Ty Andros?
anyways, very well written! i'm glad we're continuing this debate. i'm learning lots from someone who will take the time and effort to write beautiful prose thats understandable, logical and coherent. thank you
after sifting thru all that you've said on this thread, again i think i can boil this down to what this debate has come down to and that is Deflation (me) vs. Stagflation as to what the next cycle entails.
ty, may i call u ty? ty thinks that what can't go on forever, will and i think that what can't go on forever, won't. please don't take exception to the oversimplification but i feel that pretty much sums it up.
ty was right, gold has entered the blowoff parabola IMO and has broken up and out of the longterm trend channel. this IMO is a terminal ending pattern and screams caution. even if you're a bull you should be taking down some positions to profit just in case. thats prudent. the question is when will it break? this is when trading gets fun but also painful. gold is going straight up and that is a huge warning sign for me esp. in light of the carnage elsewhere.
i think i am much more of a market dynamic believer than ty. i believe in cycles, sentiment, waves, ie, the technicals more so than i think ty does. ty is fantastic with the fundamentals and i used to be so as well but have made more of a shift towards what the charts are telling me b/c no one can know ALL the information especially the misleading stuff much less how it fits together in terms of investing. i also believe in strategic theories as in how to think like a criminal. and what circumstances will cause the most pain to the most individuals. how to get myself to the other side of the boat before everybody else does thinking. when everything seems obvious what's not so obvious. enough of that...
so when does this bull break? could it be something as simple as the increase CME margin req last nite? it could be in retrospect if we continue the decline from here. we'll see.
Get ready for another consolidated reply of epic proportions. Homer's got nothing on me!
*Disclaimer: I am an a**hole and I have an opinion. Don't take anything personally - think for yourself.
this is great! so am i plus i'm triple type A impatient which compounds the problem!
well i do too since 2005. i asked you before and i'll ask again. when did you start?
You've been dabbling with Bitcoin 4 years before it began?
no, no, no. gold dude!
Nine days or nine years, it doesn't matter. Focus on what's relevant.
its just a simple bet. i don't think equities can be propped up like you do and i do think they'll be lower one year from now. no insult intended.
Alright, next time just ask.
My opinion is that equities have already been propped up and can be for some time still. How long, I have no idea, nor do I particularly care. An overall index gives a very general (and somewhat vague) idea of health when I'm concentrating on which aspects will thrive in adversity. The next reflation effort might fail spectacularly and we could see the S&P at 200 next year, or it could succeed in keeping the dollar-denominated number up despite a deflation in real value. A better question might be whether I think the markets will be more valuable next year.
heck no. i'm learning alot. no need to get personal.
Good, never stop learning; I agree - deep breaths. No rush.
i don't agree with your thesis.
http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab9there is only 2.8T worth of FRN's and required/excess reserves out there. compared to orders of magnitude more debt/virtual USD's. 60% of world debt is denom in USD's. sovereign debt has hit the wall. we are now getting defaults. this will decrease the total amt of USD's worldwide. on top of that, foreign denom debt is defaulting as well and they are reserved in USD's. this increases the demand for remaining USD's whether they desire them or not. these 2 factors should force the value of the USD up. the recent swap lines are evidence of this.
Fair enough, most don't initially.
You've hit the problem on the head - over half of the entire world's debt is in dollars, yet there is only a base of about $3 trillion. Now how does that debt deflate? It doesn't simply disappear. Real assets will deflate after being insanely over-valued, but taking a hit on the debt will be fought every step along the way. Who wants to realize their losses, especially catastrophic ones?
Once credit is extended, it is extremely difficult to reel it back in. It isn't as though a simple recall can be issued on fractional reserves.
sure it is. what are margin calls? calling in a debt is easily within the purview of banks. they do it all the time. i just had a large credit line shut down even tho i'm an equivalent AAA with no debt on my books at all and a good income. the banks are stressed and they don't believe in the consumer anymore. they are bracing for the storm. these types of margin calls are whats tipping us over right now IMO.
There's only so much that can be "sterilized" by reducing the monetary base, and the more it's reduced, the harder it gets for small business to actually do business.
i'm not sure why you're talking about this. you're talking about gov't/Fed increasing the monetary base as the primary dynamic whereas i'm talking about debt deflation as the primary dynamic.
With asset deflation, obviously prices fall in dollar denomination. If credit/debt losses aren't pared along with that, there is no accompanying drop in the total currency. Since debt is being treated as collateral (and has been for decades), it has effectively been monetized without experiencing a return on the credit offered. This is the leverage that has propelled the system.
yes, yes! absolutely true. i've read where the primary dealers were using all sorts of mortgage derivatives as cash instruments for nightly sentlements. this is what happened to Lehman. the bonds/derivatives they were using for overnight collateral became too toxic for other banks to accept and eventually they ran out of acceptable "cash like" instruments. debt being built on debt. excellent.
If the devaluing credit/debt were allowed to contract, major institutions would find themselves bankrupt. Because of this, we have to take a step outside of the purely financial realm.
If a major automobile manufacturer were to collapse, it could take tens of thousands of jobs. There are other jobs associated with those 10,000 so the collateral damage will expand the problem. When there are enough jobs lost, overall income is reduced and people struggle just to survive. Eventually, even survival becomes so difficult that many turn to crime, with some becoming violent. After a little while of that, people start to realize that things aren't going to get better and they begin to revolt.
Actions taken so far have shown that instead of accepting the losses, the US will try to monetize the credit/debt no matter what. It is easier to minimize the rising anger than to deal with the full shock. The problem with this is that there is already a large percentage of the population reduced from a modest lifestyle to abject poverty. The longer the problem is put off by inflating the base currency to fill the deflation-induced gaps and avoid losses, the more people will fall into despondency due to underlying deflationary effects. This can be equated to swimming against a riptide: the harder you struggle, the more exhausted you'll become and the farther out to sea. It's a losing battle.
Thinking that stimulus (bailout, printing, whatever you want to call it) won't continue is a naive position, especially now. Too many people are unemployed and angry at government. If a decline were allowed to occur in 2008, the ranks of not-yet-unemployed would've been able to weather several months to a year or so of poor economic activity during the correction. Instead, millions of people have exhausted up to 2 years of unemployment "benefits" in addition to savings and even retirement funds in many cases. Such a shock, even for only a few months, would completely wipe out anyone in that situation at this point. This is why stimulus and hence inflation
will continue.
Coming back to the financial aspect: $3 trillion is nowhere near enough to monetize the US
outstanding debt. Even if the $14 trillion national debt were forgiven, there's still $16 trillion in private debt that's mostly held by domestic banks. A 20% decline in assets now (or 10% with nat'l & private debt @ $30 trillion) would cause widespread defaults and extreme hardship. It becomes plain to see that, since credit cannot be sterilized as base money can, every effort must be made to deleverage the money supply by monetizing the debt so as to prevent nationwide defaults from margin requirements - cries for help will be met with free/cheap dollars.
You can imagine how the situation is made many,
many times worse by foreign-held US debt. Consider the amount of
derivatives outstanding as per the BIS: over $600 trillion (before the revisions made after 2009 from $1.4
quadrillion). While not all of it is US debt, the same problems arise in the major currencies. Therefore, they must be propped up as well. The total global leverage is as high as 100 to 200:1 - a mere 0.5 to 1.0% drop in asset valuation could cripple the worldwide financial system. Everyone would be screaming for everyone else to pay up - a run on derivatives.
The only realistic solution today is to keep the game going in the hopes that things will just work out in the end. Living on a prayer only works for the one-in-a-million who becomes a rockstar in a rags-to-riches saga. There are fewer than 300 recognized nations in the world. Those are not good odds.
this is fundamentally where we disagree. i think its naive to think the Fed will sacrifice itself for the good of the debtors of this nation and worldwide. i think they want to stay in power, i think they want to keep their USD franchise, i think they want to preserve their constituents wealth (the wealthy bankers), i think they want to preserve their distributed central banking system based on the USD which have made them Kings, and i think the Fed has the upper hand on their Congressional lackies who are powerless to stop them. i think they are going to try to manage the USD UP while slowly eroding the avg Americans wealth to prevent rioting. i think they realize the Euro experiment has failed and that trying to build a one world currency will never work and the best course of is to make the best of the current situation. they know that of the 12 bankers in the room, probably 4 of them will die, but thats better than all of them dying from hyperinflation and WW3.
Bitcoin may be an ideal reserve currency, but gold is an ideal reserve asset.
wait a minute. you agree with Ben that gold is just another asset, not money? that means that golds value as an asset depends on the USD. which means that the USD is of primary significance and gold is secondary!
A grocery store is wonderful so long as it has groceries. Bitcoin works great as long as the network is operational. Gold is great only if you
have it. Both Bitcoin and gold are essential. Together, they are
Captain Planet!
I'm not happy about this even though I understand it. Believe me, I'd rather be back studying something other than economics, but there's so much at stake here that it'll become every man for himself before long. No, you can't eat your gold, but it's a better bet than treasuries will be after a 10% decline in global asset valuation and all paper is viewed with suspicion.
the bond floors of Japan are littered with shorts. i hate this argument but look at UST's rally. i hate them too but you can't deny reality and where MOST of the money is fleeing to. BTW, i can't wait to short UST's but that could be years before that trade is good.
Then try getting gold. I don't even like gold - I think it's gaudy and heavy. Too bad, it happens to be the best store of value on the planet right now. Bitcoin has potential, but until it's easily recognized, I'll use the two in complementary fashion.
How many gold coins do you need to carry with you to start a new life elsewhere? If living expenses keep deflating, a single ounce of gold may come to be an average person's life savings. For now, at almost $2,000 per coin, a suitcase would easily hold a hundred ounces or so. Just make sure you've got wheels on it and hope you don't get stopped at a border. The latter problem applies to paper money too. That's where Bitcoin comes in.
Stick some gold in a bank as collateral and you can use the same currency system you've always been used to. Buy some 1/10th ounce coins and buy enough groceries to feed the family for a month. The internet may have caused whirlwind change, but it hasn't eliminated the need for food, water, shelter and a method of acquiring them. Without the internet, no Bitcoin. Then what?
they will NEVER be able to shut down the Internet even if they wanted to. that would kill everything incl the banks and gov't. this is one reason why i'm bullish on btc.
That doesn't answer where I said they're dependent.
Collective sentiment is everything - money's value arises from subjective perception. Otherwise, gold would just be metal. Nothing would be worth anything relative to anything else. If people lose their belief in the dollar's value, it no longer has value.
fair enough but we're not at that point yet except in the case of the gold bugs.
in the case of TARP and most likely June 2011 they're meant to prevent insolvency; a much more serious situation. they keep the foreigners dependent on the USD and will sustain demand.
I agree, solvency is the greater issue there. Where does the demand come from? The need to create more paper products - more derivatives? What of real wealth and stability? A number of regions have already been detailing efforts to move off the dollar to Euros or other currencies, including gold. No dependency there.
there is more dependency than you think. look at Saudi Arabia and petrodollars. they can afford to live like Kings of the Middle East b/c of the US military protecting their borders and oil. and you know what? the US will FORCE thru guns the acceptance of USD's for oil. unfair yes, but this is something we haven't touched upon as an argument for why the USD won't go away.
i agree but i don't think the gov't/Fed can stop the implosion and deflation. i think they've come to this realization and are stepping away from the markets by no QE. as the collapse unfolds, the demand for cash/USD by everyday Americans will overwhelm the price of gold. debt defaults will accelerate shrinking the money supply. the scramble for cash has begun and the margin calls are going out.
Oh, they certainly can't stop it, just delay it. Don't be surprised by a resumption of QE, though. It might be through other methods, maybe price controls or interest rate limits, but as I offered above it will happen. The alternative is social revolt.
i'm not sure social revolt can be avoided either way but we certainly can disagree about what mechanism causes it to come about.
things have gotten worse. seasonal patterns don't always work out. you don't always have to have a parabolic blowoff to end every bull. look at the Dow. i stripped off the indicators you mentioned to make a specific point. yes i do use them.
you are good at the fundamentals. i used to rely on them much more than i do now b/c no one can know everything and sometimes things aren't as they appear. i've learned that the charts tell a much bigger part of the story IMO. i'm trying to identify a top to the longest bull market in existence today. no question it'll be tough going when everyone around me is onboard this train.
You're right, seasonal patterns aren't always reliable. But they are more often than not, otherwise they wouldn't be seasonal.
That's true, not every bull goes parabolic. Of course, not every bull involves an asset in such demand yet so restrained as gold is. Again, equities and gold are different animals; gold is closer to currencies than stocks.
Thanks - you've made some good inferences yourself. My only concern is that the interpretations may be based on inappropriate assumptions considering the circumstances, which was why I offered my thoughts in the first place. Are you sure you want to be standing in front of this train?
no pain, no gain.
Watch gold's behavior without bias; there are innate patterns. After a long period of consolidation following a major spike drop, it will steadily rise to previous highs. Then it begins a stair-step pattern: price will jump, then trend sideways for a bit, jump again, trend sideways, and so on. It'll do this for a while and the rate of jumps will increase. Finally, the trend will begin ascending until a mini-parabolic run temporarily exhausts the metal. That's when major interests will start selling in earnest and a straight drop will occur.
this is obvious and i've been watching this typical behavior since 2005. EXCEPT this time it has gone truly parabolic like you said it would at an end stage IMO and has broken sharply above the channel. what you interpret as bullish i interpret as a possible end stage. whats also different this time is we're tanking again in the general stock mkt. i think this time IS different and i'm willing to get short this time.
Take another ten deep breaths and pop a valium - I can see your forehead veins pulsating from here
LOL!!!
money velocity is in the tank. this is deflationary.
i'm familiar with Gresham's Law. bad money forces out good from gov't enforcement. whats your point other than that gold and bitcoin are being hoarded b/c of the prospect for higher valuation?
Absolutely! What does that mean for small business? Credit that is normally needed for operations might not be available, so if a small business doesn't have cash on hand, commerce grinds to a halt. If transactions become unreliable, there would certainly be a rush to cash. That increases volatility, so approporiate pricing of goods and services takes on an increased share of effort until things stabilize. How long until that point is anyone's guess. Do you think people will take kindly to their leaders at that point, or will they be rioting and demanding to "throw the bums out" as in Greece and London (the latter had tensions running high already, so a normally upsetting event became the spark for an eruption far greater than expected)?
i'm not sure i'm following what you're trying to say but i do know that Gresham's Law from USD debasement since 1971 has forced gold into hiding and reinforced the Keynesian Boom Bust Cycle which has enabled small and large biz good and bad alike to access money they should never have been allowed access to causing an inflationary boom of unprecedented proportions along with a population boom. as a result i think we've hit the ceiling and are now going to go into reverse. you can see a large head and shoulders pattern on the Dow going back to 2000. we've had 2 major stock crashes since and a continuing housing crash. thats unprecedented in a short 11 yrs. we're now clearly heading down again but this will be the big one which will reverse 100 yrs of Fed inflation and in particular the last 40 since depegging. gold will not be spared as i agree with Ben; its an ASSET.
Gold and Bitcoins would be hoarded not because of the prospect of higher valuation (that is a motivation for savvy investors), but because of a desire to escape from the domestic currency (e.g. USD) - the hot potato. The dollar is still necessary as legal tender, but it will be prudent to get rid of the liability before it burns too big a hole in your pocket. Smart money already realizes this and has been steadily acquiring real assets, including gold. The 80% of money that is retail will scramble to enter for the last 20% rise, causing the parabolic effect.
they won't be coming to any large degree. they don't have the "cash". we're 11 yr into this; ain't gonna happen. mining stocks and silver are telling you as much.
the USD increased in value today. still consolidating. no breakdown.
gold is rallying like it intends to be the reserve currency of the world. or is it just the end stages of a parabolic blowoff only to do another 1980?
The dollar needs to close above 76.5 to cause a major reversal in the flow of funds. Negative divergence in long bond - it looks tired. Gold is finally getting a little unstable. It's a growing possibility that we could see a drop in the safe havens for the rest of the week.
The topic of a centralized world currency is terrifying if it's controlled by the usual suspects. I don't trust any human sleazebag to run the show. That's why my hope is with Bitcoin and similarly decentralized systems. The value from Bitcoin might be preserved during transition to a successor, should one arise. I think major adoption of it will probably take at least 3 years, as will resistance to existing power bases.
As I was writing this, I saw that the CME Group
raised margin requirements, in particular on gold (+22%) and the Swiss franc (+400%). Normally, this takes the wind out of gold's sails, but today it barely registered. Watch for more margin raises in the near future (and the correction we've all been waiting for) - the COMEX will become a 100% cash market soon. This tells me that there's overwhelming demand for physical metal by interests with sufficient capital to take delivery. If anything is bullish, that is. Bullish on volatility as well. Mind the normal ups and downs.
In this market, I wouldn't trade anything but buy & hold assets (gold, Bitcoin, dividend-paying ag, energy & mining equities) or long-dated, far out-of-the-money options. Buying puts and calls in quantity for peanuts (with a few bullish vertical spreads here and there) and being patient is far better than staring at screens all day long. If I catch 50% of a major move, I'm golden (pun intended); anything more is icing. Meanwhile, I can spend time with friends and family, meet with business partners, walk the dog, lounge in the sun...
I feel my brain oozing out of my ear. Time for a break.
i agree with most of what you've said. i caught the silver high perfectly at $50 for a big gain on the short side. this feels very similar. be careful if we start falling b/c it may not stop like the Dow and you won't realize it until its too late.
Show Posts
