Fundamental Developments

The prices of the metals shot up last week, by $28 and $0.57.

 

Heavy metals became pricier last week, but we should point out that the stocks of gold and silver miners barely responded to this rally in the metals, which very often (not always, but a very large percentage of the time) is a sign that the rally is unlikely to continue or hold in the short term. [PT]

 

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Divine Powers

The Dow’s march onward and upward toward 30,000 continues without a pause.  New all-time highs are notched practically every day.  Despite Thursday’s 31-point pullback, the Dow is up over 15.5 percent year-to-date.  What a remarkable time to be alive.

 

The DJIA keeps surging… but it is running on fumes (US money supply growth is disappearing rapidly). The president loves this and has decided to “own” the market by gushing about its record run. During his campaign he professed to worry about the “giant bubble”. We happen to think that it is probably best for a president not to talk about the stock market at all, but the Donald evidently couldn’t resist. One thing that continues to be quite satisfying is this quote by Paul Krugman on election night, when stock market futures plunged after it became clear that the Donald would beat Hillary: It really does now look like President Donald J. Trump, and markets are plunging. […]  I guess people want an answer: If the question is when markets will recover, a first-pass answer is never.” Krugman’s predictions are often devastatingly wrong, but rarely this fast. [PT] – click to enlarge.

 

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Bad Reputation

Years ending in 7, such as the current year 2017, have a bad reputation among stock market participants. Large price declines tend to occur quite frequently in these years.

 

Sliding down the steep slope of the cursed year. [PT]

 

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Where the Good Things Go

Many gold bugs make an implicit assumption. Gold is good, therefore it will go up. This is tempting but wrong (ignoring that gold does not go anywhere, it’s the dollar that goes down). One error is in thinking that now you have discovered a truth, everyone else will see it quickly. And there is a subtler error. The error is to think good things must go up. Sometimes they do, but why?

 

Since putting in a secular low at the turn of the millennium, gold is still the by far best performing major asset class, despite suffering a big correction from its 2011 peak. There is good reason to expect that the secular bull market isn’t over yet, regardless of the fact that the market is testing the patience of bulls. This is probably a case of “it will go wherever it needs to go, just not when you think it should”. [PT] – click to enlarge.

 

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Cryptic Pronouncements

If a world conflagration, God forbid, should break out during the Trump Administration, its genesis will not be too hard to discover: the thin-skinned, immature, shallow, doofus who currently resides in the Oval Office!

 

The commander-in-chief – a potential source of radiation?

 

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The True Believer

How is it that seemingly intelligent people, of apparent sound mind and rational thought, can stray so far off the beam?  How come there are certain professions that reward their practitioners for their failures? The central banking and monetary policy vocation rings the bell on both accounts.  Today we offer a brief case study in this regard.

 

Minneapolis Fed president Neel Kashkari attacking a block of wood with great zeal. [PT]

Photo credit: Linda Davidson / The Washington Post

 

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A Vulnerable System

Parliamentary democracy is vulnerable to the extremely dangerous possibility that someone with very little voter support can rise to the top layer of government. All one apparently has to do is to be enough of a populist to get elected by ghetto dwellers.

 

Economist and philosopher Hans-Hermann Hoppe dissects democracy in his book Democracy, the God that Failed, which shines a light on the system’s grave deficiencies with respect to guarding liberty. As Hoppe puts it: “Democracy has nothing to do with freedom. Democracy is a soft variant of communism, and rarely in the history of ideas has it been taken for anything else.” At first glance this may strike many people as an exaggeration, but considering the trends that have emerged over the past several decades, it seems difficult to refute this assertion. Particularly since the beginning of the so-called “war on terrorism”, individual liberty has suffered numerous setbacks in Western democracies, while the power of the State has grown to almost unheard of proportions. In a democracy everybody is in theory free to join the psychopathic competition for power (in contrast to the largely rigid power structures prevailing in feudal societies), but all things considered, that is a highly questionable advantage. In fact, in many ways it isn’t an advantage at all. [PT]

 

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Too Big to Fail?

 

Dear Mr. Butler, in your article of 2 October, entitled Thoughtful Disagreement, you say:

 

“Someone will come up with the thoughtful disagreement that makes the body of my premise invalid or the price of silver will validate the premise by exploding.”

 

Ted Butler – we first became aware of Mr. Butler in 1998, and as far as we know, he has been making the bullish case for silver ever since. Back in the late 90s this was actually a fairly well-timed case, as silver eventually rose from a low of around $4 in 2000/2001 to a high of almost $50 in 2011, but we neither bought into the “shortage” story (note: one of the reasons why gold and silver are monetary metals is precisely that their above-ground stock is so large that shortages are extremely unlikely to ever develop), nor the idea that nefarious forces kept prices from rising. This is not to say that nefarious forces as such don’t exist, only that they probably have better (and more profitable) things to do. Also, since silver was the best-performing commodity from 2000-2011, they would have to be considered pretty inept. [PT]

 

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Fat-Boy Waves

The prices of the metals dropped $17 and $0.35, and the gold-silver ratio rose to 77.  A look at the chart of either metal shows that a downtrend in prices (i.e. uptrend in the dollar) that began in mid-April reversed in mid-July. Then the prices began rising (i.e. dollar began falling). But that move ended September 8.

 

Stars of the most popular global market sitcoms, widely suspected of being “gold wave-makers”. From left to right: Auntie Janet “Transitory” Yellen, Mario “Smaug” Draghi, and last but not least, the healthiest leader in history, Jong-un “Fat-Boy” Kim, as always positively radiating good vibes. [PT] – click to enlarge.

 

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October is the Most Dangerous Month

The prospect of steep market declines worries investors – and the month of October has a particularly bad reputation in this respect.

 

Bad juju month: Statistically, October is actually not the worst month on average – but it is home to several of history’s most memorable crashes, including the largest ever one-day decline on Wall Street. A few things worth noting about 1987: 1. the crash did not presage a recession. 2. its extraordinary size was the result of a structural change in the market, as new technology, new trading methods and new hedging strategies were deployed. 3. Bernie (whoever he was/is) got six months.

 

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Bleeding the Patient to Health

There’s something alluring about cure-alls and quick fixes. Who doesn’t want a magic panacea to make every illness or discomfort disappear? Such a yearning once compelled the best and the brightest minds to believe the impossible for over two thousand years.

 

Instantaneous relief! No matter what your affliction is, snake oil cures them all. [PT]

 

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Precious Metals Supply and Demand Report

The price of gold dropped $24, and that of silver 60 cents this week. This is a far cry from Sep 8, when the price of silver hit $18.21. Since then, it’s been almost all downhill. What happened? Since the beginning of last month, the price of silver had been rising and at the basis along with it.

 

Spot silver, daily. The rally was quite sizable, but at the peak a divergence with the gold price emerged (gold exceeded its April high, while silver failed to do so). That is not always meaningful, but it is always a “heads-up”, particularly when prices have already trended for a while. Silver obviously remains stuck in a medium term trading range for now. The longer this continues, the more meaningful an eventual breakout in prices will be. [PT] – click to enlarge.

 

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