Author Archives: Keith Weiner

     

 

 

Gold Lending and Arbitrage

There was no rise in the purchasing power of gold this week. The price of gold fell $22, and that of silver $0.19. One question that comes up is why is the fundamental price so far above the market price? Starting in January, the fundamental price began to move up sharply, and the move sustained through the end of April.

 

1-month LIBOR (London Interbank Offered Rate – the rate at which banks lend euro-dollars to each other). LIBOR and GOFO determine the gold lease rate, which is indirectly reflected in gold futures prices along the curve as well.

 

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Shill Alarm

One well-known commentator this week opined about the US health care industry:

 

“…the system is designed the churn and burn… to push people through the clinics as quickly as possible.

The standard of care now is to prescribe some medication (usually antibiotics) and send people on their way without taking the time to conduct a comprehensive examination.”

 

From the annals of modern health care… [PT]

 

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Waiting for Permanent Backwardation 

The price of gold dropped 9 bucks, while that of silver rose 3 cents. Readers often ask us if permanent backwardation (when gold withdraws its bid on the dollar) is still coming. We say it is certain (unless we can avert it by offering interest on gold at large scale). They ask is it imminent, and we think this is with a mixture of fear and longing for a higher gold price.

 

Lettuce hope this treasure is not cursed… but it probably is. [PT]

 

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Unfulfilled Prophecies

The price of gold fell $12 last week, but that of silver dropped 63 cents. What’s up with silver?! A prominent analyst wrote on April 19 of the “breakout” in silver. Of course, without the benefit of the basis and the Monetary Metals fundamental price, he could only see the price chart, plus the regular Wall Street indicators such interest rates, oil, and inflation.

 

A somewhat unsightly silver bar of historical interest, found in 1985 in the holds of the wreck of the Spanish galleon Nuestra Senora de Atocha, which sank near the Florida Keys in 1622. It was laden with silver the conquistadores had reportedly just stolen fair and square from Potosi in Bolivia. One presumes the perennially teetering on the verge of bankruptcy Spanish Crown was not very amused (34 of the bars belonged to the King outright, and he would have collected a 20% tax on the rest to boot). Anyway, lumps like this one don’t do breakouts; they do brick-outs and will hurt your toes if you’re not careful. [PT]

 

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Goldfinger Strikes, Sort Of

This week, we saw a tweet from a prominent goldbug. He said, “Russia added another 9 tons of gold to its reserves in March. The hits just keep coming.” How many errors in this short quip? We count six, exactly one error for every two words.

 

This one’s got everything: Smersh, Spectre, Putler and Pussy Galore! [PT]

 

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Turn on, Tune in, Drop out

Back in the drug-soaked, if not halcyon, days known at the sexual and drug revolution—the 1960’s—many people were on a quest for the “perfect trip”, and the “perfect hit of acid” (the drug lysergic acid diethylamide, LSD).

 

Dr. Albert Hoffman and his famous bicycle ride through Basel after he ingested a few drops of LSD-25 by mistake. The photograph in the middle was taken at the Woodstock festival and inter alia serves as a reminder that monetary inflation has a considerable effect on the purchasing power of the US dollar over time. [PT]

 

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The Lighthouse Moves

Picture, if you will, a brick slowly falling off a cliff. The brick is printed with green ink, and engraved on it are the words “Federal Reserve Note” (FRN). A camera is mounted to the brick.

The camera shows lots of things moving up. The cliff face is whizzing upwards at a blur. A black painted brick labeled “oil” is going up pretty fast, but not so fast as the cliff face. It is up 26% in a year.

A special brick, a government data brick of sorts, labeled “CPI-U” has been going up ever so slowly. At least according to the camera on the FRN brick.

 

US headline CPI y/y: slightly above the official “target” since September 2017. [PT]

 

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Irredeemably Yours… Yuan Stops Rallying at the Wrong Moment

The so-called petro-yuan was to revolutionize the world of irredeemable fiat paper currencies. Well, since its launch on March 26 — it has gone down. It was to be an enabler for oil companies who were desperate to sell oil for gold, but could not do so until the yuan oil contract.

 

After becoming progressively stronger over the past year, it looks as thought the 6.25 level in USDCNY is providing support for the US dollar. In fact, this was a resistance level in 2014 – 2015, which was first overcome in early August 2015, when the yuan weakened sharply. If we are not misinterpreting something, Beijing has hinted in veiled terms at possibly deploying its fairly tight control over the non-convertible currency’s exchange rate as a weapon in the ongoing trade dispute with the US. If so, the yuan may well weaken after its one-year long bout of strength. We get the thought process behind the quasi gold convertibility thesis, but we are not quite sure how it would work in practice (i.e., would one actually be able to move physical gold out of China willy-nilly if it were delivered against a yuan-denominated futures contract held by a foreigner? We have not really seen a detailed explanation of the mechanics of this type of transaction, but that may well be our fault for not making enough of an effort to search it out) [PT]

 

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The Long Run is Here

The dollar is failing. Millions of people can see at least some of the major signs, such as the collapse of interest rates, record high number of people not counted in the workforce, and debt rising from already-unpayable levels at an accelerating rate.

 

Total US credit market debt has hit a new high of $68.6 trillion at the end of 2017. That’s up from $22.3 trillion a mere 20 years ago. It’s a fairly good bet this isn’t sustainable. [PT]

 

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Seeing Things for What They Are

Picture, if you will, a group of slaves owned by a cruel man. Most of them are content, but one says to the others, “I will defy the Master”. While his statement would superficially appear to yearn towards freedom, it does not. It betrays that this slave, just like the others, thinks of the man who beats them as their “Master” (note the capital M). This slave does not seek freedom, but merely a small gesture of disloyalty. Of course, he will not get his liberty (but maybe a beating).

 

Hayek’s Road to Serfdom illustrated (via www.fee.org). An arrant conceit that remains fashionable in the face of veritable mountains of theoretical and empirical evidence arrayed against it, is the idea that benevolent philosopher-kings can somehow improve humanity’s well-being by centrally planning the economy, or at least important aspects of it. The notion is based on a fundamental error: It is held that social sciences are no different from natural sciences, that the actions of thinking and purposefully acting human beings can be expressed and foreseen by mathematical equations and should be steered in “desirable” directions by experts; that theoretical models which have their uses in explaining economic laws should somehow serve as templates for the planning of an “ideal” real world economy. Since money is the sine qua non of a modern, rational economy – without it, economic calculation and the division of labor would not be possible – it is of considerable importance that money has been handed over completely to a central planning bureaucracy. Keeping the state’s management of money one step removed from the political class by ostensibly “independent” central banking may well be preferable to giving politicians completely free rein in the coin-clipping business, but that doesn’t change the fact that central economic planning remains literally impossible. The benevolence, the intelligence and education of the planners, what information they have at their disposal – none of it matters one whit. Whatever they try, the outcome will always be inferior to that an unhampered free market would have produced. But no matter how many socialist economies collapse for everyone to see, central planning continues to be pursued with great vigor. Note that the downfall of command economies lately often seems to be driven by monetary chaos, which is a rather strong hint.  The most recent examples were Zimbabwe and Venezuela, which went down in hyperinflation conflagrations.  Argentina escaped a similar fate by a mere hair – its socialist leaders allowed the population to vote them out of office, so the country’s citizens got lucky. Why are nominally capitalist free market countries not ditching such failing strategies? To answer this, just ponder how many people in positions of substantial social prestige, influence and power would have to look for real jobs (i.e., would be forced to make a living by offering something people want to pay for voluntarily in the market); how many people depending on their favors would have to do the same; and the extent to which social and economic power in society would therefore shift. The existence of the excessively powerful and overbearing welfare-warfare State of today is predicated on the economic system that is in place now: one that still allows the generation of a sizable amount of real wealth, but at the same time has the capacity to create money from thin air in theoretically unlimited amounts, which inter alia allows it to amass enormous mountains of debt. However, this arrangement is not workable forever. The fiat money system continually fosters capital consumption and leads to a creeping breakdown in both morals and morale in society. There is an unknown threshold that will prove to be a tipping point when crossed. There is much to suggest that we are currently in a period of transition close to this tipping point. Both negative and positive outcomes remain possible. [PT]

 

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Smoke Signals

Gold went up by 33 of the Master’s Notes, but silver went up only 22 of the His Cents.

 

Decrepit though he may be… it’s still his funny money, and he always wants more of it. [PT]

 

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Ballistically Yours

One nearly-famous gold salesman blasted subscribers this week with, “Gold Is Going to Go Ballistic!” A numerologist shouted out the number $10,000. At the county fair this weekend, we ran out of pocket change, so we did not have a chance to see the Tarot Card reader to get a confirmation.

The market criers are back in gold town [PT]

 

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