Gold collapsing. Bitcoin UP.

[zeetubes]

Someone just forwarded me this link to the history of social media. I don't know how accurate the figures are but there are some pretty cool stats in there especially in recent years. Interesting that Myspace was created only a year before Facebook. FB supposedly now has more than 1.2B users which would make it the second or third largest population in the world. As of 2012 youtube had 800M users each month and 1T views per year. Also they say that 75% of the world's population has access to the internet. That sounds a little optimistic to me. Perhaps the best way forward for bitcoin is for someone to use the blockchain to develop a social media site.

http://www2.uncp.edu/home/acurtis/NewMedia/SocialMedia/SocialMediaHistory.html

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[rocks]

Gold has not failed to store value.   Its risen in the last five years, it is a long term asset and maybe thats inconvenient for most people.   I can easily see bitcoin as best for small transactions but for life savings I'd still rate gold.     To try and argue against more then 3000 years of successful use and storage of value is futile almost comedic
Of the last 15 years gold has fallen in value just one year which was the last year.

and then there's my newest argument that gold is/has been failing miserably at fulfilling its historical role as a check to rising bond prices. i don't need to know the exact reason why; i just need to know that it's a fact.  and it is.  in that sense, what good is it for the average US citizen and the economy except as a potential speculative vehicle?  all those trillions that have been pumped into Treasury bond prices over the decades since 1980 creating the greatest bull market ever in world history and yet and so little into gold.  gold: the supposed enforcer.  what a failure.

Not to be too morbid, but one explanation for why gold is not fulfilling its role this time is simply that everyone alive during the last gold standard has since passed and are no longer with us. With that the memory of gold as a sound money vehicle has passed as well.

1980 was only ~57 years after FDR broke the gold standard and so there was probably still a bit of cultural remembrance. But today in 2014 it has been too long, no one alive remembers living and working under the gold standard as it properly existed (OK some were alive but quite young, and they are elderly today and not active investors). 

As a result there are not enough people "running to gold" to counter excessive bank debt and CB printing. Layer on top of this the fact that anyone who has "fought the FED" has lost for decades and wealth has consistently been transferred to those who blindly followed the FED's direction.

I think one consequence of this is the world is now setup for a very sharp dislocation. In the past gold acted as a brake and would force sanity before things got too far out of hand. But today it is full steam ahead, which means if the current monetary system breaks, it will be a very hard event.

[cypherdoc]

Now I get it -it's been staring in my face for weeks:

You use the word deflation in an unconventional third way, not the economic sense of shrinking money supply, not in the populist sense of shrinking prices, but generally as shrinkage.

Shrinking real wages, shrinking house building, shrinking GDP, shrinking dicks.

Makes sense, although it should be properly agreed upon during a discussion.
 

yes, big gvt has been stifling the private sector for many years now all funded by front running bond speculators seeking risk free return and the Fed itself in periods of crisis and now regularly with QE.  you see signs of it everywhere; a burgeoning and overreaching NSA, CFPB, pork projects, medicare, social security, housing subsidies from Fannie Mae and Freddie Mac, bailouts, the military industrial complex, student loans, food stamps, extortion settlements with big business, Ferguson, police militarization, TARP, etc, etc.

discipline needs to be reinstilled into interest rates and bond prices thru a new form of sound money that actually works.  and it ain't gold.

[cypherdoc]

i should have added this graph to the Japanese post above.  this is their M2.  and yet nothing but deflation for decades:

[cypherdoc]

remember, none of these bond speculators are buying for yield.  it is too miniscule.  they are buying for short term price appreciation of the bonds.  they know the dates and times of the auctions, they front run and buy, then flip them to the Fed at a higher price.  guaranteed profit.  

some may be longer term holders seeking bond appreciation.  don't forget, when a bonds yield drops from 4% to 2%, its price doubles.  and doubles again from 2% to 1%.  and doubles again from 1% to 0.5%.  and doubles again from 0.5% to 0.25%.  nice profit when you know interest rates are going to be continually manipulated down by the Fed and the short term speculators.  Gary Shilling is freaking rich from having bought Treasuries starting back in 1980.  he figured this game out a long time ago.

it's also handy when selling interest rate swap hedges to unsuspecting municipalities based on "rates are going to rise anytime now".  you can rake them dry.

[Dusty]

In the mean time, new wave of money is being handled to the worsts.

'Too big to fail' hands big banks $4.5 billion subsidy

The big four banks receive an annual subsidy of up to $4.5 billion from being perceived as "too big to fail" which should be paid for by a levy or increased capital charge, the Customer Owned Banking Association said in its second submission to the financial system inquiry.

The issue of how to reduce moral hazard when failing banks receive government support has been a hot-button issue for David Murray's inquiry. Ending the perception of "too big to fail" is also a key agenda item for the Brisbane G20 leaders summit in November.

COBA's submission attached analysis from modelling firm Macroeconomics quantifying the annual average value of the subsidy to the big four from being seen as too big to fail as between $2.9 billion and $4.5 billion, as funding costs were reduced by between 22 and 34 basis points. A separate submission by the regional banks quantified the subsidy at about $2 billion a year, using IMF assumptions.

[domob]

some may be longer term holders seeking bond appreciation.  don't forget, when a bonds yield drops from 4% to 2%, its price doubles.  and doubles again from 2% to 1%.  and doubles again from 1% to 0.5%.  and doubles again from 0.5% to 0.25%.  nice profit when you know interest rates are going to be continually manipulated down by the Fed and the short term speculators.  Gary Shilling is freaking rich from having bought Treasuries starting back in 1980.  he figured this game out a long time ago.

Care to explain this?  I've no real economic education, but I always thought it was like this:  Say, you have a 1 year bond for 100 USD - i. e., in one year, the holder is paid 100 USD.  If today it is sold for 90 USD, this means that I make a profit of 11% over that year.  If the interest halves (roughly), it means that the bond goes for 95 USD - and so on.  I. e., the price will converge to 100 USD (the nominal value) when the interest tends to zero.  This is not an exponential rise as you describe it.

I guess that this is either a misunderstanding or I'm wrong in what I think about bonds - please point out where my mistake is.

[rpietila]

I. e., the price will converge to 100 USD (the nominal value) when the interest tends to zero.  This is not an exponential rise as you describe it.

I guess that this is either a misunderstanding or I'm wrong in what I think about bonds - please point out where my mistake is.

If it is a perpetual bond, such as the U.K. "consol", then cypherdoc's explanation is correct.

In practice, USA bonds are limited maturity, and can only go over the nominal value if the interest goes below zero, which has happened in other places for short times, short maturities.

Realizing that you can buy $1000 in 30 years for $4 now seems good, but you never know - dollar could have taken the way of all other fiat currencies and depreciated much more. You really needed to have foresight on the U.S. gov't ability to subdue the country and the entire world to take that bet really.

Cause it can never be paid back. Not then, not now. The bond prices are guaranteed by aircraft carriers and DU.

[cypherdoc]

I. e., the price will converge to 100 USD (the nominal value) when the interest tends to zero.  This is not an exponential rise as you describe it.

I guess that this is either a misunderstanding or I'm wrong in what I think about bonds - please point out where my mistake is.

If it is a perpetual bond, such as the U.K. "consol", then cypherdoc's explanation is correct.

In practice, USA bonds are limited maturity, and can only go over the nominal value if the interest goes below zero, which has happened in other places for short times, short maturities.

Realizing that you can buy $1000 in 30 years for $4 now seems good, but you never know - dollar could have taken the way of all other fiat currencies and depreciated much more. You really needed to have foresight on the U.S. gov't ability to subdue the country and the entire world to take that bet really.

Cause it can never be paid back. Not then, not now. The bond prices are guaranteed by aircraft carriers and DU.

I was talking about selling bonds prior to maturity on the open market.

[wachtwoord]

some may be longer term holders seeking bond appreciation.  don't forget, when a bonds yield drops from 4% to 2%, its price doubles.  and doubles again from 2% to 1%.  and doubles again from 1% to 0.5%.  and doubles again from 0.5% to 0.25%.  nice profit when you know interest rates are going to be continually manipulated down by the Fed and the short term speculators.  Gary Shilling is freaking rich from having bought Treasuries starting back in 1980.  he figured this game out a long time ago.

With the yields as they were in the 1980s, there's really no need to sell the bond ever.

[rpietila]

I. e., the price will converge to 100 USD (the nominal value) when the interest tends to zero.  This is not an exponential rise as you describe it.

I guess that this is either a misunderstanding or I'm wrong in what I think about bonds - please point out where my mistake is.

If it is a perpetual bond, such as the U.K. "consol", then cypherdoc's explanation is correct.

In practice, USA bonds are limited maturity, and can only go over the nominal value if the interest goes below zero, which has happened in other places for short times, short maturities.

Realizing that you can buy $1000 in 30 years for $4 now seems good, but you never know - dollar could have taken the way of all other fiat currencies and depreciated much more. You really needed to have foresight on the U.S. gov't ability to subdue the country and the entire world to take that bet really.

Cause it can never be paid back. Not then, not now. The bond prices are guaranteed by aircraft carriers and DU.

I was talking about selling bonds prior to maturity on the open market.

Even then, without the using of derivatives, a 30-yr at 1% rate is priced at 0.740. If the rate drops to 0.5%, it is 0.860. You can only get double or more for your money if you buy at significantly higher rates, such as 10% dropping to 5% means that your 30-year bond goes up in value: 0.042->0.215.

A linear relationship where bond value doubles with interest rate halving only exists with perpetuals.

[cypherdoc]

some may be longer term holders seeking bond appreciation.  don't forget, when a bonds yield drops from 4% to 2%, its price doubles.  and doubles again from 2% to 1%.  and doubles again from 1% to 0.5%.  and doubles again from 0.5% to 0.25%.  nice profit when you know interest rates are going to be continually manipulated down by the Fed and the short term speculators.  Gary Shilling is freaking rich from having bought Treasuries starting back in 1980.  he figured this game out a long time ago.

With the yields as they were in the 1980s, there's really no need to sell the bond ever.

They all have maturities of some length so the trick is to sell on open market prior to that after a healthy appreciation in price.

[cypherdoc]

I. e., the price will converge to 100 USD (the nominal value) when the interest tends to zero.  This is not an exponential rise as you describe it.

I guess that this is either a misunderstanding or I'm wrong in what I think about bonds - please point out where my mistake is.

If it is a perpetual bond, such as the U.K. "consol", then cypherdoc's explanation is correct.

In practice, USA bonds are limited maturity, and can only go over the nominal value if the interest goes below zero, which has happened in other places for short times, short maturities.

Realizing that you can buy $1000 in 30 years for $4 now seems good, but you never know - dollar could have taken the way of all other fiat currencies and depreciated much more. You really needed to have foresight on the U.S. gov't ability to subdue the country and the entire world to take that bet really.

Cause it can never be paid back. Not then, not now. The bond prices are guaranteed by aircraft carriers and DU.

I was talking about selling bonds prior to maturity on the open market.

Even then, without the using of derivatives, a 30-yr at 1% rate is priced at 0.740. If the rate drops to 0.5%, it is 0.860. You can only get double or more for your money if you buy at significantly higher rates, such as 10% dropping to 5% means that your 30-year bond goes up in value: 0.042->0.215.

A linear relationship where bond value doubles with interest rate halving only exists with perpetuals.

Ah, thanks for explaining that. I've never actually traded bonds.

[ssmc2]

Invest in the 5 B's
Bitcoin
Bullion
Bullets
Butts
Being

starts talking about bitcoins after about 22min
http://www.silverdoctors.com/jeff-berwick-textbook-hyperinflation-coming-to-us-unlike-anything-the-world-has-ever-seen/
(comments as usual)

Maybe I'm just dim today but what are the last two lol?

[vuduchyld]

Invest in the 5 B's
Bitcoin
Bullion
Bullets
Butts
Being

starts talking about bitcoins after about 22min
http://www.silverdoctors.com/jeff-berwick-textbook-hyperinflation-coming-to-us-unlike-anything-the-world-has-ever-seen/
(comments as usual)

Maybe I'm just dim today but what are the last two lol?

porn...and...caskets?

[Bagatell]

Marijuana and yourself.

[cypherdoc]

I. e., the price will converge to 100 USD (the nominal value) when the interest tends to zero.  This is not an exponential rise as you describe it.

I guess that this is either a misunderstanding or I'm wrong in what I think about bonds - please point out where my mistake is.

If it is a perpetual bond, such as the U.K. "consol", then cypherdoc's explanation is correct.

In practice, USA bonds are limited maturity, and can only go over the nominal value if the interest goes below zero, which has happened in other places for short times, short maturities.

Realizing that you can buy $1000 in 30 years for $4 now seems good, but you never know - dollar could have taken the way of all other fiat currencies and depreciated much more. You really needed to have foresight on the U.S. gov't ability to subdue the country and the entire world to take that bet really.

Cause it can never be paid back. Not then, not now. The bond prices are guaranteed by aircraft carriers and DU.

I was talking about selling bonds prior to maturity on the open market.

Even then, without the using of derivatives, a 30-yr at 1% rate is priced at 0.740. If the rate drops to 0.5%, it is 0.860. You can only get double or more for your money if you buy at significantly higher rates, such as 10% dropping to 5% means that your 30-year bond goes up in value: 0.042->0.215.

A linear relationship where bond value doubles with interest rate halving only exists with perpetuals.

Actually can you link to the table for these values please? Aren't the bond prices not formulaic but set by free market trade when sold prior to maturity?

[FNG]

"Which bring us to the dumbest idea from last week: the UK's push to exclude Russia from SWIFT... and in the process accelerate the demise of the dollar as the world's reserve currency.

Asked about the idea that Russia could be cut off from the international money transfer system known as SWIFT, one diplomat said the idea had been floated several months ago, but that there was opposition to it among several EU countries.
 
"The problem is that while it would probably work well in the short-term, as in the case of Iran, in the long-term it would trigger the creation of an alternative system to SWIFT and the setting up of two alternative world transaciotn systems and nobody wants that," the diplomat said.
It appears not everyone in Europe is an idiot."

http://www.zerohedge.com/news/2014-09-01/more-sanctions-europe-will-ban-purchase-russian-bonds-however-russian-gas-exports-re

[cypherdoc]

Gold has not failed to store value.   Its risen in the last five years, it is a long term asset and maybe thats inconvenient for most people.   I can easily see bitcoin as best for small transactions but for life savings I'd still rate gold.     To try and argue against more then 3000 years of successful use and storage of value is futile almost comedic
Of the last 15 years gold has fallen in value just one year which was the last year.

well, i like to think of it as a pullback of 33% for gold since 9/2011 and 61% for silver since 5/2011. those are big pullbacks and suspiciously, those timeframes coincide with the ramp in Bitcoin.  the Gold 2.0 narrative has clearly increased during that time and more and more ppl are converting.  you can see and feel it.  i certainly can.  of course, when you point to the 3000 yr narrative, my arguments sound silly.  that is the ultimate long term chart.  however, i'd like to point out a couple of things.

i think the general public's positive perception of gold peaked not in 2011 but back in 1980.  when Nixon depegged in 1971, the dollar immediately devalued 30% in the 70's which contributed greatly to the inflationary ramp to 800 in 1980.  then began the long grind down to 253 in 1999.  the public forgot about gold for the most part despite the pleas of the gold community b/c the economy actually thrived during those 2 decades. then came the noughts and the NASDAQ crash.  Greenspan cut rates to 1% and stimulated the housing bubble.  everyone was happy again and gold was far from being on their radar.  yet gold started to rise with inflationary expectations by the gold bugs of which i was one.  i remember how hated the gold ramp from 253 in 1999 to 1923 in 2011 was regarded by the general investment community.  i used to watch CNBS regularly during that time and Peter Schiff constantly had acrimonious debates with gold skeptics. of course, he was right in the sense that gold went to 1923 in 2011. yet, i never really knew of many other investors other than myself who rode that train up during that time.  i believe it was solely a speculative ramp with gold never seriously having a chance to regain it's former status as a reserve to the USD.

and then there's my newest argument that gold is/has been failing miserably at fulfilling its historical role as a check to rising bond prices. i don't need to know the exact reason why; i just need to know that it's a fact.  and it is.  in that sense, what good is it for the average US citizen and the economy except as a potential speculative vehicle?  all those trillions that have been pumped into Treasury bond prices over the decades since 1980 creating the greatest bull market ever in world history and yet and so little into gold.  gold: the supposed enforcer.  what a failure.

so i think that gold has been a failure to keep bond prices in check and its thesis is further from the market's mind than you may realize which may be why its dropped so much in the last 3 yrs.  silver and the pm miners are sending a very bad signal, imo, and leading to the downside.

Bitcoin has a much better chance to assume the role of Treasury bond enforcer in the coming years, imo.  but it's very early and requires alot of imagination and optimism

Great post.  I'm not saying it's 100% correct, but it's really well thought out in its historical narrative.

That's why this is a can't-miss thread and I thank you for it again.

Can't believe falllling showed his mug in here!

thanks, but according to traderCJ, i'm simply trolling.

[cypherdoc]

Gold has not failed to store value.   Its risen in the last five years, it is a long term asset and maybe thats inconvenient for most people.   I can easily see bitcoin as best for small transactions but for life savings I'd still rate gold.     To try and argue against more then 3000 years of successful use and storage of value is futile almost comedic
Of the last 15 years gold has fallen in value just one year which was the last year.

and then there's my newest argument that gold is/has been failing miserably at fulfilling its historical role as a check to rising bond prices. i don't need to know the exact reason why; i just need to know that it's a fact.  and it is. in that sense, what good is it for the average US citizen and the economy except as a potential speculative vehicle?  all those trillions that have been pumped into Treasury bond prices over the decades since 1980 creating the greatest bull market ever in world history and yet and so little into gold.  gold: the supposed enforcer.  what a failure.

Not to be too morbid, but one explanation for why gold is not fulfilling its role this time is simply that everyone alive during the last gold standard has since passed and are no longer with us. With that the memory of gold as a sound money vehicle has passed as well.

1980 was only ~57 years after FDR broke the gold standard and so there was probably still a bit of cultural remembrance. But today in 2014 it has been too long, no one alive remembers living and working under the gold standard as it properly existed (OK some were alive but quite young, and they are elderly today and not active investors).  

yes, that may even a more appropriate starting point to pick a "peak" in gold sentiment from the public's view.  the defaults by the US gvt have been sequential; first in 1933 with FDR, then in 1971 with Nixon.  Bretton Woods was an interim step where the USD luckily was made the world reserve currency from 1944 to 1971 with supposed gold backing.  the root event which made these defaults all necessary was the establishment of the Fed in 1913 which blew up enough bubbles to make them necessary in the first place.

As a result there are not enough people "running to gold" to counter excessive bank debt and CB printing. Layer on top of this the fact that anyone who has "fought the FED" has lost for decades and wealth has consistently been transferred to those who blindly followed the FED's direction.

yep.  right now, i'm totally out of the stock mkt and my portfolio consists of BTC, pm shorts, RE, my business, and cash.  at least, if i'm wrong about pm's and BTC and pm's move up together, i'll be hedged.  but i doubt it, given all of my above explanations as well as the price action and numerous charts i've put up.

I think one consequence of this is the world is now setup for a very sharp dislocation. In the past gold acted as a brake and would force sanity before things got too far out of hand. But today it is full steam ahead, which means if the current monetary system breaks, it will be a very hard event.

maybe.  hedge your bets accordingly.

i'm hoping gvt's and banks recognize what Bitcoin can do to save the system.  hope never being the best strategy.