WHY INFLATION IS HERE TO STAY

 

There's a lot of analysts who believe the 'inflation is transitory' theory.  "It has always come right back down,  It will this time too."  Especially with the Fed and governments tightenting,

Sounds reasonable.  And it would be too if the inflation were caused by rising demand.

But it's not.

Yes, politicians and political hack economists are all harping on the stimulus.

Like we haven't had 50 trillion dollars of stimulus over the last 20 years - just counting Federal deficit spending and Fed balance sheet expansion.  (If you add in all the rest of the stimulus that comes in the forms of other types of debt creation the number is astronomical.)

The fact is, for the first time in 50 years we are now experiencing Cost-push inflation or Supply Side inflation.  This means that no matter what you do to crush demand it will only have the slightest affect on the inflation.  In fact it makes it worse because it depresses real wages at the same time as real cost of living is soaring. 

How did we get here?

America First.  It sounds great.  More jobs for Americans!  (It didn't create any.)  And maybe it sounds good to you.  But moving jobs from overseas means higher labor costs, and sourcing inputs from America rather than the cheapest countries means higher input costs.  And slapping tarrifs on  anyone we don't like means higher costs on goods.  And of course everyone follows suit.  That's DEGLOBALIZATION.  Maybe politically you like the idea.  But is comes with massive INFLATION.  That's just an economic fact.  

Then with Deglobalization comes TRADE WARS, CURRENCY WARS and most disruptive of all HOT WAR as we have now between Russia and Ukraine withe the EU and the US as proxies for Ukraine, and China and Saudi Arabia and Iran as proxies for Russia.  This is massively infaltionary.  Food costs soar.  Energy costs soar.  And military spending is massively inflationary.

And there's nothing that domestic economic policy can do about it.

Nada.

But we can blame each other loudly and wrongly.  Or blame the immigrants.  That creates a lot of hatred.  It doesn't solve any problems.

So what to do?

You know what I think.  Nothing will change until we diagnose the problem properly.  And politically the chances of that happening are nil.

So protect yourself.  As economic conditions devolve, only real things - Hard Assets - will thrive.

REAL GOLD APPROACHES $2000 PER OUNCE (while paper gold (ie pretend gold) languishes) at $1670

Real Gold is selling at $1910 via Wire or $1984 via CC for 1 ounce US Gold Eagles as quoted  at Apmex, the largest US gold retailer, this morning.  You can probably find these a few dollars cheaper here and there - if you can find them.  The probelm is they are hard to source even at these high prices. 

 Why?  Because few holding real gold want to sell even at this high premium over paper/fake gold.  Precisely because the paper/fake price is controlled by the Fed via a few Bullion Banks, mainly J. P. Morgan Chase who flood the futures market with massive short contracts and then buy back once they've forced everyone else to sell.  It's free money for them.  They keep getting slap on the wrist fines from the SEC that amount t0 pennies on the billions they're making from this free money scheme, so why should they stop doing it?  

Yesterday the DXY (dollar index) tumbled - but paper gold went up and then was driven back down, causing many small traders to dump their positions in frustration.  Then magically over night the futures price soared 20 dollars so every small trader can struggle to get back in this morning - just in time for the Cartel Traders to take their money again.  If you don't believe me read the justice department article below:

https://www.justice.gov/opa/pr/former-jp-morgan-traders-convicted-fraud-attempted-price-manipulation-and-spoofing-multi-year     (market manipulation scheme)

Another reason to keep your money in REAL HARD ASSETS.

1 oz American Gold Eagle Coin BU (Random Year) $1,984.36 (via cc or paypal) $1910 (Via wire transfer)

PAPER GOLD PRICE: 

1,670.4

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COLLECTING ODD THINGS AS DISPLAY AND PRESERVATION OF WEALTH AND KNOWLEDGE HAS A LONG AND STORIED HISTORY

 

Wealthy Romans of course were known for their collections of oddities from around the world.  Weird animals were displayed - and eaten; odd skeletons, feathers, pelts, exotic plants and spices, and artifacts of all types were imported from the far reaches of the Empire and displayed as evidence of wealth and urbanity.  Shapur I was said to have displayed the captured  Roman Emperor Valerian in a cage in his parlor which he used as a footstool during dinner parties.  The ultimate Hard Asset.

But in the 16th century Wunderkammers or Cabinets of Curiosities became the possession de riguer for the wealthy who desired to impress and amaze their freinds.  These Cabinets which soon became entire rooms and suites of rooms were filled with antiques, antiquities, objets d'arts, fossils, stuffed animals, weapons, instruments of torture, astrolabs, clocks, automatons, and monseters such as two headed dogs, giant spiders, shrunken heads.  

Famous collections belonged to Rudolph II in Prague, Ferdinand II in Austria and Augustus III in Poland, as well as many wealthy merchants from Naples to Amsterdam many of whose collections can still be viewed in their homes, as well as wealthy Londoners - an entire floor of the British Museum is devoted to their collections.

From the Royal Collection London

Room of wonders 1559 Naples Italy

So collecting Hard Assets as a means of cultivating one's mind, developing one's sense of history and preserving one's wealth has a long and storied history.

It is only recently in this age of Financialization where the investors have been lulled into thinking that the safest and most reaonable way to store their wealth is in theoretical ownership of companies and debts as represented - first by pieces of paper - and then by elctronic chits.

But the problem with paper and electronic chits as that you own things in Theory.  And the ownership exists only as long as the Theory can be upheld by force of arms that protects the Legal System that gurantees the Theory.  

We are living in a period when that Legal System is being challenged every day by the very Politicians who are supposed to defend it.  The Guardians of the Legal System are telling us the System if Corrupt.

It doesn't matter if they're right or wrong.  The longer and louder they proclaim it, the surer it is that it won't be able to protect your paper and electronic chits.

Only 25 % of the population has confidence in the supreme court and only 7 percent has confidence in Congress - the legislative body that makes our laws!

How long before lack of confidence in our laws leads to a destruction of value of Theoretical Wealth upheld by those laws?

But Real Things in your possession are Real Things in your possession.  

The hard asset market: The mystery of medallions

 

Medallion of Alexander the Great C 215 AD

Alexander the Great traveled with engravers who would immortalize his accomplishments on gems and medallions of gold and silver.  The Roman Emperperors commemorated their accomplishments on medallions in gold, silver, and bronze.  And many of them collected medallions of other emperors and of famous Greek Kings.

The Renaissance princes collected medallions of the Romans and the Greeks and then had medallions struck to commemorate their own acheivements by great Renaissance artists.

In the early seventeenth century in Prague, Jewish goldsmiths created a series of large gold medallions portraying some of history's great Monarchs (so called Judenmedailles) which became very popular collector items amongst the developing rich merchant class.

The Kings and Queens of England collected medallions of the Greeks and Romans and the Byzantine Emperors as well as Renaissance medallions -  and then commissioned current artists to strike medallions of their own.  Queen Anne commioned Isaac Newton to curate a series of medallions commemorating her achievements and Newton himself designed some of these medallions.

In the eigteenth century Swiss Engraver Jules Dassier engraved a complete series of British Monarchs in bronze - a more affordable metal - wich became a popular collecting item for an even greater spectrum of middle class collector.

Napoleon commissioned Vivant Denon to curate a series of medallions to commemorate his achievements and Denon hired a stable of some of the periods great artists to both design and engrave these medallions.  These were made in bronze for general consumption, in silver for the wealthy and a very few of each medal were struck in gold for the Emperor and his closest circle.

In fact, the great cabinets of Europe were devoted mostly to medallions.  Coins of antiquity were of course included, but medallions comprised the greater part of the famed cabinets as they tended to be larger, more elaborate, closely associated with events of note and often engraved by well known artists.

So how is it then that a rare silver 5 franc coin of Napoleon now sells at many times the price of a rare silver medal that is larger, more beautifully engraved and of considerable historical interest?

Ah, but that is the amazing opportunity that lies within the hard asset market for the informed inverster.

HARD ASSETS: THE CRITICALITY OF THE MARGINAL BUYER

 

In all hard asset markets there's an economic fact that the last item sold in a limited market is dependent on the "Criticality of the Marginal Buyer."  That means that last person to buy a limited item sets the price in the SHORT TERM.  In the Rare Coins and Medals market there are many items that because of grade, mintage, die, provenance, whatever are rare to the point that only one  may come to auction every year or two years or more.  When the hammer falls that is the price that everyone looks to as the market price for that item.

Yet that price is contingent on much more than the item itself.

It is contingent on the expertise and accesability of the auction house.

It is contingent on the Export laws  and currency barriers of the country in which it is auctioned.

And most of all, it is contingent on the prevailing economic global conditions.

Right now every country on earth is suffering from two terrible afflictions.  Massive Debt and Inflation.

The massive debt demands low rates and loose monetary conditions that encourage ever higher prices for hard assets.

The resulting inflation - that will not come down because of deglobalization - necessitates tighter monetary conditons.

Both can't exist at once.  

Japan has hit the wall because they are exercising yeild curve control to keep rates down which necessitates easy monetary policy and at the same time they need to support their currency (which is falling rapidly) by tightening monetray policy.  

What's a Central Bank to do?

Every country is to some degree in the same boat.

And there's nothing to do.  You can't fight inflation when suffering a debt overhang.

And you can't service a massive debt without keeping rates at a level that fuels inflation.

What does this mean for the Criticality of the Marginal Buyer?

It means that as monetary policies careens wildly from easy to tight to easy to tight and currencies fluctuate wildly as a result you are going to to get LAST ITEM BOUGHT prices that will be wildly differing as they reflect the careening monetary and currency positions of various countries at various moments.

So don't get caught up in a particular price influenced by the conditions at the moment that last piece was auctioned.  It may be temporarily lower or higher than seems reasonable.

But over time, the critical element is the massive global debt.  

Any central bank can make noise about beating inflation.  But ultimately any economy with massive debt will implode under a tight monetary regime.  

So over time liquidity must be ever greater to bail out imploding companies, banks, municipalities and ultimately central banks,

So over, time in hard times, hard assets must rise. 

THE DISCONNECT BETWEEN THE PAPER GOLD MARKET AND THE REAL GOLD MARKET IS AT RECORD LEVELS:

 

REAL GOLD: 1 oz American Gold Eagle Coin (Random Year)        As Low As: $1,825.67

paper gold: 1628.10

USD

−23.47(−1.42%)

MARKET OPEN (AS OF OCT 19, 21:06 UTC)

As  the paper gold price continues to plunge 

Now down to 1628 dollars per ounce

The price of an actual ounce of gold at the 

close of today's market fell to 1825 dollars 

Per OUnce as quoted at JM BUllion.

An ounce of Collector (100 soles from 1965

mintage 24,000 pieces) bULLION Fell TO 2207 

DOLLARS PER OUNCE (PER HERITAGE AUCTIONS)

Metal: Gold

Weight: 46.8071g
AGW: 1.3543oz
Melt Value: $2,207.51
Gold Spot: $1,630/oz (10-19-2022 4:42PM CT)

THE DISCONNECT BETWEEN THE PAPER MARKETS AND THE REAL MARKETS CONTINUES TO GROW.  THIS BEGS THE QUESTION OF WHAT HAPPENS WHEN SOMEONE ACTUALLY TRIES TO TAKE DELIVERY OF THE PRETEND GOLD THAT THE FUTURE'S MARKET CONTRACT CLAIMS TO REPRESENT?

IF YOU COULD BUY IT AT $1625 AND SELL IT FOR $1825 THAT WOULD BE A PRETTY GOOD DEAL.  ESPECIALLY FOR ALL THE CENTRAL BANKS THAT ARE AMASSING GOLD AT RECORD RATES - LIKE CHINA, RUSSIA, UAE, SAUDI ARABIA, INDONESIA, INDIA ETC.

OF COURSE EVERYONE KNOWS THE GOLD REPRESENTED BY THE US FUTURES CONTRACT - OR THE GOLD REPRESENTED BY THE SPOT PRICE SET AT THE LONDON BULLION MARKET - DOESN'T ACTUALLY EXIST, SO WHAT IN THE WORLD DOES THE THEORETICAL PRICE ACTUALLY MEAN IN TERMS OF PRICE DISCOVERY.

DISCOVERY OF WHAT?

IMAGINATION?

HARD ASSETS AND THE MYTH OF ASSET ALLOCATION

 

Financial Advisors will all sell you on the myth of Asset Allocation.  The idea is that you spread your investing with 60 percent in stocks and 40 percent in bonds, and within that across various subgroups: for bonds: munis, corporate, high yeild, governments.  In stocks, tech, high dividend stocks, consumer staples, consumer discretionary etc.  The idea is that over time this provides the most growth and the most safety.

It's all predicated on the idea that the Fed's true mandate is to support the risk markets.  And that has been true for the last 50 years.

It may still be true, but 50 years of supporting the risk markets by keeping real rates negative has fostered an inflationary storm that can only be controlled by Raising Rates.  

How can the Fed support the risk markets (lower rates and ease) and fight inflation (riase rates and tighten)?  They can't.  Obviously.

So now in order to keep some semblance of order in the global markets the central banks have all become engaged in Yeild Curve Control and Currency Intervention.

The more they intervene the more unstable and volatile the markets become.

How does Asset Allocation work under these conditions?  It doesn't because all financial assets - all electronic assets - are CORELLATED.

Investing in Financial Assetts is just dumping your money in a pool and hoping the water rises.

If the water sinks so do your assets.

Hard Asset Investing is truly UNCORELLATED.  

Risky?  The risk is in proportion to yourt personal expertise within the realm of a particulsar Hard Asset.  

The more the central banks intervene in the markets in the current circumstances the less stability there will be.  There will be wild swings in the risk markets as a particular intervention has a particular short term effect.  As Mohammed El Arian says: It's all band aids.  The problem is trying to conduct supposed "Free Market Capitalism" with every aspect of Money controlled by an unelected panel of State Endorsed Experts at State Endorsed Central Banks.   

It worked for a while.  It's not working anymore.  The global system is way to complex even for a smart guy like Jerome Powell.  Especially when his interests conflict with those of a smart Woman like Crhistine Lagarde and a really smart guy like Zhou Xiaochuan and they're all at logger heads fighting currency wars.

So do yourself a favor and take control of you finances.  Put your money in something you understand.  And something that will continue to exist when the electrical chord becomes unplugged.

weird stuff people like to collect is valuable at auction in today's hard asset market: (all prices realized at auction)

 

garbage pail kid card  $8000

disney pin 1971: $12,000

hot wheels beatik bandit $15,000

ancient Roman die: $18,000

 zippo lighter; $18,000

orignal levis 501 jeans; $60,000

coca cola "error' can $250,000

video game: 1.56 Million Dollars

Some recent auction prices of HIgh End Hard Assets:

 

• space flown medallion: 2 million dollars

• dinosuar bones: 3 million dollars
  
  
  

nobel peace prize from 2021: $ 100 million

rolex: 870,000

red wine 1971: $92k

• 
                    

                                                                                                               
 

r2 d2 from star wars 2.7 million

amazing spider man comic 3.7 million

brasher Doubloon 9.3 milllion dollars

Which Hard Asset is right for you?

 

Hard Asset investing will likely become the asset of choice going forwards into the new financial era.  

Paper has run its course cornered by massive debt on the one hand which necessitates low rates and massive inflation on the other which necessitates high rates.  Either we settle for stagflation or we opt for a deflationary depression.  

Or a new system of commodity backed currency will be developed.  

As Commodities become the financial asset of choice, Hard Assets will become the smart "Beta" invesments of the future. 

So how to start?  Pick something you know and understand and love.

If you're a dancer for example and know nothing of finance you probably know a lot about dance.  Dance posters.  Dance related art.  Ephemera related to important performances and legendary choreographers.  First edition dance photography books.  Etc etc.  It is Real Stuff that has Real Value.  Start your collection now.  It will be fun and it will preserve your wealth better than paper or elctronic chits that have no real value other than as gambling instruments.

If you love history, coins and historical medals are a natural.

If you love sports, there's a whole world of sports memorabilia that is already extremely well developed.

Same for Entertainment. And Toys.  And Products like coke cans.  old surgical kits, computer games, hot sauces, hair lockets, space rocks, fossils, etc etc.

If you love something even more arcane, you will probably be surprised to learn how many other people are also into it, and into collecting Real Things related to it.

If you don't believe me watch Antiques Road Show or Pawn Stars some time.  Or go to the Heritage Auctions site and see the vast panoply of oddities fetching fantastic auction sums.

It's a growing segment that certain Hedge Funds and Billionaires are already into.  But it's in its infancy and will only grow as the world is weaned off its fascination with Imaginary forms of Money.

WHEN WILL THE DOLLAR TOPPLE?

 

The dollar has been on an historic run straight up against all other currencies.  The reason being, of course because A) over the past 50 years the dollar has been the reserve currency due to the US prememinent financial and military might and B) while the Federal reserve has been tightening credit and raising rates with unprecedented speed, other central banks around the world have been more cautious in their tightening.  Interest rate diffentials and the perceived safety of the dollar has caused a rush of investors from around the Western World.

This has caused all commodities priced in US dollars to naturally decline.  As long as the Fed is tightening what can change this dynamic?

Quite a bit, actually.  Not immediately.  But inevitably.

A) the higher US interest rates climb, the stronger the dollar gets but the weaker the debt-laden US economy becomes.  Mortgage rates rise and housing falls. Home loans defaut. Car loans default.  Credit seizes up.  GDP contracts.  Zombie companies fail.  Marginal companies fail.  Unemployment mounts. Consumer spending contracts.  Banks that are on the hook for failing loans fail.

B) As rates climb, Debt service in the US becomes more and more onerous, while tax payments decrease.

C) The 90 trillion in unfunded US Transfer Payments (social security, medicaire) become harder and harder to fund, just as more and more boomers retire  

D) the 200 trillion in dollar denominated debt we've guaranteed around the world in the form of foreign aid is harder and harder for the foreign countries to pay off in their declining currencies and the US is on the hook for all defaults.

E) As credit inevitably seizes up here and around the world, global GDP commensurately declines.  A world where 2 percent is trend growth and inflation runs at 5-10 percent cannot tolerate a prolonged contraction.

And perhaps most important: CHINA, RUSSIA and much of commodity producing East and the Oil Producing middle east become less and less happy accepting unstable US dollars for their commodities.  

Yes, though the dollar is stronger it is commensurately less stable for all the reasons enumerated above.  So it is inevitable that a Commodity Backed Eastern currency will arise to challenge the dollar.  This is not a futuristic fantasy.  This is by all accounts CURRENTLY being devised by CHINA/RUSSIA and its sattelites.

The moment the dollar's rise loses momentum Gold and the entire Commodity Complex will regain domninance over the unstable Western Paper Regiem.

Count on it.