Author Archives: Keith Weiner

     

 

 

Interest Rate Convulsions

The prices of both metals were down again this week.

We would guess that it has something to do with the fact that everyone knows: higher rates are coming to the dollar. The yield on the 10-year Treasury closed the previous week at 1.762% and this week at 1.701%. It may not look like much, but this is a change of +1.7%.

 

1-tnxTen year treasury note yield – the short term trend has changed from down to up, but a much bigger rise would be needed to endanger the long term downtrend that has been in place since the early 1980s – click to enlarge.

 

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The Cost of Carry

The prices of both metals were down this holiday-shortened (Labor Day in the US) week, especially on Friday. The decline corresponded to a spike in interest rates. Of course everyone watched the action of the stock market on Friday.

 

spx-vs-silverSilver (green line) and the S&P 500 (black line) between Thursday and Monday early afternoon. There was some consternation on Friday in both markets – click to enlarge.

 

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Perceptions of Future Fed Policy Driving Asset Prices

Why is this issue of the Report entitled the Federal Reserve Report? We chose this headline because the Fed is apparently now the driver of supply and demand of gold and silver. Or at least it’s what speculators in gold and silver expect will drive the decisions of the hoarders, whom the speculators are trying to front-run.

 

Hawkish - dovishKremlinologists contemplate a strange bird

Cartoon by Bob Rich

 

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Precious Metals and Central Bankers

The dollar exchange rates of the metals fell this week, with that of silver falling more.

 

Yellen and FisherJanet Yellen and Stanley Fischer – “good cop, bad cop”.

 

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The Lighthouse Problem

Measured in gold, the price of the dollar hardly budged this week. It fell less than one tenth of a milligram, from 23.29 to 23.20mg. However, in silver terms, it’s a different story. The dollar became more valuable, rising from 1.58 to 1.61 grams.

 

Lighthouse in StormWho put that bobbing lighthouse there?

Image credit: John Lund / Corbis

 

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A First Step Toward Sound Money

The Arizona House of Representatives has convened an Ad Hoc Committee on Gold Bonds. The purpose is to explore if and how the state could sell a gold bond.

 

fourth-liberty-loan-50-gold-bond-of-1933-1938-8A United States gold bond of yore: the 4.25% Liberty Loan of 1933-1938

 

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The Famous Buffett Quote

The prices of the metals didn’t change much this week. We thought we would take this opportunity to quote Warren Buffet. A comment he made at Harvard in 1998 earned him the scorn of the gold community.

 

BuffettWarren Buffett no doubt is a good investor; but he is also one of the biggest beneficiaries of the vast monetary inflation since the 1970s, a wind that has been at his back ever since. He also doesn’t seem to understand gold. We don’t say this lightly – his comments on the metal really do sound uninformed most of the time; regardless of the fact that the point Keith discusses below may have some merit in a specific context .

Photo credit: AP

 

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Calculation Problem

What is the real interest rate? It is the nominal rate minus the inflation rate. This is a problematic idea. Let’s drill deeper into what they mean by inflation.

 

2084759-set-of-pictograms-of-various-consumer-issuesWhat to include, and how can it even be added up?

Illustration by alekup

 

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Bubble Conditions

The price of gold was down about fifteen Federal Reserve Notes this week. The price of silver was down sixty-two copper-plated zinc pennies. Is the Federal Reserve Note a suitable instrument with which to measure gold?

 

silver-orbBubbling silver…

Image credit: Trevor Scobie

 

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“Bad” Monopolies?

An argument against absolutely free markets comes up often. What about so-called natural monopolies? So-called infrastructure projects (e.g. sewage plants) have high barriers to entry, and are a challenge to true competition.

 

monopoly-abnormal-profitThis is the kind of chart you will find in modern economics textbooks on the topic of “monopoly”. Allegedly, monopolies will achieve “abnormal profits” and their allocative efficiency will be sub-optimal as well, hence they are considered an example of “market failure”. Not to put too fine a point to it, this is complete bunkum (sorry, economics students – you are being taught piffle!). For one thing, there is not a shred of empirical evidence for this. On the contrary, over many decades, papers published in economic journals that have studied “natural monopoly” type situations throughout history, had to admit that the exact opposite of what this diagram suggests has actually happened in free competitive markets in which the State did not intervene on the suspicion that it had to counter the threat of a private “monopoly”.  The theory on monopoly may look superficially convincing, if not for the fact that Rothbard came along in 1963 and completely debunked it in Man, Economy and State. We have a more detailed article on the topic in the works that will flesh out many of the points made by Keith here – stay tuned! [PT] – click to enlarge.

 

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The Long Term vs. Trading Ideas

The price of gold was up about thirty bucks this week. The price of silver was up almost seventy cents.  Last week, a reader reminded us that in the long run the dollar is going to zero.

 

 

Sinking ShipAn image from the future: the USS dollar, which one of these days is going to sink. Alas, there is many a slip ‘twixt the cup and the lip…

Image via pinterest.com

 

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One Cannot Trade Based on the Endgame

The prices of the  metals were down again this week, -$15 in gold and more substantially -$0.57 in silver.

Stories continued to circulate this week, hitting even the mainstream media. Apparently gold is going to be priced at $10,000. Jump on the bandwagon now, while it’s still cheap and a bargain at a mere $1,322!

 

atlas-launch-muos-1920All aboard… or maybe not? It all depends on what one wants to achieve – there’s many a slip ‘twixt the cup and the lip…

Photo credit: National Geographic Channel

 

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