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Monday, July 15, 2019

GOLD AND THE COMPLACENCY BUBBLE




We are living through perhaps the greatest complacency bubble of all time. 

The vix, a measure of stock market volatility is at 12.  During the panic in 2008 it was at 60.

Yet debt levels - government, corporate and private are all higher than they were before the crash of 2008.  And they are currently exploding higher.

The wealth gap in this country - and around the world - is so serious that the vast middle class is going broke simply attempting to educate, feed and house and care for their children. 

We have an openly racist president and a political party that tacitly supports this open racism; who regularly demonize large swaths of the population; who separate children from parents of asylum seekers and keep the children in cages, because it plays well with their base.

And we have a global regime of deeply negative real rates that transfers money out of the pockets of middle class savers and into the pockets of wealthy speculators in the risk markets.

Sure, there is a certain amount of media concern for all these problems.  But overwhelmingly people seem to yawn and say "Sure it's sad but things could be a lot worse for me and most of my friends."

This spectacular bubble complacency will end like all bubbles.

The most interesting gauge of the end of the complacency bubble is the price of gold.

Gold is a hedge against instability. 

And though gold peaked after the crash of 2008 and the peaking of the vix, it never came back down to where it was before the last complacency bubble.  Defensive money was in gold early and held its position through the correction.   The price drifted downward as complacency rose.  But if you look at the chart below you see an interesting divergence beginning right now.



Image result for gold vs vix


The vix is still falling but gold is rising.  Markedly so.  Somebody out there is seeing the end to complacency and loading up before the bubble bursts.

These somebodies have names like Stanley Druckenmiller, Ray Dalio, Paul Tudor Jones and David Einhorn.  The paper gold market where these billionaire hedge fund managers load up, is quite thin compared to say the bond market or the stock market.  When are few billionaires - along with a few governments like those of Russia, Turkey, Poland and Hungary, start buying, it can move the markets.

But the general complacency has left most retail buyers completely out of this gold rise.  In fact, most media commentators believe this to be just another gold blip, that will surely deflate soon.

Maybe. 

But to me it looks like some very smart money is beginning to sense the end of the Complacency Bubble.

And when it bursts, gold will be a reliable measure of the instability sure to follow.

Thursday, June 20, 2019

WHY DOES GOLD HEDGE AGAINST INSTABILITY?


Many many people see and feel the profound instability in the global economy.

Even if you're part of the one percent - in which case you're personally stable, you probably understand the instability even if you can't feel it.

The structural problem is that the value of money is deteriorating at a terrifying clip as the cost of housing, food, clean water, health care, and education continue to spiral out of control all the while the Central Banks of the World keep real rates deeply negative thus providing a huge return on risk assets for the rich all the while destroying the value of the savings of the middle class and the poor.

This can never end.  The central banks can not raise rates because the bi-product of their rate policy is spiraling out of control debt.

Besides, they now see their mission as supporting the risk markets for the wealthy.

Thas is the definition of SOCIALISM FOR THE RICH.

It makes me laugh//cry when commentators decry the call for Socialsim.  What the hell system do they think a Central Bank represents?

But the question here is why is Gold a hedge against this instability.

The answer is that gold serves as an alternate currency the can not be printed/created at the will of a third party.  The supply is steady and limited.  And once in the possession of the private citizen it is totally under the control of that citizen.  It cannot be debased or devalued by decree.  It does not tarnish.  It can't be hacked.  It is traded in every market in the world and readily convertible into any and every currency.  It t leaves no electronic footprint.

And most important of all to stability - it has a 5000 year record of holding its value over time.  Try to think of something else with that track record.



Tuesday, June 18, 2019

What do Billionaire Traders Jeff Gundlach, Ray Dalio, Paul Tudor Jones, Stanley Druckenmiller and David Einhorn have in common?

What do Billionaire Traders Jeff Gundlach, Ray Dalio, Paul Tudor Jones, Stanley Druckenmiller and David Einhorn have in common?

If you guessed they are all long gold - as their favorite investment right now, you'd be correct.

Greenlight Capital CEO David Einhorn, In a letter to shareholders,  said he is using gold to hedge against “imprudent” global monetary and fiscal policies. Like Gundlach, he is concerned about US debt hitting new limits.
While speaking to Bloomberg on June 12, billionaire investor Paul Tudor Jones revealed that his favorite pick in the next 12–24 months is gold. He thinks that if gold hits $1,400 per ounce, it will quickly move to $1,700. After Donald Trump’s tarrif tweet on May 5, Stanley Druckenmiller dumped his other investments and piled into Treasuries, which he suggests along with gold in this environment.
These guys made their billions by being right in an environment where a very few wrong decisions will bankrupt you.  
But if you only understand one thing about gold understand this: GOLD IS A HEDGE AGAINST INSTABILITY.  It doesn't really rise or fall much in value,  It just falls out of favor when the global economy appears stable, and falls back into favor when the global economy is unstable.
The Global economy had never been more unstable.  Debt is exploding.  Real Rates are deeply negative.  Nominal rates are negative in much of the world and will be so here too soon.  Wealth Gaps are enormous and ever increasing..  And all these problems are accelerating.
BUT - HASN"T THIS BEEN THE CASE FOR THE LAST 40 years?
Yes it has.  Good point.  The difference now is that nobody is even giving lip service to trying to solve these problems.  Those in power are milking the system to get every last penny out of it before it collapses.  Those out of power who seek power are looking to tear it all down and start over. 
Most in the middle are just bewildered.
If your attitude is SO FAR SO GOOD - WHY WORRY - you're like the guy who jumped off the Empire State Building and said that as they passed the window on the 40th floor.
If you, like so many others, see instability, maybe hedge against it a bit with gold.

Wednesday, June 12, 2019

GOLD VERSUS BITCOIN





There is a current debate as to the relative merits of Gold versus Bitcoin as an alternate currency.  In fact, many serious analysts track the relative trading movement of these two vehicles and have noticed they tend to move inversely as one ore the other gains more popularity.

Yet, to me, this is a terribly confused debate.  Though both Gold and Bitcoin can be described as "alternate curencies,"  the similarities end there.

The whole point of Gold is that it is a currency that resides in the possession of the private citizen.  Not in a third party regulated exchange or facility.  You keep your gold where you will.  In this way you have total and direct control of this source of wealth.  This protects from any and all outside interference.  And because gold is perfectly inert and never degrades or tarnishes your source of wealth is perfectly stable and always within your control

Bitcoin is stored in virtual reality.  During a blackout Bitcoin ceases to exist.  Your wealth is gone.

Bitcoin can be and has been hacked.  Your wealth is gone.  And you have no recourse against hackers.  You can not defend yourself against them with force of arms, force of will, ingenuity.   It is completely out of your control. 

Bitcoin  is at the mercy of the integrity of a particular bitcoin exchange.  Unless you're a terrorist or a tax cheat then what's the point of putting your faith in some unknown exchange entity as opposed to putting your faith in the government currency?

They say Bitcoin has a finite supply - Unless the protocol is changed.  That's like buying a limited edition print numbered out of no more than 100 - unless the artist decides to do a new edition.  How naive can you be?

Finally Gold is eternal.  When you die you can leave your gold to your family.  When people who own Bitcoin die, unless the code has been passed on to others - which defeats the point of owning Bitcoin - the Bitcoin ceases to exist. 

Gold never ceases to exist.

Friday, June 7, 2019

COINS AND MEDALS: VALUE INVESTING VERSUS MOMENTUM TRADING


COINS AND MEDALS: VALUE INVESTING VERSUS MOMENTUM TRADING



As in any type of investing there are those who seek value and are happy to hold to such a time where the market realizes and rewards value.

Then there are those who seek to acquire items that are "hot" and turn them over as they are rising.

Most traders trade momentum.  Most traders eventually go broke. Some super financial traders like George Soros and Stanley Druckenmiller make billions.  This is the very rare exception.

In the world of Hard Assets there are also many traders with short term horizons who seek to flip assets.  Television infomercials are filled with them.

In the coin world, momentum trading most often has to do with Grades assigned by grading companies.  Trading on grades like all types of momentum trading is a good way to eventually go broke.

The discipline of investing, on the other hand has to do with identifying value and having the conviction of your vision and then holding until the market rewards you conviction.

In the financial world identifying value has to do with finding good honest management, competitive advantage for products that serve consumers need, and the ability of companies to produce products efficiently so that margins can support profits.

In Hard Assets identifying value has to do with finding assets that because of some Intrinsic Value will appeal to many consumers over long periods of time.

This leads to the question of What is Intriinsic Value?

In all Art two qualities are always appreciated above all others.  1) Beauty.  2)Historical Importance.

And then the third quality to take into account is State of Preservation.

Obviously State of Preservation is easiest to assess so for many unimaginative and uninformed art investors it becomes paramount.

Beauty is the toughest quality to assess for most because there are always sharp debates as to what constitutes beauty.  One thing is sure though: Beauty can only be fully appreciated in person as it will evoke emotion.  Photographs that accurately portray art created in other mediums rarely if ever convey the emotion evoked by the beauty of the object.

However, one thing to keep in mind is appreciation of Beauty can be learned.  Even if you don't react the way you'd hope to something others find beautiful you can learn to understand why something is beautiful in another culture or simply another intellectual milieu.  That doesn't mean you have to agree, but in developing your understanding and expanding your horizons you do yourself an enormous favor as an investor in Art.

Historical Importance usually has to do with A) the Events coincident to the artistic creation  and B) the Innovation associated to the Artistic Creation itself.  These are ideas that can be learned and appreciated by anyone.

For example Da Vinci created beautiful works of art.  But even if you happen not to be moved by them, nobody can dispute the importance of the fantastic Innovation of his artistic output in terms of the materials and how he manufactured and applied them, as well as the manner he applied them in terms of perspective, proportion and his advanced understanding of how things are constructed.  And no one can dispute the historical importance of his scientific discoveries and inventions that were conveyed in his art but transcended art.  Add to all this the fact that Da Vinci epitomised Humanism at the height of the Enlightenment and you have a figure of towering Historical Importance.

This is the art investing trifecta.

Bringing this all back to Coins and Medals.  My point is this: Educate yourself to understand the Histocial Importance of the the objects, and to appreciate their Beauty and you will be developing the tools for value investing.

Then buy what you like.


Tuesday, March 26, 2019

Gold and the debt bomb



Image result for debt bomb


Massive debt is probably gold best friend.

The Governemnt/Coroporate/household debt levels in our economy are now higher than they were when the economy crashed in 2008

Massive debt is only possible with a government policy of negative real rates.  The low/negative rates encourage, in fact, demand, a massive build up of debt.

That is the purpose.  Not to argue whether the debt is good or bad.  That's irrelevant.

The salient fact about the super low rates is that the massive debt ensures the rates must stay low forever, and the low rates ensure the build up of debt is perpetual.

That is a mathematically inviolate perpetual motion machine that stops only when the entire system collapses.

Inevitable (As the preposterous architect from matrix would say)

People have noticed the correlations between debt / rates/ gold price.

The truth is that isn't the debt or the rates per se that affect the gold price but the massive instability in the low rare / massive debt environment we are in that ensures the gold price must rise.

Because gold rises with instability.

Thursday, March 7, 2019

Why do some coin types suddenly disappear from the Market? Scarcity, Rarity in a Demand Driven market.



Scarcity, Rarity in a Demand Driven market.

The truth is that  all markets are essentially demand driven.

If everyone suddenly realized their I phone 37 was essentially exactly the same as their I phone 3 Apple profits would disappear.

If everyone suddenly realized commodities-trader turned "artist" Jeff Koons was essentially making fun of his own clients a Balloon Dog would suddenly have no value at all.
Image result for balloon dog auction price(rather than 55 million dollars.)Image result for balloon dog auction price

Demand for drugs is why no policy directed at curbing the supply of drugs is ever effective.

Demand for capital in a debt ridden economy is why Supply Side Economics is suddenly impotent.

The coin market is another Demand Driven market.  Take the "rare and valuable Mint State flowing hair large cent. "Only" 1200 1793 lots have been auctioned with the high hammer having gone at close to a million dollars.
1794 $1 B-1, BB-1, R.4, AU58 NGC. CAC
Now, in other areas of the coin market, say Ancients, or Medieval coinage, if any particular piece had come up for auction 1000 times, it would be considered the most common coin available, and even coins of excessive beauty, and historical interest would have trouble breaking the $5,000 dollar mark were they that common.

For example, a particularly nice mint state Daric of exceptional style, might have come up for auction 10 to 20 times, while run of the mill mint state daric probably has come up for auction 100-200 times (85 have been graded mint state or better - which seems like a tremendous amount in the current ancient coin market) Still, a Gem daric only hammered at $25,000 and nicest fines style mints state Darics only make slightly more that $15,000

Image result for mint state daric
This is because the Ancient and Medieval markets are tiny compared to the US market. But as demand shifts, coins and medals that were at one time readily available are suddenly impossible to find.

This is where supply comes in.  In very tight markets small shifts in demand can cause large price bumps, and pieces that once seemed available can disappear off the market

And though demand is shifting rapidly because of the advent of slabbed ancients, and because the Japanese have become very active in several ancient and world coin areas, the market is still relatively small.

The most difficult thing for a collector coming from US coins to get their head around, is how relatively tiny (compared to the US markets) these markets are - in many areas.

For example, about five years ago a horde of 20 shooting darics hit the ancient coin market.
Ancients:Greek, Ancients: PERSIA. Achaemenid Empire. Darius I - Xerxes I (ca.505-480 BC). AV daric (15mm, 8.34 gm).  ...MS graded examples sold for about 20,000 dollars.  For a year or two every major auction seemed to have one of these.  High end collectors knew they could pick one up if they really wanted one.  At that time 20 coins could have that effect on the Ancient Coin market.  These are gone.  It's been over 2 years since one in any grade has been auctioned.  More may be found.  Or maybe not.

I use Darics as examples because these were from 500 BCE to about 336 BCE the reserve currency of the Eastern Ancient world - while Athenian Owls and Kyzykian Staters were the reserve currency of the Western Ancient world.

As such, the Darics are easily the most common Ancient Gold pieces along with the Alexandrine Gold Staters that replaced them after Alexander the Great.

But the fact is there are many more MS 1793 Flowing Hair Dollars floating around than there are MS Darics.

There was a relatively large and recent horde of Darics which has still not been fully absorbed by the Ancient Coin Market.  But for new collectors, wait about 2-3 years and as the market grows and the horde is absorbed, my guess is that mint state Darics will become quite difficult to find at auction or in dealer inventories.

You can extend that logic to other areas of the Ancient Coin market that aren't nearly as plentiful.