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Author Topic: Gold: I smell a trap  (Read 78462 times)
S3052
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August 11, 2011, 04:32:22 PM
 #121

I take the challenge: 1 BTC bet

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Always do your own due diligence & consult your financial advisor. Never invest unless you can afford to lose your entire investment.

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August 11, 2011, 05:11:32 PM
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Good luck with that. Don't waste all your money on that short position because you'll regret it. Tongue

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August 11, 2011, 05:39:38 PM
 #123

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  Smiley

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? Smiley
no, no, no.  gold dude!

Nine days or nine years, it doesn't matter. Focus on what's relevant.

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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.

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heck no.  i'm learning alot. no need to get personal.

Good, never stop learning; I agree - deep breaths. No rush.

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i don't agree with your thesis.

http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab9

there 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 Smiley



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.
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August 11, 2011, 06:11:50 PM
 #124

i apologize.  this is what happens when you're at work getting interrupted.  i'm lost in the quotes.
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August 11, 2011, 06:16:37 PM
 #125

Good luck with that. Don't waste all your money on that short position because you'll regret it. Tongue

You are so funny. Gold down -3.7% today.

I am already +40% in the profits with the leveraged short position I took today.

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August 11, 2011, 06:18:15 PM
 #126

Good luck with that. Don't waste all your money on that short position because you'll regret it. Tongue

You are so funny. Gold down -3.7% today.

I am already +40% in the profits with the leveraged short position I took today.


your timing is better than mine.  i should have kept yesterdays positions but i'm still up from this am.
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August 11, 2011, 06:25:43 PM
 #127

I take the challenge: 1 BTC bet

OK. Just accept some sensible limits to it (because otherwise I can never win Wink) and the bet is on.
If gold crosses 1000 USD/oz anytime within 5 year span, you win, otherwise I win. Because I don't want to wait 5 years, let's say if it crosses 10000 USD/oz first, I also win. Deal? Smiley
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August 11, 2011, 06:25:50 PM
 #128

still working on the above post during work.  sorry.
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August 11, 2011, 07:22:15 PM
 #129

OMG!  what a pain in the ass!

i fixed finally the post above.  please read my responses to miscreanity.
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August 11, 2011, 07:31:42 PM
 #130

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.

Yup gold has broken out of its longterm trend channel.  I'm concerned.  

Lets say gold is at $1750 and you expect a 20% decline, so target is $1400.  I would wait for the downtrend before going short.  Even at $1700 you would capture 17.6% of the decline, a more than generous return by any metric (you could easily increase that return with leverage obviously).  So you missed out on the top 2.4%, at least you didn't get steamrolled if gold trends higher.

I know you're a fan of Mish although I'm not sure how long you've been following him.  In the early days, Mish was predicting the housing bubble and subsequent pop before most.  He was spot on with his analysis.  Problem is he was YEARS early with that prediction.  You can try to time the market perfectly but I find very few individuals who are able to do it successfully.  And most who seem to be able to do so, will only tell you about the time they've predicted successfully and not all the times they've been burned.

You've obviously done very well for yourself so I'm not trying to tell you how to invest your money but that's my investment stance.

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August 11, 2011, 07:46:17 PM
 #131

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.

Yup gold has broken out of its longterm trend channel.  I'm concerned.  

Lets say gold is at $1750 and you expect a 20% decline, so target is $1400.  I would wait for the downtrend before going short.  Even at $1700 you would capture 17.6% of the decline, a more than generous return by any metric (you could easily increase that return with leverage obviously).  So you missed out on the top 2.4%, at least you didn't get steamrolled if gold trends higher.

I know you're a fan of Mish although I'm not sure how long you've been following him.  In the early days, Mish was predicting the housing bubble and subsequent pop before most.  He was spot on with his analysis.  Problem is he was YEARS early with that prediction.  You can try to time the market perfectly but I find very few individuals who are able to do it successfully.  And most who seem to be able to do so, will only tell you about the time they've predicted successfully and not all the times they've been burned.

You've obviously done very well for yourself so I'm not trying to tell you how to invest your money but that's my investment stance.


you're very wise.  btw, i went long ERX and TNA yesterday but just closed them out for a nice profit.  i hope you wrote those puts on WFC, up 7.60%? Cheesy

i've followed Mish since 2006?  he's good but kooky at times.  i think he drinks.

no guts no glory on this short which could be the one of a lifetime.  don't try this at home!!!
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August 11, 2011, 07:52:34 PM
 #132

actually Calculated Risk was my favorite hangout for most of 2006-9
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August 11, 2011, 07:54:10 PM
 #133

Good luck with that. Don't waste all your money on that short position because you'll regret it. Tongue

You are so funny. Gold down -3.7% today.

I am already +40% in the profits with the leveraged short position I took today.


That totally means it's doing down to $1000. You might lose your super leveraged profits if you aren't careful.

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August 11, 2011, 07:56:58 PM
 #134

bullion holders need to be aware this is the Ultimate form of illiquidity.
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August 11, 2011, 08:14:22 PM
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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.

Yup gold has broken out of its longterm trend channel.  I'm concerned.  

Lets say gold is at $1750 and you expect a 20% decline, so target is $1400.  I would wait for the downtrend before going short.  Even at $1700 you would capture 17.6% of the decline, a more than generous return by any metric (you could easily increase that return with leverage obviously).  So you missed out on the top 2.4%, at least you didn't get steamrolled if gold trends higher.

I know you're a fan of Mish although I'm not sure how long you've been following him.  In the early days, Mish was predicting the housing bubble and subsequent pop before most.  He was spot on with his analysis.  Problem is he was YEARS early with that prediction.  You can try to time the market perfectly but I find very few individuals who are able to do it successfully.  And most who seem to be able to do so, will only tell you about the time they've predicted successfully and not all the times they've been burned.

You've obviously done very well for yourself so I'm not trying to tell you how to invest your money but that's my investment stance.


you're very wise.  btw, i went long ERX and TNA yesterday but just closed them out for a nice profit.  i hope you wrote those puts on WFC, up 7.60%? Cheesy

i've followed Mish since 2006?  he's good but kooky at times.  i think he drinks.

no guts no glory on this short which could be the one of a lifetime.  don't try this at home!!!

Nope didn't write the puts unfortunately.  Was hoping for a spike in the VIX today or a decline in the market, neither of which happened.  I did buy a bunch of LEAP calls on BAC yesterday @ $2.  Sold 'em today for $2.25.  12.5% gain for a 1-day trade, yeah I can live with that.   Smiley

BAC scares the crap out of me but short-term it looked really oversold so I rolled the dice.  I probably should have held longer but I'm leaving for Vegas tomorrow so I don't really want to worry about the market, plus making trades while drunk is only going to end up in trouble.   

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August 11, 2011, 08:20:50 PM
 #136

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.

Yup gold has broken out of its longterm trend channel.  I'm concerned.  

Lets say gold is at $1750 and you expect a 20% decline, so target is $1400.  I would wait for the downtrend before going short.  Even at $1700 you would capture 17.6% of the decline, a more than generous return by any metric (you could easily increase that return with leverage obviously).  So you missed out on the top 2.4%, at least you didn't get steamrolled if gold trends higher.

I know you're a fan of Mish although I'm not sure how long you've been following him.  In the early days, Mish was predicting the housing bubble and subsequent pop before most.  He was spot on with his analysis.  Problem is he was YEARS early with that prediction.  You can try to time the market perfectly but I find very few individuals who are able to do it successfully.  And most who seem to be able to do so, will only tell you about the time they've predicted successfully and not all the times they've been burned.

You've obviously done very well for yourself so I'm not trying to tell you how to invest your money but that's my investment stance.


you're very wise.  btw, i went long ERX and TNA yesterday but just closed them out for a nice profit.  i hope you wrote those puts on WFC, up 7.60%? Cheesy

i've followed Mish since 2006?  he's good but kooky at times.  i think he drinks.

no guts no glory on this short which could be the one of a lifetime.  don't try this at home!!!

Nope didn't write the puts unfortunately.  Was hoping for a spike in the VIX today or a decline in the market, neither of which happened.  I did buy a bunch of LEAP calls on BAC yesterday @ $2.  Sold 'em today for $2.25.  12.5% gain for a 1-day trade, yeah I can live with that.   Smiley

BAC scares the crap out of me but short-term it looked really oversold so I rolled the dice.  I probably should have held longer but I'm leaving for Vegas tomorrow so I don't really want to worry about the market, plus making trades while drunk is only going to end up in trouble.   

nice.  LOL, i'm heading out early tomorrow for Alaska/Seattle for salmon fishing so i'll be out for a week or so too.

i think we get a week or so of a bounce.  holding shorts on PM's from today.  damn, my covering yesterday caused today's dump!!!
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August 11, 2011, 09:17:12 PM
 #137

Do u mind posting the channel you saw it breaking out of?

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August 11, 2011, 09:29:12 PM
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Bollinger bands I assume. No reason to be anything but bearish on the short term. Do I take short-term risks? No, so I held.

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August 11, 2011, 09:29:34 PM
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August 12, 2011, 07:57:32 AM
 #140

Round 87...

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  Smiley

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 no 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.

I had to Google "Ty Andros". That's not me, but I'll take it as a compliment. Thanks. Smiley

We may diverge on the primary deflation stance, but I think we both understand what's going on and expect a collapse. The big difference is the route taken to get there, as you mentioned later in your post. I believe those with power will fight to the limit until they've thoroughly exhausted every option before finally relenting, while your view seems to have more faith in the current system correcting itself and the powers giving up or exhausting much earlier. Either way the same result is struck; it definitely can't go on forever, not even a gold rally - but it can go on longer than you expect.

I wouldn't say gold has entered the final rise yet. The multi-year chart you posted does show an ascent, but the breakout is just that - a breakout. It might increase in magnitude toward the $2,000+ I'm expecting, but it will almost certainly correct to retest the breakout. I expect that the retest will be seen as the bubble popping and the price will wind up very near the breakout line by year-end, making the number that big money watches look somewhat less shocking than it would be otherwise. Prior to the breakout, a rising trend channel formed and continued for about three years since the last real crisis in 2008. Earlier that year, a breakout attempt took place and was jammed back down by the bailout interventions so far that it actually broke through the bottom of the prior channel. We all see how well that worked, going on to confirm the breakout only a year later. The perspective needs to be expanded to view these breakouts as gradual progressions. It won't be until the breakouts are occurring several times per year that the real blowoff will be reached, at a magnitude far greater than we've seen so far - probably still a year away at minimum.

... breakout!

Remember - the tape can be painted. You're on point with your psychological strategy: think like a criminal trying to keep from getting caught by lying long enough for everything to blow over, but also imagine that he truly believes what he's doing is in the best interest of everyone involved instead of causing pain - it's for their own good. In fact, he may have even inherited the lie as a deep, dark family secret.

Margin increases will only do so much. With margin comes volatility as overextended players are forced out with the calls. When the exchanges go to full cash backing, the manipulation can no longer carry much weight by forcing players out. All players involved then will be very strong; the game reserved for the very wealthy. How many traders can put up the full backing of $175,000 to control each 100oz COMEX futures gold contract, and how many of these professionals will be forced out by a 5% drop in price?

Quote from: cypherdoc
Quote from: miscreanity
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.

Even if a bank calls in a debt, will it be paid? They can only call in what hasn't been squandered. The banks did this during the past year, as many businesses' and peoples' credit limits were slashed with hardly any notice, even yours. There's the threat of debtors filing for bankruptcy too. You might not have had any debt, but how many countless others had maxed out lines?

Yes, it's exactly that - battening down the hatches, securing the sails and praying that the storm doesn't capsize the ship.

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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.

Is it debt that people want or the assets they go into debt to acquire? If you choose debt, let's talk - I could use some new Penta IPS drives.

Asset deflation is the primary dynamic; debt deflation is directly tied to that. Monetary base inflation is the reaction in order to stave off complete financial implosion.

There's a problem if debt is separated from assets: the debt becomes worthless because it's an abstract - a promise. With debt having been used as collateral (effectively money), the whole spider web can be dragged down by a few large credit lines. Why should I put in the same work to pay off my debt when someone else's debt was written down to 1% of its former value? That will be the public realization of what a counterparty is. The other side is a loss of investment for the creditor and reticence to supply more. That can cripple a heavily credit-dependent economy.

To put a different spin on some tried-and-true adages: it's like taking a submarine past its depth (debt) limits and deciding that, in order to keep it from imploding (deflating) as it sinks further, you'll flood the vessel (inflate) to equalize the pressure (maintain asset prices); kill everyone on board (debased currency, savings) to save the structure. The sub would then only be useful for scrap when it can finally be salvaged. Genius of the kind only government could concoct.

Going off on a bit of a tangent here, I've long thought it might be very englightening to apply fluid dynamics studies in an economic setting.

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... debt being built on debt.  excellent.

So where's the asset for the debt, and how many claims are there? Smiley

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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.

That's entirely reasonable. Self-preservation is an incredibly strong force. This also suggests to me that you view institutions as collective entities unto themselves, having properties normally reserved for an individual human. It would certainly help to explain their behavior, after all we often look at pets as little people so why not corporations and governments as giants? That also means they may not agree with each other.

What if the Fed thinks it'll be crushed no matter what it does? Will it do what it thinks is best no matter what anyone says, hoping that when it has fallen, things will be better than they were before? Do these type of organizations have aspirations of heroism arising from their personality as represented by the corporate culture?

Who knows, maybe the Fed actually will reject the act of initiating another round of monetary inflation, though I highly doubt it. Lot's of wild questions and I think we're getting a little off the topic of economics here... Smiley

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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!

I do agree that it's an asset, but not just another asset. Money is an abstract concept that can be applied to anything involved in facilitating an exchange, whether it be a shiny metal or a smelly sardine. Both of those examples are assets and can be used to determine a common value for trade.

Gold is the asset. Its properties of relative rarity, divisibility and durability lend it suitability as the ideal yardstick for commonly agreed-upon value. We can agree upon the value of a piece of paper, but is gold or paper more likely to change wildly in supply? Gold has no nationality, no borders to limit its acceptance. It is as readily recieved in Bali as it is in Boston.

There has never been anything else that could quite match the balance of features gold has (silver, platinum, rare gemstones, etc); not even Bitcoin, as close as it gets. Paper currencies (including digital variants) were as good as it came for ages, but the manifestation has always proved too whimsical to be stable. The only difference between any of them is physical presence.

Paper is subject to human nature, which can be unreliable to put it nicely. And you never know, the internet could conceivably be completely shut down and take Bitcoin with it, as unlikely as that is. Gold would still exist, even though it's harder to transport.

In a sense, Bitcoin provides debt with its own measure of value - it gives the abstract concept a definable quantity without being backed by anything other than its sheer existence, which is why it works as long as it exists. But again, if it somehow ceases to exist, we still have gold - the final insurance policy.

Quote from: cypherdoc
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.

Oh, no arguing with that. I'm not suggesting taking a short position in treasuries just yet, though I do think another leg down is in the works eventually. Japan's situation was a prelude to what the US is doing now. There's a major difference, though - the whole system is coming unraveled. At least when Japan was being stupid, the rest of the global economy was still bounding along and there were always plenty of buyers for government-issued debt. Lucky for Japan, the carry unwind is helping to keep them afloat.

Who are the buyers of US government debt? Are they buying out of confidence or fear? What will they do with those instruments when startled by further signs of instability? When the debt is called in and the government can't pay because its credit line is maxed out, what happens? Another debt ceiling raise? Who will extend the credit?

Quote from: cypherdoc
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.

Exogenous factors can occur. For example: a once-in-a-century hurricane and/or tsunami knocks out an entire region of your country or a cascading transformer switching problem cuts electric power to a quarter of the country.

Quote from: cypherdoc
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.

Not yet, no. However, propagation of an idea can happen very quickly once it takes root. I choose to overestimate it rather than be caught in a rioting London.

Quote from: cypherdoc
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.

My view is that the dependency on petrodollars is reversed. The asset is oil and the debt is the dollar. FOFOA does an amazing job of explaining the whole structure in these two posts:
Actually, one of the only things I disagree with FOFOA on is Bitcoin's fate.

Quote from: cypherdoc
no pain, no gain.

Just don't get bowled over, and fer cryin' out loud - keep at least some of your golden insurance!

Quote from: cypherdoc
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.

We're just demarcating different points for the final vertical run. With a market of global size and such a tidal shift in mega-cycles, a spike can run for weeks and a correction can last for months. I've underestimated the magnitude before as well and might even be now. I feel like I'm staring down from atop the mother of all waves, wondering when I can get off the ride - can't even see the shore yet, though.

Quote from: cypherdoc
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.

No, you got it (the process is a siphoning of wealth to real assets) and yes, it will reverse at some point. We just differ again on which point in the process we think the system is. The only thing I added was how society typically responds to the perceived problem in leadership as the anger builds.

Again, my view of gold being the asset.

Quote from: cypherdoc
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.

In regard to Americans and Europeans still believing in their fiat, perhaps. The world beyond has increasing interest in precious metals and a growing wealth to back it. It's a sad proposition to think that much of the wealthiest 10% of the world may soon be among the poorest.

With the stocks, I'm siding with Dan Norcini. Large funds have been shorting the shares and buying the bullion as a spread trade. The ratios are at extreme levels, and as the mining companies are beginning to pay dividends, it will become very painful for the shorts to hold on. Watch for the ratios to snap back, making the gold and silver miners gain in value relative to their products. Correlate that principle with George Soros selling his bullion while buying gold mining company shares. The rich get richer.

I hope your brain is really churning with that bit; mine did.

i've followed Mish since 2006?  he's good but kooky at times.  i think he drinks.

no guts no glory on this short which could be the one of a lifetime.  don't try this at home!!!

LOL - no further comment needed from me on Mish.

Quote from: cypherdoc
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.

Nice! Those spike drops, especially at very long-term historical highs and inflation-adjusted peaks, are easy money when you catch it right. As long as you can be nimble enough to hang tight, great. I only offered a suggestion of caution in selling your bullion, especially at this breakout point.

The two most important accomplishments I've made in trading have been gauging the scale of a trend and developing the discipline to do nothing. The latter leads me to one of my favorite quotes:

Men who can be both right and sit tight are uncommon. I found it one of the hardest things to learn. ~Jesse Livermore

A quick story - in 2005, I was playing the gold carry trade. I got in at a little over $650, looking to ride the capital gain to Disney Land after paying my bills with the interest earned. Instead, I foolishly held on until $700 was broken and closed the position for a solid loss. Thankfully it didn't wipe me out despite being the "trade of a lifetime", but since then I've respected gold the way a sailor respects the sea - majestic and powerful, but deadly if you aren't careful. And when the waves start noisily slapping against the hull, turn into them to silence the turbulence so you can focus.

It's a pleasure to discuss these topics intelligently. We may agree on a few points while disagreeing on most; rational discourse is how humanity learns. Enjoy the PacNW. Now it's time for RAPTOR JESUS! (for anyone who takes offense to that, you have no soul) Grin
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