Hostages of Irredeemable Scrip

Stockholm Syndrome is defined as “…a condition that causes hostages to develop a psychological alliance with their captors as a survival strategy during captivity.” While observers would expect kidnapping victims to fear and loathe the gang who imprison and threaten them, the reality is that some don’t.

 

Images from the Kreditbanken robbery at Norrmalmstorg in central Stockholm in 1973. The two bank robbers took four hostages, who afterward complained that they were far more scared of the what the police might do than of the robbers. One of the hostages even struck up a personal friendship with one of the hostage takers a few years later (despite the fact that he remained a career criminal).  Psychologists became interested in this odd behavior and criminologist Nils Bejerot eventually coined the term “Stockholm syndrome” to describe it. [PT]

 

There is a loose analogy between being held hostage and being an investor in a regime of irredeemable paper currency and zero interest rates. In both cases, the victim has little hope of escape and must seek to somehow survive under malevolent conditions.

Key behaviors displayed by victims of Stockholm Syndrome are positive feelings for their captors, a refusal to work with law enforcement afterward, and even a belief in the humanity of the terrorists.

Key behaviors of investors today show eerie parallels: a desire to bid on dollars with their assets, a refusal to support the gold standard, and even a belief that the dollar is money. This last always shows when someone — even a gold bug — says gold is going up, or gold is the best performing currency, or gold has good returns.

These words up, performance, and returns indicate that the victim accepts the dollar as money, the dollar as the measure of value, the dollar as the unit of account. The victim seeks to view gold in terms of his captor’s paradigm. Much like the kidnapping victim seeks to understand his capture and even geopolitics in terms of his captor’s world view.

Many victims are so thoroughly in thrall, that they scoff at the very idea of earning interest from a productive enterprise. They seek only the latest bubble, where they can make a profit: more dollars. Or, if not more dollars, at least more purchasing power.

For years, they sought to do this in the gold and especially silver markets. Some gold bugs go even farther, and oppose a gold standard. Perhaps they don’t want sound money, they want gold to go up which means something external that gold can go up against.

 

A pile of external somethings, i.e., legal tender made from dead trees. As long as it is used and accepted as a general medium of exchange people will pine for it. Government scrip derives its secondary market value primarily from the fact that it is the only form of money accepted for the payment of taxes. [PT]

 

We watched bemused as a speaker at the Metal Writers Conference in Vancouver on May 29 told a standing-room-only crowd that bitcoin would hit $1 million (it went up after that, but is now down about 15% from that day). A 436X return would be nice, but of course the profits can only come from later speculators.

There is an ugly little word for schemes in which profits come from those who buy in later. It is named for a gentleman who came from Italy, promoting his scheme in Boston.

 

Charles Ponzi at his desk in 1920. His comprehensive get-rich-quick scheme eventually brought down six banks in Boston and impoverished thousands of gullible investors. About 75% of the members of Boston’s police force had invested in his scheme as well. [PT]

Photo credit: Boston Library

 

We blame the game, not the player. It is important to emphasize this—don’t blame the players, blame the game — and we probably don’t do it enough. The fault lies not with those who bet on gold or bitcoin or anything else, nor even with those who regard betting as investing.

The fault lies with the Fed and the other central banks who have the hubris to think they can centrally plan their way to prosperity. And the gun to force it on us, whether we agree or not. And the madness to cause interest rates to fall for 36 years and counting (the Fed is not going to push the interest up much farther in this cycle, if they even dare to implement one more hike).

When freedom seems so remote as to be hopeless, it may be natural (we leave this to psychologists to determine) to find a way to compromise, to get along to go along.

As to us, we will go on working towards that day of freedom, a big part of which is helping people see the monetary system for what it is: the current implementation of the fifth plank proposed by Karl Marx. Another part is to pay interest on gold…

 

Fundamental Developments

Last week, we said:

 

“Peak hype, peak desperation, all selling in the streets with little buying… we are not technicians and do not focus on sentiment… but this description sounds like the definition of capitulation. […]

Also, we would add something important. Even if this is a capitulation low, that does not necessarily a mean a moonshot to $5,000 or even $2,000.  We don’t expect that, and won’t expect it without evidence of a much more serious shift in the fundamentals. We would expect a normal trading bounce within the range and perhaps a few bucks over $1,300.”

 

Last week, the prices of the metals bounced somewhat, within their recent trading range. Gold closed at $1212 the previous week, and last week at $1229. In silver, the previous week’s close was $15.56, and last week’s was $15.96.

Will the bounce continue? Have the fundamentals firmed up?

We will show graphs of the true measure of the fundamentals. But first charts of their prices and the gold-silver ratio.

 

Gold and silver prices – click to enlarge.

 

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio moved down last week.

 

In this graph, we show both bid and offer prices for the gold-silver ratio. If you were to sell gold on the bid and buy silver at the ask, that is the lower bid price. Conversely, if you sold silver on the bid and bought gold at the offer, that is the higher offer price.

 

Gold-silver ratio, bid and offer – click to enlarge.

 

For each metal, we will look at a graph of the basis and co-basis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and co-basis in red.

 

Here is the gold graph.

 

August gold basis, co-basis and the dollar priced in gold. The hostages strike back – click to enlarge.

 

The dollar fell a bit this week (the mirror image of the rising price of gold). Now it is the dollar hostages who use gold as their preferred hostage-bargaining chip to feel a bit better. One ounce of this commodity now fetches 17 more of the kidnapper’s paper scrip than it did a week ago.

As the dollar fell, the co-basis fell (especially in farther-out contracts). The August co-basis is still above zero (i.e. there is a temporary backwardation in place).

Our calculated gold fundamental price has not changed much, it remains above the market price by a goodly margin (chart here).

Now let’s look at silver.

 

September silver basis and co-basis and the dollar in terms of silver. – click to enlarge.

 

As the dollar has dropped (i.e., silver trades for more gang-scrip than last week), the co-basis has come down. But it is still higher than gold’s co-basis, and this is the September contract, a month further from expiry than the August gold contract.

Our calculated silver fundamental price is rising again, also maintaining a healthy margin above the market price.

We thought it would be worth addressing the question: “is there a shortage in silver?” Let’s do it with a device that’s famously worth 1,000 words. This picture shows the term structure of the silver futures market.

 

Silver basis and co-basis, term structure – click to enlarge.

 

What we see is what Sherlock Holmes observed that people heard in the night in the story Silver Blaze. There are no interesting features. Other than the temporary backwardation in the September contract, we see a rising basis and falling co-basis as we look out to December 2018. The rising basis looks a lot like the yield curve in the dollar, though it is slightly lower (6-month LIBOR is 1.5%).

If a real shortage developed in silver, the above curve would look quite different. And we would be publishing pictures of it.

Monetary Metals will be exhibiting at Freedom Fest in Las Vegas in July. If you are an investor and would like a meeting there, please click here. Keith will be speaking, on the topic of what will the coming gold standard look like.

 

Charts © 2017 Monetary Metals

 

Chart and image captions by PT

 

Dr. Keith Weiner is the president of the Gold Standard Institute USA, and CEO of Monetary Metals. Keith is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. Keith is a sought after speaker and regularly writes on economics. He is an Objectivist, and has his PhD from the New Austrian School of Economics. He lives with his wife near Phoenix, Arizona.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • What Kind of Stock Market Purge Is This?
      Actions and Reactions Down markets, like up markets, are both dazzling and delightful. The shock and awe of near back-to-back 1,000 point Dow Jones Industrial Average (DJIA) free-falls is indeed spectacular. There are many reasons to revel in it.  Today we shall share a few. To begin, losing money in a multi-day stock market dump is no fun at all.  We'd rather get our teeth drilled by a dentist.  Still, a rapid selloff has many positive qualities.   Memorable moments from...
  • How to Buy Low When Everyone Else is Buying High
      When to Sell? The common thread running through the collective minds of present U.S. stock market investors goes something like this: A great crash is coming.  But first there will be an epic run-up climaxing with a massive parabolic blow off top.  Hence, to capitalize on the final blow off, investors must let their stock market holdings ride until the precise moment the market peaks – and not a moment more.  That’s when investors should sell their stocks and go to...
  • US Stocks - Minor Dip With Potential, Much Consternation
      It's Just a Flesh Wound – But a Sad Day for Vol Sellers On January 31 we wrote about the unprecedented levels - for a stock market index that is - the weekly and monthly RSI of the DJIA had reached (see: “Too Much Bubble Love, Likely to Bring Regret” for the astonishing details – provided you still have some capacity for stock market-related astonishment). We will take the opportunity to toot our horn by reminding readers that we highlighted VIX calls of all things as a worthwhile...
  • When Budget Deficits Will Really Go Vertical
      Mnuchin Gets It United States Secretary of Treasury Steven Mnuchin has a sweet gig.  He writes rubber checks to pay the nation’s bills.  Yet, somehow, the rubber checks don’t bounce.  Instead, like magic, they clear. How this all works, considering the nation’s technically insolvent, we don’t quite understand.  But Mnuchin gets it.  He knows exactly how full faith and credit works – and he knows plenty more.   Master of the Mint and economy wizard Steven Mnuchin and...
  • Why I Own Gold and Gold Mining Companies – An Interview With Jayant Bandari
      Opportunities in the Junior Mining Sector Maurice Jackson of Proven and Probable has recently interviewed Jayant Bandari, the publisher of Capitalism and Morality and a frequent contributor to this site. The topics discussed include currencies, bitcoin, gold and above all junior gold stocks (i.e., small producers and explorers). Jayant shares some of his best ideas in the segment, including arbitrage opportunities currently offered by pending takeovers – which is an area that generally...
  • Seasonality of Individual Stocks – an Update
      Well Known Seasonal Trends Readers are very likely aware of the “Halloween effect” or the Santa Claus rally. The former term refers to the fact that stocks on average tend to perform significantly worse in the summer months than in the winter months, the latter term describes the typically very strong advance in stocks just before the turn of the year. Both phenomena apply to the broad stock market, this is to say, to benchmark indexes such as the S&P 500 or the...
  • The Future of Copper – Incrementum Advisory Board Meeting Q1 2018
      Copper vs. Oil The Q1 2018 meeting of the Incrementum Fund's Advisory Board took place on January 24, about one week before the recent market turmoil began. In a way it is funny that this group of contrarians who are well known for their skeptical stance on the risk asset bubble, didn't really discuss the stock market much on this occasion. Of course there was little to add to what was already talked about extensively at previous meetings. Moreover, the main focus was on the topic...
  • “Strong Dollar”, “Weak Dollar” - What About a Gold-Backed Dollar?
      Contradictory Palaver The recent hullabaloo among President Trump’s top monetary officials about the Administration’s “dollar policy” is just the start of what will likely be the first of many contradictory pronouncements and reversals which will take place in the coming months and years as the world’s reserve currency continues to be compromised.  So far, the Greenback has had its worst start since 1987, the year of a major stock market reset.   A modern-day...
  • Strange Economic Data
      Economic Activity Seems Brisk, But... Contrary to the situation in 2014-2015, economic indicators are currently far from signaling an imminent recession. We frequently discussed growing weakness in the manufacturing sector in 2015 (which is the largest sector of the economy in terms of gross output) - but even then, we always stressed that no clear recession signal was in sight yet.   US gross output (GO) growth year-on-year, and industrial production (IP) – note that GO...
  • US Equities – Retracement Levels and Market Psychology
      Fibonacci Retracements   Following the recent market swoon, we were interested to see how far the rebound would go. Fibonacci retracement levels are a tried and true technical tool for estimating likely targets – and they can actually provide information beyond that as well. Here is the S&P 500 Index with the most important Fibonacci retracement levels of the recent decline shown:   So far, the SPX has made it back to the 61.8% retracement level intraday, and has weakened...
  • Update on the Modified Davis Method
      Whipsawed Frank Roellinger has updated us with respect to the signals given by his Modified Ned Davis Method (MDM) in the course of the recent market correction. The MDM is a purely technical trading system designed for position-trading the Russell 2000 index, both long and short (for details and additional color see The Modified Davis Method and Reader Question on the Modified Ned Davis Method).   The Nasdaq pillar...   As it turns out, the system was whipsawed,...
  • Market Efficiency? The Euro is Looking Forward to the Weekend!
      Peculiar Behavior As I have shown in previous issues of Seasonal Insights, various financial instruments are demonstrating peculiar behavior in the course of the week: the S&P 500 Index is typically strong on Tuesdays, Gold on Fridays and Bitcoin on Tuesdays (similar to the S&P 500 Index).   The quest for profitable foresight...[PT]   Several readers have inquired whether currencies exhibit such patterns as well. Are these extremely large markets also home to...

Support Acting Man

Item Guides

Top10BestPro
j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com

Diary of a Rogue Economist