Coping with Stagflation: a Gold Trader's Point of View

What can we do to survive the wealth confiscation of government created stagflation?

In my last blog I discussed that the people who are in charge have learned from two world wars that they do not want another, and that depressions and currency collapse cause world wars.

Thy have developed a desire to reduce government debt, and banking debt as a percentage of GDP, and are using negative real interest rates to favour large debtors, while at the same time restricting retail lending to you and me. Therefore the little people are not allowed to get large debts to buy assets with, and then have the debt devalued, but the wealth funds (old money) and banks and government, well this is for them.

Many "little people" who were deliberately encouraged, overborrowed to buy cyclically overpriced properties during the boom times, and these people would in the normal run of affairs stand to gain from debt devaluation. But the inflation ring system rule is that only the “right” people get their debts written down, so such wannabees must have their loans foreclosed and assets taken before the deflation of debt, so that such assets can be resold (recycled) later to another little person in the next pulsation of the inner and outer inflation ring wealth removal scam.

So we arrive at the present, and upon looking around all the signs of financial repression are visible, though covert. Inflation is elevated (not high) and about 2.5 x the official inflation CPI published figure. Taxation is up. Growth is down. GDP growth is low, but if “unofficial” inflation figures are used (Billion Prices Project US Index or shadowstats.com) GDP is actually falling. Real incomes are down. The middle class is shrinking as their assets are monetized and moved into the inner inflation ring inhabitants of the nations involved. The highest class have increasing wealth. That’s stagflation alright! Suck it up!

This takes me back to the recipe of financial repression which I described in my last article here. There will be official low inflation, but actual elevated inflation, creating negative interest rates. To speed up the wealth removal from savers of currency, there will be short bursts of higher inflation, not hyperinflation but more like 9% to 12% inflation. Let’s call it 11% for simplicity. So the inflation target of the Fed and the ECB and BOJ and BOR central banks just happens to be 2%. What a coincidence! I propose instead, that in their private offices the true official inflation target is an actual 7%-9% target, with a periodic 11%.

If they run inflation of average 10% for 8 years starting from 2010 (QE1) then the wonderful laws of half yearly compound interest work in their favour, with a 5% gain every six months. This 5% of the national debt is being confiscated from savers in dollars, and those with cash in their wallets. After my hypothetical 8 years, the amount of the debts will be reduced to 44% of their present size measured in real currency or any inflation proofed asset equivalent. That is a reduction of 56% of the dollar currency holdings out there, including TBonds, foreign held dollars, and the global holders of these dollar denominated paper notes represent a huge taxation base to apply this monstrous debt reduction to.

They’re already doing it, and have been for several years.

Now another problem is that while the debt is being written down, there are supposed to be structural correction put into place. Like for example, the deficit should not be creating new debt faster than the existing debt is being stagflated away from the dollar paid citizenry and external holders of dollars.

(By the way, when I say “dollars” here, I really mean, “Dollars, “Sterling”, “Euros”, and of course “Yen”. Just mentioning that now in case the implication of it gets lost in the telling.)

So banking structural err ... improvements ... are in hand ... sort of. Joe Public is getting structurally adjusted too ... whether he/she likes it or not. But the deficits .... hmmm ... well ... oh ....we’ll definitely get round to it very soon!

So, the debt reduction system is still under construction. And if the governments of the developed countries have not yet cut back their size and spending – the financial repression-stagflationary period has no end in sight yet!

We need to have a way to thrive under stagflationary times.

If we look at the implication of financial repression, and look for an escape route, we see that currency and exchange controls are put in place to close those escape routes off. The attacks on tax haven countries and the banking privacy invasions were coordinated by the same developed world countries during since 2000 with this in mind. So when they say nobody predicted this would happen, how did they begin implementing their side of the aftermath back then?

OK. Let’s get to the point..

  • Low growth in indebted countries – get out to other countries where growth will be better, developing nations for example.
  • Low growth due to low population growth, move capital to countries where population is increasing faster
  • Increasing restriction on movement of capital, move sooner rather than try to do it later and fail.
  • High tax on income, move to asset appreciation wealth generation like the people-entities in charge.
  • High capital gains tax on the above, or 100% tax on PMs to catch you anyway, get out now, or take gains much later when it’s all over. Be like a multinational corporation and consider where and in  what title/name those gains accrue.
  • Inflation pulses to speed the debt reduction, watch bank lending to retail to unload that unsold housing stock. The PM rally is connected to that.
  • TIPS, Treasury Inflation-Protected Securities, are bonds issued by the U.S. Treasury. They have the unique property that their principal, or face value, moves one-for-one with inflation as manifested in the Consumer Price Index (not seasonally adjusted), while their interest rate remains fixed. The CPI can be a sham, but TIPS can be leveraged. There are alternative assets with similar inflation link properties.
  • Stocks are a traditional wealth preserver during elevated inflation, but stagflation is different. In my opinion, stocks outperform some other assets during stagflation, but what I see in the charts during those times historically are rising trading ranges with stocks in them. Patterns very like the multi year rising wedge that large caps are in right now. These historical rising trading ranges don’t look quite so good when detrended against the CPI. Consider external profit source and customer bases for the companies instead of those stocks with income bases inside the developed stagflationary countries. So developing world stocks are very interesting.

And how does gold perform during stagflation and negative real interest rates? Basically we have got a  "How to trade gold during bond bear markets" knowledge requirement, and this discussion represents a recognition of requirements, rather than a fully argued conclusion of this matter. We need to look at the 1930s, late 1940s-1950s and early 1980s to see. At these times gold appears to build a base from which to rise when growth or the first sniff of it returns.

I suspect that we are witnessing that base building in gold right now, rather like the consolidation large caps. A pulse of inflation now, is probably not THE gold bull market that the gold bugs hope for, seeing as government structural reforms are not yet in place. Western (+ Japan) governments must remove still more wealth, and therefore extinguish more potential growth.

Therefore the current gold bounce is more likely a reaction to a foreseen possible inflation flash pulse by the CBs/banks to create the necessary conditions to unload surplus housing stock. So a rally now, or off the next low, while it may continue to become substantial, is quite likely to be retraced maybe 50%, and then after that it could hypothetically form a right hand side part of an even bigger base for gold. In that way a rally would possibly form the first wave up with some bigger upwave to follow later after the retracement is completed. That would, if this is a correct interpretation of events, be the rally of precious metals which comes prior to the earliest forecasts of return to growth, and simultaneous to accellerated debasement of some currencies. The end of the greatest stagflation in modern times should be something to remember.

argentus maximus

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This is not investment advice. It is personal opinion only. It is put out there by the author for discussion purposes and to invite critique, to stimulate debate, entertain, and ideally create a lively beginning for a reasoning process among readers who interact with each other and may lead towards a better financial understanding of the times we live in. People wishing to trade financial markets should get professional advice, and be aware that it is relatively easy to los more than you invest in financial markets.

The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author can be found here: RhythmNPrice

The publications of Bill Gross and Mohamed El_Erian at PIMCO are quite informative to this discussion. An interesting link that I can suggest to read more is:  Secular Outlook: Navigating the Multi-Speed World . It was published in 2011, and I expect he has done several since in a similar vein but more up to date, but this is a good starting place.

 

42 Comments

Green Lantern's picture

Excellent.  Most Excellent

Excellent.  Most Excellent AM.  Off to read that that article

First, first?

vonburpenstein's picture

first first...

.....Sometimes I think I'm intelligent...then I come hang out here for a while...

at least I got a first....Interesting and informative post

Green Lantern's picture

Old System STruggling and Dying

More on Financial Repression from Catherine Fitts Austin

http://usawatchdog.com/old-system-struggling-and-dying-catherine-austin-fitts/

By Greg Hunter’s USAWatchdog.com 

Money manager Catherine Austin Fitts says, “You are seeing a tug of war between the new system that’s coming up and the old system that’s struggling and dying.”  Fitts explains it by saying, “Let’s pretend we have a company called USA, and we create a new company called Breakaway Civilization.  We move all of our assets out of USA and put them in Breakaway Civilization.  We leave union obligations and pension funds . . . in the old USA economy.”  Fitts warns, “I think bail-ins are coming . . . the big question is not will we be able to get out insured deposits.  I think the big question is how violent will things get?”  Fitts biggest worry is not financial collapse.  Fitts contends, “I don’t think the people who run the U.S. military or run the United States government are going to say we’re happy to collapse rather than go to war.  They are going to go to war.  They’re going to shake somebody down.”  Fitts goes on to add, “I think gold is the greatest form of insurance you can have during this transition period.” 

vonburpenstein's picture

oh well...

...second rather, thx gl

¤'s picture

Argentus

Thanks a lot for sharing your thoughts on all of that. 

I see Japan as being the teetering domino that might disrupt the best laid plans or intentions by debt laden govts.

If the 3rd largest economy falters in some significant or dramatic way it'll have a huge unavoidable ripple effect on everyone else. It could be their rapidly increasing monetary base & GDP/debt ratio that causes their system to become unmanageable and eventually snap.

Or it could be something like a large scale environmental exodus from the Fukushima fall out that necessitates a large area being evacuated and deserted. 

When the 3rd largest economy and buyer/holder of UST's gets desperate or loses their grip over one or both of their two major problems it'll have a incalculable effect on everyone else imho.

I hope none of that happens of course, but I can see how Japan might derail some of the scenario you laid out regarding CB's needing time...and relative stability to reduce that debt.

Japan becoming uninhabitable in some way big or small would be a huge event in the global economy and the possible need for them to sell lots of UST's and/or greatly diminish their purchases would have a significant impact and effect on all other countries bond markets.

Japan=wildcard.....hopefully not.

Jakarta Expat's picture

@Argentus Maximus

As usual AM another well thought out, well written, thought provoking article from your great mind.

argentus maximus's picture

There are strange

There are strange possibilities available to come about. The lack of growth at home, reduces money velocity, and this helps keep a cap on inflation, at home, so the home government with the crony banks, and wealth funds, can benefit, nobody else. All the goodness reserved for those who borrowed zero cost fresh money, and bought real assets with it.

The inflation that appears in eg commodities manifests elsewhere, creating a time-place delay for food inflation. It is rising first in Asia, and later at home in the western countries as a result.

Now here is the thing I wonder about: I think that the rejection of these western QE'd-to-death currencies should in these circumstances appear first abroad, and later at home. Isn't the USD/JPY carry trade a run on the yen with a yield arbitrage play built in? So if we listen to eg Jim Willie and his reference to BRIICS nations using unwanted TBonds to pay for stuff then this looks to me to be a beginning of something well under way by now - the international rejection of the dollar. But sterling, euro and yen all in the same problem group.

So it appears that this kind of "sterilized" QE produces money velocity abroad at first, and later it comes home. Intuitively it seems to be so.

Now the possibility of the fed trying to sterilize against that raises the possibility of a move to "internal dollars" and overseas dollars".

Home and away currency has been done before, and there is in the background the fact that for some reason they have not yet circulated their new design golden-colour FRN dollar notes.

I would put no devious scam beyond them. It's a bizarre financial war no rules smackdown contest to the death against all-comers.

Frankenstein Government's picture

Japan Owes A Quadrillion, They Are Toast

This week, Japan officially broke the quadrillion yen debt barrier. That is 1000 trillion in debt. At what point do we accept the harsh reality that a country is insolvent?

The developed world is insolvent. Sooner or later, that truth as stated by Von Mises, will have to be accepted. The reset will in all likelihood... have to occur with a gold standard.

Japan is toast. How long can this continue? Well, they've been teetering along now for 25 years with a 220% debt to GDP ratio and apparently no one notices.

I call this phenomenon, believing your own bullshit. http://thecivillibertarian.blogspot.com/2013/08/believing-your-own-bullshit-sunday.html

Jakarta Expat's picture

@Argentus Maximus

My wife would agree with you on the inflation here in Asia, SE Asia anyhow. She calculates that we here in Indonesia are experiencing a 12.5% to 13% inflation this month and last in the food and common items she buys for our house. Of course some of this is due to the government reducing the fuel subsidy and raising the price of fuel but of course the Indonesian government is reporting an overall inflation rate of 6% this month and destined to go down. Is there any government in the world now days that is actually reporting the true inflation rate in their country and telling the truth to their citizens?  

القراع عصفور's picture

compare East to West (Japan, Europe, USA are considered West)

PDUbEBV.png

Public debt as a percentage of GDP

this chart was found here...

http://en.wikipedia.org/wiki/File:Public_debt_percent_gdp_world_map.PNG

argentus maximus's picture

A very interesting map.What

A very interesting map.

What does a person do? Live in the red and invest in the green, or the other way round (& pay the taxman)?

BagOfGold's picture

Argentus...

A most excellent post!...What can anyone do?...Perhaps get religious & join a church...or start your own church!...I will become a minister of "The Church Of The Infinite Laughter Of The Eternal Souls"...will buy some farmland in the church's name...won't pay any taxes...& will laugh my way through inflation/stagflation during each & every harvest!...Start now...by not supporting the NWO corporations who don't care about you...& will suck you dry!...Change will come...but it must happen within yourself first!...

There are revisions...

Once again...Thank You for this excellent post argentus!!!...

Bag Of Gold

mac's picture

a King would have gold, what do u think?

...and I say that gold is going to the solvent and financially more prudent countries, as the gansta-bankster corporate "barbarians" have already pillaged the Western nations and Japan.

القراع عصفور's picture

good question Argentus

like you said above, the PTB are trying to block all the escape routes.

a few notes on the map...

it is a few years old -  more countries, including the USA, should be dark red now.  should Iceland still be red?

the OPEC countries are mostly green.

Zimbabwe and Somalia are deep red, and Egypt is close behind.

oh, and Europe is a nightmare.

edit:  oops, that's not Somalia.

qE6flw9.jpg

Jakarta Expat's picture

@Peckerwood

Thanks for the map, what is worrying about it from my prospective is that Australia and Indonesia are the same shade of green color which looks like 30%  to 40%. What is scary is that the population of Australia is about 23.1 million as of this year. For Indonesia it is not so easy to count the population but going to the website most expats use that we feel is the most accurate reflection of the true population the population is listed as 247.8 million. On a whole, Indonesia's debt is huge compared to it's neighbor, Australia.

Also surprising is that Singapore seems to be a dark red spot on the map as well.

¤'s picture

Interactive Map / Debt-GDP

 

World debt comparison

The global debt clock

Interactive overview of government debt across the planet.

Click the text link...It's a solid overview of an interactive timeline map.

And then there's this...

Who_holds_the_american_debt800.jpg

Jakarta Expat's picture

@DPH

Excellent and up to date financial debt map and the US debt holders data as well.

Dyna mo hum's picture

Excellent Argentus Maximus!

Bag of gold I like your idea but "the church of the painful truth" has already claimed my soul. 

¤'s picture

When push comes to shove...soon

Egypt To Begin Crackdown On Pro-Mursi Supporters Tonight, "A Move Which Could Trigger More Bloodshed"

Submitted by Tyler Durden on 08/11/2013 - 13:20 

Nearly a month after Egypt underwent a truly embarrassing, if mostly for the US department of state, coup and days after international "mediator" US Deputy Secretary of State William Burns left Cairo, having made no headway in finding a compromise between the army-installed government and supporters of deposed Islamist president Mohammed Morsi, it appears that the catalyst to push the already unstable social situation into a state of borderline civil war, is about to be unleashed following a Reuters report that "Egyptian police are expected to start taking action early on Monday against supporters of deposed President Mohamed Mursi who are gathered in protest camps in Cairo, security and government sources said on Sunday, a move which could trigger more bloodshed."

zerohedge.com

~~~~~~~~~~~~~~~~~

dph: tptb might not want another war but what about an inevitable ME conflict that might be thrust upon them? The old religious hatreds and memories of past conflicts between tribes  might be an unavoidable outcome.

Throw in a post-WWII Western oil and military domination along with what's going on currently in MENA and a war seems likely on some level at some point.

I agree with AM on the stagflation/inflation aspect of this over time but that period of time needs to be fairly stable I would think.

It seems to me that if the debt and GDP situation spirals out of control that a war on a large scale might be the very thing that erases some of those large debts. It's happened before and it'll happen again at some point. It's in our DNA unfortunately.

It seems as though there is no shortage of events or situations brewing that might make a broad effort by govts to synchronize their monetary policies hard to achieve when old alliances and trust come into question at some point over recent events like gold repatriation worries, the wiki leaks or the NSA spying on everyone and a whole list of other ongoing abrasive issues.

Sad to say, but a war might be the cure for the debt of many countries. The U.S. posture I believe on a monetary attack ( by their own definition) from another country(s) would be construed as an act of war. I don't doubt their seriousness on that.

Silvergunn's picture

Thanks argentus maximus

...very thought provoking Sunday read.

Now to digest this during the rest of the day!

¤'s picture

Random things like this...

...are what I'm getting at as far as potentially large scale disruptive destabilizing events that would crimp economic cooperation between CB's while they try to slog through their debt/low growth situation.

Just imagine the fallout if an event like this in a densely populated city anywhere in the world would've taken place. It's sad and a bit worrisome to think that there are some elements out there that would love to be able to pull off a mass catastrophe against the West (or some rival muslim country or region) because they represent no particular govt. to be retaliated against.

If this report were true (looks iffy) NYC or some other city or event just  dodged a major bullet in a machine gun magazine full of hatred seeking revenge on the U.S. in some spectacular way.

Package Containing VX Nerve Gas Supposedly Found At JFK Airport

Submitted by Tyler Durden on 08/11/2013 - 14:39

With the NSA already combing through and recording every form of electronic communication (or 1.6% of all global internet traffic to be precise), it was only a matter of time before a scare involving plain vanilla physical mail took place. Such as what just happened at JFK airport at 9 am this morning, when as ABC reports (with a substantial delay) that "Two postal inspectors at JFK Airport were sickened Sunday after opening a package at a postal processing facility. Field tests showed an initial finding of nerve gas, though authorities believe it's a low likelihood that it's actually nerve gas. It is more likely a standard-use chemical that shouldn't have been in the mail like a solvent or degreaser. The FBI was called in and additional testing is underway. The condition of the customs agents is not yet known."

zerohedge.com

RaRaRasputin's picture

Lead story on today's Indy

Fall in wages puts Britain in Europe's bottom four 

Only workers in crisis-hit Greece, Portugal and the Netherlands have fared worse over the past three years as new figures collated by the House of Commons Library show a 5.5% drop after inflation since 2010

http://www.independent.co.uk/news/uk/politics/fall-in-wages-puts-britain-in-europes-bottom-four-8755957.html

Argentus

Inflation in things we need and deflation in the fiat to buy them = stagflation, lapping the shores of the UK as we type .....

Green Lantern's picture

Had time to read Mohamed A.

Had time to read Mohamed A. El-Erian's article and re-read your post and let brew for a bit.  Kind of like a glass of wine, the front end tastes different than the bottom end.   So I have some stupid questions.  I'll be the slow kid in the back of the room, scratching his head. 

1.) Investing in foreign stock markets.  Never pursued it although it was recommended to me that I get in at some bottom level stuff after the Arab Spring in Egyptian Market.   Talk about a steep learning curve and having absolutely no idea what's hot in good ole Cairo these days.   You are only suggesting that the upside in stocks is better than the upside in US equities and not that the Capital Gains taxes would be any more lenient, unless I have a cousin in Cairo who I trust and can put my account under his name?  

2.) You say "get out now when it's all over?"   I'm assuming stocks.  You mean don't take profit to avoid capital gains until financial repression and stagflation is over?  Could you clarify.  

3) I suspect that we are witnessing that base building in gold right now, rather like the consolidation large caps. A pulse of inflation now, is probably not THE gold bull market that the gold bugs hope for, seeing as government structural reforms are not yet in place.

ARe you saying that the marker for the gold bull market to resume will be overt financial repression, bail ins? What specific structural reforms.

argentus maximus's picture

@ Green Lantern All stocks

@ Green Lantern

All stocks tend to increase during inflations. I would say that they just barely outperform the inflation, and any taxation on dividends or capital gains tax turns them into a loser, but we might set that aside since other investment returns from other assets are similarly affected by taxation. Professional advice is required from an enlightened professional I would think.

The difficulty is that domestic demand is suppressed due to the money removed by government, which means that stocks with external customer bases, exporters, globalised corporations etc do better than companies with a purely domestic footprint. Note a US corporation with UK sales is still "in the frying pan".

So selling to developed countries fits a certain desirable qualification. There is an exception to this, and that is the financial industry which is close to the faucet of freshly printed money. It borrows at zero % interest, and finances for higher fees, or buys outright overseas hard assets, like eg forward sales from a hedging gold mine somewhere else. So the big banks are exceptions to the need for an overseas, non G5 customer base. And as a result, they have outperformed in recent times. That will of course end suddenly if/when the money tap is turned off, but until then they are like governments, and everything is being run to suit them.

Now consider the bailin laws, those will affect depositors it is true, but I contend they will affect the pensioner retired staff of those same banks even more, just as the pensioner retired staff of bankrupt cities will lose extreme amounts.

So the emphasis gets focused upon international companies in developing countries, and not exposed to developed coutries, and companies purely in developing growing countries. I did not specifically add resource producing countries, but this is a beneficial quality, provided the western powers do not act to destabilize and overthrow these for their gain.

Regarding my comment about 100% taxation of those who hedge successfully with PM, the above stocks, or even real estate, it is likely that some such confiscatory taxation will be levied at the exit, or take profit stage. It is also likely that draconian laws like that will not last more than 10 years after this all ends if they leaders want growth to begin again. So after repeal of such legislation, which could be 10-15 years later, a low tax exit might be possible from "good" investments. This does not take account of the other type of draconican taxation, the regular drip feed kind. I expect external domiciled strategies are the only way, and that is a very specialized area which multinationals make full use of.

Regarding your last point:

---"3) I suspect that we are witnessing that base building in gold right now, rather like the consolidation large caps. A pulse of inflation now, is probably not THE gold bull market that the gold bugs hope for, seeing as government structural reforms are not yet in place."

Are you saying that the marker for the gold bull market to resume will be overt financial repression, bail ins? What specific structural reforms.---

My words are more vague there, and necessarily so. The PMs are down/sideways over 3 years. The large caps are up/sideways over the same period.  A question arises: are the large caps topping, or pausing before rising even more? Similarly, the question may be asked: Are gold and silver going to rally, then fall lower, or are they consolidating/pausing before rising more? The world does not yet know the answer to that question. It is something that depends on global growth and western domestic growth. These factors are in great doubt at the moment. My comment was intended to say that gold can rally because the selloff was overdone, and stocks can fall because the rise was overdone, and then they can easily go sideways for longer because financial repression is sucking the growth away leaving the economies themselves moving sideways. That is after all the plan.

I also think sudden surprise CB caused inflation surges are also the plan and will be done to mislead and throw the investment world off the financial repression dodging tracks, so buying large caps low, and buying PMs low, should retain wealth better than most alternative strategies available. I hypothesize that we have just experienced a sudden CB caused deflation (tapering end to easy money - selloff in bonds/stocks/gold) to mislead, and throw investors off doing the right thing, etc. I expect this oscillating monetary management in the past similar times is what created the trading ranges in stock values I spoke about at those low growth times, and is doing it again now.

Resumption of the gold bull market? Who can know for sure?  We are in the middle of a central bank psychological operation to mislead and control the information we receive.

But my guesses go like this: end of the tapering scare = gold rally; the resumption of repressive taxation attempts to take money to cure this mess=deflationary=gold falls; the acceptance that it won't work and growth is being killed off by taxation leads to structural reform for government = deflation; very soon after that the anticipation of growth = gold discounts most of the accumulated the dollar devaluation to date all in one huge bear capitulation move upwards.

That is one possible events sequence which might play out. It's very speculative. It also fits human nature and the refusal of leadership to do the right thing until all else fails. 

argentus maximus's picture

I should add that a study of

I should add that a study of long term inflation adjusted charts is necessary to judge the returns from stocks, real estate, commodities and metals during stagflationary times. 

Historical inflation adjusted returns don't show taxation unfortunately but highlight the most interesting asset types. DJIA, land prices, commodities  and Gold charts where the assets is as a ratio of the Consumer Price Index are quite informative. Bob Prechter has a few books with big picture coverage with such charts inside, like eg Crest of The Tidal Wave though he was overly early in many ways, they are highly informative for this particular study.

I expect there are other specialized sources of inflation adjusted charts for stocks, gold and silver for exanple. John Williams of Shadowstats would be good on this kind of information I expect.

With luck somebody can contribute a helpful reference in this regard.

treefrog's picture

it's monday on the other side of the date line.

metals getting a nice little pop as markets west of the pacific open up.

silver $20.70

gold $1317

edit:  aaaaand another pop!  1330, 20.90

Green Lantern's picture

Thank you Argentus!  Very

Thank you Argentus!  Very heavy analysis.  Alot to chew on and to consider.   I actually don't think I've read such a complete, well thought out scenario of how the gold market might progress from here long term.   I totally understand it is speculative and could go any number of ways.  Much to contemplate.   

Thank you again!

Dyna mo hum's picture

Argentus.... you said

Resumption of the gold bull market? Who can know for sure?  We are in the middle of a central bank psychological operation to mislead and control the information we receive.

That is as good a brief description of the problem I have seen. I really think the CB's  have deception down to a science now. 
Fred Hayek's picture

Glad you mentioned the late 1940's

Because the dream, the pristine vision accompanied by an angelic choir and framed by shafts of sunlight bursting through the clouds, the dream of the Fed is to replicate the late 1940's. 

For months and months I received almost daily emails from a guy named Rick Weissman.  Some were boring  Others seemed very insightful.  But one of his major theses was that what the Fed is trying to do, in a very big picture sense, not in all the same details but certainly in outline, is to repeat what it did in the late 1940's. 

Back then, according to Weissman and backed up by various documents to which he linked, the Fed achieved a nearly flawless financial repression.  There was significant inflation, especially in 1947-1949 but the Fed and Treasury simply said, SFW?  You're going to get a crappy 2% on treasury bonds even though we admit that inflation is 12%.  That's what they did.  And they got away with it.  The Fed didn't buy the treasury's full issuance of bonds.  They didn't buy any of it.  But as a result of, oh, not having had all our industry bombed in the several years before that, U.S. industry was doing great and treasury bonds were seen as the ne plus ultra of sure things.  These bonds were bought.  Inflation took place and all the massive U.S. debt as a result of WWII and the 13 years of the president who rode the handicapped ramp into hell got a lot smaller as a percentage of GDP.   Of course, most of the context of those times are not in place today so the Fed is doing just as I suggested at the start of this, dreaming.

On a barely related not, I remember a year or so back being on the Naked Capitalism site and there being a discussion that segued into one of those incredibly myopic, tiresome blue team versus red team deals.  The woman who runs the site is a bit of a pompom waiver for the blue team.  Fine.  She's not foolish about it.  But a majority of the regular commentors there are blue team fanatics.  They cling to the notion that the blue team cares about and promotes the welfare of the common man.  And in arguing with one of the libertarian sorts there, one of them pointed to a graph showing the fluctuations of total U.S. debt as a percentage of GDP over the last 80 or 100 years.  Well, this pompom waiver for the blue team immediately noticed that this percentage had taken a big dive in the late 40's and early 50's and again in the late 70's.  Blue team uber alles!  These were years when the blue team had the white house.  Therefore, the blue team is more fiscally responsible than the red team!  Yay!  If we just elect all blue cretins and no red cretins, all our problems will be solved!  (or embarrassing stupidity which boiled down to that).  Someone quickly pointed out these these were times of tremendous inflation and that this was very bad for the average person about whom the blue team sycophant professed to care.  Didn't matter.  Yay blue team!!  I just wanted to point out that financial repression and stagflation are tremendously serious phenomenon but, like all the rest of reality, can be ignored by people childishly advocating their side of the blue team-red team false dichotomy.

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