I also have grave concerns about the integrity of government at all levels…its pretty clear to me that the politicians are all about saving/enriching themselves; the little guy be damned. They do whatever they want whenever it suits them and claim their criminal acts are for the “greater good”.
I am not wealthy by any means, so the secure storage of bullion is not a problem for me; fire, severe weather, home invasion or burglary are real threats that must be minimized though.
SRS,
While I do not want to argue the damages caused by the FED I see differently sending the less productive manufacturing overseas. We have a global economy. Besides it ensures of capital efficiency and productivity on a global scale it is the only safety measure against politicians wanting to wage wars. Also we are still the most competitive in a number of fields. Actually, in a lot of fields. Those fields are tellingly the fastest moving where the government is too dumb so it can not keep the pace with its regulations. A financial crisis though painful it might be the trigger that wakes people up. It will be a fight of ideas. I know the majority is dumb, really dumb, but the majority never decided anything. Now the ideas that can fix our problems are all around us like never before. Tremendous knowledge is distributed on the net. It will make us realize that our problems arre not so special, our mistakes were committed before and we do not have to repeat the again and again. They do not need special/magic treatments just what was done countless time before. You will need common sense. On the other side, the old socialist demagoguery is ridiculed even by their proponents. They just have to run their course to force more and more people to think and realize that the government is your worst enemy and the Constitution is written against and not for it. I can see this even during the next administration when Obama can not deliver. If not we will slip into fascism but then we deserve it.
I have also less static views on energy, food, climate etc. These are all technicalities when you have a healthy economy. So I focus on the latter as long as we can because without that we are doomed anyway.
Director & Forewill,
Play the Au/Ag ratio as Fekete and Szabo suggested.
Gunther/Mr Zetetic: Sharp spikes in charts which have a very small scale (like minutes or so) may occur because of input or data transmission errors. I guess somebody corrected these values/charts later in the session.
On Friday we again saw Ag move upwards in spite of a raising $-index. I assume that a short-covering process is in progress. This may be the last resort for the big short(s) after having squeezed almost all the longs on margin out of the market.
I have a slight disagreement with Fekete on how the bond market plays out. He believes that the musical game of falling interest rates & carry trades can continue ad infinitum. That is what keeps the dollar on life support.
I don’t really believe that the Fed would keep on halving interest rates in a mathemetical sense from 0- 0.25% Fed fund, just to keep the bond values intact & rising. That will simply intensify the deflation thereby hurting the Fed’s public image. So at some point like say 0.1%, the Fed would stop cutting - I believe we are at it now. This is the line in the sand. Meanwhile, the carry trade of riding the interest rate curve would push down the long end to say 1-1.5%.
Imagine you are an over leveraged pension fund with liabilities to the tune of 6 -10% p.a to your clients to keep them happy & invested. Where is the room to earn your liabilities after paying out the spreads. And what about the additional leverage you bring home. At some point, this bond market “liquidity trap” is bound to give. I don’t believe credit derivatives offer an outlet to the typical money manager who is suddenly more risk averse. Imagine a conventional pension manager lifting tons of money @ 0% to buy CDSes. Doesn’t make sense in this environment.
So what are the options. I believe, somewhere down the line (say 6 months from now) markets, especially stocks & commodities would bottom. Jim Sinclair and the bulk of Wall street believe in this scenario. Gold has to simply trade above $730 till that point. Then we will see liftoff.
(This is provided there are no more shoes to drop).
Guys, have I missed out on something in my analysis?
Between now and the time the world markets bottom, the dollar would be essentially rangebound. USD 80 is a figure I like. That should make gold rangebound with a “slight” upward bias. Why “slight”? Because gold knows what is coming.
Foreign creditor nations would be selling USTs to defend their local economies & currencies. Pvt Funds & the Fed would be buying these to fill the gap. Whatever money that is lost in further asset deflation would be re-created magically to appear in the banks’ balance sheets. Call it the next $8 trillion magical wealth transfer syndrome.
If no further shoes drop, i.e the Fed is able to orchestrate the credit markets, we would see the Dow bottomming in 2009. Am I early on this? And with that we would have a rerun of the last 7 years everywhere.
Guys, can you punch holes in my theories so that I can see the light?
SRS
My friend, I know you would disagree. I think for you the Dow bottoming is blasphemy. Nevertheless, I appreciate all your comments.
My beliefs stem from the assumption that ‘no matter what, the Fed would save the banks’. The dollar, the economy & the country may go to hell.
At some point, maybe 6 months from now (maybe more), normal credit operations would resume. It has to. This is a simple, monotonic function of a singular variable - confidence. And confidence would return when assets are utterly decimatated to pennies on the dollar and when all gaping holes in the bank balance sheets are apparently sewn by by the printing presses. However, if more shoes begin to drop we have your scenario - the end of the empire.
Keseri, I don’t see how confidence can improve until somebody, somewhere issues currency legitimately backed by gold and silver. However, the Feds will fight tooth and nail any attempt by states or private parties to do so because it will end the elite’s profitable ponzi scheme. Post collapse, this may be a reason for states or groups of states to attempt cessation from the U.S. as SRSrocco’s Orlov predicts.
For more ridiculous Fedspeak quotes, from yesterday, read this AP article.
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20090103&id=9483804
How’s that for confidence building, NOT!
andras & keseri…..I would like to comment to the both of your last posts. But I first wanted to say….how much I enjoy this kind of medium. Debating is a lost art. Today, what we call Debates on TV are a complete waste of time. The last time Debates were highly sought out and recognized as a form of learning, deciding and education were in the early 1900’s. It was standing room only in the debate halls. Today, all you get are Sound Bites. And, the Presidential Debates are of the worst sort….complete garbage.
andras.,
Yes, you and I differ in ideaology on Global Trade. The end of Cheap and Abundant Oil will put an end to Global trade (or a large portion) in due time, if this present collapse of world fiat money doesn’t beat it to the punch. I realize many economists believe the situation today, when some other slob in another country does the work so I can eat Bread here in the United States is a viable one. My answer to those economists would be in line with what Peter Schiff says to other analysts on CNBC about Mark to Market Accounting. And that is, “If they are such great buys….you go ahead any buy them…not the government.” My answer would be the same…if you think this Global trade is such a good policy…go quit your job and go over there and work in China.
andras….you have to remember……the reason why this system has worked is because the Chinese have been sending their profits back overseas to the USA allowing us to Borrow more to Consume. My Dead Grandma 6 feet under could tell you that doesn’t make a whole hell of lot of sense. Anything that is unbalanced can go on for quite a while, but at some point it will have to end. Also, don’t forget Debts, Deficits, and IOU’s are not Assets….they are Liabilities. The morons, cretins, and nimwits on television, from the govt and on wall street who said using debt to make one rich is the way to go, will soon get the financial enema of a lifetime.
kersei,
There is nothing more that I would like to see, than a Bottom in the stock market and a return to Gold and Silver heading to the moon. Why? Because I can Brag and Gloat that my precious metals stash would be worth millions and I wouldn’t have to work my tail off like the rest of the Slobs out there.
Unfortunately, I have to come back down to earth and realize, you can’t get something for nothing. As for your forecasts of what will take place in 2009, I say….pick a number (do not take offense as I got 2008 wrong as well). When you hear people like Fekete, Doug Casey, and just about all of the Gold, Silver and commodity bugs get 2008 so wrong…then you realize 2009 could be even worse. When I include Fekete, I include his confession that he did not see the Financial Insitutions getting consumed along with the Productive Capital.
keseri…..you mentioned in the second of your three most recent posts, if anyone could punch any holes in your theory. Well, it would be a disservice to you if I did not provide you the courtesy. Your assumption of a bottom in the stock market and a return to the good ‘ol days of flowing credit stems on the notion that “NO OTHER SHOES WILL DROP”. I say my friend….shoes are not only being thrown at the President, but they are continuing to fall left and right.
2009, might just be called the YEAR OF THE FALLING SHOES. You say Fekete thinks the Bond Market Casino can go on for quite some time….I don’t believe that is what he is saying. He did say that the monetary system would not collapse within weeks, but with the Backwardation of Gold for two weeks (according to his math), the end could be sooner than previously thought. Also, with his confession of getting the Consumption of Financial Captial wrong….this only proves that the fiat monetary world is running out of time each passing day. As each month goes by in 2009 and more unemployment figures hit 1 million plus, earnings will continue to evaporate right along with stock prices and bank balance sheets. The Fed will be running faster and faster just to stay in place trying to plug the leaking holes of the Financial System.
It took a great deal of time to read all of Fekete’s past articles, especially on the REAL BILLS DOCTRINE and GOLD as MONEY, to understand that it does take Gold to extinguish debt and not more fiat money. World Trade prior to 1914 was done with several layers of Bills that had maturity dates until goods made it to the market and were paid by GOLD CARRYING CONSUMERS. When the gold coin was given for the good, ALL BILLS were extinguished.
Today…with the Policy of the Irredeemable Dollar, these Debts have not been Extinguished. They are constantly rolled over and being added to that Large Derivatives Monster in the Sky. There is no way to extinguish this debt that is owed to those who are Retired, own 401k’s, Treasuries, CD’s, IRA’s, Medicare, Social Security, Unemployment, and etc and etc. As Fekete states, its just one MADOFF PYRAMID SCHEME after another.
Lastly, credit won’t flow because foreigners who have been giving us this credit realize we can’t pay our bills….we are DEAD BEAT CUSTOMERS. It matters not how many Federal Reserve Notes the govt will print. Gold going into backwardation is proving that printing money is futile. However 2009 turns out….in the long run the USA is in big trouble. If the Dow does go up in Nominal terms, it won’t be worth its weight in gold….maybe worthless dollars.
After reading all the different Gold and Silver Bugs out there…..I have to agree with Fekete, in that Gold should be money and not some SPECULATIVE INVESTMENT (silver included). Hey, if I am wrong about all of this….believe me, its better for me. But, if I am right….then I have PLAN B ready to go.
“Bullard said aggressive Fed policy action to restore growth means the U.S. central bank has a real opportunity to introduce the target at a time when communication is extremely tough.” Don’t these dipshits GET IT!? Positive GDP numbers are meaningless when they are derived from additional debt! We need REAL wealth creating production(jobs), NOT MORE DEBT!
“If it were not constrained by zero those (economic) models would want to push it below zero, but that’s not possible,” Evans told reporters, adding quantitative measures “is a way to mimic below-zero rates and provide support to the economy.” How can shit for brains Evans think lower interest rates are going to help people buy houses when they CAN’T FIND A JOB!?
“Bullard said such a scenario(Japan) was not likely in the United States, noting that core U.S. inflation, which excludes food and energy prices, was running around 2 percent compared with a year ago.” So lets triple the money supply so those that have lost their homes can STARVE AND FREEZE in their new government subsidized apartments.
forwill,
Don’t you realize, you are talking COMMON SENSE? The old adage KISS, Keep it Simple Stoopid has been lost in the Sea of Complex Derivatives, Off Balance Sheet shenanigans and the Bailout Mania. All these so called ANAL-LISTS are trying to do what the MAD SCIENTISTS of the early 1900’s were doing…and that is to INVENT the PERPETUAL MOTION MACHINE. They are both guilty of believing in “GETTING SOMETHING for NOTHING”.
It is amazing to me as well, that there are so many SHALLOW MINDED analysts who are coming up with such worthless solutions. Have people just lost their minds…..or are they living a COLLECTIVE DELUSION? It seems as if the OUTCOME is so horrible that any dart throw at the board is at least an effort in their minds.
I am not being Negative on purpose…but rather Pragmatic. There seems to be a WHOLE LOT OF STUPID going around nowadays. There was 25% Unemployment back in the 1930’s….and we had a PRODUCTIVE, GOLD BACKED ECONOMY fer pete sakes. Today, a great deal of our POST WAR WEALTH has been invested in a system for daily life called SUBURBIA we can no longer afford. Jeeesh, we could see 50% unemployment not just 25%. Back in the 1930’s we had BRIDGES, DAMNS, and ROADS to build….with plenty of ASSETS to do it. Today, the INFRASTRUCTURE is so large, it is too expensive to MAINTAIN and EXPAND….and besides that, we don’t have the MEANS to do it….if we wanted to. Why in the HELL is this so hard for people to get through their THICK SKULLS??
Let me REPEAT MYSELF AGAIN……this is not a DEPRESSION, or RECESSION….this is a complete DISINTEGRATION of a LEECH and SPEND ECONOMY. Most analysts don’t see the forest for the trees. The only way the United States is going to get out of this MESS, is to go into complete bankruptcy, pull most of their military back into the USA, start more local manufacturing utilizing the REAL BILLS and the GOLD & SILVER COIN, and convert MASS TRANSIT to PUBLIC TRANSIT. Those are for starters. If anything else is DONE….you might as well SHOVE another RUSTY NAIL in the DEAD CARCASS called the United States.
These are serious times which need serious solutions. All that GARBAGE coming out of the new adminstration is more of the same. If the end of FIAT MONEY doesn’t destroy this NATION….then Peak oil will shortly. There are no GOOD ALTERNATIVES…but if we concentrate on the things listed above, at least a lot of people won’t STARVE TO DEATH or be walking around in a stupor mumbling….”WHERES MY 401K?”
Forwill
Don’t imagine confidence as some absolute quality like the good old days. Nowadays, confidence is about drinking diet coke or wearing Armani. The confidence of the good old days was backed by honest principles - hard work, sound money & faith in God and country. That sort of thing is passe.
What I was referring to is - Nowadays, you could “talk” markets up - yes, under the present circumustance it is a difficult task, I admit. Would take a huge amount of complicated mumbo jumbo but then, the Fed & Wall street have always done it. Count on the experts, dear and don’t back the doomsters till Titanic has fully sunk. There is always light at the end of the fiat tunnel.
The magic of the fiat money system is you can have an infinite amount of the stuff. You can keep on promising empty promises for ever. This game has lasted for decades. They would wage a war dear if they believe this is the end-game.
SRS
I write such 3 part commentaries to bring in the pleasure of debate that you love so much. Indeed, great debate is a forgotten art. You would only notice them in people of character. Like the raging debate on backwardation among two hungarians. You know, we all are beneficiaries by just being spectators.
I have been so wrong so many times, especially on this blog that it takes a masochist pleasure at making predictions. Only to see self inflicted eggs on my face. Speaking of numbers, I held stubbornly last year that Dow 10,800 will hold & dollar index 80 would not be breached because I argued a massive asset deflation would ensue - the Fed could not afford this. Even Tom said my thinking was sound. Probably only my thinking was sound, but the conclusions were rubbished.
SRS
I agree the earnings numbers are going to be bad down the line. This would push the Dow to see one massive drop to say 5000-6000 area. Yeah, That would be the bottom. Provided no more shoes (are you laughing already?).
SRS…I know it is bad, very very bad. But my friend, there is always a way out. Call me an optimist. A romantic. Whatever. Mankind, is too precious to be wasted at the altar of the fiat cross. Do you agree that if the gold price adjusts to say $10,000 at least a partial gold standard is unleashed? And gold standard, albeit a partial one is an honest system.
I wish to argue that the system with even a slight modicum of honesty has a chance probability of survival. Difficult, but possible. Here I am with Tom who sees a new monetery system based on gold. You, my dear, are with Fekete who sees the end of the road.
Keseri,
I am an optimist my friend. Just don’t tell anyone else who has a 401K, Pension Plan, IRA, CD, US TREASURY, or those Depending on SOCIAL SECURITY or MEDICARE. If you keep those folks out of the picture…then I am a COMPLETE OPTIMIST. (HAHAHAaahahAH)
You have to remember, during the DARK AGES people still were able to SHOVE FOOD down their THROATS, LIVE under some sort of SHELTER, and every once in a while, able to get a lil something something. They only thing they didn’t have was FREEDOM or nice GADGETS to fill ones home.
Again….the end of the ROMAN EMPIRE wasn’t the end of the world. There was still a WHOLE LOT OF ENERGY and COMMODITIES to SUCK out of the ground in the next 1,700 years. World Population at the end of the ROMAN EMPIRE was about 190 Million…..little more than half of the current United States. Today the world Population is 6,000 million or 6 billion…31 times that amount. Before OIL came into the picture, the world Population was 1,325 Billion (1875). Today it is 6 billion or 4.5 times in just than 130 years.
Humanity had a PARTY for centuries….and the BILL is coming due. Unfortunately…..this BILL cannot be paid, as the majority of people are acting like CANCER CELLS reproducing more CANCER CELLS which won’t help the SYSTEM to pay back the bill, but rather destroy it. This goes above and beyond FINANCE and PEAK OIL. Many “OPTIMISTS” tell me that we will go to other planets and colonize them to spread out our population. I say…”IS THAT SO”. Hell, we can’t even get a few people to live on the MOON for more than a few days….much less populate another planet. My answer would be to them…..if GOD intended us to POPULATE another PLANET….he probably wanted us to FIGURE out HOW IN THE HELL to LIVE ON THIS ONE PROPERLY FIRST, before destroying it.
I Digress…..sorry. Anyhow, yes I agree with FEKETE over SZABO…because if you take a GOOD LOOK around at the people you come in contact with in the MALLS, SHOPS or ones Favorite COFFEE HOUSE, the new GENERATION that will be bestowed on MAKING THIS A BETTER PLACE, has a cell phone stuck to the side of their head, baseball cap on sideways….and a typical response of “WHAT UP DOG”. If this is a source of OPTIMISM….then maybe being PESSIMISTIC is OPTIMISTIC in my book.
word to your mother…..
Dog…….
Discreetsilverbug,
The chart I used to observe the spike cover 24 hours.
http://www.nowandfutures.com/metals.html
The linked thumbnail-chart on http://www.fromthewilderness.com/live_charts.shtml
Showed the same spike. On the bigger chart the spike was not exactly V-shaped but the right side of the ?V? was rounded. That would mean more then one data point. It might be that the higher (rounded) data points are real and around the prevailing market price.
It remains strange that this happened more then once in a month.
Gunther
SRS,
Thank you for your kind words. I, too, truly appreciate the quality of our discussion.
As you could figure I am on the optimist side though still very realistic. I believe in Capitalism and I hold that free market offers the best economic outcomes. I consider global free trade, NOT managed trade as a move to a good direction. Actually, in a complex society like ours I see no other way. Cooperation and specialization are what have lifted us from hand to mouth subsistence. Capitalism is only the framework. The lack of that will send us back to the dark ages euphemistically called socialism. “Peak Oil” is just a result of socialism killing innovation and exploration like everything else. I do not understand why are you so sensitive to that while ignoring everything else. Gold is just the canary in the coalmine. If it goes hiding we are doomed. You may be able to buy a few more month of subsistence but without the rule of law it will be futile. Again, I can’t see any PLAN B.
Market conditions are deteriorating faster and faster since early 20th century. The US had great foundations. Ignorance, trading “security” for freedom led us here. I can offer you Ayn Rand’s Atlas Shrugged for literature.
andras,
I am all for CAPTIALISM, and FREE TRADE. I wish we had some of those today. As for PEAK OIL being a result of socialsim is neither TIT for TAT. NAZIS called themselves SOCIALISTS, and Present REPULICANS call themselves CONSERVATIVES. Both are words without meaning. Who cares what we call a system….if no one lives by its ideals.
People who don’t seethe different levels of living, disregard PEAK OIL’s ramifications. This society lives and breaths on OIL. Not only for Transportation, but the world depends on growing the worlds Food with oil. We get our food by basically pouring OIL on the soils of the MIDWEST.
There are indeed many COMPUTER ENGINEER GEEKS who believe we can run the world on FRENCH FRY OIL, ETHANOL, COW CHIPS, ALGAE or SOLAR POWER. All are good ideas….and in their own way…locally they can do wonderful things. But to compare the EROEI (Energy returned on energy Invested) they are all FRACTIONS of what OIL can perform.
This is why I am sensitive to PEAK OIL. Take OIL away and you can “OFF about 2-4 BILLION people from the FACE of the EARTH”
Regardless of the FACTS….let’s just be OPTIMISTIC for a moment. We won’t have to worry about PEAK OIL because someone is going to INVENT the PERPETUAL MOTION MACHINE. We won’t have to worry about our FINANCIAL SYSTEM as the men who have controlled it, will find RELIGION, and back all FIAT MONEY with GOLD. GLOBAL WARMING is no longer a threat because we got a large amount of snow this year. And lastly, the OBAMA Administration will put HUMPTY DUMPTY back together again, allowing Americans to get more PHAT, PALE WHITE, and BLOATED than ever.
It those things are going to happen….then in several years….the OPTIMISTS can come back here and tell me….I TOLD YOU SO.
SRS,
You are an angry man.
It will need more time to reply and others are probably not interested.
Could we go off-line?
me angry….LOL…hardly. Others can respond if they like….if not we can find another topic tomorrow.
BarbarianWho,
I would theorise that toilet paper (TP) would always be in backwardation (or is that backsidedation), ie the spot price of TP would always be higher than the futures price of TP, on the basis (excuse the pun) that no amount of TP in the future is going to help you wipe your bum today (spot).
SRS
Why are you persistent with peak oil? I mean, won’t coal liquification or nuclear based on fusion technology offer some kind of an alternative. The French are working on it. They call it the Tokomak or some such shit. The whole project is in its infancy and will take 30-50 years to fructify. I know it sounds a bit far-fetched but that is all we’ve got.
http://en.wikipedia.org/wiki/ITER
One of my friend knows somebody in an energy giant in the US, working very actively on Hydrogen. They say that the technical bottlenecks need to be cleared and once we are thru we might (yes, I said might) have a viable hydrogen based economy within 10 years.
SRS, my friend let us say from tomorrow we have a gold based monetary system + free market principles, not the leech casino system that we have presently. Won’t such a system immediately conserve the precious resources like oil? Won’t the pricing mechanism immediately adjust to signify the rarity of oil so that it is utilised in the most judicious manner?
And if that happens, let us say (nay dream), won’t free markets generate some alternative? I don’t know what. Not possible for me to predict now. How the hell can I predict the timeline 30 years from now when I don’t even properly see tomorrow? Listen, the alternatives that I suggested like fusion, hydrogen etc are probably going to work, probably not. What I am suggesting is that a proper system in place is able to generate SOLUTIONS. We need that badly before we can see the light at the end of the tunnel. And I believe exactly that - there is light at the end of the tunnel.
For me, the way I see the future is begins with the end of the “liquidity trap” when a modicum of confidence returns back. This might take 6 months or six years. Depends on shoes (ha, ha). Once that happens, normal credit operations would commence with all the tons of new money freshly printed out.
A likely scenario is that the later part of 2009 would be charecterised by falling bond values, the falling dollar & gold hitting upper circuit.
keseri,
I appreciate the continued debate. How can I get the point of Peak Oil across to you? Okay…think about this. We all here have a good understanding of the monetary situation, gold-silver manipulation and etc. Trying to talk to your typical JOE BAG OF DOUGHNUTS about gold and how the US DOLLARS they have in their wallets are worthless would be returned by a BLANK STARE. What we know which has taken us years to understand…is quite impossible to try to convey to the LAYMEN in few sentences or paragrahs.
Believe me….I have done the research from the best minds on PEAK OIL and its ramifications. Matt Simmons of Simmons International has been going around the world telling people about the problems coming down the pike. Others such as James Kunstler, Richard Heinberg, Colin Cambell, and etc. have been writing books and doing speeches to WAKE UP THE PUBLIC.
Keseri….all the alternatives have been looked at compared to the OIL ECONOMY….and I hate to tell you, they are not viable alternatives. Hydrogen is a nice clean system….but guess what….YOU NEED WATER and a SOURCE OF ENERGY TO MAKE THE HYDROGEN. Most systems that make hydrogen from water use natural gas. People need to understand that OIL is a FORM of energy. All you have to do is SUCK it out of the ground. Hydrogen is not a form of energy….its a type of energy system. You need ENERGY to seperate the HYDROGEN from water.
Furthermore, all the other alternatives can not SCALE to what OIL does. Let me repeat myself. ALL OTHER ALTERNATIVES CAN NOT SCALE what OIL does in our world. This means if we went to all alternatives….only a fraction of these could be used compared to OIL. People don’t realize that to make ETHANOL you need to USE OIL to grow, harvest and produce ETHANOL. Thus, ETHANOL is a NET ENERGY LOSER. You actually use almost more energy in MAKING ETHANOL than you get from BURNING IT. This is also true for HYDROGEN.
IF….and I say IF, we were to build say 100 NUCLEAR POWER PLANTS….then we might be able to think about HYDROGEN. But on the other hand….the whole OIL INFRASTURE SYSTEM…..which is WELLS, PUMPS, PIPELINES, REFINERIES, STORAGE TANKS, OIL TANKERS, TRUCK TANKERS and GAS STATIONS is well over $10 TRILLION DOLLARS. People say we can just SWITCH over to HYDROGEN or COAL GAS or something like that. These people do what most ignorant people tend to do….they don’t GRASP the COSTS, TIME and ENERGY it would take to TRANSFORM one system to another. And WHERE are we going to GET ALL THIS MONEY??? This is something we should have done decades ago when we had the RESOURCES….we pissed them away on FAST FOOD, SUV’s, STRIP MALLS, STARBUCKS, and SUBURBIA.
Regardless of the FACTS most people have no clue. Take it from me….even if there was another way to go…which might take 20-30 years….THE TIME IS UP. We have run out the CLOCK. Peak Oil will reveal its NASTY HEAD in the next several years, if the end of FIAT doesn’t do it first. A world depletion rate of 9.1% means we lose about 6 million barrels a year. The only way to slow this down, would be if the WORLD INVESTED LARGE AMOUNTS OF MONEY….well guess what?? With the low price of OIL, no one is investing in FUTURE PROJECTS. Matter a fact, the LARGE OIL COMPANIES are SCRAPING all future projects in the Canadian Oil Sands.
Matt Simmons, James Kunstler and Richard Heinberg have been speaking about these problems for years. Unfortunately, not many are really listening. The world system of transportation, food supply and mining is all FUELED by OIL. You don’t know how many times I have had this same conversation or debate. People always reply….THERE ARE ALTERNATIVES. Unless they do the research…they won’t believe me when I tell them that these ALTERNATIVES won’t scale. If you think OIL to GAS is expensive, COAL to GAS is many times higher. Futhermore, we need that COAL to FUEL the POWER PLANTS to give us electricity. If we start using that COAL to make GAS…you can cut the COAL RESERVES down to a THIRD within in decades.
keseri…..all those things that you said….if they happened….like a GOLD backed currency would help the situtation….and I am all for it. But watching mankind and seeing how the ROMAN EMPIRE fell, proves to me that sometimes MANKIND does not always make the right DECISIONS when it is the most important.
As for the future United States….here is a very smart Russian Professor who has been calling for the Disintegration of the USA for quite a while. He named the year as 2010 for this to occur. This was from the WALL STREET JOURNAL and not some Russian Rag:
http://online.wsj.com/article/SB123051100709638419.html
Again…..Americans are sleepwalking into a DISINTEGRATION that the are clueless. There are many different negative forces coming down upon the United States all at the same time. One or two could prove HORIBBLE…but 3-5 will be DEADLY.
I am not PESSIMISTIC….I just have an OPEN mind to things that most don’t want to FACE. The term “I DON’T WANT TO GO THERE” is quite fitting from a society of AMERICANS who don’t have the STOMACH, WILL or COURAGE to deal with problems that needs their urgent attention.
I always hope for the BEST….but realize REALITY and TRUTH always wins out in the end.
I agree that long term Peak Oil is a deadly problem. However, short term as in the next 6 months the USD is the problem.
Once we lose our medium of exchange it is game over. The USD will not see the light of a 2010 day. Orlandini also agrees.
http://www.gold-eagle.com/editorials_08/orlandini010409.html
Joe M.
SRS,
US has 60% of the global coal reserves. Coal is potentially more concentrated in energy than oil. Technology to turn coal into synthesis gas and that to any type of liquid fuel, chenicals fertilizers etc. is known for hundred years. Hitler built his war machine on that. Since then we have tremendous technical developments. New catalysts, new materials and Commitment could easily turn the US into a synthetic fuel powerhouse with a rather competitive price (~$25/gallon).
However, US has GREENs, too. So instead we whine about peak oil.
I appreciate the debate too as you help me see through the other end of this dark tunnel, especially your end. I hope I am not too much of a numb skull or too stubborn to learn new tricks. I know your stand on peak oil is a prepared one and you can put forth your ideas forcefully. With that respectful bow may I continue this debate…….
I appreciate that oil is a form of energy. Just dig it, distill it & then use it. But, so is coal, Uranium & thorium. OK, coal is not such a concentrated form of energy. Uranium would last only 50 years and Thorium is an undeveloped form of energy. Both Uranium & thorium need tons of capital. I would leave out wind, solar and water power. I don’t understand why you can’t have technological breakthroughs here but for the moment I would leave them alone and assume a role reversal.
For the moment let me subscribe to your stance. Let us assume that we have peaked. Say, from now onwards, oil production can only fall. That still gives us a 20 year lifespan - isn’t it. Maybe more, if the crest is say 10 year down the line. Let us say that mankind would see a declining production for a consecutive 3-5 years. When this happens oil executives would panic. Then the markets. The government. The public. This volcanic wave of panic would soon engulf the globe. What more, the best of the best minds would start working towards a SOLUTION.
One of the first solutions that would rightaway be implemented is an overnight ban on all forms of private transportation. All cars, motor-bikes and gas guzzling American SUVs would be outright scrapped at the peril of one’s life. That would conserve the global oil drum to approx 50 years. 50 precious years of fresh air & mankind. This is good enough time for technology to work wonders. Who knows the Tokomak may fire on all cylinders by then.
Coming to the money part, I believe when you say money, you mean capital. Trillion dollar infrastructure to replace the existing oil clunk. To that may I respond by saying the key to the peak oil problem, if there is one, is golden in color. Capital preservation instinct would push gold from a 3 trillion dollar market to a 30 trillion dollar market. Enough capital to save the world.
I agree with Joe M. when he says that the monetery problem is the immediate one. Solving this one would solve the other.
I believe Tom is missing this hot debate while he is busy elsewhere.
andras,
It pays to do your research before you put incorrect facts in your posts. According to the EIA, at 2005 figures, the United States has only 27% of the worlds Coal Supply. Furthermore, the United States has depleted a large percentage of its HIGH QUALITY BLACK COAL (Anthracite) during the early 1900’s and WW2. Now we use more lower quality coal, Bituminous, Sub-Bituminous, and Lignite. Lignite which is brown coal, the lowest quality of coal, basically dirt with coal mixed in it. This is what we use for Electric Generation.
You can get your figures correct by checking out here:
http://en.wikipedia.org/wiki/Coal
Furthermore, new studies are showing much less WORLD COAL RESERVES than expected. This was also done by the US GEOLOGICAL SURVEY during the 1950-60’s when they USA INFLATED OIL RESERVES. They had to eat their words when the United States peaked in OIL PRODUCTION in 1970.
The figures that Wiki-Pedia show are from 2005 at a total of 998 Billion Tons of World Coal. The United States held approx. 246 Billion Tons. The new numbers that are coming out of recently are showing WORLD COAL RESERVES at only 662 Billion Tons. A great deal less. Thus, Sobbering many of the OPTIMISTS.
People can come up with every different answer to PEAK OIL….but at some time…we have to wake up from our DREAM and SMELL THE COFFEE. Too many people out there….with the WRONG FACTS and LOUSY SOLUTIONS. This is why I am PESSIMISTIC. WHY??
TOO MANY OPTOMISTIC PEOPLE WHO DON’T HAVE A CLUE.
Repeat…..excuse my LOUSY Spelling, grammer. (haAHHAHAH)
SRS,
Thanks for updating my numbers. I guess I, too, have to eat my words.
It is great that you have not responded with Global Warming religious dogmatism. I love facts and numbers.
(Though I think 27% is still a big number. It is for consuming)
My point is, in agreement with Keseri, that there is always alternatives and if not, the market will reprice if it is left alone. The US population was the fastest to change consumer habits when oil hit $147. All those countries, the majority of the oil suppliers, where there is no market just a strongman buying local peace with subsidized oil were much worse. You can argue that it is their oil they can do whatever they want with it. The problem with that that they usually aquired the asset by nationalizing a western investment (stealing). OK, you can still continue, it is theirs, they can do whatever they want. My only problem that they can only steal. They don’t explore, they can not even produce without destroying “their” fields prematurely. Thus my earlier note that socialism is responsible for peak oil. Under these conditions no sane explorer will spend billions, not even in the US and Canada let alone Venezuela or Brasil.
What do you think about the theory of inorganic geological formation of oil?
andras,
I presume you are refering to ABIOTIC OIL THEORY. Yes, I have heard of it. The Abiotic Theory of Oil Formation rates right up there next to the Perpetual Motion Machine. Abiotic Oil does take place. Unfortunately, its like watching a SNAIL cross the Country. Abiotic Oil formation vs. Fossilized Oil formation is like comparing a human sweating compared to the amount of URINE an elephant might release in a day. Sure, some Oil might come from the Abiotic method, but you and I will be long DEAD and buried for thousands of years before it makes a diffence.
If one wants to waste their time on the ABIOTIC THEORY of OIL, you can find some info here:
http://en.wikipedia.org/wiki/Abiogenic_petroleum_origin
andras & keseri, I am not playing DEVIL’s AVOCATE will you all. I am not that smart. I just happen to know who to read and who not to listen to. I am not always right…..but I can say on the other hand….I am not waiting for some other SLOB to come up with a way to FIX the problems coming down the pike.
To summarize what I am trying to get across here in this present debate….is this:
A huge SHIP left the dock with millions of people on board. Yes, this is a HUGE SHIP. For many years, a few very intelligent Engineers and those who THINK OUTSIDE THE BOX told the OWNERS and CAPTAIN that there wouldn’t be enough FUEL to get the ship to its FINAL DESITNATION. The Owner and Captain did not listen and the SHIP went on its MAIDEN VOYAGE. Unfortunately, about 3/4’s of the way the LARGE SHIP ran out of FUEL…and thus could only produce food when the engines were running. Yes there was some food in storage but not enough for a long time. Within a few months the majority of the people starved to death and the Captain was found dead with a BUTTER KNIFE shoved in his back.
The MORAL of the story is this……we had plenty of time to make these CHANGES but instead….we SPREAD SUBURBIA. Now that we need to make changes….The CHEAP OIL to do all this work is GONE and will be DEPLETING FASTER every year. The thing most people forget…..ALL THIS TECHNOLOGY that people want to use….NEEDS TO BE MINED, TRANSPORTED, MANUFACTURED and SHIPPED.
HOW CAN WE DO ALL THIS TECHNOLOGY WHEN THE OIL IS DEPLETING??? Wind Farms, Solar Power, Hydrogen power, Hydro-power, Nuclear Power, and etc….ALL NEED TO BE MINED, TRANSPORTED, MANUFACTURED, BUILT, and SHIPPED. That takes OIL to do.
TIME is UP…the clock has run out my friends. Yes, we can have all those nice ALTERNATIVE TECHNOLOGIES….but we need to remove several BILLION people off the FACE of the EARTH. People FAIL to realize that to do all these NICE THINGS…..it takes OIL to do it We look at how nice SOLAR POWER is….but we FAIL to comprehend it took OIL to make that SOLAR. It takes a great deal of OIL to make a WIND TURBINE and the HUGE BLADES.
Think about it……we MISSED THE BOAT my friends….we had a great PARTY for the past 2-3 decades….and now we RUN out the CLOCK. Its too late for ALTERNATIVES for the MASSES. Sure for a much smaller world population. So pick your POISON….and hope for the best.
We live in interesting times….
The abiotic theory of oil makes more sense than the biotic theory. Apparently if you go to Russia and start talking the biotic theory of oil they will tell you that you are full of s**t.
Most, if not all, oil and gas reserves are found in proximity to major geological rift zones. Even the major coal deposits here in Australia are found where there has been extensive volcanic and associated geological activity in aeons past.
SRS,
Thanks for the info. Reading it through left an impression that it is far from settled on the ratio of biotic and abiotic occurence. As you could guess my question aimed at the depletion potential. If it is abiotic (or even biotic but microbial from abiotic methane, most likely according to wiki) it can almost be considered renewable. Finding new fields then just depends on commitment (capital).
So let’s fix the financial system fast and save that ship.
You know in the late 19th century, “scientists” calculated that if things go the same way for a few more years the entire globe would be covered with horse manure something like 20 feet deep. Your end game is much less dramatic. Buried in shit implies much more imagination.
Justin…..yes some Russians will tell you that there is SOME TRUTH to that ABIOTIC OIL. And again…..I agree that there is some ABIOTIC OIL being made….but most of the TOP GEOLOGICAL OIL ENGINEERS will laugh at you if you went to go work in the OIL INDUSTRY flapping ya gums about ABIOTIC OIL.
Oil wells deplete, then they need to PUMP the oil out when it goes below a certain pressure. After a while if you got some…you might INJECT NATURAL GAS or WATER. The Mexicans are using Natural Gas while the Saudis like water. The water cut in the Saudi Fields are rising each year. They have special Facilities called GSOP, or Gas Oil Seperation Plants to seperate the water and gas from the oil. You can learn all about this here:
http://www.theoildrum.com/node/2436
So….why would the SAUDIS being INJECTING MILLIONS of BARRELS of WATER a day….if their oil fields were filling back up??? People want to believe in the FAIRY GOD MOTHER and that the earth has a CREAMY NUGGENT of OIL rather than believe OIL is finite. As I said….even if there was some DROPS of OIL coming from ABIOTIC OIL…..it can’t fill a rate of 84 million barrels a day.
COME ON PEOPLE….wake up and get some COMMON SENSE ….WILL YA….LOLOLOLOL
We can go around all day on this one…..but I will say this….just stay alive for a few more decades….and you will witness the REALITY of a HUMBLING EXPERIENCE in OIL DEPLETION.
If we are going to be buried in shit, then the price of TP is going TO DA MOON!
I do worry when Tom hasn’t posted for a while that he has found the magic basis trading system, is making huge profits and the next post announces his retirement and closure of this blog.
I have to say that the more centralized government becomes, the less likely real solutions to mankind’s pressing problems will be found and implemented. We’ve all been tricked into being teat sucking babies, dependent on the federal governments milk. Through our apathy and laziness, we have allowed a monster to be created. George Orwell is the modern Nostradamus.
Do not forget food production - without oil fertilizers cannot be synthesized or the fields worked, crops sown, crops harvested, food distributed or delivered. The old labour intensive ‘organic’ methods cannot feed 6 Billion people. Mass starvation is a forward consequence of peak oil.
Bron Suchecki
Nice point about backwardation. Thanks. Got me thinking.
At first I did not consider using the toilet paper basis as an indicator of monetary distress. There are just so many data issues. But it might be possible. Given toilet paper?s dual role as a commodity and a potential monetary asset this might be another bird to watch.
Indeed, during difficult times when the SHTF, intuitively one might expect a greater immediate demand for toilet paper. Not to mention we are also inundated with a greater amount of s**t being shoveled in our direction by our great leaders. Backwardation in TP seems a logical outcome there.
But I don?t think that?s how it will work.
There is a potential kink in the pipe that could delay backwardation in toilet paper during hard times due to its commodity role (roll). During times of great economic stress when the great shoveling reaches a frenzy, the public typically answers the patriotic call. Bravely they will stand in place, taking on great stress as the s**t piles up around them. They will lie awake at night worrying. Insufficient sleep, diet and general disruption to a healthy routine often result in IRREGULAR INDIVIDUAL PERFORMANCE when it comes to spot demand for TP. We could see continued contango in the TP market.
(sorry about the caps lock)
But at the onset of a monetary crisis we could see the monetary characteristics of TP overwhelm its commodity supply/demand fundamentals. A move into backwardation, or more accurately a negative basis, would tell me that money is rushing into TP (the monetary ass-et) in search of refuge.
Here?s your dead canary.
Happy New Year
On Peak Oil.
Let’s not lose sight of the fact that the crisis is not an energy crisis, but a liquid fuel crisis. A nuclear power plant keeps the lights on in Walmart. It does not help the food get to WalMart.
That is the big disruption that peak oil will bring. Transportation is 95% liquid fuel based, and any conversion to alternatives will take time, money, and resources. You can’t flip a switch and simply replace oil.
On a side note, have we seen the top in the bonds?
No SRS, not some Russians, all Russians. It is commonly accepted and taught in Russian universities that crude oil is actually of abiotic origin, derived from hydrocarbons from the earth’s mantle, not from decomposed organic matter subsequently buried. It is a completely different view to the ‘western’ model.
Oil has been found in vesicles in volcanic rock, explain that using the biotic theory. Miners often follow traces of hydrocarbons to find gold, a product of volcanic activity, explain that using the biotic theory.
SRS
Why can’t we simply blast our way into some volcano/fault line into the earth’s hot magma so that we exploit the earth’s heat by pumping water & exploiting the high quality steam? This would unleash an inexhaustible source of energy. I know this is a bit quixotic, but I am not concerned with appearances when it comes to saving this planet.
I have not fully explored the idea …. maybe what I say is impractical, foolish & what not. It would take people much more superior to me to solve problems of this magnitude.
What I want to drive home is that the best minds have to sit around & solve this problem. Pondering on the present set of alternatives and arriving at foregone conclusions is NOT the way out. You have to first build a system that generates the necessary resources - human & otherwise. You need to SAVE capital for that situation. Analogies of ships stranded midway in the ocean do not help us, my friend.
Having said that, I have to admit you have a point in Peak Oil. But that is all. Peak Oil is NOT the END OF THE WORLD. I don’t know how mankind would be saved. But it would be - All of it
PS - Be kind on me for my dreams.
Guys:
Please permit me to weigh in, on the basis of my professional academic research, on SRS’s side of the peak oil debate.
World oil production has already peaked out, back in August of 2005, according to the figures. It is now declining more rapidly than the classic peak oil theory predicted on the basis of a nice symmetric bell curve.
The world is now dependent on petroleum and natural gas for the elevated food production brought on by the ‘Green Revolution’ (sic), which has been more aptly called the ‘Neo-caloric Agricultural Revolution’ (Schusky). In short, we have all increasingly been ‘eating oil’ since WW II. Rather than being based on the capture of solar energy, as traditional agriculture was, neo-caloric agriculture requires fossil fuet subsidies that produce energy deficits of between 5:1 to 10:1 (or more), depending on what crop is considered. Meat production multiplies the deficit by another 3 to 10 times. And then their is transportation to the factories which ‘process’ and package food, and again transport costs to stock your local supermarket, and the energy you use to refrigerate and cook your food.
World population has grown from 2.5 billion to 6.8 billion in the last 60 years or so as a direct result of increasing fossil fuel subsidies into food production, distribution, and consumption.
Whatever alternative energy sources one considers, there are always problems in replacing our dependence on petroleum, not just for transportation, but more basically, for agricultural production. SRS has covered most of the problems: energy-in versus energy-out; high capital requirements; and lack of time to implement an adequate replacement before there is enough petroleum to keep the massive world population from wide-spread death from starvation. Specific alternative technologies all have their more specific impediments as well. There is just no realistic way to avoid this end result of our petroleum and natural gas dependency.
The issue of abiotic petroleum (and gas, apart from what can be taken from coal seams), is a furphy. I think that the Russians are right about this, but even so the process is a geological one, and therefore won’t be of any contemporary help.
The accelerating economic ‘crisis’ will probably delay the final reckoning day for oil depletion, but only at the cost of widespread human suffering and elevated death rates, even in the ‘developed’ economies.
Ours will not be the first civilization to collapse because of basic mis-management of its fundamental food resource base, but unfortunately ours is the first international, globalised one that will do so. There will ultimately be a population decline to levels that can be supported by capturing solar energy through agriculture without fossil fuel inputs.
Sorry, but no amount of wishful thinking will make any difference to the by now inevitable outcome.
Guys:
Please forgive the grammatical errors in my post:
Last sentence in the third paragraph, ‘their’ should be ‘there’;
Middle of the fifth paragraph, ‘enough’ should be ‘too little’.
Reasons To Be Optimistic About Peak Oil http://daveeriqat.wordpress.com/2009/01/06/reasons-to-be-optimistic-about-peak-oil/
BarbarianWho - you are the Professor Fekete of TP market dynamics
From the Chancellor of the Exchequer (UK), Dec 18 2008;
‘Gold sales between July 1999 & March 2002 reflected a prudent decision to reduce overexposure to a single asset in the net reserves portfolio’!
I guess I shouldn’t be laughing, no doubt the Treasury here in Australia would offer the same excuse for its 1997 gold firesale.
SRSrocco and Larry, stop apologizing for grammatical or spelling errors. It is the excellent content of your posts that I care about.
Bron…Regarding TP market dynamics may I call your attention to:
“A Formula for Hoarding Toilet Paper”
http://www.kynd.net/~tralchem/toilet.html
Since TP production is very energy intensive Peak Oil is a critical consideration but the author’s most perspecasious observation was that “…There are 38,740,000 BTUs [British Thermal Units] in a cord [4x4x8 feet = 128 cubic feet] of United States Senators”
T Rob…I worked for Stotler & Co. in the late 70s and early 80s.
TP is going into backwardation.
!
For three consecutive tranding day (with a raising $-index and raising PMs - namely Ag) I see a pattern in the charts that I cannot quite understand. Ag drops in Asia and Europe, drops in the US until about 10:00 o’clock. Thereafter it raises in positive territory. The amplitude of this movement exceeds $0.50 for Ag and is higher (percentage-wise) for other PMs, e.g. Palladium. This looks like a pressure cooker with the heat turned on.
I have following theories:
1. The big short initiated a massive buying-back and suppresses the prices in Asia, Europe, and at the beginning of the COMEX session in order to get cheap paper prices for the short covering.
2. The big short shifts its short position to Asia and Europe, going short there and buy back in the US. Could it be that the big short feels the heat from the CTFC (finally)?
3. Ted Butler’s raptors are still alive (and not devoured by the T-Rex), awake around 10:00 o’clock, and start buying.
Any other theories?
Does anyone here have a decent theory why the $ is raising against the Euro? The explanations delivered by the analysist in the public media seem like crap to me. It looks like a massive intervention but I don’t see any hard reason for this - except to build up a psychological sentiment at the start of this year??
Bron:
For such an utopian outcome for peak oil, the world population would have to be in the neighborhood of 500 million, about what it was in 1500 CE.
All:
Let’s get back to concentrating on the silver basis.
Larry,
I just want to say……EXCELLENT FUNCTIONING BRAIN STEM.
Now….anyone for a NEW TOPIC? How about, THE BEGINNING of the END OF THE LARGE POULTRY PRODUCERS IN THE STATES? Thats a nice positive subject.
TYSON CEO steps down, share price plunges 10%
TYSON, 2nd Largest Poulty Producer in the USA, loses $91 Million in latest quarter
PILGRIM PRIDE largest Poultry Seller in the USA goes into Bankruptcy
PILGRIM PRIDE stock price Dec 2006 was $27 today its a PINK SHEET sticker PDPDQ.PK, trading at $0.78.
——————–
We have to remember, LARGE CORPORATE PRODUCERS make a lil profit on HUGE NUMBERS. Large numbers and tiny profits are its business plan. We are seeing pressure on this type of BUSINESS MODEL. They are all very INTERDEPENDENT upon many different supply and distribution chains. When they start to crack….the whole thing comes tumbling down.
As Larry stated in his post, Cheap Energy allowed these LARGE CORPORATE entities to THRIVE. Today, we are witnessing the end of this BUSINESS MODEL. Unfortunately, there is not the LOCAL INFRASTRUCTURE to supply the country will local Poulty.
All Bubbles burst. With the 5 states of COLLAPSE by Dimtry Orlov, the first stage (Financial collapse) is getting ready to make its way to the second stage (economic collapse). 693,000 jobs lost in DEC posted by the ADP makes 2008 look like a picnic regarding UNEMPLOYMENT NUMBERS.
comments??
I think the unemployment numbers for January will be breathtaking. I work for a small manufacturing company which just laid off 25% of our workforce. Everyone else had to take a 10% pay cut. This was after modest cutbacks last fall. Our business is off about 30% year over year. I know many other companies are in the same boat and held off lyaoffs until after xmas for many reasons. Certainly we’ll see many retailers laying off or going under along with cutbacks in travel and hospitality and just about everywhere except maybe the govt.
As for Peak oil I think we’ve reached peak a lot of things all as a result of cheap fiat money creating phony demand, malinvestment and industrial overcapacity.
Peak food? peak population???? peak employment, peak quality of life
Absoluteley there will be a major “culling” of the world population over the next 5 years. famine, heat, drought, disease and possibly major geologic and climate events (Dec. 21. 2012?)
We are in the middle of the beginning of the major change of our current way of life. I will enjoy seeing the demise of the wall street/D.C. gang but what will come after that scares the heck out of me. Back in the sixties we wished it would be taken down but it wasn’t and now we are getting what we feared our selfish leaders would lead us into. Communes anyone??
The currency crisis for the U.S. dollar will hit when we start seeing shortages of basic items, food and fuel in particular. That will trigger a loss of confidence in supplies and an increase in the velocity of money as hoarding begins and people panic into tangible necessities of life and the hyper inflationary process begins. Civil unrest, price controls martial law etc. as it all unravels and govt takes all the wrong steps to get the economy back on track. No amount of govt. stimulus money will fix our problems. We might get a small delay and have much of this year to try and position ourselves personally for the future. After that things will slide downhill at a faster rate. Foreign govts will cling to the $ as long as they can knowing it’s collapse is theirs as well but at some point it must all fall apart.
as for the gold/silver basis that may be the canary in the coal mine. but we are not quite there yet. Once the basis goes negative and the manipulators can’t correct it then gold goes parabolic and the only stopping it is a new gold backed currency or possibly a gold backed dollar at about $10k-40k per ounce. The gold card will be the only trick left to play to try and stabilize things. Places like Mexico, Peru and Argentina and even China will probably monetize silver to stabilize their economies. Russia and the gulf states will back their money with gold. Sorry China but you tied your horse to the US consumer economy and your idle toy factories will not feed your people unless they want to eat melamine.
Things ARE deteriorating quickly! Yikes!
Full oil tankers parked at sea…waiting for prices to improve.
Russia closing the natgas valves on the Europeans.
Daily double digit percentage moves in crude,gold and silver.
Widespread corporate earnings collapses.
FDIC selling aquired failed bank MBS’s for pennies on the dollar with a “profit sharing” caveat.
Daily news of more huge layoffs.
Tax receipts neccessary to provide local services coming up short.
But hey, the SMARTEST PEOPLE IN THE WORLD are telling us we should return to growth in the second half of ‘09. We’re so screwed.
SRS - A change of topic: India growth story loses its sheen.
We have an intermediate dead end for India as an Enron sized fraud is unleashed for Satyam Computers - one of the largest Indian IT outsourcing majors trading on the NASDAQ. Bombay Stock Exchange (BSE Sensex) crashed by ~7% as the company crashed by ~80%.
Foreign Investors banking on the India growth story are shell-shocked and that is an understatement.
http://www.nytimes.com/2009/01/08/business/worldbusiness/08satyam.html
forwill
“Those smartest people” that are telling you about growth despite all the gloom surrounding us know of the Fed’s massive printing exercises. You have a massive deleveraging, massive asset deflation and a gargantuan money printing going on simultaneously. At some point these counter-trends would converge - Fed policy shows effects after a lag.
And whoever did tell you about growth should have used the term “inflationary boom” so that you don’t confuse it with prosperity.
Guys & fellow doomsters
I would advise you to subscribe to the “Pascal’s wager” when you confront an end of the world argument. Pascal argued that it makes sense that you believe in God because if you are right you go to heaven; otherwise you are dead anyway. If you take the opposite view of the “End of the world” scenario your investments would prosper in case of a recovery; otherwise you are already screwed.
Subscribing to a view that there would be famines, food shortages while the party slips into a bad dream is a NOT. You would be ruining whatever is left on the table and you won’t be able to change a thing.
Take precautions, buy the metals. If you feel it strongly, invest in farmland and return to a much simpler lifestyle. But don’t spread the word around that the end of the world is near. You would never know and even if you did it won’t matter.
Re: Commodity Index Balancing - http://www.ritholtz.com/blog/2009/01/here-comes-the-commodity-index-rebalancing/
Even without a tin-foil hat this reeks like:
- The big short gets rid of a huge amount of shorts in Au and Ag in a very cheap manner.
- The path is cleared to a higher Au&Ag price.
- The price will be manipulated upwards by the “big money”.
- F** the investers in the index fonts.
As an investor in such a font I would feel cheated. The whole concept of such fonts may be abused too easily to defraud the investors. Why investors fall to such vehicles is beyond me.
Keseri:
OK, I apologise to everyone for laying that load on you, unexpectedly and uninvited.
However, if you think about it, Pascal’s position is morally and intellectually indefensible.
Would you really rather have some vague but comfortable hopes for the future, or a realistic assessment of what the consequences of past and present energetic and agricultural practices and choices are likely to be?
Perhaps we could direct our future energies towards thinking about what to do, personally, about the looming consequences.
We could start with trying to figure out how we and our extended families and friends could be survivors, just in case forewarned might prepare us to be forearmed.
Maybe there are clues in the basis and potential for backwardation in silver and gold.
Let’s focus on that possibility.
I’m hoarding toilet paper. Dollars here in Australia are plastic, so totally useless
Larry
I had taken recourse to Pascal to affirm the faith and concentrate on what all good & moral is left around us. My position doesn’t mean that we have be cushy about things or remain in a dreamy state about the future. If so, I wouldn’t have said - buy the metals.
My friend, I am not Wall Street advising anybody on buying stocks after 6 months. All that I have said is the Fed’s enormous money printing would have it effect in due course of time and if none of the banks/institutions fail we might as well see bottoms to markets. Is that such an untenable/indigestible position? And if this scenario does play out, where is the need to feel “gloom doom”. On the contrary, if the gloom doom script does play out then no amount of preparation - guns, gold, toilet paper will help you. Humans just aren’t cut out to deal with Armageddon. so, why at all should we lose our sleep on it?
Larry ……I can see job losses. People getting fired leaves such a bad taste. One man gets fired and a hundred around become disillusioned. Discontent is pathetically widespread, nay global. And it is going to worsen. We will probably see 10 million additional job losses in the US of A in 2009. But you have to appreciate one thing - classic bottoms come out of such blood-letting situations.
keseri,
Let me repeat myself and Jim Willie…..this is a DISINTEGRATION…not a bottom. Howard Davidowitz, was on CNBC today talking about the Retailers. He is a PIECE OF WORK when it comes to telling the truth. He told Dylan Ratigan that of the 21 retailers he lists, 18 of them will be in LIQUIDATION or BANKRUPTCY by the end of 2009. He says the number 2 largest Commercial Mall Leaser, is basically Bankrupt. Davidowitz told Ratigan that by the end of 2009 early 2010, MALLS are going to be EMPTY. You can see the interview here:
http://www.cnbc.com/id/15840232?video=989836522&play=1
This is SERIOUS STUFF my friend. We have to stop thinking about RECESSION, DEPRESSION or BOTTOMS. Time to think about saving ones SKIN.
GOLD, SILVER, GUNS, and BULK FOOD will be some of the best investments.
More Feds off their meds.
Tonight it was Boston Federal Reserve Bank President Eric Rosengren.
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20090108&id=9499795
SRS
Please clarify how “gold, silver, guns and bulk food will be some of the best investments” during your “disintegration” ? Isn’t ‘investment during a disintegration’ an oxymoron - a contradiction in terms?
“Isn?t ?investment during a disintegration? an oxymoron - a contradiction in terms?”
No, because you will have invested in your future survival. Disintegration means ordinary means of life will not be working. The money you held onto will be worthless if you cannot provide the basics for your family. I hope 1 year of stored food will get me through, I am not sure. One thing I am sure of is this whole thing will blow apart some time this year.
Gold/Silver will be the only form of wealth left and for which to rebuild a new way of life, given the fact you do survive.
Below is some anti-doom propaganda from Robert Higgs of Mises Institute:
http://mises.org/story/3288
Andras
I agree. If deflation, depression & disintegration do raise their cloak & dagger, they should appear in the money supply numbers. All of it seems to be government propaganda to cream the big banks. The discrimination is pathetic because they have got trillions & trillions of the green toilet paper for the banks but only $17 b for the auto industry. Now, don’t get me wrong - I am no champion of bailout packages. But there should be some minimum guiding principles to lead your policy.
May I also add that people like Mish & Roubini are doing their bit to spread the word. These people who have been gifted with enormous analytical capabilities have fallen, nay created the propaganda unwittingly.
Guys… as long as the motor of the credit engine whirs …rrrrrrrrrrr….rrrrrr you have proof of the functioning machine. Don’t believe the mechanic who tells you that the vehicle needs urgent repair. And also the mob of urchins who depend on the mechanic for a few crumbs here and there.
When you have socialism, you have inflation - rampant socialism means rampant inflation. Venezuela is the latest victim with a 30% rate of inflation.
http://news.yahoo.com/s/ap/20090110/ap_on_bi_ge/lt_venezuela_economy
Finally the Warren Buffets & Bill gates’ of the world are turning to gold
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4177766/Merrill-Lynch-says-rich-turning-to-gold-bars-for-safety.html
Merrill Lynch says rich turning to gold bars for safety
By Ambrose Evans-Pritchard
Last Updated: 10:32AM GMT 09 Jan 2009
Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or “paper” proxies.Gary Dugan, the chief investment officer for the US bank, said there has been a remarkable change in sentiment. “People are genuinely worried about what the world is going to look like in 2009. It is amazing how many clients want physical gold, not ETFs,” he said, referring to exchange trade funds listed in London, New York, and other bourses.
“They are so worried they want a portable asset in their house. I never thought I would be getting calls from clients saying they want a box of krugerrands,” he said.
Merrill predicted that gold would soon blast through its all time-high of $1,030 an ounce, and would hit $1,150 by June.
The metal should do well whatever happens. If deflation sets in and rocks the economic system it will serve as a safe-haven, but if massive monetary stimulus gains traction and sets off inflation once again it will also come into its own as a store of value. “It’s win-win either way,” said Mr Dugan.
He added that deflation may prove the greater risk in coming months. “It’s very difficult to get the deflation psychology out of the human brain once prices start falling. People stop buying things because they think it will be cheaper if they wait.”
Merrill expects global inflation to hover near zero, with rates of minus 1pc in the industrial economies. This means that yields on AAA sovereign bonds now at 3pc will offer a real return of 4pc a year, which is stellar in this grim climate. “Don’t start selling your government bonds,” Mr Dugan said, dismissing talk of a bond bubble as misguided.
He warned that the eurozone was likely to come under strain this year as slump deepens. “There is going to be friction as governments in the south start talking politically about coming out of the euro.
I don’t see the tensions in Greece as a one-off. It is a sign of social strain in countries that have lost competitiveness.”
Want to know what the major investment strategy of the bond leech is, you wan’t to hear from the horse’s mouth. Presenting ….
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/IO+Gross+Jan+09+Andrew+Mellon+vs+Bailout+Nation.htm
Investment Outlook
Bill Gross | January 2009
Andrew Mellon vs. Bailout Nation
Excerpts ….
” PIMCO?s view is simple: shake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond. Anticipate, then buy what they buy, only do it first: agency-backed mortgages, bank preferred stocks, and senior bank debt; Aaa asset-backed securities such as credit card, student loan, and auto receivables. These have been well-advertised PIMCO strategies over the past 6 months but there are others in clear sight.”
– ————————————-
The above strategies fall under the category of
1) Beat others to meet the toilet paper.
2) Leave a gastronomic trail so that others could collect your used toilet paper shreds.
These guys are so much in bed with the guvment, I wonder if they aren’t HIV infested. ……”Partnering with the govt”…bullshit. Gross Bull from PIMP CO is the terminology.
Keseri,
This is a glorious appraisal of Ayn Rand from The Wall Street Journal of all places:
http://online.wsj.com/article/SB123146363567166677.html
It verifies all your points. There is nothing new, those who does not know history are doomed to repeat it. And we all suffer.
Andras
What was Wall street’s typical advise upto 2007 : 80% stocks & 20% bonds ? Or is it 60-40 ? And their advise on gold : it is in bubble at $600.
Now, they must have reversed their position: 20% stocks & 80% bonds. Why? Because deflation, doom & disintegration are coming. And gold would go down in deflation to $500 - $600. They no longer use the term “bubble” for gold. Suddenly, they have discovered religion or what?
Meanwhile, their best clients know what to do. Only a matter of time when the average fund managers wake up. That would be the last nail in the coffin of the bond leeches.
Keseri,
Exactly. (though I have a little problem: TIMING!)
Keynes, the grand master of the idiots who founded “The more you spend the richer you are” religion could not do it without using a few universal truth. Among them are the “in long term we are all dead” is the most known. However, I think what applies to us is the “Even if you are right the market can move the wrong way longer than your liquidity lasts”.
And that is my problem with the doomsayers. They are right, they were right ten, twenty, fifty years ago. I knew it and still could not use it. They can pile up and bunker down and then their stocks deplete just before the crash if their timing is wrong. The same is true with the bond leeches. We know from the beginning what the end will be. But when?
The Yen carry trade lasted for decades. Can’t the Dollar carry trade last for at least a few years? I know the Chinese, the Arabs, the Russians, the Europeans …. Who knows what is still in the FED’s bag? Do you remember the seventies, the nineties? We thought then too that “this is it”. And then came all these bubbles. We were taught the very world bubble since! They are the wizards of manipulations, they have all the power to force this on us. There is only one thing on our side, knowledge. I don’t know about you, you might be a billioner though even them are not safe any longer. But for me, timing is crucial with my (very) limited resources. I need signals, indicators, not really statistical ones but rather the type of political and financial to weather the storm. The reason we are here at this site.
Well said Andras, and thank you for speaking out for me and a lot of us here on this site. I need knowledge, I also don’t have millions and I just want to seek security and well being through this crisis… I don’t know about everyone here but I’m freaking out here!! I need signals so one can plan accordingly! THANK YOU ALL
Professor Fekete has an article on Goldseek. He seems, at last, to have made peace with Mr. Sprott. The sign of true greatness!
http://news.goldseek.com/GoldSeek/1231725600.php
My main reason to invest in silver is that I am convinced that silver will become some kind of money again. Probably not by law, but by fact. Hence I am not very interested in the whole basis ans backwardation stuff and am slightly disappointed about Toms postings (or lack thereof) during the last months. The data on the silveraxis website hasn’t been updated for four months now.
I would like to hear from other countries whether people pile up silver coins or if they focus on gold because it is much easier to handle.
Here in Germany the dealers have almost stopped to offer eagles and maples because the prices are too high. Even the austrian philharmoniker is short on supply. Only mexican libertads, australian coins and the newly invented cook islands “coin bars” are available at acceptable rates.
Torsten,
Are you observing large price differences on silver coins due to their seignorage in Germany? Could you check the gold coins? Fekete, in the above mentioned paper cites sources that claim that nominations start to go to irrelevance for gold, only weight and purity counts (as should does for money).
May I ask our international readership to check and report back on this? I guess even on-line prices would be OK as the fundamentals will not change with the fluctuation. Many thanks in advance for cooperation!!
Discreetsiverbug,
London Banker gave on his blog some time ago an explanation for the dollar strength.
http://londonbanker.blogspot.com/search?updated-max=2008-11-28T04%3A32%3A00-08%3A00&max-results=7
Gunther
andras,
if “seignorage” means “origine/producer”, there are still enormous differences.
Prices (in euro, incl. 19% VAT) from one dealer in Germany:
Andorra Eagle (999) 11,65
Koala 13,84
Kookaburra 15,82 (sic)
Panda 14,15
I’ve checked 3 German internet dealers: Maples, Philharm. and Silver Eagles not available at the moment.
andras,
with respect to the gold coins, there are only negligible differences - as it used to be for a long time.
andras
seignorage isn’t a factor here, even coins without nominal value like krugerrand and libertad have the same prices. Gold coins are available without restrictions, but the spreads to the spot price get bigger and bigger. You can’t get gold coins with a spread under 8% now.
Silver trades at spreads between 30 and 60% for bullion coins. We have a nasty 7% sales tax on silver coins, but even without that tax the spreads are ridiculous.
I agree with Andras and showmetheway above. This blog has become irrelevant, as is the issue of backwardization (or so it seems), much like Medieval discussions of how many angels could dance on a pin. Today, gold and silver are getting slammed. I would like to see an intelligent and informed discussion of apparent reasons for this. My resources are also limited. Is this where I should be? Not much here to provide guidance, long term or short term.
Kondor, I don’t like the doom-related discussions either. It almost reached the point at which claims like “My gun cache is bigger than yours” and “My bunker is larger than yours” are made. I suggest that you discuss the options you see in dealing with the crisis and the aims you would pursue if you were in the position Bernenke or Paulson is.
Regarding the current Au/Ag development I only can guess some factors which influence it:
- The IMF has announced it needs money which probably means that it will need to sell a good amount of gold (around 150 billion $$).
- The $-index raises again.
- The re-balancing of the index fund releases quite an amount of gold long positions.
These factors may be sufficient to explain the movements of today but I doubt it. I smell another attack of the big short(s) which use the sentiment caused by these factors as a basis to depress the price of the PMS quite a bit.
I think BW is mostly irrelevant as the manipulators will squash it down as soon as it appears. If it does persit then watchout. Meanwhile whenever the market s tank and the $ rises PMs go down with it as we are seeing today.
as for the glom and doomwe are in a downward economic spiral that will continue. there is nothing in the cards to change that especially the stimuli being proposed by the new boss(same as the old boss) perhaps a bit more socialist. Unemployment will continue to grow, public money keeps going into black holes and if any shock to the system happens well….
There is no place to hide in the investment world. Cash and PM are your best bet unless you are a very nimble and astute trader with titanium balls and are not afraid to go short whatever. the only new bets I am making at this time is to short the long bond (buy TBT). Otherwise it’s hold on to my PM and maybe buy and sell a little on peaks and dips.
the days of making easy money on investing are over. Be thankful for what you have and hold on to it for dear life- a few survival skills wouldn’t hurt either.
DiscreetSilverBug, it appears you are right about today; along with Rob. The $ rose sharply, but that alone should not have resulted in the precipitous pm drop. As Rob says, the manipulators use any excuse to attack the pms. Did you see 60 Minutes last night? A good case was made that the oil market is rigged and/or manipulated, a process that was initiated by Enron and approved by the regulators. Just as Ted Butler has averred regarding the pm market for, lo, these many years. Days after we are widely told by Barrons and other commentators that people are buying gold for safety, its price drops through the floor. It’s all rigged.
Well gentleman this maybe your reason for golds drop today along with silver. Read Butler’s commentart today, this was probably expected. Gold may very well drop to $720 if the shorthttp://www.investmentrarities.com/s have there way.
There are opportunities out there if you’re not already all-in. As far as the SLV ETF goes, I missed a good opportunity to sell a portion of my holdings near $11.60 and buy bullion at $10.60+premium. Barely missed my limit sell order. Looks like silver is finding strong support at 10.50 and strong resistance at 11.60. Making small trades I hope to divest myself of the ETF and go all bullion over the next few months.
The bullion premiums are slowly coming down and more products are available.
I bought some SLW and TC in November and placed trailing stops on them at 60% gains. Made some good returns plus I now own 400 shares of SLW at no cost.IMHO trading the swings in the smaller oversold resource stocks may be a profitable plan for three or four months.
Folks,
You’re right….all this DOOM and GLOOM stuff is getting old…..its for the BIRDS. Everything is going to be just fine….this is just a SOFT PATCH we are going through. Just make sure you are DIVERSIFIED in stuff….and things should turn out okay.
How’s that? Everyone feel better??
HAHAHAHAHHAHA!
I bought a bunch of freeze dried food yesterday…hope for the best and plan for the worst.
Thank you SRS!!
Krischan & Torsten,
I guess I have used the word seignorage a bit too loose but you knew what I meant.
I can’t help but am still happy with low (paper) prices. It verifies what SRS just told us besides I still want to buy and not to sell (for a long time). Separation of metal and paper prices are also welcome. This is the growing pain of Money!
Thanks for the local prices.
This is an interesting article from Casey Research’s Ed Gallant elaborating on Bud Conrad’s calculations that the budget deficit can easily reach $3Trillion:
http://caseyresearch.com/drpRoom.php?e=true
I guess I will not have a long time to buy cheap gold.
For what it is worth… I have been trading since the 70’s. I remember my station C commodity trading platform costing $1300 a month thirty years ago. Trading is hard. For most, impossible. The best strategy is to pick a spot or trend and stay there. The best spot or trend has been gold and silver. Gold went from $250 in 2001 to $1030 in Sunday night trading in March 2008. Four hundred percent run.
Silver did 500 percent. This move was probably wave one of a elliott sequence. we have been consolidating in wave two since March of last year. Corrections take both price and time and we have satisfied both. We are all waiting for the next wave three up from here. Nobody knows when. We all hope soon. The important thing to remember is to stay in your spot and not be moved by some well written story or guru telling you what is going to happen today.
Unlike 1980 when gold hit 842, I was there and never saw it, gold has consolidated in a high level consolidation and we are building a base for a move much higher. Think of all the money and credit created since 1980 and take that multiple times todays price and you have a very high number.
I disagree with Tom about ETF’s. I own the real thing and sleep better for it. They are just too easy to buy, to sell and to confiscate. Remember that most if not all the gold in fort Knox is coin gold. 90 percent gold and 10 percent copper melted down from all the confiscated gold coins in circulation that were confiscated in Roosevelts executive order. I agree with Jim Sinclair that margin will kill you. The nice thing about owning the real thing is you can’t margin it and it is inconvenient to sell. I do own gold and silver stocks and if they make me money, great. You can make alot of money and still lose. More on that later.
Guys
What is your take on Platinum. It is rarer than gold by an 30 times (source : Wiki) while it trades at the same price almost. Is gold overvalued or is Pt undervalued?
If all the gold in the world is 150,000 tons we have only 5000 tons of Pt. As far as the rarity, divisibilty, non-corrosivity etc is concerned for it to act as money, Pt has it better. So why is Pt ignored by the “gold is money” crowd.
there is not enough platinum for it to be used as money. It is an industrial metal to be used rather than stored. Doesn’t mean it isn’t a good investment as are all the metals but gold and silver both have monetary components that platinum and the other PGM don’t.
Regarding Fekete’s “open the mint to gold” article just dig this.
http://www.commodityonline.com/news/Gold-buying-is-a-rage-in-Indias-post-offices-14058-3-1.html
Gold buying is a rage in India’s post offices
2009-01-13 05:40:00
“People are lining up in front of post offices in India’s rural areas to buy free gold coins announced by India Post. Buoyed by the “very good response” to its scheme for selling 99.99 percent purity gold, state-owned India Post Monday launched its Makar Sankranti offer of half gram of gold free with every 10 grams purchased.”
“The offer, valid till Jan 21, will be available at 145 post offices in the eight states of Andhra Pradesh, Delhi, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Punjab and Tamil Nadu, an official statement said.”
“The India Post offers gold coins in combinations of 0.5 gm, 1 gm, 5 gm, and 8 gm, the statement added.”
“Makar Sankranti, which Hindus consider one of the most auspicious days, is celebrated in most parts of the country with great devotion, fervor and gaiety.”
“Tens of thousands of people take a dip in places like Ganga Sagar in West Bengal and Allahabad in Uttar Pradesh and pray to the Sun god.”
“India Post, in association with World Gold Council and Reliance Money, in October 2008 ventured into the sale of branded gold coins of 99.99% purity, which was hitherto being undertaken by leading public sector undertakings and private sector banks.”
“The scheme was initially limited to 100 post offices across the Delhi, Gujarat, Maharashtra, Tamil Nadu postal circles and in November 2008 was extended to Andhra Pradesh, Karnataka, Madhya Pradesh and Punjab.”
“India Post has been overwhelmed with the very good response from the public to this new initiative, especially from government servants and small investors,” the statement said, adding that the postal department “is seeking to take the gold coins to rural post offices at the earliest so that the benefit goes to the common man.”
“Small investors are buying gold coins from post offices for two obvious reasons. First, the gold coin prices are competitive and economical compared to the offers from other suppliers including banks. Second, post offices are focusing on the low-end denominations, thus making them more accessible,” the statement pointed out.
“Gold is the latest addition to a range of retail activity that India Post has taken up.”
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Gold is selling like hot cakes at almost no premium by the Indian post Office. Want more proof?
Gold or Silver or Platinum? What to buy? You buy what most people will want. After all you must have an exit strategy. Otherwise someone else will dig up or find your loot after your dead and you will make their day. I personally expect to sell my stuff to Uncle Sam when the price is right but that may not be everyones strategy. At the top in Gold in January 1980 which lasted only moments what most people wanted was one ounce gold coins. If you brought in a ten ounce or god forbid a thirty three or one hundred ounce bar you did not receive full value if you got a sale at all. If you believe as I do that the price of Gold will reflect all the money and credit that has been created since the last top in 1980 than I would argue that most will not be able to afford a one ounce Gold coin but will instead gladly pay several hundred dollars for a silver eagle minted by the US Mint.
You will pay a premium for the eagle but that premium will later pay for itself when you offer your wares against some of the pretenders like the privately offered silver rounds made by Jason Hommell or others. I reject
the doom and gloom offered by some. Doom and gloom has been a mainstay through out time offering scary stories with breathless delivery riveting readers and listeners alike of every generation. We are still here.
The world governments will inflate our way out of this crisis. They will be successful. We will make some money in the process or at least preserve our wealth. Try and trade some of your fake fiat money for the real thing while prices are good. Even if Gold or Silver goes down in price so what. That would mean that everything else has gone down more.
Folks,
Yeah…..I see the writing on the wall. We have a great deal of bloggers here that have a SOUR TASTE in their mouth about DOOM and GLOOM….so we will not talk about it. Shall we? Let’s just do as most Americans…..and say, “DON’T GO THERE”?
Let’s just PAINT SMILEY FACES and GIVE PEACE SIGNS…DUDE…and don’t worry about tomorrow. Because, you never know if you are going to be RUN OVER BY A TRUCK walking out of a DINER. So why worry, its not GOOD for DIGESTION.
Keresi,
Here is my two cents on PLATINUM. Platinum falls in the same category in its rarity with SILVER compared to GOLD. Yes, it is true that Platinum is more rare than Gold, but its mining costs are similar. Platinum is being priced not by its RARITY, but by its cost of production.
Silver is has been mined at a ratio of 7.64 to 1 compared to gold in the years of 1900 -2003. Furthermore, the remaining reserves of Silver in the ground are 6.4 to 1 compared to gold. Many people look at this ratio and say the price of silver should be much higher. This might be true if we didn’t price gold and silver to their production cost.
You can find SILVER RATIOS here:
http://www.dani2989.com/gold/10aggb.html
If we priced Silver from its 103 year production ratio of 7.64 to 1 compared to Gold, Silver would be priced at $107 an ounce using today’s price of Gold at $820. If we priced Silver compared to remaining reserves in the ground compared to gold (6.4 to 1), the price of silver would be $128 an ounce. As you can see, the price of SILVER is not being valued according to its Production ratio or Reserve ratio to Gold.
Silver is priced to its COST OF PRODUCTION compared to GOLD….give or take. In 2004 the average cost of production for Silver was approx. $5.00 an ounce, while Gold was approx. $300 an ounce. The ratio between the cost of production in 2004 between Silver and Gold was 60 to 1. The average price of Silver in 2004 was $6.67 an ounce and Gold was $409.72 an ounce. If we divide the price of Gold and the price of Silver in 2004 we get a ratio of 61 to 1. Very close to the ratio of SILVER-GOLD cost of production.
Thus, cheap and abundant oil has allowed these two precious metals to be priced not at their RARITY in the ground as it was many years ago, but rather at their COST OF PRODUCTION. Back, centuries ago, most of the mining of GOLD and SILVER was done by Manual and Horse labor. The Ore bodies were more concentrated in veins and were found at a ratio of between 11-15 to 1. That is why Gold and Silver were priced between 11-15 to 1 historically. Today, a great deal of silver comes from a BY-PRODUCT of Base Metals due to a great deal of OPEN PIT MINING. This was not possible years ago.
This is another reason why Gold and Silver will do much better in the future. PEAK OIL will make the MINING OF OPEN PIT ORES much more expensive and less viable. When Oil goes into shortages, what will power the BIG EARTH MOVING MACHINES?? Batteries?? LOL…hardly.
Lastly, I am not saying the price of GOLD and SILVER will always be priced to its ratio in COST OF PRODUCTION. There are many factors that can change the price ratio in the future. Silver could rise in price ratio to gold as the MASSES wake up to the fact that the paper they have in their wallet is HIGH COST TOILET PAPER. Gold will become too expensive to purchase by the masses…..Silver will be the next best thing.
Got ya SILVER?
Tom……how about it?? Maybe you cold think about coming in here every once in a while and respond or at least do something about this GARBAGE ADVERTISING.
steve
cold = could ^
I suddenly have the urge to gamble.
Well, there goes the neighborhood.
I have mentioned the LBMA’s “A Guide to the London Bullion Market” as few times on this blog. It is now available on their website http://www.lbma.org.uk/docs/OTCguide20081117.pdf.
I would strongly recommend it to anyone who wants to increase their understanding of how the gold industry operates, particularly at the wholesale level. The sections on gold forwards, lease rates would also be of value to those interested in Professor Fekete’s work on the basis.
PS - I’m assuming someone manages to find this in the middle of all this advert crap.
I believe the advert crap is a crawling bot attack which can only be addressed by the web host. Tom can you take my Augmentor founding membership fee and apply it to this problem?
Hey you advertising robots: Online gaming is lame! Investing in silver is much more exciting!
SRS
It has become difficult to meander to your comments back & forth given these stupid bot ads.
Can you specify a time frame - approx (don’t mind if you are wrong by 5 years) that all these metals will be priced at their rarity and not at the cost of production?
seems Tom is napping on the wheel.
SRS
You would be so happy to see this.
http://nymag.com/news/features/all-new/53372/
The New Paranoia: Hedge-Funders Are Bullish on Gold, Guns, and Inflatable Lifeboats
Excerpts…..
“During the final months of 2008, as the financial markets imploded, talk on trading desks turned to food and water stockpiles, generators, guns, and high-speed inflatable boats. ?The system really was about six hours from failing,? says Gene Lange, a manager at a midtown hedge fund, referring to the week in September when Lehman went bust and AIG had to be bailed out. ?When you think about how close we were to the precipice, I don?t think it necessarily makes a guy crazy to prepare for the potential worst-case scenario.?”
“Preparations, in Lange?s case, include a storeroom in his basement in New Jersey stacked high with enough food, water, diapers, and other necessities to last his family six months; a biometric safe to hold his guns; and a 1985 ex-military Chevy K5 Blazer that runs on diesel and is currently being retrofitted for off-road travel. He has also entertained the idea of putting an inflatable speedboat in a storage unit on the West Side, so he could get off the island quickly, and is currently considering purchasing a remote farm where he could hunker down. ?If there?s a financial-system breakdown, it could take a year to reset the system, and in that time, what?s going to happen?? asks Lange. If New York turns into a scene out of I Am Legend, he wants to be ready.”"
…..”He?s not the only one. In his book Wealth, War, published last year, former Morgan Stanley chief global strategist Barton Biggs advised people to prepare for the possibility of a total breakdown of civil society. A senior analyst whose reports are read at hedge funds all over the city wrote just before Christmas that some of his clients are ?so bearish they?ve purchased firearms and safes and are stocking their pantries with soups and canned foods.?
——————————————-
Happy that some of the smart guys think like you? Visit the link for more of it.
The past few days there were some lurking doubts abt BW which I thought I should share.
I guess the interest rates do figure a lot on the basis. If Tom is believed, the interest rate is the major component of the carrying cost while other costs can be safely neglected. If that is so and if the spot can’t be precisely designated what is all the song & dance about this backwardation - interest rates being nearly zero?
Probably, what is simply happening is a “boring interest rate arbitrage” as Gartman puts it. What must be happening is the typical market process of undershoot/overshoot and not a genuine BW that spells doom for the fiat regime.
This BW would be convincing enough if the interest rates were at say 5%. That would have been something. Am I correct in believing that Fekete has jumped his gun early? Or am I being simply inconsistent given a bearish short term gold sentiment?
sad
Tom,
Let’s block the spam. Yuck!!
Bron:
I found your post.
Thanks for the URL: http://www.lbma.org.uk/docs/OTCguide20081117.pdf
May I suggest that we let the casinos have their way here and relocate the discussion one article futher down to “general update”.
:-((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((