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 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.
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.
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?
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
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.
... debt being built on debt. excellent.
So where's the asset for the debt, and how many claims are there?
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...
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.
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?
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
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.
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.
no pain, no gain.
Just don't get bowled over, and fer cryin' out loud - keep at least some
of your golden insurance!
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.
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
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.
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)