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Saturday, June 25, 2022

Gold Seasonaility

 





This site does not offer market timing or specific investment advice.  I comment on general economic conditions and generally conclude that gold will protect you in the event that less than optimal conditions develope.  I believe we are in a period of horrendous conditions entirely because the US Government in collusion with the US Central Bank has now run 50 years worth of negative real rates with the resulting massive deficits.  FIFTY YEARS - starting in 1981 running right through to the present.  Now we've reached the conclusion: Massive inflation, low growth and a ghoulish army of zombie companies running on malinvestment fumes.  

Anyway, everyone who follows the economy knows that.  (except every US politician who blame everything on their political enemies thus making a solution impossible.) 

Gold as a result has been in a major uptrend, though it is a heavily controlled market.  Eventually it will be much more difficult for the Fed and the bullion bamks to control the gold price.  Everyone knows that too.

But meanwhile most years (not every year, but most) gold seems to follow a seasonal pattern.  It has something to do with China and India (and Asians and East Asians all over the world) buying bullion in preparation for the wedding and festival seasons where gold is gifted to the near and the dear, as has happened for thousands of years in the traditions of those people.  The gold season starts in earnest in September but gold tends to begin to run up in advance.  The chart above shows this tendency.

This it not investment advice.  This is jsut pointing out that historically the gold low for the yars occurs around the July 4th weekend.

It's often a good thing to know.

Tuesday, June 14, 2022

When will gold ever take off?

 


With inflation soaring and the market tanking, why doesn't gold take off?

Because it's not yet time.

Because the Fed is now raising rates and selling down its balance sheet.  M2 is dropping for the first time in 40 years.  The Fed is causing a contraction that will not stop until the Fed stops.  And as long is the economy contracts - so will everyting within the economy - except for very high end hard assets, because the very wealthy are so wealthy they are beyong the reach of the broad economy and they are still buying very high end hard assets.  Because they see what is coming.

What is coming?

It won't be long before the Fed's contracting grip crushes something.  It could be the broad market.  It could be an over levered too big to fail institution.  It could be some country's sovereign debt.  it could be a single derative contract so big and with so many counter party vulnerabilities it takes down a number of large players that all need to be bailed out.  It could be a lot of things.

But it will be something.  It always is when liquidity dries up.  And the Fed raising rates while tightening its own balance sbeet is the definition of liquidity drying up.

All in the face of a global supply side inflation shock.

The Fed tightening affect the demand side.  THe Fed is powerless over the supply side.

So when the Fed's tightening leads to the next crisis and Fed is forced to reverse - the massive supply side inflation will still be in effect, while a demand side deflation takes the broad economy into its vicelike grip.

This is not a prediction .  This is a description of what is happening and there is no policy prescription for it. What is will continue being.

And as the END GAME arrives, all the Fed will be able to do is exactly what the Japanese Central bank is doing: YEILD CURVE CONTROL.

That means printing unlimited money to purchase its own debt to keep rates from  blowing out.

Japan is there now.  We will all be there soon.

ANd when it happens Gold goes to the moon - and all paper and electronic money will frantically chase the only remaining real value that is HARD ASSETS.

Sunday, June 5, 2022

Hard Asset values increase in proportion to their specificity.

 





Take an ounce of gold. It is limited though more gold is being mined every day.  It's been in use as money for over 5000 years.  We know that for example a quarter of an ounce back in 330 BCE bought a cavalry officer his uniform.  That would have been a Gold Stater of Alexander.

Now the same quarter of an ounce is woth about 500 dollars.  That would probably by any cavalry officer a fine uniform even at today's inflated prices.

But the specific coin - the Gold Stater of Alexander in decent but worn condition it worth about $5000.  That specificity, ups ther value 10 times.  

Up the specificity a bit more and have that gold stater of ALecxander minted at the Memphis Egypt Mint under Ptolemy 1 and in decent condition it's worth closer to $10,000.

Up the specificty and make the condition gem mint,  Now it's worth $30,000

Up the specificty again and make the engraving on the Gold stater of Alecxander from the Memphis mint in gem mint condtion, paritcuralry beautiful and your coin might be worth $40,000

Undertanding specificity is what allows an investor to prosper in the Hard Asset Market.

Because as the specificity increases so does the Historical Interest and the Rarity.

ONLY HARD ASSETS ARE STABLE

 



What causes risk?  

Instability

What hedges risk?

Stability

What asset class is most stable?

Hard Assets.

Why?

Because hard assets are hard.  They exist in the real world.  They can not be hacked, recreated, unplugged, overproduced, and are extremely hard to copy in a way the would fool an expert.

Take an original copy of the Guttenberg Bible.  Sure you could make a forgery.  But that would be tough.  I don't think one has ever been made that fooled anybody for very long.  Guttenberg is dead so he won't be making any more.  There are 48 complete copies and the price has only gone up year after year.  I't been a while since one has sold but on the open market one would probably fetch around 40 million dollars.  I doubt in a hundred years it will be worth less.  You can look up the price one sold for 100 years ago.  It's public record.

Now, not everyone can afford a Guttenberg Bible.  But real things, Hard Assets, like Rare Books, Rare Coins, Rare Medals, Rare Paintings, Rare Historical Objects, Rare stones, Rare Gems, Rare Fossils, Rare wristwatches (I don't get that one, but so what, many people do.) Rare sports memorabilia.  ETC

Rare anything that is REAL.  This is what will hedge your risk in times of instability.  Becuase the price of these things are STABLE OVER TIME.

If you can't track the value over many decades, centuries, or preferably millenia, it is not stable.

If you can't lock it in vault and be sure it will be there even if all the plugs are pulled, it's not stable.

Sure can't miss blue chip stocks like RCA, TWA, TransLux and Mammoth Oil, are also tremendously stable investments.  None of them currently trade but at one time they were all can't miss.

You could have also bought something stupid instead of RCA in 1920, like an Ide Mar Denarius of Brutus.  It could have cost maybe a fifty dollars.  Now, in decent bit worn condition it's worth over $100,000.  Same for almost any important ancient coin.  In fact that would hold true back in 1829, or 1720, or 1520.  Try finding any stock - or bond - from 1520 or 1820 or 1920 that has value now.  It's tough to do.  You could have also bought a guttenberg bible in 1920 or 1820.  I don't know what it would have cost, but less than it's worth now.  It would be tough to say the same for any financial instrument.

Saturday, June 4, 2022

The Greateset Economy in History took Federal debt from 75 % to 100% of GDP




For those who look back nostalgically to the Trump years as the greatest economy in history and wonder where we went wrong: look at the chart above.  The greatest economy in history completely collapsed in 2018 and took 15 TRILLION DOLLARS OF BAILOUT MONEY between stimulus and Fed balance sheet expansion.  This took the federal deficit from 75 percenty fo GDP to 100 percent of GDP in two years!

Before the election Trump, (who had declared bankruptcy three times), also declared himself a master of debt and promised to do for the country what he did for himself.  And he delivered an orgy of debt.  

Now the Fed has not only to raise rates to combat the resulting inflation, but it must try to delever its own massive balance sheet: Quantitative Tightening, as the economy returns to sub 1 percent trend growth.  Where it was before Trump's orgy of debt.

Sound Impossible?  

It is.

Sooner, rather than later, the Fed will have to pause both in its rate hikes and in its balance sheet "normalization."

When it does it will be either because we've tipped into debt deflation that will require massive QE.

Or because the Fed gives up on fighting inflation for fear of looming debt defaltion as the economy slows.

Either way, you will need portfolio protection.

It doesn't have to be gold.  But I can't think of anything better.








Thursday, June 2, 2022

"When people care more about their causes than the institution, the institution is in jeapordy:" Ray Dalio - What does this mean for Gold?

 


We have reached a point where the Instituion of Deomcracy is standing in the way of certain political factions acheiving their goals.  The Trumpists on the right that control the Republican Party and the extreme Woke Greens on the left that are on the fringe of the Democratic Party, but do have some increasing role both questions the efficacy of the System.

Unfortunately whereas the Woke Greens want to reform the instituions Trumpists have declared war on the isntitutions.  They seem to believe the isntituions are filled with enemies that must by crushed.

These institutions include (but are not limited to) The Justice Department, the Elections Process, the FBI and the CIA, the Fed, and every political party that does not expressly worship Donald Trump.

Now this attack on the instituions that constitue Demcracy is vastly financially destabalizing.  Even if Demcracy were replaced with a Authoritarian Police State, the financial instability that would result is absolute.  Because nobody internationally will want to favor the US dollar for their financial contradcts.

Thus the dollart would collapse, interest rates would shoot sky high and economic actrivity would grind to a halt.

Now, this scenario does not have to occur.  Yet the trend towards this scenario just has to be considered to be plausible for the economic damage to the US financial system to occur and contracts previoussly written indollars to begin to be written in Euros, GBP, CHF, Yen, Rubles and Yuan.  This would be enough to send the dollars lower, rates higher in a system already marred by massive debt and persistant inflation,.

We are on the brink.  We live in a system that is under attack from within and evryone in the world can see it.

So why hasn't gold moved yet?

Because the Fed still has firm control over the risk markets.

But as soon as that control comes into question.  And you hear commentators wondering aloud if that is now on the horizon on Bloomberg, and Fox, and CNN and the BBC -  as soon as that happens we will be in the age of GOLD.

Ah, but it will,.


Friday, May 20, 2022

Politics, the economy and Gold

 



As the US becomes increasingly politicized and polarized the economy is inevitably effected.

A major issue that is often neglected is the fact that the United States Economy enjoys the global advantage that accrues to the world's reserve currency: the US Dollar.

For a country that has run massive deficits for over 50 years and has also run a massive current account deficit for nearly as long - the one thing that has kept inflation and interest rates relatively in check has been the dollar's reserve status.  Until recently.

Because so many global contracts settle in dollars: many natural resource contracts as well as many large financial contracts and most financial derivatives (a quadrillion dollar OTC market) every country has need of US dollars and every country carries dollars as part of their reserves so the bid on dollars has been high keeping the dollar interest rate low.

This entire construct is predicated on the stability of the US Justice system that will enforce the integrity of dollar dominated contracts.

Until recently this system has been the bedrock of US financial superiority.  Until recently.

The other contingency that has kept interest raters and inflation low is the fifty year movement towards globalization.  Until Recently, cheap labor, cheap production costs, competitive sourcing have all been a deflationary power.  Until recently.

Finally the third huge contingency that has floated the US advantage is the fact that Paul Volker raised rates to nearly 19 percent to crush the inflation of the 70's.  He was able to do so in part because of the total independence of the Fed combined with that fact that the US was a creditor nation with low debt.  So the high rates were not crippling.  For the last 50 years every increasingly politicized Fed Head has simply lowered rates to iron out economic problems.  Until rates hit ZERO.  Recently.

Now, all the things that kept the dollar in control and rates and inflation in check have reversed.

The world is deglobalizing. The US - and every other first world county - is a massive debtor nation. And the US justice system is under constant attack by the Trumpist wing of the Republican party which insists that the US Justice system is corrupt and can't be trusted.

Add to that massive supply chain disruptions from covid and a war in the world's largest grain and oil producing region and you have a perfect storm for inflation.

The very worst thing we could do as a nation under the circumstances is politicize the inflation problem.  It is not a political problem but the result of several 50 year trends violently reversing all at once.  

This creates massive instability.  To politicize the problem magnifies the instability.  

We are in the process of politicizing this problem.  And in doing so we will tear down faith in the last institutions where faith has held: the Justice System and the Fed.  This reaction in a massively polarized country will serve as the coffin nail that tips the country from a place where international businesses prefer to write their contracts in dollars to a place where international business decides that dollar denominated contracts no longer provide the necessary stability.

That will be crushing for the dollar.  But great for gold.