SOME RECORD COINS AND MEDAL OF 2023
The New Normal:
1) Stubborn Inflation. The deglobalized supply chains will take many years to reroute. The split between Russia/China India and Belt Road Iniative (including Turkey, the Stans, and much of Africa and South America and Saudi Arabia): which are actively dedollarizing will put massive inflationary pressure on the dollar. Sure, a good recession will bring down some prices on the demand side. But the supply side is something we can not affect except through dimplomacy, which is clearly a lost art to our highly beligerant political class.
2) Higher Interest Rates. We can not return to ZIRP without sending ourselves into hyperinflation. Higher Interest Rates - to the extant that we can tolerate them are here to stay.
3) Accelerating Debt. The debt in our system is so massive that only way we can service it is to create more debt. This is not only true for our government but much of our corporate financing is based on debt that is perpetually rolled over and never paid down. Private Equity is an entire industry based on this principle.
4) Slowing Economic Growth. As debt service becomes an ever larger slice of the economic pie, economic growth necessarily slows. Trend growth for the USA is currently just over 1 percent. The last time we got it up to near 3 percent for 2 quarters back in 2019 was by blowing an additional 3 trillion dollar hole in the deficit. Every time we try to increase deficit spending, future growth commensurately declines,
5) Exacerbating Geopolitical Stress. Whether it is fights with real enemies like Russia, Enemies of choice like China, or even picking fights with our allies like France and Germany, or ex-protectorates like Saudi Arabia, we are in an era of increasing Stress in the West. Even as our competitors in the East seem to be able to cooperate with each other at least in the trading of commodities. The US is commodity rich. But without global cooperation we can not drill enough, farm enough, mine enough to take care of our own needs. It's just an economic fact the we can't seem to get out heads around.
6) Exacerbating National Stress. This is highly inflationary, because it necessarily leads to malinvestment. We end up competing with ourselves to place resources where they are least needed and tend to do the most harm, fighting fantom wars against fantom greivances instead of fighting common enemies. This national sickness is getting worse by the second.
At some point as a nation we will come to our senses. But it doesn't seem like this will happen before things get bad enough that, as Churchill once observed, we begin to do the right things - after exhausting all other options.
Meanwile, if you want to survive this period you might start to get into assets that have no counterparty risk. That is to say: Hard Assets.
The unfolding banking instability (a crisis if your money is affected, a minor problem if it's other people's money) is showing the impossibility of the central banking quest to tame inflation. In the long run Higher Rates are intollerable in a high debt world.
The antidote for this is gold.
But at the same time another economic phenomenon is unfolding and this one is equally problematic for western economy and equally beneficial for gold: and that is the de-dollarization movement that flows unyeildingly from the the de-globalization movement - that unfortunately is even welcomed by the economically challenged in our own country!
Here are some headlines from this week:
Putin told Xi Russia's ready to switch to yuans in foreign trade
The Fed this last week loaned out 152 billion in emergency loans to banks at the discount window and another 148 billion to the FDIC to help Bail Out Venture Capitalists at SV Bank. And they guarranteed another 30 Billion that Chase and the largest banks pledged to bail out First Republic Bank.
That's 330 Billion in bail out money for the Non Bail Out that Tax payers are totally on the hook for as every cent of FDIC and SIPC money comes from tax payers in the form of transaction fees.
And every dollar of electronically created money dilutes every Tax payer dollar.
This bailout is massive.
And it is impossible to know how much more is needed as in 2018-19 all Mark to Market accounting in the banking system was scrapped as part of a campaign to "reduce onerous regulations."
If you don't mark your bond portfolio to market, but rather count them at face value, you are seriously under-representing your liabilities. And over-representing your assets. Any idiot should know that.
Unfortunately every time there is a "Stress Test" now for the banks they mark all their bonds at face value. So now, during a crisis, when they have to raise cash, they don't actually have the cash. And it is at that point they are forced to liquidate assets at market value - and take massive losses.
Hence this massive rolling bailout, that has no end in sight, except insorar as the Fed and the US Treasury is willing to backstop it all with massive bailouts.
The implications for Inflation are staggering.
To be sure, a good recession will bring down parts of inflation. Wages, Demand for discretionary goods. Demand for discretionary services. But not necessarity housing in the big cities where people want to live. (Yes I've heard the myth about flight from the cities. It's true that old people are moving to Florida. They've always done that. But young people still want to live in New York. They're flocking here. The median rental is up 8 percent from last year. If you can find a place.) And not necessarily food, with crops affected by erratic weather and global warfare. And not necessarily education or health care. So everything you need to spend on can remain terribly expensive, while discretionary spending plunges.
And when the Fed supports a flagging economy again with lower rates. Inflation will explode.
And what does the Fed do next week. Raise rates while liquidity is freezing up in the banking system - and while it is engaged in massive QE bailouts?
Or pause and admit inflation will careen out of control?
Got Gold?
In the arcane world of Rare Coins and Medals there are a few different types of measures of rarity.
First there is the comparable rarity of different markets.
For example in the US silver dollar marekt the 1893 S Morgan silver dollar is considered quite rare as "only" 100,000 were minted that year.
An ancient coin that existed in that quantity would be considered extraordinarily common.
An ancient coin would be considered to be a rare coin if perhaps less than 20 were known on the market.
A commemorative gold medal might be rare if only a couple of hundred were minted several hundred years ago. But for many issues only a handful (say less than 10) exist.
At the same time, you often see a supposedly rare issue appear at auction several times in a single year. That is most often because A) a collection formed over many years, that has a few examples of the same coin or medal, hits the market, and is dispersed between a few different dealers or auction houses. And B) a coin or medal becomes suddenly very sought after and those who have been holding these for years decide to cash in on the craze all at once.
This can create the illusion that something that is actually exteremely rare is quite available. But in a year or two, if it is really rare, it disappears again from the market.
On the other hand a coin or medal that is not very rare may become the object of a collecting craze and it disappears from the market for a time through hoarding, Inevitably hoarders will at some point be forced to sell by broader financial conditions and a new market equilibrium will occur.
So know your market in order to understand when the term "rare" is tossed about.
The second factor in rarity is condition. This is the easiest to gauge because these days most coins and medals are graded, and the grading companies put out guides to how many coins exist in each grade.
So a common coin, that exists in a very high grade might be a "condition rarity."
These are the parameters of rarity. But then we move into the factors or rarity that make a coin or medal truely valuable:
1) Style. Excellent style is rare. Not every engraver is equally talented. And though some grading companies do try to account for style, ultimately you will need to rely on your own eye. But rest assured, value over time accrues to coins and medals of the finest style - precisely because true fine style is very rare.
An ancient coin of truly excellent style is very rare indeed. And because an eye capable of appreciating truly excellent style is rare, there are still tremendous oportunities to collect coins of beauty while others chase coins of a high technical grade. Over time, more and more coins will achieve high grades. But an ugly coin (As Churchill once quipped) will still be ugly in the morning. And a beautiful coin, will garner appreciation over the years.
Medals often tend to be of much finer style than coins. Because precious metal itself has been somewhat devalued since the gold window was closed by Nixon in 1971 - coins began to trade for a premium over medals. But now that financialization is in its descending phase, medals, especially in gold are begining to assume the place they have historically held in top cabinets, partly because of their stylistic superiority.
2. Historical Import. An event or personage of true historical import is rare. A coin or medal that commemorates that person or event will have added value because of that rarity. Coins and medallions pertaining to universally celebrated figures like Julius Caesar or Alexander the Great or Napoleon - or Jesus Christ, are obviously highly sought after. Medals commemorating milestones of admired rulers both Royal and Military (Coronations and Peace Treatys for example) tend to be quite rare and benefit from that rarity. Cerrtain personages or events are important to people in the regions where they lived and occured - and are avidly collected there - but not so much other places.
And First Issues tend to benefit from their hisorical import - especially in fine condition, The first staters of Kroisos. The earlist Athenian Owls. The earliest Electrum Staters. The first Renaissance Medallions. The first European Gold Medals. These all benefit from the rarity of their historical importance.
There is plenty of room within these parameters of rarity to find an area that appeals to you.
Particular issues of coins and medals go in and out of fashion. But if you find a beautiful, historically interesting and rare object, that is relatively out of fashion - that is something to seize upon.
"The wolf shall live with the lamb, the leopard shall lie down with the kid, the calf and the lion and the fatling together, and a little child shall lead them. "
The above scripture refers to some distant golden age when things behave quite differntly from how they "normally" behave.
So many analysts misunderstand the behaviour of gold in fundemental ways. Gold is not an inflation hedge. Gold is not an anti-dollar play. It can be both, but only as a resulting consequence of its real purpose: Gold is a stability hedge.
Gold has basically and fundementaly held its value through 5000 years of recorded human economic activity. An ounce of gold (four aurii) accoutered a roman cavalry officer or a greek cavalry officer (four staters) thousands of years ago. Today an ounce of gold will buy a high end suit, shoes and haircut (and maybe even a watch if you don't go overboard) for any Private Equity or Venture Capital officer. Steady in value over 5000 years. And it is still used for that purpose by every Central Bank in the world.
You can say that for nothing else.
Right now the dollar is still the world's reserve currency. In times of tremendous turmoil the dollar will rise - and gold will rise along side it.
Today is such a day. The dollar index is up 1.1%. And gold is up 1.1 percent.
This is generally (there are no rules in finance) a precursor to big moves upward in gold. Because when the credit markets begin to seize up in the US - and globally - then gold will also rise as the dollar rises.
And when the dollar stops moving up because the Fed is injecting massively liquidity into the system in the form of bailouts adn QE - gold will rise as the dollar falls, especially when inflation is in full global force as it is now.
THis is the current cunundrum of high inflation at a time of massive debt accumulated over 50 years of easy money. Either you tighten and the credit markets break, or you ease and inflations soars. You're in a box.
I believe we are entering the beginning of this cycle. It will not go in a straight line. Gold will always have sudden large corrections because the the bullion banks funded by the Fed will attack the gold price to keep the illusion of order in the financial markets.
Even now we hear constantly that the banks are "well capitalized" even though mark-to-market was scrapped back in 2019 - so it impossible to know how well the banks are capitalized. It was a lack of mark to market accounting that kept SVB afloat for years after if was insolvent. Who else is in that boat? We'll find out over the next several months.
At the same time the repo market is beginning to blow out again, and the entire bank sector is under pressure as rising rates make their loan books worth less and less, while reducing the demand for new laons. And there are questions arising about the derivatives sector - which is a quadrillion dollar over the counter market - which is also not marked-to-market.
So as the results of Fed tightening works its way through the economy with the ususal year long lag, it will eventually become clear that order and stability is only an illusion - And at some point it will be hard for the Fed to control the gold price at all. It will take its place as the stable currency of choice. At much higher levels.
HIGH END NOTE:
Hard Assets bundled into "Alternative Asset" vehicles are now being sold by by sharp investment sharks to incredibly stupid pension fund managers in places like Florida - whcre the pension fund managers have no investment experience, but are simply politcal appointees. These Alternative Asset packages are not marked to market as there is no real market. So the investment sharks tell the pension fund managers how much they've appreciated each quarter. When it comes time to cash in they'll find they get pennies on the dollar. Not because Hard Assets in themselves are a bad investment, but because the packages are designed to sell junk to morons.
MIDDLE END NOTE:
The Hard Asset Boom that has largely gone unnoticed by mainstream investment proffessionals has caught on in the Screen-world. On TV there is always some kind of Hard Asset Discovery show playing:
Antiques Roadshow, is, of course the Granddaddy of Hard Asset Shows and still is a cornerstone of PBS broadcasting. It's fun wacthing reruns where they show price appreciation or depreciation from the original airings.
Pawn Sars is on practically all day every day on some Channel and they's now coppied Anitques Roadshow by going all over America in search of valuable Hard Assets. Some items end up being bought for real money.
Hollywood Treasure is what is sounds like, and again some items are pretty pricey.
Then there are the slew of High End Real Estate shows showing good looking dufuses selling super expensive properties all over the country
Container Wars is another higher end Storage Wars type show where folks shell out pretty big bucks for unclaimed containers off ships.
LOW END NOTE
Storage Wars has become a television franchise, It is always on in reruns and its many spinoffs are still hitting the air featuring new locations (storage wars New York, Texas, Canada) and new shows with old cast members. Barry'd Treasure with Storage Wars star Barry Weiss will hit this spring. Most of the items aren't worth much but the shows are fun to watch.
Flee Market Flip is a cute low end show for flee market junkies.
Auction Hunters and Auctions Kings is pretty much what it sounds like.
INTERNET: YOUTUBE: Reference HOT AUCTION FINDS and you will find literally hundreds of shows and channels dedicated to Hard Asset Auctions, Collectors and Commentators.
Out of one side of her mouth Janet Yellen has announced No More Bank Bailouts.
Out of the other side of her mouth she has announced Massive bailouts in the form of Two "Special Facilities"
One "Special Facility" will provide unlimited funds for SVB Bank depositors (read Tech Venture Capitalists and their speculations)
A Second "Special Facility" will provide unlimited funds to any other bank, as needed.
This is like Vladimir Putin announcing his country is not at war, but simply conducting "Special Operations."
In other words while the Fed is Tightening by raising intrest rates they are now conducting Quantitative Easing again by printing money to inject into the Banking System.
Thank God for capitalism.
To be serious, some of the companies being bailed out are probably good solid start-ups that probably deserve a chance to make it. But some will be concerns simply fueled by low to zero interest loans that never should have been made, that will never make a dime, that only exist to be sold to a greater fool, and will now be bailed out instead of being allowed to fail. Everyone wins - except the US tax payer.
But - just a thought. What happens when all this new liquidity fuels the next inflationary crisis? It won't hurt those VC Billionaires who just got bailed out. But everybody else? Not so good...
Got gold?
But what's wrong with that? America first puts Jobs in America above all else, and shouldn't any country be concerned with that?
Of course. And many high paying jobs got sourced outside the US over the last 50 years. So returning those jobs, and returning capital hiding in foreign tax exempt banks is all good.
On the other hand, De-Globalization is highly inflationary.
Many of those highly skilled jobs are not being filled here in the US. Populations are aging everywhere, workforces are shrinking everywhere, and there are 100 million working age people in the US who are not looking for a job for whatever reason. They have left the workforce and they don't want those jobs that were being sourced to tens of millions of available workers acrross the globe every year. There is a global dearth of workers. Which accounts for the "surprisingly strong" employment reports.
This is highly inflationary.
Also, those countries that we have attacked with tarrifs and sanctions thereby weaponizing the dollar, including China, Russia, and many middle Eastern countries and some South American countries are now trading directly with each other. They are cutting out the dollar. And they are making the US develope alternate supply chains. Other countries like India, are following suit as a preventative measure against a weaponized dollar.
If that makes you politically happy, then great.
But realize: De-dollarization as a facet of deglobalization it is highly inflationary for the United States..
Since the US destroyed Huawei in 2018 - something that was very popular here - every Chinese CEO has moved to de-dollarize its supply chain, Now that China is rebounding, Japan and Europe and India will be selling into China. But not the US. This weakens growth at the very time inflation is soaring.
Re-sourced supply chains as a result of de-globalization are highly inflationary. They may make the US more "secure" but they weaken export growth and make imports more expensive.
The tensions arrising from this economic warfare and the hot warfare Between Russia/China and US/Europe is highly inflationary in that resources are diverted just as it weakens growth as export markets disappear.
Deglobalization makes the risk for escalating war infinitely more likely.
War is highly inflationary.
All that oil and gas that was moving from Russia to Europe is now moving to China and India. Good for them. Inflationary for us.
On top of this, the green energy movement of the current administration, though perhaps necessary in the long run, is highly inflationary in the short run, as oil companies are reluctant to invest in an uncertain future.
This is also highly inflationary.
So high energy costs, high cost of food, high cost of goods, high cost of labor and weak growth.
The US will take in about 4.8 Trillion in taxes this year (barring a recession.) We will spend 1.3 in interest expense. 2.6 on social security and medicaid. And 900 billion on the military. That leaves nothing for anything else. ZERO for roads, education, law enforcement, Politician's salaries, transer payments, it all comes out of deficit spending. That's reality. We can cut spending, but can we do without any government at all?
Biden's budget at 6.8 trillion leaves about 2 trillion in deficits. That was the average for the Trump years. That's become the norm.
How is that sustainable without creating massive inflation?
It's not.
And the Fed is trying to cut rates and reduce liquidity to reduce all this inflation. The reduction in liquidity is already causing chaos in the credit markets. In the last week there have been two major bank failures: Silvergate, a crypto freindly lender (surprise surprise) and Silicon Valley Bank - which is the second largest bank failure in US history. At the same time First Republic Bank and other large regional banks stopped trading today (Friday 3/10). It's not clear right now what their exposure is.
But what is clear is that the Fed is already losing control of the credit markets, making it tightening program difficult if not impossible.
How then will inflation be controlled?
It won't.
Learn to live with it.
Protect yourself with Hard Assets.
estimate $250,000 with 1 month left to go.
Opening bid GBP 23,000 with 1 day to go.
9 days to go
The proverbial Black Swan event, made famous by Nassim Taleb's book of that name, is a game changing event nobody expects. Talib's point was though each event is a rarity, and difficult to predict, these events as a group are common enough that one ought to invest in preparation for their occurence.
Even if the hedge is small, it can save a portfolio. Optimally the hedge should be correlated somewhat to the event, but at least it must be uncorollated to the rest of the market that will suffer.
Credit Default Swaps were the hedge that made you fabulously wealthy during the real estate crash.
Puts on the Q's would have made you a bundle during the dot com crash.
Both those Black Swans were predicted by a small but vocal group who did get very rich.
The Covid Crash, was so badly handled by a goverment that tried to deny its reality - until the economy had collapsed that nobody could hedge/profit in the short run. But those who simply assumed that the Government response would and will be Trillions in bailouts to the banks, the overindebted corporations and a bloated and undercapitalized debt system as a whole, would have been well compensated over time in buying inflation hedges.
Because there is only one government response possible now in this system we pretend is capitlalist but has really been a Capitalist/Socialist hybrid since the creation of a Central Bank (the engine of socialism). And that response is to inflate away debt/liquidity problems with bailouts, debt forgiveness (in the form of the Fed simply buying the bad debt with printed money) and stimulus.
So what are the possible Black Swan Events currently on the horizon that will necessitate another round of Bailouts, debt forgiveness and stimulus?
A) The war between Russia (backed by China, India and the Gulf States and Iran) vs Ukraine (Backed by the US, Europe and some of the ex-Eastern Block.) This war is way to complex to analyze here. But the portential for it to matastasize into something larger, more costly, and more devastating to the global economy is not inconsiderable. The disruption to the food and energy markets alone could be catastrophic.
B) The introduction of a competing currency to settle the commodity trade by China/Russia/India and the Gulf States. This is conisdered a done deal by Money Managers as briliant as Felix Zulauf, Simon Hunt, Alasdair MaCleod and many others. It is only the timing that is in question. This will make the dollar plunge in value; and thus all commodities and all debt priced in dollars will become unbearably expensive.
C) A liquidity crisis brought on by higher rates. This could emanate from anywhere as there are so many Zombie and badly overextended Corporations, Municipalities, even entire States - across the globe. And cross-collateralization is complex, rampant, and impossible to anticipate.
D) An unforced potitical error of epic stupidity like the refusal to pay US debts that have already been incurred as the debt ceiling deadline looms
E) Another pandemic. Why not? The impulse to deny its existence at least here in thre US is more poweful than ever.
F) A single bad trade with epic cross collateralization implications. It's happend before, for example to Nick Leason a little trader in the Singapore office of Barrings Bank which destroyed that bank and had counterparty repercussion throughout the banking system. And then of course there was Long Term Capital Management fiasco which provoked the first of the Great Bailouts. Now with an unregulated derivative market in the Quadrillions of Dollars, a disasterous bad trade is more likely than ever;
G) The oil market blowing out to 150 - 200 dollars per barrel. The implication for inflation would be devastating.
H) Something we haven't even considered. That's the true nature of the Black Swan, after all.
SO - how do you hedge these things?
Each one individually probably has a good hedging strategy, but if you want to hedge the ensuing fallout from the next round of bailouts, buy ins, and stimulus, I say Hard Assets is the best way to go.
Then in 2000 a curious thing happened. All the easy money pouring into companies with no earnings and wild claims about a tech enabled future crashed. And some investors realized that gambling with easy money is not a sure thing even with the Fed at your back.
Gold began to ascend. Greenspan engineered a second massive bubble - this time in real estate which again burst and gold reached new heights.
Then we went into the Bernanke Helicopter money era of zero rates, multi trillion dollar bailouts and Quantitative Easing - which just means the Central Bank buys whatever assets it thinks will keep the risk markets moving upward. In other words the purest form of Socialism ever attempted in a modern first world economy,
And a funny thing happened. Gold momentarily sank and consolidated. It's tempting to speculate that this is because the vast gambling class regained total confidence that the Fed could in fact keep the risk markets moving upwards forever. So who needs safety?
But if you look at the long term chart above it looks simply like a healthy retracement of a blowoff peak, with a consolidation in a classic cup pattern. In other words still a very healthy long term bullish pattern.
Both things can be true. Because everything in human society, psychology and natural environment seems to move in cycles.
And now we are still in the consolidation phase of this long term cycle.
So when will gold breakout? You'd need to consult a fortune teller for that one.
But after 40 years of a global first world debt binge; and 40 years of institutional malinvestment that most surely accompanies a debt binge. and the one major cycle that helped keep the inflation that accompanies a debt binge in check - Globalization - having reversed, it doesn't seem likely that we'll have to wait long for the primary long term trend in gold to reassert itself.
Whenever Jerome Powell, the current Fed Head, feels that rates have reached a point that the debt soaked economy can no longer function, he'll have to stop raising. There a trillions of reasons why we will certainly have another liquidity crisis in an economy that reduces liquidity with this much debt. And no serious reasons why we won't.
Then we return to easy money and bailouts and finacial repression. Or we suffer depression.
Either way, the safety trade looks more and more attractive.
Central Banks of the world are loading up on gold. The figures in the chart above do not include China, because China has a huge domestic gold mining sector which feeds its central bank reserves directly. China also has a program that actively encourages its citizens to load up on pysical gold. Current estimates are that the Chinese government holds about 30,000 tonnes of gold, and the Chinese private citizens own another 23,000 tonnes.
Now, there are a lot of China haters out there right now. I don't understand hatred as a strategy. China is a competitor, but a rational one. Which means they don't have to be an enemy. If we react rationally in a competitive way, there is plenty of world out there in which everone can prosper. The question is why do they have such a different view of gold than the USA?
It is because the dollar as reserve currency is in a precarious position. And there's no reason for other advanced economies to have to use it to buy oil, or copper, or rare eaths - or gold etc.
Any Central Bank move away from the dollar as a reserve currency must involve gold.
And any move away from the dollar as a reserve currency will benefit China.
And it seems all the Central Banks of the world are now preparing for this move.
That's what the buildup in Gold reserves is all about.
As this happens it is invitable that gold priced in dollars must rise in value.
On top of the rise as a protection against inflation.
On top of the rise as a hedge against geo-political uncertainty.
On top of the rise as a hedge against the incipient liquidity crisis that is inevitably provoked by rising rates.
There are so many reasons why over the next several years gold must rise.
But Central Bank diversification out of the US dollar is the chief reason.
