PM End of Week Market Commentary - 2/12/2016

davefairtex
By davefairtex on Sat, Feb 13, 2016 - 6:27am

On Friday, gold fell -8.50 to 1238.50 on heavy volume, and silver dropped just -0.01 to 15.79 on heavy volume also.  After rising $50 yesterday, a modest retracement for PM was not surprising, especially given strength in equities, oil, and a nice rally in the buck.

On the week, gold rose +64.40 [+5.49%], silver climbed +0.76 [+5.06%], GDX shot up +10.50%, and GDXJ rose +14.27%.  Platinum was up +4.85% and palladium rose +3.76%, while copper fell -2.68.  It was another fantastic week for gold and the miners; gold's rally above 1200 was just spectacular, as was the participation by the mining shares.  Weakness in copper and relative weakness in silver is reminding us this move isn't about inflation, its about safety.

Last week gold was approaching the previous high of 1191; it took gold one day to break through that, another couple days to retrace, and then on Thursday gold blew through 1200 in a massive $50 move that saw gold hit a high of 1263.  But it was the break above 1191 that was most significant to me; by violating the pattern of "lower highs and lower lows" on the weekly chart, gold conclusively ended its four year long downtrend this week.

However, to establish an uptrend, gold now must establish a pattern of higher lows and higher highs.  This means gold needs to correct for a time, and then buyers need to appear to push prices above that previous high.  We need to go through one cycle of this before we know if gold's long term trend has really changed.  After the excitement of the past few weeks it certainly feels like the trend has changed, but gold has to emerge bullish after going through a down cycle be certain.

Last week I suggested it was a high risk time to buy gold.  I could tell you its even higher risk today, but I don't think you'd believe me.  And in truth, watching gold perform on Friday, it felt like there was a pretty strong bid under gold going into the weekend.  SPX was up, dollar was up, oil was up - and gold didn't sell off, at least not much.  If gold was going to be sold, it was on Friday.  That - largely - didn't happen.  It suggests that we may have some more upside to come before this cycle is complete.

This week saw silver break through its 200 MA, and head toward its previous high of 16.37.  On the weekly chart, we see that silver has managed to break its weekly downtrend line, which is a first step towards ending the longer term downtrend.  However, a close above 16.37 is what is required to break the pattern of lower highs and lower lows that has been in place for the past four years, and silver has yet to do this.  If gold keeps climbing, silver will probably do so as well, however silver continues to underperform gold.

Miners

After last week's great showing in the miners, I expected a correction.  We got one - it lasted all of two days, and then the miners continued higher, closing quite strongly on Friday, popping up a couple of percentage points right at the close.  Traders wanted to own miners over the weekend.  That's a good sign.

At this point, it looks like traders are looking to buy the miners on most every dip.  That's quite bullish.  At some point we'll have a more serious correction, but as of right now, the dips are being viciously bought (just look at what happened on Wednesday) and that's quite bullish.

The USD

The buck continued falling this week, losing -1.07 to 95.98, dropping back below the 200 MA.  This week's dollar move is mostly about the Dollar/Yen, which fell -3.19%.  This week the Japanese appeared to continue to sell US assets, although the week ended on a positive note with dollar/yen printing a swing low.  This caused the the buck to print a swing low also.  The rise in the buck on Friday didn't seem to hurt gold all that much, and it didn't affect the miners at all.  Perhaps they don't believe in this swing low so much.

The money fleeing the US didn't end up in the Japanese stock market, which lost -11.10% on the week - a massive loss.  Market looks to be saying "Abenomics has failed" - negative rates were an abject failure.  If this trend continues, I suspect Mr Kuroda's time at the central bank will be at an end.

US Equities/SPX

US equities fell this week, dropping -15.27 [-0.81%] to 1864.70.  SPX made a new lower low on Thursday by a few points, touching 1810 briefly before rebounding.  On Friday, SPX staged a substantial rally, moving up +35 points and printing another swing low.  Lots of things cooperated to make this happen; oil rallied, the buck rallied, dollar/yen rallied, junk debt rallied, treasury bonds look to have topped out, and the much-beaten financials (XLF) managed to climb +4.22%.  Bank-in-the-crosshairs DB managed to climb +2.90% on the week; BAC wasn't able to put in a positive week, but it did rally 7% on Friday.  It too printed a swing low.

This could just be short covering before the weekend, its hard to say, but a large number of different items made the same move on the same day.  We might - might - have a temporary low here for equities.

Gold in Other Currencies

Gold's move this week was not a currency effect; gold rallied massively in all currencies.  Gold has ended its downtrend in every currency except JPY, where gold had the weakest performance - and only because of the strength of the Yen.

Rates & Commodities

Bonds (TLT) rose +2.16% this week, which sounds great until you look at the chart; on the weekly, TLT printed an inverted hammer candle (indicating a possible top), as well as a convincing swing high on the daily chart.  TLT remains above its 9 EMA, but the selling on Friday was heavy: TLT dropped a big -1.66%.  The reversal on Friday for TLT suggests a return to risk on.

JNK fell -0.30%, making a new low this week.  This sounds bad - again - until you look at the chart, where on the weekly it printed a bullish-looking hammer candle, and on the daily it printed a swing low, rising a big +1.62% on Friday alone.  Friday's move more than hints at a return to risk on.

The CRB (commodity index) fell -0.97% on the week, but it too had a happy Friday, rising +3.45%, a huge move.  It too printed a swing low Friday.  Of course it has done this many times and nothing has come of it, but one of these days it will turn into something - probably long after we've all grown tired of reading about the interminable commodity downtrend and everyone has stopped paying attention.

WTIC continued dropping this week, falling -1.98 [-6.39%] to 29.02.  Oil dropped as low as 26.05 on Thursday which is a new multi-decade low, but it managed to bounce back - and along with many other things, oil rallied strongly on Friday, notching a gain of +1.72 and printing a swing low.  WTIC remains below its 9 EMA, so oil still has some work to do to turn even mildly bullish in the short term. 

Stockman had an article where he pointed out (acknowledging the insight came from someone else) that the global proven oil reserves of 1.7 trillion barrels x the $70 price/bbl decline = asset value loss of $119 trillion dollars.  Point of reference: that's 200x the value of google.  Or Apple.  http://davidstockmanscontracorner.com/119-trillion-up-in-smoke-the-busted-value-of-the-worlds-proved-oil-reserves/

Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.

The price of oil is that lever, the size of the reserves is the fulcrum, and the world is truly being moved.  Its almost a shame that I buried this bit so far down in the report.  It should probably lead, except this is the PM commentary, so...what are you gonna do?  Is it any wonder that energy debt is deep into junk, that banks are in trouble, and that gold is screaming higher?  The move in oil has placed the financial system itself at risk by destroying both the collateral (and the cash flow) on which a huge amount of debt is based.

Physical Supply Indicators

* Shanghai was closed this week for Chinese New Year.  Year of the Fire Monkey.  Doesn't that just sound like trouble?  We're only six weeks in and see what fun we've had!

* The GLD ETF tonnage on hand rose +12.49 tons, with 710.95 tons remaining.

* Gold remains in backwardation, with the spread in the first two contracts at -0.10.

* ETF Premium/Discount to NAV; gold closing of 1238.50 and silver 15.75.

 PHYS 10.21 -0.15% to NAV [up]
 PSLV 6.17 +1.98% to NAV [up]
 CEF 12.12 -6.87% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no particular premiums for gold or silver.

* HAA big bar premiums are higher for gold [2.32% for 100 oz bars in NYC], higher for silver [3.62% for 1000 oz bars in NYC].  Silver Eagle premiums fell [18.05% in NYC].

Futures Positioning

COT report covers trading up through February 9th.

During the coverage period, the gold commercials added +32.5k shorts and also added +4.9k longs.  THis was a big addition of short interest, but not as large as I had imagined.  Commercials still have another 70k shorts to add before they are "fully loaded" up short.  No doubt they added a large number on Thursday, but I do not think it amounts to 70k.

Managed money also did not cover as many shorts as I had expected in gold; they only bailed out of a measly 11k shorts, which still leaves 20-40k shorts remaining.  This provides us an explanation for why gold shot higher on Thursday - there were still a huge number of managed money shorts that had stubbornly refused to bail out.  Or, perhaps, a number of them mistakenly loaded up short after the move to 1200. I, er, might have done that myself, only to hastily bail out when I saw how strongly the dip in the miners was bought on Wednesday.  You have to be nimble - and flexible - if you are to survive.

In silver, commercials sold -3.5k longs, and added a big +12.7k shorts, moving silver commercial short totals within 5k of the start of the danger zone.   Managed money covered -6.8k shorts and added +7.9k longs which puts them most of the way there.  It appears that the football is just about to be snatched away from Managed Money in silver.  The top of the cycle beckons.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

Happy days are here again!  Gold is now positive over the last 52 weeks, and everything except platinum is above the 200 MA.  Juniors lead seniors, miners lead metal - silver is the only fly in the ointment.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 14.27% -6.42% rising rising falling rising ma200 on 2016-02-05 2016-02-12
Senior Miners GDX 10.50% -10.92% rising rising falling rising ma200 on 2016-02-04 2016-02-12
Silver Miners SIL 9.66% -26.27% rising rising falling rising ma200 on 2016-02-12 2016-02-12
Gold COMEX.Gold 7.02% 1.56% rising rising rising rising ma200 on 2016-02-03 2016-02-12
Silver COMEX.Silver 6.85% -5.98% rising rising falling rising ma200 on 2016-02-08 2016-02-12
Platinum COMEX.Platinum 6.08% -20.22% rising rising falling rising ema9 on 2016-02-03 2016-02-12

Gold Manipulation Report

There was no meaningful "after-hours" spikes to report.

Summary

Risk assets took another leg down this week, but a note of possible reversal was heard on Friday.  Oil is the master resource, and proven oil reserves are the collateral that underpins literally trillions in debt and infrastructure.  Right now the price of oil seems to be driving prices in almost everything.  It might (MIGHT) have made a low at 26.05 on Thursday, with the confirmation seen on Friday.  At some point, Saudi Arabia will be motivated to restrict production.  The 1 million bpd surplus is tiny compared to global oil production - and indeed its only 10% of Saudi production.  Now with shale production on the decline, it only requires an act of policy by the Saudis to fix this problem.

The gold/silver ratio rose somewhat, up +0.32 to 78.44, briefly touching 80 on Thursday, which still screams "flight to safety."  GDX:$GOLD climbed too, looking "early bullish" on the weekly timeframe.   GDXJ:GDX rose, but still looks bearish.

It occurs to me that if I'm a gold mining company, I'm probably going to start hedging future production at these price levels, especially after the "come to Jesus" moment with gold at 1045 not long ago.  Perhaps not all of it, but certainly some of it.  Lets see...2500 tons global annual production @ 32151 troy oz/ton divided by 100 ounces per GC contract = 803,775 GC short contracts to completely hedge one year of global gold production.  Hmm.  And we're talking about the commercials going short just 40,000 contracts to print a top for this cycle in gold?

I overestimated the amount of managed money short covering last week for gold; this week, gold's COT report still looks like there is room for more upside - at least one more week anyway.  We also see that most of the gains in gold came from managed money going long rather than exiting short.  That's bullish overall.  Silver isn't so bullish; silver's gains were about 50% short covering 50% new longs.  My guess is, silver is now at or near the end of the line in terms of the managed money COT setup.

Gold and silver big-bar physical shortage indicators show a mixed bag again; in the west, ETF premiums were higher - PSLV is now sporting a 2% premium - GLD tonnage rose, and gold remained backwardation at COMEX.  Big bar premiums for gold at HAA nudged up a bit.  Shanghai was closed: happy Year of the Fire Monkey!

My own personal "physical experience" showed no shortage of gold, but relatively large crowds at the local gold shop.  People were waiting in line 20-30 minutes to make their trades.  Spreads also had come down - now about $2.50/oz, but then again I live in a place where gold is as common as dirt ("oh you trade gold?  my grandmother does that too") and just about as exciting.  I saw one older Chinese gentleman remove a small bar from his pocket, and walk off with a packet of cash.  He had to have been 80.  I wondered how many times he had traded this single bar back and forth.  Another pair of young people (maybe 20?) came with a manila envelope stuffed full of cash, and swapped it for about 750 grams.  As I watched, I wondered who was "right" about the trade - the young people, or grandpa?

In the next few weeks, based both on the market price action and the COT report, I think we have room yet to run with gold and perhaps the miners too.  So far it doesn't look like the market believes in the oil reversal; gold retained a good bid going into the weekend, as did the miners.  From what the market is telling me at the moment, gold retains momentum right now, even in its horribly overbought condition.  I'm now thinking that is probably because of the impact of this 119 trillion dollar lever working on a big chunk of western debt.

Its about Oil

After sorting through all of this, I ask myself, is that 119 trillion dollar loss in value on the 1.7 trillion barrel oil reserves a real loss?  Did an "oil asteriod" land on the earth blessing us with another 100 years of oil resource?  No.  This loss is only real as long as price stays at $30.  It is an artifact of oil price manipulation - used to serve notice to both shale drillers and their lenders that there is "non-economic risk" in playing this game.  Saudis could remove 1 mbpd from production quite rapidly, and a big chunk of that 119 trillion dollars returns.  The unintended consequence of this oil price game is that a big chunk of debt that was collateralized by oil reserves is now at risk of defaulting, which will as a side effect take down key banks in the west.  If DB goes down, it will rock Germany's world - and probably, all of ours as well.

If I were a leader in the west, and I were concerned about my banks, and I saw the linkage between bank stock prices, oil, and junk debt, I might just use my leverage to hammer those Saudis back into line.  Seriously.  This whole 15% equity market correction, the associated credit issues, the follow-on damage to the banking industry, and finally the recent, massive gold safe haven rally can be traced to the destruction of oil collateral by the oil price war.  It just took 20 months for the linkages to become apparent.

Perhaps a quid pro quo could be reached.  Shale driller debt could be called in, and some of them put out of business.  Future lending would be curtailed by the regulators - because of excessive risk, you understand.  In exchange, the oil price war could be ended.  Perhaps the poster child, Chesapeake, would have to go out of business first.  Rapidly.  (Sorry about that, CHK - we have to shoot an Admiral from time to time to encourage the others to stay in line - and perhaps one of our friends could pick up the assets in bankruptcy).  And both DB and BAC would be saved, more or less, to lend again another day.  Frau Merkel would owe us one.  As would the heads of DB and BAC.

Anyhow, I think gold is a bit of a macro-economic "tail" here, with the 119 trillion dollar change in oil reserve asset valuation being the dog.  Dog wags tail, not the other way around.  Banking system won't fail if the deep state can solve the problem.  Regulators will be instructed to keep on pretending until the oil solution is worked out at a higher level.  Just my opinion, but from where I sit, it does hang together.

Ultimately, its about debt, banking, and collateral.  If the collateral comes back, the debt instantly has value once again, and then so does the equity.  This doesn't fix everything that's wrong with the west (TCMDO = 62.5 trillion!) but it does take off the table the immediate failure of the banking system which is what the market seems most concerned about today.

Will the "deep state" allow oil prices - controlled almost entirely by the Saudis - to cause a near-term castrophic failure of the banking system of the west through destruction of collateral?  Sure it was all fun and games while the fight was contained to the oil patch, but once you threaten the banking system of the west...

http://www.cnbc.com/2016/02/11/jamie-dimon-buys-more-than-25m-in-jpmorgan-stock-source.html

Now let's all enjoy the upcoming Year of the Fire Monkey!

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38 Comments

KugsCheese's picture
KugsCheese
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Posts: 1449
Typo

"After sorting through all of this, I ask myself, is that 119 trillion dollar loss in value on the 1.7 trillion dollar oil reserves a real loss? "

Correct "1.7. trillion dollar" to "1.7 trillion barrels".

KugsCheese's picture
KugsCheese
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Derivatives?

So of the $117T, that is now a paper loss, that was used as collateral for loans how much of this was turned into derivatives and how much more leverage?  Just maybe TPTB cannot "solve" this wild mal-investment without causing hyperinflation globally.

davefairtex's picture
davefairtex
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hyperinflation??

Eh, I have no idea what derivatives you are talking about.

These are bank loans and/or corporate bonds.  Borrowers can't pay the debt back, losses get inflicted, that's deflationary.

Its not just shale.  Drilling companies have debt, oil services companies have debt, E&P companies have debt, and its all ultimately not serviceable with oil at $30.  There is a huge infrastructure in place to keep the oil flowing, and its all enabled by debt.

Take Seadrill, for instance, one of the larger drilling companies.  From what I understand, they are 'talking with creditors.'  Reflate oil, and SDRL stops having problems, no defaults take place, and a big deflationary impact is avoided.

But maybe the goal is to pick up oil assets on the cheap.  Maybe there's a bigger game afoot.  Perhaps "someone" is standing by to pick these companies up out of bankruptcy?

I think that game is relatively contained, unless the western banking system ends up collapsing as a side effect because some weak bank gets pushed over the edge through losses.  Then it suddenly gets a lot less contained.

AaronMcKeon's picture
AaronMcKeon
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Posts: 74
Armstrong on Weekly Close

I've been trying to interpret what Armstrong is saying, and sometimes it's hard to separate it from his rants. If I'm reading him properly, it sounds like his computer stated if we close this week above $1,237 that further upside is possible and to keep our eyes on the $1,309 price target. However, his computer is suggesting that February is just a panic cycle and that the real explosion in gold is more likely to start happening in 2017, which is when he expects confidence in government to break down in earnest. In order for a true directional change to happen now we would need to close the month >= $1,362. So, if I'm piecing this together properly, his computer is suggesting we'll top out sometime within the February timeframe and experience a drop back down until the real show starts in 2017. Dave, would you agree I'm interpreting him correctly?

As an aside - none of this really changes what I'm doing, which is to stay focused on big-picture fundamentals and build my personal gold stockpile / crisis resiliency - but I do find the ride interesting and understanding all these different "models" slowly adds to my overall understanding of all this.

Post from 12 February - further temporary upside possible:

This is just a simple, classic, Channel Move where you fill the gap between two channels. We have two Minor Weekly Bullish Reversals at 1237 and 1239. These will come into play today. If we can elect them today then some further upside becomes possible. Below we have the key Weekly Bullish at 1209. What you have accomplished is getting people offside. They will return to assuming it is a bull market but will fail to comprehend that they need everything to align before the real reversal unfolds. The risk of prolonging this trend into 2017 is very high.

(Source)

Posts from 11 February - target during temporary rise?:

Keep in mind this current trend can continue into Monday. So watch the 1309 level for gold;

(Source)

And another from 11 February - the bigger picture:

The markets are talking to us, yelling if you will, that a correction is in the wind on a global basis. The culmination of the trend will NOT be 2017, but pushed off into 2020 with 2017 looking like the start of the trend where confidence collapses in government.

...

February was the Panic Cycle. It appears to be on target. The Monthly Bullish stands up at 1362. That is what we need to elect to suggest that a change in trend is possible. Otherwise, be cautious. We are looking at all markets pushing to their extremes. This is the prelude to the chaos coming in 2017.

(Source)

Luke Moffat's picture
Luke Moffat
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Posts: 379
All smiles
davefairtex wrote:

I think that game is relatively contained, unless the western banking system ends up collapsing as a side effect because some weak bank gets pushed over the edge through losses.  Then it suddenly gets a lot less contained.

I love the understatement. It's almost like you've got the thousand yard (financial) stare :)

Personally, I think that the recent credit crunch will be nothing compared to the coming energy crunch. Credit is man-made so it can be extended. Energy, well, it isn't, so it won't be.

How the central banks deal with that shall provide some mild amusement.

In the meantime, to slay the great deflation beast... another QE to help get oil prices up again? Or central banks directly buy up unrepayable oil debt (or similar junk rated energy bonds) like they did mortgage back securities?

All the best,

Luke

KugsCheese's picture
KugsCheese
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davefairtex wrote:Eh, I have

[Duplicate]

KugsCheese's picture
KugsCheese
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davefairtex wrote: Eh, I have
davefairtex wrote:

Eh, I have no idea what derivatives you are talking about.

So shale debt has not been included in ABS/CDO bonds and bets?

davefairtex's picture
davefairtex
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armstrong and gold

Clan-

His computer is suggesting we'll top out sometime within the February timeframe and experience a drop back down until the real show starts in 2017. Dave, would you agree I'm interpreting him correctly?

That's my understanding too.  He feels the real move in gold will come when confidence fails, and that the move here in Feb is just the prelude.

However, Armstrong (like most traders) gives himself an out.  That is, there is a price point where the market tells him that his prediction is wrong.  If we close above the critical "monthly bullish" points, then - as he puts it - more upside is possible.

Its interesting.  Jim Rogers (in a recent interview) says he owns gold, and he also believes there will be a better time to buy some more than today.  FWIW.

 

davefairtex's picture
davefairtex
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the last war

Kugs-

I think you're fighting the last war.  From what I read, Wall Street is a bit less willing to structure bets against debt products that it sells to its customers this time around.

Bets against individual company failures (like DB) are definitely still out there.  But I don't see how that causes hyperinflation.  Sometimes I get the sense that goldbugs imagine "hyperinflation" to be the answer to every single negative economic outcome imaginable.

"I'm feeling a bit ill."  "Oh, you must be coming down with a bad case of hyperinflation."

 

davefairtex's picture
davefairtex
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credit & energy

Luke-

Personally, I think that the recent credit crunch will be nothing compared to the coming energy crunch. Credit is man-made so it can be extended. Energy, well, it isn't, so it won't be.

And this makes me think of the worst of the 6 Star Wars Movies: "The Phantom Menace."

As this oil crisis - of "too much oil" - gets mopped up, some chunk of reserves and equipment will be transferred to different hands.  Some companies will go bankrupt, get sold off for parts to pay back creditors on pennies on the dollar.  Others will just sell for very low prices.  If you are the conductor of this orchestra - let's name him "Palpatine" - your timing will be pretty good as to your buy-in point.

I point once again at Seadrill.  It traded in mid-2014 at 40.  Its now trading at 1.67.  Market price says it's going BK probably within the year.  Seadrill has nothing to do with shale at all; its collapse is just an unintended consequence.  Or maybe its an "intended" consequence.  Maybe our good Emperor wanted to pick up some nice drill ships out of bankruptcy.  Who wants to pay day rates of 600k/day when you can buy the same ships for 50% off after the company blows up?

All that equipment will be convenient to have around for the energy crisis you talk about.

But a banking crisis was probably not part of the plan.  And if one really is in danger of appearing, as gold is suggesting, I believe there are people out there - not central bankers - that will be motivated to bring an end to the current "phantom menace" so as to take the pressure off the banking system.  I wouldn't exactly call them Jedi, though.  As best I can tell, as much debt as possible must survive if the owners are to continue receiving their interest payments.

I keep going back to CAF's "slow burn."  Not saying it is guaranteed, but there do seem to be forces out there that could resolve the phantom menace relatively rapidly if they chose to do so.

Penny551's picture
Penny551
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Karen Hudes / Gold Supply

I believe I recall seeing some posts here regarding Karen Hudes' (& Bix Weir) assertion that the true gold supply is 200million tons (vice 170K Tons).  Steve SanAngelo does a great job of dispelling that myth in the following write-up:

https://srsroccoreport.com/setting-the-record-straight-on-the-massive-go...

Penny551's picture
Penny551
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Interesting Remark from SRSRocco...

FWIW, Steve believes we'll see Oil below $20 in the next few months.  I thought the high volume plunge to $26 last week looked like a washout / capitulation low and a nice double bottom on the charts.  I guess time will tell, but like Dave, I believe price & volume tell the real story more than opinions, forecasts and MSM headlines. IMO, the calls for sub $20 WTIC is a little too crowded...   

...However, total global oil supplies are still elevated. Do you have any idea just how close Cushing, Ok storage is from being full?? Furthermore, the greatest time for build of U.S. petroleum products is from JAN-APR.

Moreover, the U.S. refineries start doing maintenance in March-Apr when they change over to the Summer blend. Thus, there will be shut downs. You have no idea just how much more oil will be filling U.S. and Global stocks over the next 1-2 months. 

Unless we get a REAL OPEC production cut, we are going to see sub $20 oil. MARK MY WORDS. I am not saying it will stay there, but it will likely hit $19 before it heads higher…. and it won’t jump back above $50-60 for quite some time.

Joe, unfortunately, you don’t understand that we are heading OVER THE CLIFF due to the massive amount of debt that is no longer sustainable. The markets in the future will not resemble the past.

So, we will have to agree to disagree on this one. Silver and Gold are going up much higher, but it won’t depend on the oil price anymore. It will occur when we finally get an avalanche of buyers totally overwhelming the market.

Arthur Robey's picture
Arthur Robey
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Hudes.

Even if Hudes was correct and there is a lot more gold than we think, how does that make us richer?  Gold represents the underlying assets. It is a currency.  There is a common meme that gold has real,  intrinsic value. It has all the intrinsic value of cowry shells.

If this hypothetical 2 million tons was released onto the  market,  what would happen? The value of gold per ounce would fall. The underlying assets would remain the same. Exactly the same as a discovery of a beach full of cowry shells. 

There are several ways to increase the per capita wealth.  

  • A population crash.
  • An escape from the gravity well. 
  • An escape into virtual reality
  • And some other that haven't thought of. 
dryam2000's picture
dryam2000
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Posts: 292
"Hyperinflation"
davefairtex wrote:

Kugs-

I think you're fighting the last war.  From what I read, Wall Street is a bit less willing to structure bets against debt products that it sells to its customers this time around.

Bets against individual company failures (like DB) are definitely still out there.  But I don't see how that causes hyperinflation.  Sometimes I get the sense that goldbugs imagine "hyperinflation" to be the answer to every single negative economic outcome imaginable.

"I'm feeling a bit ill."  "Oh, you must be coming down with a bad case of hyperinflation."

 

"In his writings, Ludwig argued in favor of free markets, capitalism and individual freedom and warned against the dangers of credit expansion, hyperinflation and governments using monetary policy to create artificial economic prosperity.

He argued that inevitably such actions would lead to inflation and then hyperinflation and finally to a place known as the “crack up boom” where everyone realizes that inflation is out of control and wants to get rid of paper money and get “real” things, no matter how much it costs to do that. In its most extreme incarnation, nobody wants paper money for anything and then the financial system collapses."

 

  • The U.S. is the most indebted country in the history of the world at every single level, Federal / Local, Corporate, and individual.  The 'official' level of debt is 'only' $19T, but the real level is at least > $100 trillion.
  • The U.S. has been running progressive trade deficits going back to the mid 1980's.  The recent deficits are very sizable & much, much larger than any other country by a wide margin.  How much longer is the U.S. going to receive real goods for worthless pieces of currency?  The industrial capacity is the U.S. has been decimated with only 15% of jobs in the this sector.  85% of jobs are in the service sector.  Try finding items in Walmart, Costco, Target, a sporting goods store, electronic stores, appliance stores that are made in the U.S.....and I'm not talking about stuff that is simply assembled in the U.S.  What percentage of automobiles are made in the U.S., including the making of the parts?
  • How many more years before the USD is unseated or partially unseated as the reserve currency, or alternatively, when is the petrodollar finished?  Oil all over the world, and other commodities are being traded directly in non-USD currencies.
  • A large majority of the world's $1+ quadrillion derivatives are held by the U.S. banks.  A massive deflationary event would cause a cascading implosion of derivatives.  A massive implosion of derivatives would require massive money printing.

Hyperinflation occurs when there is a lack of confidence in the financial system.  Typically it occurs in a very timely fashion, and given the increased velocity of information in today's world relative to the past I suspect a hyperinflationary process would occur blindingly quick.

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Don't panic.....This is NOT 2008!!!!!!
davefairtex wrote:

Kugs-

I think you're fighting the last war.  

http://www.zerohedge.com/news/2016-02-14/dont-panic-experts-agree-not-2008

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zero context

dryam-

Don't panic.....This is NOT 2008!!!!!!

Hmm, if memory serves, I think was a bit more nuance involved.  Let me try again.

Low oil prices are driving the banking system into crisis because of a whole lot of debt whose collateral revolves around oil reserves and cash flows that are now priced at $30/bbl, instead of $100/bbl when the loans were made.  Debt is now unpayable, and to make matters worse, the collateral underpinning the debt is no longer good.  (A real estate equivalent: salary cut by 66% + property value drop by 66% = can't pay the mortgage + terrible recovery for the bank in foreclosure = massive banking crisis).  If this continues, the weaker banks in the banking system probably blow up, which will affect the whole banking system because of both contagion and non-transparency about what's actually on those balance sheets.  Once agin, we have no idea which banks own what.  In that respect, it IS like 2008.

But unlike 2008 where the underlying issue was tens of millions of bad/unpayable mortgages and an structurally overpriced property market, instead we have exactly one price - oil - that could be set (more or less) by the Saudis making a single decision.  Once the decision is made, many of those debts become good again, and also the recoveries from all the bankruptcies jump higher too, reducing the deflation worry.  This particular bank crisis will probably end that same day - confidence will return.

Given that situation, should you panic?  I leave that entirely up to you.  If a fix does happen in time, gold most probably drops well below the current 1240 level.  If it doesn't and the system locks up, of course, retail gold probably vanishes, and the usual host of "banking system lockup" events occur.  I got my cash for 6 months; I've hedged at least to some degree.  Does that qualify as panic?  Perhaps its a quiet panic.

As an old trader once asked me, "so Dave, gun to your head, what do you think?"  (lots of colorful phrases came out of that old trader)  I think the gang in charge - whoever they are - will probably not allow the Saudis to run our banking system at 60 mph into the wall.  I rate it as possible, but not likely.

I think we could well have a different crisis that will end up being just as non-solvable as 2008, but its probably not this one.

Probably.

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my turn to be reductive

dryam-

[a whole lot of quotes and stats focusing entirely on the US domestic situation, ignoring the situation in the rest of the world, and the power of the US military]

Inevitable result: HYPERINFLATION!

If it happens somewhere, it sure as hell won't happen here first.  We'll get to see it in Japan, and/or Europe, long before it darkens the door of the people here in the US.  Most likely, the dollar will go screaming higher; you'll be preparing for hyperinflation while the dollar breaks 150, as big money flees from the places where hyperinflation is ACTUALLY happening to hide in the US.

Oh eventually we could see it here.  But not before the periphery blows up.  Once they fix their problems and the money rushes back out again - that's when we face the hyperinflationary danger.

I encourage you to a) read history, and b) look outside the borders of the US now and then, and c) remember we're the core economy, and all that implies.

 

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the effect of rising oil price on commodities
davefairtex wrote:

 If a fix does happen in time, gold most probably drops well below the current 1240 level.  If it doesn't and the system locks up, of course, retail gold probably vanishes, and the usual host of "banking system lockup" events occur. 

What about the effect of rising oil price on commodities?  I realize that the argument above is that if/when confidence in the banking system is restored that the need for a safe haven will diminish, leading to a fall in the gold price.

On the other hand, a higher oil price will tend to lift most commodities with it, and therefore we might have a more traditional price increase in precious metals led by silver, palladium, and maybe platinum.  That might not be quite as dramatic as the recent rise in PM prices, but higher oil prices does seem to lift most other commodities, ranging from potash to copper to gold.

I realize that this might sound like a "heads gold wins, tails gold wins" argument.  Still, how else does one project the effect of higher oil prices on PMs?

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Your interpretation of hyperinflation with 100% certainty NOT me
davefairtex wrote:

dryam-

[a whole lot of quotes and stats focusing entirely on the US domestic situation, ignoring the situation in the rest of the world, and the power of the US military]

Inevitable result: HYPERINFLATION!

If it happens somewhere, it sure as hell won't happen here first.  We'll get to see it in Japan, and/or Europe, long before it darkens the door of the people here in the US.  Most likely, the dollar will go screaming higher; you'll be preparing for hyperinflation while the dollar breaks 150, as big money flees from the places where hyperinflation is ACTUALLY happening to hide in the US.

Oh eventually we could see it here.  But not before the periphery blows up.  Once they fix their problems and the money rushes back out again - that's when we face the hyperinflationary danger.

I encourage you to a) read history, and b) look outside the borders of the US now and then, and c) remember we're the core economy, and all that implies.

The best problem solvers never take possible solutions/outcomes off the table.  Alternatively, deploying capital is all about risk assessment in a very uncertain world.  You sound very certain (except for your other post today saying there's a 50% chance of gold going up from here.....hmm?).  I would proceed with caution.  

I appreciate your recommendations for me to read a history book, to not completely neglect international economics, and pointing out the USD is the reserve currency.   I give facts & ideas while you imply I'm an economic embicile in a veiled fashion.

I look forward to future exchange of ideas.  Try to keep it on the up & up.

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Short Term / Long Term

Dave,

davefairtex wrote:

Low oil prices are driving the banking system into crisis because of a whole lot of debt whose collateral revolves around oil reserves and cash flows that are now priced at $30/bbl, instead of $100/bbl when the loans were made.  Debt is now unpayable, and to make matters worse, the collateral underpinning the debt is no longer good.  

As an old trader once asked me, "so Dave, gun to your head, what do you think?"  (lots of colorful phrases came out of that old trader)  I think the gang in charge - whoever they are - will probably not allow the Saudis to run our banking system at 60 mph into the wall.  I rate it as possible, but not likely.

Short Term - banking system cannot take low prices forever. As you say, "collateral underpinning the debt is no longer good". Secondly, your words again, the banking system cannot allow the Saudis to undermine said collateral without serious consequences.

I agree so far. My issue is what can the banking system do? Do they let the pentagon/CIA handle this one by destablising the middle-east (even more than they have already) to push up oil price. Perhaps that's the short (lazy) answer. Or do the central banks have more tools? i.e. the banking system (private) will not want those losses, so perhaps central banks somehow step in again - i.e. privatise the gains, socialise the losses. If so what can central banks actually do? Put the bad debt on their books (big balance sheet exercise)? Nationalise the bad oil companies (another balance sheet activity)? Extend liquidity/cash to underperforming oil companies (another balance sheet activity)? To summise, I think it comes down to two options; 1) a military exercise, or 2) a balance sheet exercise. But, I'll admit, Central Banking shenanigans are not my forte.  

Long Term - Once we burn through our current oversupply, combined with declining rig counts, we'll hit that critical point of an energy crunch - supply will not keep up with demand, even in a deflationary death spiral. Simply put, our extraction rates will not be high enough due to decreasing EROEI.

As an aside, perhaps a better target for the QE liquidity cannon back in 2008 was to aim it at oil consumers to boost prices and keep exploration going. One of Gail Tverberg's points on a previous PP talk was that once rig count drops we won't get it back up and that it'll simply be too expensive to drill/frack new fields.

 

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How will the war on cash affect gold?

If any one has any clear thoughts on how an, all digital, or cash less, system would change the way things work now I would love to hear it. We hear of the war on cash and negative interest rates and how people are likely to react to that but I do not read any thing about how a government ban on cash would change things. Some how I feel it will be a big game changer.

What will such a policy do to the price of Gold and the like. How would one buy and sell hard assets?

Thank you all for any thoughts you may have.

 

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as we speak: in € minus 700,

as we speak: in € minus 700, in $ 1207. 

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how many people do have gold?

how many people do have gold? Most have debts, so don't even have to think about it. They will not be the goldbug's  supporters; they will support cashless. 

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glad you apprciate

dryam-

I appreciate your recommendations for me to read a history book, to not completely neglect international economics, and pointing out the USD is the reserve currency.   I give facts & ideas while you imply I'm an economic embicile in a veiled fashion.

Perfect.  Once you are open to incorporating other factors into your model of the world and attaching a proper level of importance to them, we will I'm sure have a mutually beneficial discussion.

Here's a possible clue.  Your rmodel works great for predicting outcomes in peripheral nations, but not well at all for core economies.  America can do things that Venezuela only dreams of doing.

So, you can either retain your current model - that doesn't work in some pretty important places - or you can figure out what is wrong with the model and improve it.

Most goldbugs aren't so keen to improve their models.  They just keep repeating the same words over and over again, as if they can by sheer force of belief cause the outcome to occur that fits their model.  Are these folks economic imbeciles?  Hmm.  What's a word that means "someone unwilling to change their viewpoint when faced with new information."

 

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who fixes the problem

Luke

I think you're asking "who fixes the oil price problem, and how do they fix it?"

I think a more efficient way than either military, or central banking, is to apply some sort of geopolitical leverage on the Saudi regime to encourage their leadership to alter their decision.  No need for central banks to buy anything.  Let's call it "persuasion."  Focus the attention on the leadership themselves and encourage them to change their minds.

Longer term energy issues, I'm less sure.  I don't have a model for it, and I haven't spent time & energy to sort through the dynamics of how it all plays out.  Simple-mindedly I assume demand will get destroyed as necessary, plus some combination of rationing and downsizing personal transport.  When you can't afford to buy and fuel a car, you'll buy a scooter.  I have one; astonishingly efficient, easy to park, cheap to purchase, and they really make you think: "is this journey REALLY necessary!"  So again my simple-minded solution: everyone will drive scooters because they'll have no choice.  That's what the majority of people in the emerging markets do.  Just by doing that, we'd be energy independent today.  And everyone will figure out what I've already figured out - we just confine our activities a lot closer to home.  No more Costco runs.  Safeway is good enough.  And the accountant whose office is 15 miles away - you call rather than drive.

Tax policy is helpful for this; taxes on cars are 100%, while taxes on scooters below 150cc are zero.  Its expensive to have a car.

Energy problem will be "fixed" by forced human adaptation.

But again, that's simple-minded.  I have no model that tells me this is possible.  I just have experience of living in an emerging market nation, where literally everyone does this already, and life is just - a lot closer to home.  And you know what - life really does go on.  And its all perfectly enjoyable.

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rising oil = rising commodities

Hugh-

Yeah great minds think alike.  When I wrote that, I wondered exactly how an oil price rise would impact commodities.  They have to rise in price, at least somewhat, due to production cost increases, right?  One would think anyway.

First guess: it would impact the gold/silver ratio.  Maybe gold wouldn't move, but silver might.  Or gold might drop and silver might drop less.

 

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Economics = Pseudoscience
davefairtex wrote:

dryam-

I appreciate your recommendations for me to read a history book, to not completely neglect international economics, and pointing out the USD is the reserve currency.   I give facts & ideas while you imply I'm an economic embicile in a veiled fashion.

Perfect.  Once you are open to incorporating other factors into your model of the world and attaching a proper level of importance to them, we will I'm sure have a mutually beneficial discussion.

Here's a possible clue.  Your rmodel works great for predicting outcomes in peripheral nations, but not well at all for core economies.  America can do things that Venezuela only dreams of doing.

So, you can either retain your current model - that doesn't work in some pretty important places - or you can figure out what is wrong with the model and improve it.

Most goldbugs aren't so keen to improve their models.  They just keep repeating the same words over and over again, as if they can by sheer force of belief cause the outcome to occur that fits their model.  Are these folks economic imbeciles?  Hmm.  What's a word that means "someone unwilling to change their viewpoint when faced with new information."

Ha.  You have no idea what "my model" is.  Don't fool yourself; economics is a pseudoscience at best.  I have no model when it comes to economics.  That's not say that's how my brain generally functions as I'm both an engineer and a physician, and generally think in a very scientific fashion when it comes to the world as a whole.

I find it curious that almost every single person, including Chris M., who visits the PP website appears to be here to learn.  In contradistinction, your intent seems to be indoctrinate others.  

You have no idea whether I'm a "goldbug" or not.  Why would you assume or insinuate this?  Most of the time when when people invoke the term goldbug it is in a derogatory fashion.  By definition, the term insinuates fixed, firm beliefs.  Relatively speaking, gold is somewhat irrelevant when it comes to potential financial outcomes.  This is why I've always said daily commentary on PM's is (?purposeful) misdirection by the MSM.

FYI, I have always discussed managing risks in a very diversified fashion.  There is x% chance of high monetary deflation, a y% of high inflation, and a much smaller z% chance of monetary stability.  Capital should be deployed in one's immediate living environment, certain businesses, cash, equities foreign & domestic, PM's, etc. at various percentages which should be adjusted as time goes on & new information is known depending who someone's current occupation, age, health, family situation, net worth, etc.

Additionally, to rule out the possibility of hyperinflation (or massive deflation) because your "model" says it is simply not possible doesn't make much sense to me.  A strong argument can be made that the entire Western financial system is a gigantic Ponzi scheme, and an inherent trait of Ponzi schemes is that when they end it happens swiftly & massively.   At the bottom of our debt based money system lies $1+ Quadrillion in derivatives, which happens to be interest rate sensitive.  The financial system came within hours of completely seizing up in 2008 prior to an immediate overnight injection of $750 billion.  The system has become much more unstable over the past 7-8 years.  Every effort to regulate derivatives has been staunchly knocked down by the Federal government & the banks.  Why in the world would this be?  My guess is that *any* attempt at regulation will expose the Ponzi for what it is.  Bernie Madoff was worth $billions one day, and the next morning he was worth $0.

 

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intuition

dryam-

I find it curious that almost every single person, including Chris M., who visits the PP website appears to be here to learn.  In contradistinction, your intent seems to be indoctrinate others.

Yes!  Right, that "curiosity."  I had forgotten you were one of the people who imagine I'm working for - someone bent on feeding you propaganda.  Now I remember why I tend to discount the stuff you say.  If your intuition is so flawed that you suspect me of being some sort of shill, I tend to assume your judgement is weak in other areas too.

And you seem to have missed all the learning I have done while posting my daily commentary.  The number of ideas I've received (and incorporated) from a vast number of people here - clearly you weren't paying attention when I folded them into how I view the world.  Other people noticed, just not you.

Did you ever consider that I like to read and post while waiting for my latest neural network training session to finish?  Probably not.  Mark understands, although he doesn't like NNs as a rule because they're too much of a black box.  (And I got some great ideas from him, which you never saw because you weren't on the PM thread).  But for you, it is easier to imagine I'm a communist.  Or whatever.  There must be a logical fallacy category for that: "appeal to he's-a-communist."

Regarding models, I can see I didn't explain clearly what I meant by the word "model."  In this context, the word describes the general mind-picture of how all the pieces fit together, and how they interoperate.  We all have mental models for how the world works.  Mine includes capital flows, general confidence levels based on history, perceived rule of law, military power, overall relative economic historical success and longevity, along with the usual statistics.  Its neither mathematical or precise, but it generally guides me in my search for which things affect what.

And in the current instant, it roughly explains to me how being a core economy empowers a particular actor to engage in policy that for another non-core actor, would be economic suicide, why we aren't seeing hyperinflation right now, and - most likely - why we'll probably be the last nation to experience it, unless some major factor (such as world confidence in US capability - an EMP attack would do it, or a successful national grid takedown) changes overnight.

Ultimately, as long as we can borrow to fund our debt at reasonably low rates and the dollar remains reasonably strong, there will be no hyperinflation.

And in some sense we're saying the same thing.  Being able to borrow at reasonable rates while the currency remains relatively strong is perhaps the aggregate measure of confidence in government.  Cool.  See, I even got something useful out of this discussion.

Regarding derivatives taking down the banking system, I suspect if we move into a place where derivatives are really going to take down the US banking system, they'll simply change the rules and cite "national security" or some such, wave a legal wand and make them all go away - perhaps with a return of premium.  That's what I'd do.  After the gold re-valuation, Roosevelt annulled all business contracts that specified being paid in gold ex post facto.  He couldn't do that, but he did that, and it stuck.  Same thing here.  History again.  When TSHTF, they just change the rules.

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Good point
davefairtex wrote:

Luke

I think you're asking "who fixes the oil price problem, and how do they fix it?"

I think a more efficient way than either military, or central banking, is to apply some sort of geopolitical leverage on the Saudi regime to encourage their leadership to alter their decision.  No need for central banks to buy anything.  Let's call it "persuasion."  Focus the attention on the leadership themselves and encourage them to change their minds.

Good point. I was considering the third option this morning - as often happens after I post stuff, 'what did I miss?'.So yep, option 3 - the foreign policy exercise. 'encourage Saudi Arabia to cut back on production.' My guess is that when you're Mr. World Superpower you can do that sort of thing.

As to demand destruction - downsizing and localisation seems like the logical conclusion - after all, emerging economies do it so why not the West? I'm on board with that but whether the rest of modern society will follow remains to be seen. Perhaps it won't matter whether they like it or not, the energy surplus will be gone, so protests will be meaningless. But I expect a fair share of apportioning blame to some other body- based on either class or ethnicity.That's where it gets dicey (IMO).

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The number of ideas I've

 

The number of ideas I've received (and incorporated) from a vast number of people here - clearly you weren't paying attention when I folded them into how I view the world.  Other people noticed, just not you.

 

I recall commenting on the "wash-rinse-repeat" cycle of the big banks as evidenced in the CoT data, and in response you began putting CoT data in your weekly summaries.... much appreciated!!

Keep up all the great work, it is very much appreciated.  I subscribe to several paid PM subscription services, but this thread is by far my favorite.  

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wash rinse repeat

I recall commenting on the "wash-rinse-repeat" cycle of the big banks as evidenced in the CoT data, and in response you began putting CoT data in your weekly summaries.... much appreciated!!

Yeah your comment was awesome.  It changed how I viewed how the gold market cycles work, after I dug into the data and found out how well the correlations worked out.  Anything that improves my model for how things really work - I'd be a blithering idiot to ignore stuff like that that.

This latest cycle - gold got pounded today while we were musing about Washington and Lincoln; I'd give a fair amount to see the COT report after the big Thursday move.  Maybe more shorts appeared than I had estimated.  I really hate the 3-day delay.

Also, my one comment about how if I were a mining company I'd probably hedge a good chunk of my production at gold = 1240 really looms larger and larger in my thinking.  This sort of attitude from the miners down here at close-to-production-cost territory may be exacerbating the "commercials going short as prices rise" phenomenon.

Call it "resistance" of a sort.

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adjustments

Luke-

As to demand destruction - downsizing and localisation seems like the logical conclusion - after all, emerging economies do it so why not the West? I'm on board with that but whether the rest of modern society will follow remains to be seen. Perhaps it won't matter whether they like it or not, the energy surplus will be gone, so protests will be meaningless. But I expect a fair share of apportioning blame to some other body- based on either class or ethnicity.That's where it gets dicey (IMO).

Yes to all of it.  We'll downsize because we have no choice, and the path isn't really that difficult, but the politicians will make a great deal of hay at blaming "someone else" for our having to do this.

"I'll make America great again" (i.e. you can go back to driving that SUV) by - invading some country and swiping their oil.  Trump even said recently that we made a mistake not "getting the oil" as part of the invasion of Iraq.

Some commenter here - forget who - pointed out that if you simply accept where things are going and don't live in such resistance, it won't be such a big deal.  No need to be fearful.  I've already lived it because of my own experience, and - really guys - it is no big deal.  Happiness isn't about shopping at a big box store 30 miles away in your SUV.  You do have more limits, but they aren't the end of the world.  In all of our lives, we have much bigger (life issue) fish to fry than this.

Armstrong says that economic difficulty tends to drive the war cycle.  I haven't dug into the data on that, but he has and that's what he's concluded.  And that supports your opinion - "apportioning blame...[and] thats where it gets dicey."

We can help though.  Provide an example of calm alternatives to the crazy talk.  The switch from 68 cadillacs to japanese imports occurred as a result of the 73 arab oil embargo.  Same thing will happen this time, and maybe we can all help to facilitate a more orderly transition.

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Agreed, I forgot about the 3

Agreed, I forgot about the 3 day break and have a short term GDX Put (hedge) that I wish I could ring the register on. 

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Re: Intuition

Regarding FDR, he got away with the gold steal because the $ was backed formally by gold.  Today that legal argument would not work especially when leaders have done nothing but ridicule gold.  I do not think it will be a slow burn.  Technical analysis works until it doesn't.  As long as I am not being shot at a global war is just slow burn???  

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derivatives mulligan

Kugs, I was not talking about the gold confiscation; my central point was on FDR's annullment of previously-written private contracts that included gold in them.

Seems like all Congress would have to do is pass a law that said "all derivative contracts that were written off-exchange by companies with balance sheets too small to perform on said contracts are hereby null and void and the authors guilty of fraud, with damages to be limited to total premiums paid."  Legal theory would be that the authors of those contracts clearly had no intent to perform, but the real benefit is the limitation of the damages to the premiums paid to the authors.

Not sure if that solves the problem 100%, but it would seem to take the vast bulk of the TBTF derivatives right off the table and it would allow everyone to calculate their exposure immediately.

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You, me and Nicole Foss :)
davefairtex wrote:

We can help though.  Provide an example of calm alternatives to the crazy talk.  The switch from 68 cadillacs to japanese imports occurred as a result of the 73 arab oil embargo.  Same thing will happen this time, and maybe we can all help to facilitate a more orderly transition.

Absolutely. I think Nicole Foss thinks along similar lines, she aims to be the calm voice in all the chaos. I always try to bring stuff back to gardening (and tomatoes :) ), I can actually show people an alternative to big supermarkets and chemically intensive farming. I can also show them how they can take responsibility for their own nutritional intake - and I'm just getting started :) .Living in the 'show me, tell me' world I think people need to see how the alternative system works. And I try to live by the philosophy, 'healthy people make for happy people'.

All the best,

Luke

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failure of guts - phase transitions

Jim-

This sort of pullback - what we are seeing yesterday and today - is why I did not have "the balls" to buy the high on Thursday or Friday, and in fact is why I sold instead.  Vertical moves almost always lead to pullbacks.  There may come a time when that isn't true, but usually when there are this many trapped longs and/or producers who are eager to hedge their production at newly-higher prices, its just asking for trouble to buy at RSI > 90.

If gold breaks above 1900 and/or silver breaks above 50, then there is no more resistance, and then this will probably change, but we aren't there yet.  Armstrong calls that particular sort of move a "phase transition" - where price doubles in a very short period of time.  We all want to be on board - and stay on board - for that.  He has charted many, many such phase transitions throughout history, and according to him they all exhibit specific characteristics that allow him to identify them when they occur.

It is possible that the run from 2000 to 5000 might take just a few months.

But now let's talk about the sell point after this grand move.  Once that swing high gets printed on the weekly chart during this phase transition, its probably time to bail out.  The selling of this high will be the hardest thing for you guys to do.  The hardest thing for me will be staying on board for the phase transition.  We all have our issues.  :-)

Based on last week's comments on the site, I can predict what the goldbugs will be saying at the very top.  "Silver has reached its new real price now" - "the manipulators have completely lost their power", "silver has plenty of room to quadruple in the next week or two", that sort of thing.  Time magazine will be agreeing with you, and silver will probably have a cover page to itself.  It will feel really, really good to own both gold at silver at that point, because the herd will be completely behind you for the first time in you generation.  The glee here will be almost overpowering.  The barest mention of selling will be met with general derision.

My suggestion: buy puts after it doubles in 8 weeks.  For your own safety.

As long as we aren't experiencing hyperinflation, of course.  Price chart must be more or less "in real terms" to be a valid phase transition.

Old trader saying: Bears win, Bulls win, but the pigs always get slaughtered.  Knowing when to sell is just as important as knowing what and when to buy.

pieffe's picture
pieffe
Status: Member (Offline)
Joined: Nov 3 2013
Posts: 6
about "OLD" chart.....

Ciao Dave...I was looking around for. ...some useful "OLD" chart of 70 /80 bull run. ...it would be interesting for some comparison....probably I'm wrong ...but i can remember a "last" bull trap (may be more or less 130 $)in 1976 late spring just before the final dive in 97/ 98 $ (intraday) on August ....and then finally reverse course beginning a 8 fold run !!!! are you able to chart that time frame ???? THANKS

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