Tag: Gold Futures

Gold, Silver, Copper, Nickel and the Slow Death of Money

Gold, Silver, Copper, Nickel and the Slow Death of Money

A huge opportunity to hedge against both inflation and deflation is lying out there in the open. There are no transaction costs and right now there’s even a built-in discount. But most people will never realize any of this. In 1933 President Franklin Delano Roosevelt signed Executive Order 6102, which made it illegal for U.S. citizens to hold gold bullion. Prior to that, the $20 bill was essentially a warehouse receipt for a one-ounce gold coin. Prior to the Federal Reserve Act of 1914, the $20 bill actually told you this. After Executive Order 6102, $20 notes weren’t allowed to be exchanged for gold anymore. Americans couldn’t legally own or trade gold as money and savings, only as jewelry or collectible coins. A year after making monetary gold ownership illegal, FDR revalued gold from $20.67 per ounce to $35 an ounce with the Gold Reserve Act. The Act also required all gold and gold certificates to be turned over to the Treasury. The dollar was debased. A chunk of the gold it used to be good for was legally removed. Instead of  “containing” 1/20 an ounce of gold, each dollar now only contained (or represented) 1/35 an ounce. And of course you couldn’t actually own the gold itself. In 1971 Nixon severed the last official ties between gold and the dollar. The dollar quickly sunk to its real value, which had been debased by years of money supply inflation. By 1975 Americans were allowed to own bullion gold again, but during the roughly 40 years bullion gold ownership had been illegal, the dollar had been drastically debased. At its former lowest point in the summer of 1980, the dollar …

Continue Reading »

How Savings and Investment Increase an Economy’s Output

Filed in BP, Debt, deflation, economy, interest-rates, Lear, o, silver, Spot Gold, target, US Dollar by on February 14, 2011 0 Comments

Everyone who has held a job and a bank account understands the potential benefit of postponing consumption today in order to enjoy greater consumption in the future. However, many people — if pressed — would explain this increase in saver’s income by an offsetting reduction in the income of a borrower in the economy. This is certainly a possibility. For example, if Bill (the borrower) forgets his lunch money on Monday, he might ask his coworker Sally (the saver), “Can you lend me $10 and I’ll pay you back $11 tomorrow?”  If Sally agrees, then it is clear that her $1 in interest on the personal loan was paid out of Bill’s reduced income for that month. In other words, if Bill’s take-home pay that month were $5,000, then he would actually only have $4,999 to work with, because of his $1 expenditure in “buying a loan” from Sally. At the same time, if Sally’s normal paycheck were also $5,000, then this particular month she would actually have $5,001 to work with, after earning $1 in providing “lending services” to Bill. In the scenario above, what basically happened is that Bill financed his consumption with an “advance” made by Sally. On the Monday morning is question, …

Continue Reading »

Answering Krugman on Austrian Economic Theory

Answering Krugman on Austrian Economic Theory

I still get the sense that Krugman truly doesn’t understand the Austrian position. For example, he asks, “Why is there overwhelming evidence that when central banks decide to slow the economy, the economy does indeed slow?” But because the Austrian theory says the bust occurs when the central bank backs off and allows interest rates to rise toward their “correct” level, this is hardly a problem. In fact, if central banks couldn’t slow the economy, as an Austrian economist I would be worried about my theory. Krugman also poses questions concerning (price) inflation rates and the connection between nominal and real GDP. But I think he is conflating the Austrian theory with a purely “real” business-cycle theory. Austrians understand that monetary influences can have real effects. To repeat, that is the very essence of the Mises-Hayek theory. Although most of Krugman’s objections are due to his unfamiliarity with the actual Austrian theory, I think one source of confusion came from the particular illustration I used in my article. First let’s set the context by quoting Krugman : “So what is the essence of this Austrian story? Basically, it says that what we call an economic boom is actually something like China’s disastrous Great Leap Forward, which led to a temporary surge in consumption but only at the expense of degradation of the country’s underlying productive capacity. And the unemployment that follows is a result of that degradation: there’s simply nothing useful for the unemployed workers to do. “I like this story, and there are probably other cases besides China 1958–1961 to which it applies. But what reason do we have to think that it has anything to do with the business cycles we actually see in market economies?” First, I should say I’m glad that Krugman at least concedes that (his understanding of) the Austrian explanation both is theoretically possible and actually happens in the real world — coming from the guy who referred to it in 1998 as equivalent to the “phlogiston theory of fire,” this is progress! However, Krugman still doesn’t have quite the right understanding of the Austrian view of the “capital consumption” that occurs during the unsustainable boom. As I said above, on this particular issue the fault lies with the necessarily simplistic “sushi model” I used in the article that Krugman read . In that article, in order to make sure the reader really saw why Krugman (and Tyler Cowen) were overlooking something basic, I had the villagers boost their daily sushi intake even while they developed a new technology to help augment their fishing. So during their “boom,” it would have seemed to a dull villager that both consumption and investment were rising. In my fable, this was physically possible because the villagers neglected the regular maintenance of their boats…

Continue Reading »

How Not to Stop a Terrorist

Filed in AMAG, BP, deflation, euro, lead, Lear, New Gold, o, silver, target by on January 26, 2011 0 Comments

As Glenn Greenwald predicted, terrorists have attacked the next most logical target. A suicide bomber has caused the death of nearly three dozen people in Moscow’s Domodedovo Airport by attacking a crowded area not subject to rigorous security measures. Mr. Greenwald expected the next terrorist bombing to take place in the crowded lines just before the security checkpoint. Instead, they went for a soft target just outside of the hard target, but it wasn’t quite the soft target Mr. Greenwald expected… The suicide bomber went to the back door instead of the front. The other unguarded end of the airport was attacked: the part just beyond the security line where passengers crowd together to pick up their bags and find ground transportation or meet relatives and friends. “Medvedev Orders Bomb Probe, Threatens Sackings,” reads an Associated Press headline this morning. The article continues… “Medvedev lashed out at law enforcement and airport authorities over the attack at Domodedovo, an international hub and major gateway to Russia, which killed at least eight foreigners… “‘It is clear that there is a systemic failure to provide security for people’ at Domodedovo, said Medvedev. “He ordered the Interior Ministry to recommend transport security officials for dismissal and said authorities found culpable would be held responsible, suggesting they could face prosecution.” Exactly what were security officials supposed to do?: “Domodedovo Airport said it was not responsible for the blast. ‘We fully met all the requirements in the sphere of air transport security for which we are responsible,’ spokeswoman Yelena Galanova said in televised comments.” Domodedovo Airport is like just about every other airport in the world. That is to say, there is no protocol to stop random people from wandering into the baggage claim area. Now I suppose there may be. But I’m not sure it will help. You can “harden” one target all you want; there will still be an unprotect zone just beyond your securest point. Medvedev doesn’t want to accept that… “He urged officials to develop a system that would provide for ‘total checks’ on people and bags at airports.” I’m not sure what this is supposed to mean. Wherever these “total checks” start, there will be people congregating somewhere prior to being totally checked. These people will…

Continue Reading »

The Evils of the Drug War

Filed in BP, deflation, o, silver, ubs by on January 21, 2011 0 Comments

Most everyone is familiar with the disastrous consequences of the war on drugs: drug gangs, drug lords, drug suppliers, gang wars, muggings, robberies, thefts, corruption of judges, prosecutors, and law-enforcement officials, murders, assassinations, overcrowded jails, asset forfeiture, and on and on. The fact is that nothing good is produced by the war on drugs. All the results are bad. If you have any doubts, just ask the people of Mexico, who have experienced the unbelievable number of 30,000 drug war deaths in the last 3 years alone. Making drugs illegal causes the price to increase, which motivates suppliers to enter the black market to make money. The state gets angry over this economic phenomenon, imposing harsher penalties and more brutally enforcing the laws. That causes prices to go up even more, which motivates more people to enter into the market as suppliers. Ultimately, the black market price gets so high that ordinary citizens are lured into the market in the hopes of scoring big financially. All the bad consequences of the drug war, however, are not the primary reason for why we should legalize drugs. Freedom is the primary reason to legalize drugs. When the state has the power to put people into jail for ingesting a non-approved substance, there is no way that people in that society can be considered free. A person is sitting in the privacy of his own living room. He decides to smoke marijuana, snort cocaine, or inject himself with heroin. The state — e.g., the members of Congress, the president, the DEA, the Justice Department — claim the authority to punish the person for doing that. But it’s that person’s mouth, it’s his body, it’s his health. Alas, not under terms of the drug war. The state says: We own you, we control you, we regulate you. You do as we say with respect to what you put into your mouth, or else. How can that possibly be reconciled with fundamental principles of freedom? A society in which freedom is genuine is one in which people are free to engage in any activity, so long as it is peaceful and non-fraudulent. That includes, at a minimum, conduct that could be considered self-destructive. You want to smoke? That’s your decision. You want to drink? That’s your decision. You want to ingest other drugs, no matter how harmful? That’s your decision. That’s what freedom is all about — the right to live your life the way you want, so long as you don’t initiate force or fraud against others. Unfortunately, statists take an opposite approach. They say that every person ultimately belongs to society and, therefore, can be controlled and regulated by the state for the benefit of society. Since a person taking drugs is harming society, the collectivist argument goes, the state can send him to his room when he is caught violating drug laws, as much as a parent can do so to a child who violates rules on what he should and shouldn’t put into his mouth. Most everyone now realizes that government officials benefit tremendously from the drug war, just as drug lords and drug gangs do. There is the ever-burgeoning business of asset forfeiture, including against innocent people, which is a way that the state helps fills its coffers without going through …

Continue Reading »

Watching Paint Dry

Watching Paint Dry

January Crude closes virtually unchanged on the day but as we’ve hinted in recent blogs we think there is more work to be done on the downside. The “whippiness” continues in Natural Gas with prices down 3.7% today. We’ve gone from bullish to bearish back to bullish and prefer the sidelines for clients in this indecisive environment. Though we’ve yet to get a clear signal, some of our more aggressive clients opted to get short the S&P today. We are not advising futures at this juncture, but our suggestion would be purchasing 75-100 point March ES put spreads. This may be premature, but if prices were to start rolling over, we think a quick 4-6% move lower could be captured. The 20 day MA continues to be the pivot point in the US dollar; in December that level is 79.70.We continue to suggest buying dips in the Euro, Pound and Swissie. Inside day in both Gold and Silver. For the first time in several months, we think the path of least resistance is lower in both precious metals. In February Gold our target remains $1330, and in March Silver $27. The USDA grain stocks report comes out tomorrow before the market open. Here are the average estimates in millions of bushels from one of our more informed floor traders: Corn 803, Wheat 849, and Soybeans 167. We advised most of our clients to lighten up in their profitable Corn positions. We remain bullish, but don’t like carrying trades into potentially market moving reports. The only real excitement in the softs sector was Lumber moving up limit, or 3.85% today. Nearly a 10% appreciation in the last three sessions. We feel there is more upside, but suggest waiting for a retracement if you are not already long. Risk Disclosure:

Continue Reading »

Gold Backs Off High, But Overall Uptrend Remains in Place

Filed in comex, gld, Gold, Gold Futures, Gold Market, Gold Prices, o by on January 8, 2011 0 Comments
Gold Backs Off High, But Overall Uptrend Remains in Place

February Comex gold futures prices have backed down from the early-December all-time record high of $1,432.50 an ounce. Profit- taking and position-evening as the year winds down and as the holidays approach has put some downside price pressure on the precious yellow metal, as prices have been trending lower for the past two weeks. However, the gold market bulls still have the overall near-term and longer-term technical advantage. A 4.5-month-old uptrend is still in place on the daily bar chart. The longer-term monthly continuation chart for nearby gold futures shows prices have been trending higher for nearly 10 years. There are no significant early technical clues to suggest that a market top is close at hand for gold. Gold bulls’ next near-term upside technical objective is to produce a close above solid technical resistance at last week’s high of $1,408.90. Bears’ next near-term downside price objective is closing prices below solid technical support at last week’s low of $1,361.60. First resistance is seen at $1,400.00 and then at $1,408.90. Support is seen at Tuesday’s low of $1,384.10 and then at Monday’s low of $1,376.60. Stay tuned! Jim Wyckoff Related articles Peter Brimelow: Gold could have a golden year end (marketwatch.com) Gold: strong nerves and patience of ten men (investmentpostcards.com) Is Gold Getting Precious Again? (GLD, GDX, GDXJ) (247wallst.com)

Continue Reading »

A National Debt That Will Never Be Repaid

As you read this, the U.S. government owes just a sliver under $14 trillion dollars to various suckers who’ve lent it money. And it wants to borrow more. Timothy Geithner warned that a failure to raise the debt limit would mean the government would not be able to make the payments on the current debt in the very near future. Consult the official record and you’ll read that the U.S. has never defaulted on its obligations. That’s technically true…but then what about when France’s prime minister Charles de Gaulle politely asked the U.S. to hand over the gold it promised was backing the U.S. dollars held by France and other nations? “No gold for you!” Nixon was heard to say. That’s because the U.S. had printed a lot of dollars in order to pay for Lyndon Johnson’s social programs and war (among other things). There was no way that the ratio of dollars to gold held by the U.S. was still anywhere near an amount that would support the official $35/oz. What was the real price of gold with all those extra dollars floating around? Who knows? But when they were allowed to own gold again beginning in 1974 Americans bid gold up to over $887/oz in just six years. Nixon knew back in 1971 that there was no way the U.S. could make good on the dollar at the official rate. The official rate was a lie. If every yahoo with $35 U.S. were to show up at the gold window then, only a small percentage of them would get their gold. So Nixon “closed the gold window.” But a default by any other name apparently isn’t really a default. And now Mr. Geithner tells us that in order not to default, the U.S. government has to take on more debt. Remember, there are certain ways government gets purchasing power… Steal it directly by openly taxing its subjects (on income, payrolls, transactions, imports, exports, etc)… Steal it sneakily through currency debasement (inflate paper money supply or clip the coins). Borrow it. Number three really isn’t really income, however. And it often leads to number two. Geithner just admitted that if the U.S. doesn’t borrow more than the current debt ceiling allows, the government wouldn’t be able to meet its obligations. When you can’t pay for your expenses — including the interest on the debt you already owe — is it really a good idea to borrow more? Maybe you should cut up the credit card, move to a smaller apartment, sell the car and take public transportation, stop eating out so much…any of these things in any combination would help. Borrowing more to fund your lifestyle doesn’t make the list. It just guarantees there will be even more pain to reckon with later. Borrowing is what got them in this jam. Raising the debt ceiling at this point is about as healthy …

Continue Reading »

Forget Buying in the Suburbs and Go Rent in the City

Filed in BP, Debt, deflation, inflation, lead, o, silver, Spot Gold, target by on January 5, 2011 0 Comments

It’s getting more expensive to live in Baltimore….at least if you’re a renter. According to a recent article in the Baltimore Sun rents are up more than 6% over what they were last year in the Baltimore metro area. If you count the drop in various concessions — like waived application fees or initial free rent — then the increase is even more. There is a drag on the rental market, however: the regretful buyers who now need to rent out the homes they can’t sell. Lois Foster, a Baltimore real estate agent who helps people find homes to rent and manages properties for owners-turned-landlords, said she’s seeing rents of $200 to $500 less a month than owners could have gotten two or three years ago. There’s just a lot of competition, she said. The gild is off the buying lily. All the credit that oozed out of the banks found its way into the national psyche. There it gave off a funny smelling gas that puffed up hopes and dizzied senses. Stock prices were the first beneficiaries. Fattening 401(k)s danced 1920’s-style energetic jigs with dreams of early retirement. Even as those 401(k)s and those hopes tired and finally dropped dead on the dance floor, the Fed held down interest rates and more funny air kept the nation high. People pinned new hopes on — and sent reams of borrowed new money into — real estate. That’s come to the sort of end you’d expect. While government cheerleading and easy credit drew in increasing numbers of bigger fools, the rental market found itself a lot emptier. All the people who really couldn’t afford to buy and who should have been renting were too busy buying on greater margins and not renting. Some hotspot cities like New York and Boston saw their rental markets surging along with their real estate markets…but third-stringers like Baltimore… “Cohan, with Southern Management, said some competitors were offering as much as three to four months of free rent to get people in the door in 2008 and 2009. Not anymore.” It’s no wonder that they were having such a …

Continue Reading »

Are You Being Watched?

Filed in BP, deflation, o, silver by on December 17, 2010 0 Comments

Do you remember the good old days the when it used to be illegal for governments to spy on their citizens? I don’t either… but I’m told that it used to be illegal. Oh, how times have changed. The British government went out of control years ago. One report from the BBC in 2009 showed that an average of 1,500 petitions are submitted — every day — to conduct surveillance on U.K. citizens. In the latest (publicized) perversion of government power, federal agents are now ordering real-time tracking of credit card transactions, travel information — pretty much anything right down to what brand of peanut butter you buy, and all without judicial or citizen oversight Known as “hotwatch orders,” government agents are able to write their own administrative subpoenas to surveil U.S. citizens; they request the records of phone companies, Internet service providers, video rentals, and even frequent flyer/customer loyalty programs at airlines and grocery stores. Without court oversight, the subpoenas do not even need to be part of an ongoing investigation or suspicion of criminal wrongdoing; U.S. federal agents can simply decide that a particular individual should be tracked, and then compel private companies to provide a real-time feed of his/her activities. Frequently, the administrative subpoenas are accompanied by gag orders that prevent the company from notifying its customer that they have been served with a subpoena. More than likely, the customer will never know that his/her records are being instantaneously relayed to a federal agent. The thing is, these hotwatch orders are not expressly authorized under U.S. law; federal agents are capitalizing on loose language in existing laws that allow them to write administrative subpoenas in certain instances… and they’re taking that limited authority to extremes. In 2009, House bill HR 1800 (National Security Letters Reform Act of 2009) was submitted, which would tighten the language, provide clear guidelines for federal agencies’ authority, and provide an oversight mechanism. The bill quickly lost momentum and has been in subcommittee purgatory for 18 months. Just like the TSA’s egregious violations of passenger privacy, politicians have no incentive to keep their federal agents in check. All in all, this is yet another brick in the wall that shows how quickly the U.S. is descending into a police state. Perhaps it’s only a matter of time before the redux of the “Un-American Activities Committee.” Perhaps the final nail in the coffin is that in addition to their far-reaching, unchecked power for surveilling their citizens, U.S. federal agents also have nearly unlimited powers to confiscate any asset in the country that they suspect may be involved in criminal wrongdoing . To be clear, ‘criminal wrongdoing’ covers a lot of ground… most people think such seizures are limited to customs violations, drug trafficking, and the like. Not true. Government agencies as irrelevant as the Federal Trade Commission can ruin your life if they even suspect you of violating any number of obscure laws relating to email spam, Internet downloads, misuse of pay-per-view cable TV, etc. It’s the real-life equivalent of that old, trite joke about the guy who goes to jail for ripping off the “DO NOT REMOVE” tags from underneath his mattress. Law enforcement officials often…

Continue Reading »

Investors to Silver: “Let’s Get Physical”

The scramble for physical gold and silver is intensifying. People increasingly want to own the real thing, and not some paper substitute, all of which comes with counterparty risk. This conclusion is apparent from the fact that the futures prices for gold and silver have moved into “backwardation.” Allow me to explain… Because gold is Investors to Silver: “Let’s Get Physical” originally appeared in the Daily Reckoning . The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Continue Reading »

We Are All German Jews Now

Filed in BP, deflation, New Gold, o, silver, Spot Gold, US Dollar by on November 24, 2010 0 Comments

The introduction of so-called porno scanners at America’s airports and the egregious pat downs of airline travelers have turned every American into a German Jew. Instead of dehumanizing and demeaning one segment of the population in order to pave the way for the Holocaust, all airline travelers are being treated like German Jews by our government for our own good — to keep us safe from terrorists on airplanes. The TSA now considers every American a potential “enemy of the state,” because any one of us may be carrying a bomb aboard an airplane, despite the fact that young men from the Middle East perpetrated the 9/11 attacks. “Hold on,” say TSA officials and their lackeys in Congress and in the media, “Our federal government is not out to harm us let alone kill us like the Nazis did to the Jews; our government needs to conduct “aggressive measures” to “protect” us on all commercial flights from potential terrorists.” That is the party line. I can understand objections to those who point to Nazi Germany and warn that this is what current day America is about. But I disagree with this objection. The ultimate horrors in Nazi Germany were, indeed, much more terrible than anything close to what has occurred so far in America. But one should do more than only consider just the ultimate horrors of what went on in Nazi Germany. One must think about the road that was traveled by the Germans to get to that point. I believe one of the most serious misunderstandings about totalitarianism is that it arrives as a full package that requires no assembly. That it is put on the people, like a winter coat. All at one time, and in full view for all to see. This is a grave misunderstanding. I often wondered why more Jews didn’t flee Nazi Germany. The answer did not come to me until I saw Roman Polanski’s important movie, The Pianist . In the movie, Polanski demonstrates how many Jews were simply one step behind. When Nazi Germany limited how much money a Jew could have, instead of leaving the country, many Jews debated where they should hide their money. When Jews were required to move to certain parts of the city, many Jews simply focused…

Continue Reading »