Author Archives: Pater Tenebrarum

     

 

 

A Big Reference Chart Collection

Our friends at Incrementum have created a special treat for gold aficionados, based on the 2017 “In Gold We Trust Report”. Not everybody has the time to read a 160 page report, even if it would be quite worthwhile to do so. As we always mention when it is published, it is a highly useful reference work, even if one doesn’t get around to reading all of it (and selective reading is always possible, aided by the table of contents at the beginning).

 

The performance of major asset classes since gold bottomed in July of 1999. Despite the stock market outperforming gold handily since 2011, it is still lagging behind quite a bit over the past two decades. So it is clear what one should rather have owned. As far as we are concerned, for a variety of reasons we do not believe that gold’s secular bull market is over just yet, despite the steep correction from 2011 – 2015 (or 2013 in terms of most non-dollar currencies). The beginning of the new uptrend (gold is already up about 25% from its low) is in many ways reminiscent of the beginning of the bull market, as it is a halting affair with many short term setbacks, accompanied by great skepticism. The current year is particularly remarkable, because gold had every reason to decline, but up until recently had actually outperformed every other major asset class (the stock market only managed to catch up with it very recently). Gold has begun to strengthen ever since the Fed’s rate hike campaign began – regular readers may recall that we expected this to happen and asked them to “bring it on”. This is counter-intuitive and the consensus certainly expected the exact opposite outcome. In reality it is both logical and telling. As an aside: if we had added the CRB to this chart, you would see that it has actually lost 3.2% since July of 1999. We refrained from adding it because the CRB does not properly depict the price performance of commodities. Its performance includes the futures roll-over effect, which leads to huge distortions over time. A spot price index looks completely different and would show a respectable gain in commodity prices since 1999 (and it should be obvious that with crude oil trading at $50 instead of $10 and copper nearly at $3 instead of 40 cents, etc., that commodities are generally definitely not cheaper than in 1999/2000). Unfortunately we couldn’t find such an index at stockcharts, so we decided to rather leave commodities out – click to enlarge.

 

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Anecdotal Flags are Waved

 

“If a shoeshine boy can predict where this market is going to go, then it’s no place for a man with a lot of money to lose.”

– Joseph Kennedy

 

It is actually a true story as far as we know – Joseph Kennedy, by all accounts an extremely shrewd businessman and investor (despite the fact that he had graduated in economics*), really did get his shoes shined on Wall Street one fine morning, and the shoe-shine boy, one Pat Bologna, asked him if he wanted a few stock tips. Kennedy was amused and intrigued and encouraged him to go ahead. Bologna wrote a few ticker symbols on a piece of paper, and when Kennedy later that day compared the list to the ticker tape, he realized that all the stocks on Bologna’s list had made strong gains. This happened a few months before the crash of 1929.

 

Joseph Kennedy in 1914, at age 25 – at the time reportedly “the youngest ever bank president in the US”

Photo credit: John F. Kennedy Presidential Library and Museum, Boston.

 

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Global Monetary Architecture

The quarterly Incrementum Advisory Board meeting was held last week (the full transcript is available for download below). Our regulars Dr. Frank Shostak and Jim Rickards were unable to attend this time, but we were joined by special guest Luke Gromen of research house “Forest for the Trees” (FFTT; readers will find free samples of the FFTT newsletter at the site and in case you want to find the link again later, we have recently added it to our blog roll). Below we add a few remarks on a topic Luke Gromen is paying a great deal of attention to.

 

Special guest Luke Gromen of FFTT.

 

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Étatiste Crackpottery

Shortly after we posted Jayant Bhandari’s recent article that inter alia discussed  the new complex GST (general sales tax) regime introduced in India by the Modi government (see “The Lunatics Have Taken Over the Asylum” for details), we were contacted by Lakshminarayanan Kumaraapuram, a small businessman in Mumbai. He asked us whether we would be prepared to publish a comment he originally mailed to the prime minister’s “grievance portal”, so as to transform it into an open letter.

 

Let’s keep it simple… but not too simple. The chief surgeon gets ready to wield his scalpels and cleavers.

 

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Frisky Fed Hike-o-Matic

We haven’t commented on central bank policy for a while, mainly because it threatened to become repetitive; there just didn’t seem anything new to say. Things have recently changed a bit though. A little over a week ago we received an email from Brian Dowd of Focus Economics, who asked if we would care to comment on the efforts by the Fed and the ECB to exit unconventional monetary policy and whether they could do so without triggering upheaval in the markets and the economy**, so we are taking this opportunity to do just that.

 

Outside view of a famous crime scene: the building where the central planners of the fiat money regime gather to “steer” the economy.

 

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Maurice Jackson Interviews Jayant Bhandari

We are happy to present another interview conducted by Maurice Jackson of Proven and Probable with our friend and frequent contributor Jayant Bhandari, a specialist on gold mining investment, the world’s most outspoken emerging market contrarian, host of the highly regarded annual Capitalism and Morality conference in London and consultant to institutional investors.

 

As soon as Jayant touches down in London, he is accosted by microphone-wielding young women eager to hear what he has to say…

Photo via financialpost.com

 

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The Crypto-Bubble – A Speculator’s Dream in Cyberspace

When writing an article about the recent move in bitcoin, one should probably not begin by preparing the chart images. Chances are one will have to do it all over again. It is a bit like ordering a cup of coffee in Weimar Germany in early November 1923. One had to pay for it right away, as a cup costing one wheelbarrow of Reichsmark may well end up costing two wheelbarrows of Reichsmark half an hour later. These days the question is how many wheelbarrows of US dollars one may need to pay for a bitcoin.

 

Is it real? (As our readers know, the nature of reality poses certain problems).  When we started writing this, bitcoin had just moved up by more than $600 in one week to its then level of $2,400 –  within a little more than a day it reached an interim peak of $2,760, then plunged to an interim low of around $1850 in just two trading days, only to rally to a new high of $2,930 over the next two weeks. Currently it trades at $2,750 (don’t hold it against us if these figures are no longer true by the time this post is published).

 

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[Ed. note: This article was originally posted in November of 2010 – we have decided to republish it with updated charts, as it has proved to be very useful as a reference – the mechanics of QE are less well understood than they should be, and this article explains them in detail.]

 

Printing Money

We have noticed that lately, numerous attempts have been made to explain the mechanics of quantitative easing.  They range from the truly funny as in this by now ‘viral’ You Tube video with two robotic teddy-bears discussing the Fed chairman’s qualifications (‘my plumber has a beard too’), to outright obfuscation such as the propagation of this ‘Bernanke explains he’s not printing money, it’s just an asset swap‘ notion. This was apparently repeated by NY Fed president William Dudley on one occasion as well.

 

Are they printing money? You bet they do.

 

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The 11th Annual In Gold We Trust Report

This year’s Incrementum In Gold We Trust report by our good friends Ronald Stoeferle and Mark Valek appears about one month earlier than usual (we already mentioned in our most recent gold update that it would become available soon). As always, the report is extremely comprehensive, discussing everything from fundamentals pertaining to gold, to technical analysis to statistical studies on the behavior of gold under different economic scenarios.

 

August gold, daily – gold itself continues to look fairly strong recently, but its rally is currently not confirmed by precious metals stocks.  Silver is lagging the advance as well – click to enlarge.

 

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Keeping it Simple

We recently (on Thursday last week to be precise) put together a few gold-related charts based on the “keep it simple” principle. The annual Incrementum “In Gold We Trust” report is going to be published shortly and contains a quite thorough technical analysis section, so we will keep this brief and just discuss a few things that have caught our eye.

 

Going for the gold: The two gentlemen on the left are standing at what is officially the deepest below-ground spot humans have ever stood on. It is more than 4 kilometers or approx. 2.5 miles below the surface, at the very bottom of the Mponeng deep level gold mine in South Africa. The rock face with the grid painted on it is about to blasted to smithereens (the giant rock drill to the right drills holes into it, which are then filled with explosives). The people working in this tunnel, we kid you not, are referred to as the “mine deepening team”. That’s right – they are drilling down another 7,000 feet to reach an ore body at a depth of 3 miles – or more than 4.8 kilometers deep.  Where they stand right now, the rock face has a surface temperature of more than 66 degrees C, or about 151 degrees F. The gold-bearing reef that is eventually going to be mined when the tunnel reaches it has a thickness of only about one meter, or 3.3 feet – but it will lengthen the mine’s life until around 2030.

Photo credit: Discovery World

 

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Central Banks Produce Dire Consequences for the Free Market

Todd “Bubba” Horwitz has recently produced a podcast with our friend Claudio Grass of Global Gold, which we can be called up further below. Bubba has provided a summary of the topics discussed, an edited version of which you find below as well.

 

Global Gold CEO Claudio Grass, tireless advocate for free markets, sound money and liberty.

Photo via Global Gold

 

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Money Supply and Credit Growth Continue to Falter

The decline in the growth rate of the broad US money supply measure TMS-2 that started last November continues, but the momentum of the decline has slowed last month (TMS = “true money supply”).  The data were recently updated to the end of April, as of which the year-on-year growth rate of TMS-2 is clocking in at 6.05%, a slight decrease from the 6.12% growth rate recorded at the end of March. It remains the slowest y/y growth since October of 2008, when the Fed had just begun to pump quite heavily.

 

US money supply and credit growth keep slowing.

 

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