Gold: know where you are in the cycle

 

To a lot of younger investors/gamblers the gold market it an old fuddy duddy market that just churns around and does nothing.

Over the last several years it sure seems that way,  It seems that way now.

Of course if you got into gold in the early 2000's when it became clear that the Fed was hell bent on smoothing out every hiccup in the economy with a downward shift in rates and a macro easing of money gold has been an incredible exhilariting ride from around 400 dollars to 2000 dollars.  

But a perspective of a quarter century is tough when you're 25 years old.  Or even 35 or 40 years old.

But a funny thing happened over a quarter of a century.  The world shifted from globalization to DeGlobalization.

That shift is still going on and we're just in the infancy of feeling the effects which are Inflationary pressures in the global macro economoy rather thn deflationary pressure.

Meanwhite the US and Global economy has taken on historically massive debt - mostly denomitated in US dollars as even around the world much debt is denominated in the Euro Dollar market.  It seemed to make sense in a deflationary world.  Because rates were at zero and there was still no inflation.

Bur now Inflationary pressure and high debt has become a vile cocktail which no eonomy on eartth can combat.  If you can't see why you need to go study that.  That's like a fish asking: "What the hell is water."

Hint: Higher rates crush the economy through debt service.  Lower rates crush the economy through hyping inflation.  

You can't fight both.

This is the economic death spriral - and it is also the macro sweet spot for gold.

So why isn't gold higher?

It will be.  

Right now it isn't lower because all the central banks of the world outside the US are buying gold hand over fist to shore up their reserves for the coming storm.  They're not buying dollars, or silver, or bitcoin, or diamonds.  They're buying gold.  If you have to ask why see the cartoon above.

And gold isn't higher because here in the US a multiple expansion (and an incredibly loose fiscal policy) has taken the stock market to historic blowout highs.  But multiple expansions always revert to the mean.  "This time" is never ever different.  If you think "AI" makes it different, see the cartoon above.  And if you think we can support the markets simply by increasing debt forever see the cartoon above.

And soon - I can't tell you when - but soon enough in the whole scheme of things Americans will rediscover what the rest of the world has already discovered.  That is there is only one protection from the coming storm.  And then the Gold Price denominated in Dollars will move to the next level.

Here's the thing: when it moves,  gold moves violently.  When it goes up, the initial move could be 200 dollars in a week.  

Then, if you're not already in, how do you get in?

GOLD AND GREIVANCE

 

Grievance is the Gold Standard of human emotions.  It leads to high Gold Prices.

And Grievance leads to Authoritarian Govenment 

There is nothing more inflationary than Authoritarian government - which is always the largest form of Government.  For Authoritarianism to work you need a massive army, a massive police force, a massive prison system, a massive judiciary, you need massive oversight of your enemies and you need an oligarch class of massively wealthy to support the Authoritarian leader.      

And you need Enemies.  Enemies to persecute within the state -which is inflationary as it disrupts the labor force as fresh labor (immigrants and political enemies) are expelled, and keeps the political class growing which costs ever more money.

And you need Enemies without to focus the rage of the working class, and this disrupts supply chains that make input commodities ever more expensive  and foments tarrif wars that make goods ever more expensive.

Finally Authoritarinism allows for complete control over the levers of the No Longer Free Market.  Controlled rates go to zero, price controls disrupt the market, and inevitable yield curve control which always seems to make sense to the Authoritarians in the short run,  inevitably leads to Hyperinflation and a worthless currency.

But none of this is possible without Grievance.  Grievance is the emotional ingrediant that allows the 90 to 99 percent of poor and downtrodden tp support their own exploitation.  This massive class includes the "middle class" which is subsumed into the poor and downtrodden class by the inflationary structure.

Grievance is critical.  In the Bible they call it "Coveting,"  Thou shalt not covet.  Why?  Because coveting drives you to endless dissatisfaction which ends in Hatred of the enemies who keep you from getting all the stuff you want and deserve.  Dante has these folks in his fourth circle of Hell.

None other than Charlie Munger has identified the rise of Grievance as the single most destructive force in the American Economy.  And he lived through the depression - which he said never engendered the same kind of Grievance he sees now.

It takes a special politician to understand and manipulate Grievance properly.  In fact it takes effort by the political class to cultivate and grow Grievance.

These special Grievance Connoisseurs come along only once in a while, and we know their names.  Hitler was brilliant at it.  Stallin was pretty good.  Good enough, in fact, that th Russians have made a study of grievance control and they have devoted a massive portion of their military budget to Cyber-ops and Psy-ops meant to foment Greivance in the countries of their Enemies.

And the Chinese have followed suit.  And they're pretty good at it too.  

Social Media and Streaming Services are used in the formation of Hate Groups that are dominated by the intelligence services of Russia, China, Iran, and others.  There are currently nearly 1500 Hate Groups being monitored in the US by our own Intelligence Service.  The problem, is that in Russia and China and Iran, they keep a very tight control over Internet and Streaming Access.  In the US there is no control.  So our enemies have free reign to stoke Hatred and Greivance.  

Many of our most popular Internet and Twitter stars - and even Television personalites - here in the US are used by the Intelligence Services of Russia, China and Iran to spread the messages that they want - to stir up Greivance in the US.  They do this through the most sophisticated use of social and streaming media to support feed back loops that encourage the Grievance or Hate Groups and help them develope their messages and their means.  And they have made a study of techniques that make those who become fascinated by these messages to act in a manner of the choosing of these foriegn Intelligence Servives.

Sounds like science fiction, right?  Only it's real.  Our own intelligence service is only too aware of it.  But thus far, they've had very little succes in combating it because of our free speech laws, and because there are some very powerful people protecting the hate groups for their own benefit.

What to do?  I have no idea. The Russians and the Chinese and their American Media Star-stooges have amassed critical power through the manipulation of grievance.

But I do know this.  Greivance ends in Authoritariansim and as such it is the emotional ingrediant that allows Inflation to get out of control.

Right now we're speeding that way.  

If you can't see a solution - at least protect yourself with inflation hedges.

The best being gold.

GOLD: WHY APPRECIATING ASSETS APPRECIATE

 

What makes certain assets appreciate perpetually over time?

Inflation.

Hard Assets of Intrinsic value go up as currencies are debased.

It's axiomatic.

So - what causes inflation?

All the things that define humans and human activity at this juncture of our evolution.

1) The need to dominate our evironment.  This leads certain political beings to need to amass more and more money and power.  To do this they need more and more government to fund and protect and justify their acquisitions.  The larger the government the more expensive it is to fund.  Eventually the expense of running the government demands greater and greater DEBT which eventually crowds out productive investment.  All this funding and debt require massive printing of money - which debases the currency.  That is inflation.

2) The need to defend our dominance over our environment.  This requires  armies, and police and prisons and weapons.  The greater our domain the more expensive to fund our armies and police and prisons and weapons.  Entire industries spring up to create more and more advanced weapons and bigger survelliance and enforcement agencies - all funded by greater and greater debt.

3) The need for enemies - both within and without to solidify and justify our power.  This is terribly expensive and requires massive funding for infracstructures - media of all sorts - (television, internet, streaming  social networks, radio, satellites, cable, etc) to stoke anger and hatred against these enemies and provoke and justify wars to fight them.

4) Wars.  These are msssively expensive in the cost of waging them - but are also terribly inflationary in the disruption of supply chains and the depletion of stocks of commodities.  Hot wars are the worst, but Trade Wars accomplish the same stoking of inflation while we wait for them to develope into Hot Wars.

5) The need to impress our fellow beings with our grandeur.  This requires more and more stuff - Discretionary Spending on every conceivable product that makes us look and seem more important and beautiful and powerful and interesting  Endless spending on crap we don't really need.  Which ultimately requires more and more consumer Debt which in turn makes everything more and more expensive.

All this human activity requiring endless debt is endlessly inflationary. 

Eventually everyone goes broke.  Or at least nobody can repay their debt,  Which should be the same thing, right?

That should be deflationary, right?

Not when you have a central bank in collusion with a Treasury that sets rates and prints money to bail out everyone deemed Too Big to Fail - which eventually includes all government and all the Big Banks, and all the larger Shadow Banking institutions, and all the largest corporation.  They don't go broke.  The Fed takes their bad debt onto their own balance sheet and the Treasury prints money to keep everhone funded.  This requires ever greater debt.

A lot of poor and middle class people go broke but it can take a long long time for them to organize sufficiently to put a stop the the inflation machine that is breaking them.  Especially when  they still want to gorge themselves on all those discretionary items that distract them from their poverty.  And when  they try to blame inflation on certain arbitrary enemies that the powerful political beings tell them to blame.  This just creates more wars and greater spending,

It always eventually becomes a choice between the debasement of the currency to keep everything inflating- or allowing for a depression and then a monetary reset.  

Guess which the Fed and the Treasury and the President - whomever he or she might be - will choose?

So inflation is a one way bet.

At least until Human Nature changes.

Don't hold your breath.

And maybe buy a little gold for protection.

GOLD: WHAT IS AN APPRECIATING ASSET?

 

All assets go up and down in the short run.  Over time, however, some assets appreciate continually.  Others not so much.

So, if you want to get rich trading, find an extremely volatile asset and try to time a buy at the lows, and time your sale at the highs.  Easy peasy.   Just ask Baron Rothschild, or George Soros.  Or Jim Drukenmiller.  Or.... well, after that the list falls off fairly sharply.  There are a few others on it.  A very few others.

If you're more the ordinary sort, a good idea is to buy an asset that appreciates over time.  Preferably something towards which you have some sort of emotional affinity.  And buy it as an investment, not a trade.

So what are the qualities of something that appreciates over time?

Aristotle pretty much set the standard for this analasys when he determined the values for that which ought to serve as money itself.  Coincidentally these values were all possessed by Gold.

A) It must not fade, corrode, or change through time.  Obviously.  Because if you buy it in perfect condition and want to sell it many years later in a distressed condition, it will fetch a lower price.

A diamond, for example fits this bill.  A gold coin or medallion.  A Statue made of bronze may take a little caring but should be easily maintained.  What about Real Estate?  Some buildings survive hundreds of years with a little care in excellent condition  You probably don't want to be in a flood zone, or a Tornado zone or in a forest given to fires.  But the right place built the right way could be okay.  Like the Acropolis for example.  Or Augustus apartement on top of the Palatine Hill in Rome has survived quite nicely for 2000 years.  I don't think it's for sale.  But if it were, it would be a really good buy.  What about a Rare Book or manuscript, or tablet or painting?  THese might take enormous care to preserve properly.  But with that care atheir value could be superb over time.

B) It must be portable.  Again, diamond, gold coin or medalllion.  A small statue of bronze.   A book.  A smallish painting.  Real Estate? not portable.  Doesn't mean it can't be a good investment.  But in time of War for example, you may have to flee.  Then it is worthless.  That's why portable is important - because anything bound to a place can be subject to confiscation by authorities.  That which is portable is also easily hidden.

C) To be money it must be divisible for obvious reasons. As an investment, we must amend that.  We should say rather it must be convertible.  

In other words it's appeal must run across cultures - so that it can be convertible into local currencies across the globe.  Obviously a Greek Gold coin might be worth more to a Greek than a Roman,  But then again, it might not.  Greek History is all of Western History.  And it extends and overlaps with Middle Eastern History and Indian History.  And funny enough - many Asians are fascinated by Greek History.  So your object must have appeal across cultures in order to to have true appreciation because the prevailing cultures change over time.

D) It must have Intrinsic Value.  This should be obvious.  Though hard to define.  Things relating to important Historical Characters and Events for example.  Things pertaining to King Solomon, or Julius Caesar, or the Buddha, or Napoleon, or William Shakespeare, or Lau Tzu or John Lennon, or the Magna Carta or the American Revolution or the fall of Jerusalem or the ...  Well, you get the idea.  This is subjective.  But history itself bears out its favorite sons, daughters and events.  And beauty tends to be cross cultural.  Truly amazing craftsmanship,  Remarkeable originality and execution.  Applied skill.  These can recognized by trained eyes everywhere,

These then are the values you must consider.  But even then a few other questions must be asked"

1) How many of the item are available - and how readily available.  Something that meets all this criteria but is available in such numbers that is is quite common - may not appreciate quite so much over time.  It will be subject to peaks and valleys that could be quite steep.  Take, for example a gold stater of Alexander the Great.  These were minted originally in what must have been the hundreds of thousands.  Many of which still exist today.  Many are still buried - but will be eventually dug up.  It's a good investment still.  And in one respect its sheer number is advantage because more collectors will exist which makes it more convertible.  KInd of like a Gold Eagle from the US mint.  There are a lot out there.  But so are there a lot of folks colecting them which makes converting them very easy,

But perhaps not as good an ultimate investment as the gold medallion of Alexander in the Walter Art museum which is unique. (pictured above).  That can be owned by only one person or institution.  And it would take some time to find a buyer.  But finding a buyer would be pretty easy.  And they would pay a fortune.

2) How many substantially similar items are available that might serve to divert investor fascination?  If you want a Guttenberg Bible probably nothig else will do.  Or a copy of the declaration of Independence.  Or a drawing by Da Vinci.  Or the Gold Medallion of Alexander referenced above.  If you want a beautiful Silver Dollar from the Carson City mint from 1883, maybe one from 1881 would do just as well.  So how valuable is the 1883?  It has value.  But not nearly as much as the 1879 Pattern Schoolgirl silver dollar.  You get the idea.

3) Finally how easy are they to fake?  Anything can be forged, copied, reissued etc.  Many items you can collect will have to be authenticated by accepted experts.  This is not a foolproof guarantee of originality - but it is most often a fool proof guarantee that it will be accepted by the prevailing market as genuine - and that's good enough.  So buy things that have been authenticated.  And authenticated objects with well accepted provenance are even better.   Why take the risk?

With these things in mind, go out and find your appreciating investments.  It's fun and profitable.

It's intersesting to me that the most obvious class of object to persue is the Gold Medallion issued to comemmorate an important historical event.  This touches every base.  That's why I like them so much.  But choose your own.  

It will be safest, however if whatever you choose meets all the criteria above.

WAR AND GOLD

 

War is inflationary.

War costs a lot of money.  War disrupts supply chains.  War uses up vital resources.  War causes interest rates to rise, disrupting global liquidity.

War is great for gold.

The war on drugs for example has costs the US trillions in enforcement, prisons, the destruction of entire populations of drug addicts, and has achieved - what?  Debt.  Nothing but debt.

The entire border crisis is due to the war on drugs.  The Cartels control all the governments of South and Central America.  Everyone there works for the cartels in some capacity.  If you own a shop in Cartagena you pay some protection money to the Cartels.  Your 12 year old son is already working for the Cartles as a runner.  You have a ten year old daughter.  She will have to become a prostitute for the cartels in a couple of years.  Unless you try to get to the US.

It is impossible to stop the supply of drugs.  It is a demand driven probolem.  The demand in the US for drugs is infinite and insatiable.  It can not be legistlated.  All you can do is make drugs legal and tax them.  That would put the Cartels out of business and stop the flow of immigrants out of Cartel dominated territory.  But nobody is really interested in solving that problem.  The problem is what gives power to politicians.  And the force of the money behind the problem is so great that nobody has the will to stand up to it.  Except with empty rhetoric. 

And now we have two new wars that have exploded onto the world stage.  The war between the China/Russia and the Western Countries, currently centered in Ukraine.  And the War in the Middle East between Iran and its proxies and the United Sates and its proxies, currently  centered between Israel and Gaza.

If you're not personally affected by any of these wars you probably don't care much about any of them.  The war on drugs currently affects more US citizens because of the resulting border crisis.

But the other two wars in their own ways are equally as unsolvable as the war on drugs.  Because nobody is really interested in solving them.  They are far more useful to the current power structures as wars.  This is because the global economy has reached a point of instability that war is a useful distraction for those in power.

Putin, for example is far more popular in his depressed economy waging a war in Ukraine, than he was before the war.

Zhi, is suffering from the same economic malaise in China.  How long before Taiwan becomes a useful distraction?

Europe is in recession (Netherlands, Germany, Greece, Ireland are in statistical recessions while France, Italy and Spain have only the slightest statistical growth.).

The economics of the Middle East is dominated by a staggering skew of wealth with 99 percent of all assets in the hands of a few families who control the oil production.

Africa is a mess.

South and Central America are dominated by the Drug Cartels.

And the United States, while by far the strongest economy, is suffering from a skew of wealth due to a 50 year regime of financial repression (negative real rates) which has concentrated 90 percents of the assets in the hands of the top ten percent of the population.

So what's new and  different?

Deglobalization.

For the last 40 years globalization has hidden the inflationary effects all of the other global problems stemming from inequality of wealth.  Globalization provided cheap inputs of labor and materials.  Gobalization has provided a great incentive for avoiding hot wars.  Because every country was profiting from the disinflationary force.

Now that has reversed.  And the incentive structure for War has resversed.  War is good for those in charge of unpopular governments, and flagging economies.  Just look at Netenyahu in Israel.  Without war he would be in jail.  With war he is in charge.  Obviously he was drawn into the war by the brutal thugs of Hamas.  But what incentive does he have to end it?  Just as one might ask what incentive does Hamas have to end it?

The people of Israel and Gaza have great incentive to work through to a peaceful solution.  Their leaders - not so much.  Not at all.  This is the tragedy.  It is perpetual war that keeps brutal leaders supported by small but powerfully united bases in power.  They need enemies.  Enemies within and without.  And they retain power by reigning in a perpetual state of war, disaster and dread.

Criminals have risen to the top of governements all over the world.  Putin in Russia, Netanyahu in Israel, the Hamas thugs in Gaza, the murdering mullahs in Iran, the Cartels control all of the South and Central American governments.  Convicted criminals are currently running for election in Pakistan, India, France and the United States and several African nations.  It is a peculiarity of our age.  

What better to keep them in power than war?  This may sound flippant.  But the age old question: CUI BONO - who benfits - is the most revealing question to ask.  I'm not the first to notice:

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

—Ernest Hemingway, “Notes on the Next War: A Serious Topical Letter,”  

Got Gold?