Dancin' in September

85
Fri, Sep 12, 2014 - 2:34pm

So what changed on September 1, 2014. I'm open to suggestions.

Presented without further commentary:

It sure looks to me that, since the calendar flipped to September, the only thing rallying is the dollar. What could that be telling us? I look forward to reading the collective insights of Turdville.

TF

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Deidre
Sep 16, 2014 - 7:18pm

Rickards and Collins are

Rickards and Collins are quantity theory guys. The common problem these guys and most goldbugs have is the assumption that gold is a constant. You hear it all the time from Rickards that it's not that gold is rising but it's the dollar falling. And from Collins that your purchasing power in gold will not bleed away through inflation.

This is not correct. You can lose a lot of PP by holding gold over an extended period.

Remember the Gibson's Paradox asserts that gold should rise 8% for every percent expected real rates are below 2%. Well there's the flip side to that corollary. What happens to the nominal price of gold when expected real rates are above 2%? You won't like the answer. And that's just the nominal price. After adjusting for inflation the real price of gold is even uglier.

For shits and giggles play around with some historical cpi and deposit rate data in other currencies and see what what you find. I promise it will shake your assumptions about gold.

Occasnltrvlr
Sep 16, 2014 - 2:03pm

You Know, Deidre...

...I read JC Collins and Rickards too.

I don't live in an office in Brussels or Washington, or in any ivory tower. I buy and eat food, I buy and use energy in various forms, and I occasionally cross paths with police. Brussels, Beijing, and Washington may agree that my village should be combined with a tranch of existing UST's to collateralize a new bond. Some people would see that as orderly. I and my neighbors would not.

Yes, I know that Putin is playing along from the same script, but rogue actions and miscalculations happen, and the real world, where people actually live and function, can get very, very messy. I'm pretty sure I don't have any misconceptions about gold's true function, and as devaluation of the currency of an armed, ignorant, and formerly-privileged populace takes place, I won't be concerned with interest rates.

(BTW, "Quantity Theories of Money" - I don't know what those are [and I wasn't talking about money]. My assertion is correct. You said quite the similar thing: "High rates means there is no offer to lend.")

Lamenting Laverne
Sep 16, 2014 - 8:55am

@ Deidre

8:21pm: "No, that's when the party is just getting started. When the bond reservoir is saturated rising rates signify wealth leaving the asset class. The wealth impulse moving. After the debt restructuring the reservoir will have capacity to absorb wealth again. Then real positive rates could be a problem for gold."

I agree. One big reason I am so engaged in Gold is exactly because I regard the bonds as a viable reservoir to be exhausted for now/soon. (And I believe it is certain that we are approaching the end of a long bull-market in bonds, because I still regard 0% as the floor/finish line despite momentary insanity of applying below 0% rates - that is just proof to me that the system is very unstable and sick).

Along the same line - with the exorbitant levels of debt in the world today - I expect that the transition turmoil - even if relatively controlled - will damage the confidence in cash and bank holdings, which will lead some of the escaping flow towards tangibles/physical assets.

When we disregard the paper variants, because they will not do the trick in that scenario, I believe even moderate flows into tangibles will have a big effect on price/value/wealth absorption, because the size/"value" of financialized paper assets is so completely out-of-wack with the size of the finite world - so even if a lot of paper will go poof - a lot will also be converted by nimble actors.

In my opinion - when the debt-restructure is done, and if we do not have a new system with Gold in an official anchor role ("anchor" meaning ultimate official settlement currency/deployable reserve, by force if needed, to settle accumulating current account imbalances) then rising real rates not only could be a problem for Gold - it will be a problem for Gold. I just do not believe that we will employ the very same system all over again, and I think that the tweeks they are making will involve an official role for Gold.

8:57pm: [..The debt's gonna be rolled over into SDR bonds. It's all going to be consolidated and kicked upstairs....] [...Since this debt can never be paid back that doesn't mean they'll let us out of bondage....]

I think, they will have to restructure enough to relieve some of the "bondage", because if they want people to work hard like good little bees, they have to leave some head-room for consumption of nectar and honey ;-) With all the information exchange coordination being deployed, they will still be able to monitor wealth closely to stay in control and make sure that no real competitors evolve.

I wrote below comment some time ago and given your view on SDR bonds, I was wondering if you would care to offer your opinion on what I wrote back then and how you see events unfold? If so, it would be much appreciated.

https://www.tfmetalsreport.com/comment/263929#comment-263929

DeidreOccasnltrvlr
Sep 15, 2014 - 10:56pm

"Positive real interest rates

"Positive real interest rates will only be possible when the supply of currency and credit begins to collapse faster than the underlying real economies are collapsing." Don't get hung up on Quantity Theories of Money. They'll lead you down the wrong path and to misconceptions about gold's true function. That quotes reminds me of a retort about why Greeks chose gold over bonds yielding 48% in 2012. It's assumed that 48% was a positive rate. It wasn't. Money was leaving Greek bonds for commodities. The general price level was rising faster than interest rates. And who in their right mind is going to lend long term in such an environment? High rates means there is no offer to lend.

"You seem to expect this transition to the SDR and super-sovereign debt as progressing in a rather orderly fashion.​" This will be accomplished via a substution account. This is why nobody is dumping Treasuries. They will be turned into SDR bonds, not all at once but in steps. This fits with a lot of Jim Willie is saying. The USD will be devalued in steps over a few years. By 2018 the SDR will be fully rolled out.

There's going to be no WWIII. Just the threat. Russia is merely playing a part in the script. It's all a big psyop so the American people will have an external enemy to focus their rage when the dollar is devalued.

Occasnltrvlr
Sep 15, 2014 - 10:11pm

Very Interesting Concept...

...Of perpetual debt. (Don't give anyone any ideas!)

I don't really get your notion of inflation being half a concept in relation to pricing. Stoneleigh's definition of inflation is dead-on right, and quite meaningful: the expansion of available currency and credit relative to available goods and services. Positive real interest rates will only be possible when the supply of currency and credit begins to collapse faster than the underlying real economies are collapsing.

We are going through the hyperinflation now, but what concerns me more than the possibility of exponential price rises is the possible deflation and accompanying capital controls, restrictions on travel, taxation, and collapse in trade to follow.

You seem to expect this transition to the SDR and super-sovereign debt as progressing in a rather orderly fashion. I do not share that confidence. We are rapidly losing the rule of law at many levels ("Corzined" is now a verb, and at least one school system has an MRAP), and a few morons are trying like hell to start WWIII.

Markets do not reflect actual underlying economic forces, and I don't feel lucky. Out of your list of seven asset classes, do you see any that have always been prized at all times and across all cultures? Of those three, do you see any that fit the definition of money? What do you think someone might accept for a bag of onions, a quart of corn oil, or to let one pass through a checkpoint?

Deidreancientmoney
Sep 15, 2014 - 8:57pm

Got news for ya. There's

Got news for ya. There's going to be no Hyperinflation. The debt's gonna be rolled over into SDR bonds. It's all going to be consolidated and kicked upstairs. What I'm afraid they'll do is make the bonds perpetual. Since this debt can never be paid back that doesn't mean they'll let us out of bondage. The new SDR bonds might have no maturity, no need to refinance. But they will have to be serviced with a coupon payment forever and ever. Kind of like what the Church did with indulgences. All this unpayable sovereign debt could become the Modernized and Revitalized Original Sin.

ancientmoneyDeidre
Sep 15, 2014 - 8:47pm

Deidre re: best store of value . . .

I'd agree with the rotation in and out of the 7 asset classes you discussed, were it not for the impending TEOTGKE.

You must not have read anything on this site the last several years, before you joined 4 days ago.

RockerBoxerDeidre
Sep 15, 2014 - 8:34pm

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DeidreBollocks
Sep 15, 2014 - 8:21pm

Fiat is the best store of value if...

Goldbugs always kvetching for the perfect store of value. I'll let you in a on a little secret.

There is no such thing. There are seven asset classes.

Cash

Bonds

Equities

Collectibles ( numismatic coins)

Real estate

Commodities

Gold

Think of each class as interconnected with each other with springs enmeshed in a fluid medium. Wealth concentration is an impulse always on the move within that medium. The wealth wave may move into a class over a decade or more for a secular bull. But there will come a time when it moves again even from gold. Gold is a lifeboat in a debt deflation. It's an alternative reservoir for wealth when the bond markets can't return the principal ( default) or can't offer a rate above future inflation expectations. When rates start to rise think of the psychology of the bond portfolio manager. Does he accept duration risk and buy a 30year note at 7% and if current CPI is 5% but expected to get worse? The bid probably won't be deep at 7% if that's market psychology. Gold would get the bid with the expectation of negative real rates. You see gold can be in a bull market in a rising interest rate environment. That's contrary to what a lot of goldbugs believe. They get a cold sweat if interest rates rise. No, that's when the party is just getting started. When the bond reservoir is saturated rising rates signify wealth leaving the asset class. The wealth impulse moving.

After the debt restructuring the reservoir will have capacity to absorb wealth again. Then real positive rates could be a problem for gold.

Bollocks
Sep 15, 2014 - 7:49pm

Deidre

"Our Djedi Masters at the Goldbug Academy lied to us about certain things. The foremost being that gold is a stable store of value, that it's an inflation hedge. "

Hit me with an alternative. Seriously, a real alternative.

Deidre: Member for 3 days 1 min.

Careful, Deidre.

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