Podcast

WallStreetDaily.com

Dave Pare: Gold Is Looking Strong

A deep dive with Peak Prosperity's own gold analyst
Sunday, July 24, 2016, 8:51 PM

This week, PeakProsperity.com's own precious metals analyst, Dave Pare, sits down to the microphone.

Better known on the site as davefairtex, he joins Chris to discuss his current outlook for gold and silver, his approach to building market models, and how he balances fundamentals versus technical analysis in assembling his macro views.

Dave has been a daily contributor to the site for years -- not just with his precious metals commentary, but also with thoughtfully constructed comments on a host of topics. His opinions are pointed, and occasionally controversial. But his ability to always challenge readers to think make him widely respected, even by those who don't agree with him.

In this podcast, we get the chance to learn much about the man behind the keyboard. It's well worth the listen:

I'm a software engineer. I went to UC-San Diego and then went into industry and did lots of different things. I was an individual contributor, an architect, a tech manager and then I found Peak Prosperity, and that sort of sidetracked my whole life. 

In my training as a trader, you can’t be over-focused on whatever your idea is of where things should be going, or where you think they should be, or what the value should be. Prices really do have to dictate what your reaction is. Prices in some sense are your reality.
 
That isn’t to say they reflect the reality of the real world; but they are your arena. If you ignore prices, you lose money. And, so from a standpoint of trading, prices are it. Prices determine whether or not you fail or succeed, whether or not your trade was good or bad. And, so in that sense, prices are everything.

But from the standpoint of are we going to use these prices as predictors of our future -- are we going to find more oil? are we going to do more of this or more of that? -- well, prices are largely irrelevant. You’re playing at forecasting: what's the world going to look like in 20 years? That’s out of my paygrade. What I deal with are my daily prices. It’s really more a question of: OK, so am I going to succeed or fail based on what I see going on right now? 

Again, I have a daily market commentary, and so it's a daily timeframe. And, so that’s the other piece of this. I mean, when I sit here and I do commentary about gold and then I say: Well, the trend is this. If you step and look at the past 3-to-6-months , you can say, Well, gosh, with negative rates, gold looks pretty good. I really do think gold is quite strong right now, especially if you compare it to where we were last year.

Click the play button below to listen to Chris' interview with Dave Pare (55m:49s)

Transcript: 

Chris: Welcome to this Peak Prosperity podcast. I am Chris Martenson and it’s 7/14/2016. I like saying 7/14. That’s my magic number. Here I am. I’m in Las Vegas. I’m at the Freedom Fest and I’m doing this from a hotel room, so this is an on-the-road podcast.

Wow. Equity markets, they’re on fire. They’re hitting all-time new highs as I’m speaking. Gold and silver have caught a bid in recent weeks; but not today, because today seems to be a risk-off day. And, what I mean by that, when risk goes off the idea is you buy risky assets. So risk-on, the riskier the better. Gold and silver are considered safe havens, so they do relatively poorly on a risk-on moment. So, here we are.

But, sort of running counter to that, bonds also powering to all-time highs. Not even just slightly up. Swiss 50-year bonds now in negative territory. Yesterday, Germany sells, for the first time sells not in an aftermarket sort of a deal, but sold straight to investors negative-yielding 10-year bonds. First in the Eurozone to do that.

This is crazy. How do we make sense of this? Well, some people say don’t even bother trying to make sense of it, at least from a fundamental standpoint, because from a trading and investing standpoint all the information you need is contained in the prices. Well, with us today is our very own Dave Paré, also known as Dave Fairticks on the site. He runs the Precious Metals Daily Market Commentary at Peak Prosperity. Dave, welcome to the show.

Dave:  Hey, thanks, Chris.

Chris: So, let’s introduce people to you. What’s your background?

Dave:  I am a software engineer. I went to UC-San Diego and then went into industry and did lots of different things. I was an individual contributor, an architect, a tech manager and then I founded Peak Prosperity, and that sort of sidetracked my whole life.

Chris: So, sorry about that. How did you come across Peak Prosperity?

Dave:  You know, I don’t remember. It’s been, gosh, probably 10 years. That long? I don’t remember.

Chris: Could it be? I don’t know.

Dave:  But, bottom line, it was about oil and it was about peak oil. And, I read about peak oil and I thought, wait a minute, this can’t be right. Because, it really was, it went against the grain of pretty much the mainstream, which is where I was living. And, I said, well, no, I’m going to have to check this out, and so I did a bunch of research on my own and, yeah, I guess this is the real thing. Look at that. I took it to my friend and he’s like: “Yeah, wow, that’s the real thing.” And, we were both pretty astonished by it. And, then, of course, I went and bought property at the top of the bubble, and then, of course, the bubble broke. And, then I said, hey, wait a minute. So, something’s going on with my economy and I want to find out what it is.

You know, originally, I was just a software guy, just enjoying writing software. I really - I still love writing code, but I got sidetracked by, first your peak oil thing, and then the bubble, and then the breaking of the bubble. And, then I wanted to find out really what was going on. And then I took all my software skills and used them to write code to download data from everywhere and really figure out what’s going on. So, that’s - that’s where I’m at.

Chris: Well, it’s, you know, a very common story and we’re running into people here at Freedom Fest, which is a bunch of libertarians, and a lot of people have, are also very much in the Peak Prosperity camp. And, similar stories of just somebody this morning came up and said: “Wow, I just need you to know, this is how my life changed.” And, so I believe that - that there’s really important information out there and that once we get our hands on it, it should be life-changing and there’s no shortage of it. Of course, you know, we’ll cover everything at Peak Prosperity from possible election-rigging to missing insects to whatever.

But, the trends are really important, and I consider the markets to be a really important focus, because that’s, to me, a key signaling mechanism that sort of tells everybody, you know, risk-on, risk-off is the way that the traders look at it. I look at it as awareness-on, awareness-off. You know, if the markets are going to all-time new highs, people are kind of like, ahh, they’re awareness dial’s down. They say there’s nothing here to really worry about. So, I do care a lot about what’s going on in the markets and tracking them. I think they’re going to give us important signals.

But, I gotta tell you, Dave, my, my abilities as a fundamental analyst, they feel increasingly useless in these markets.

Dave:  Yeah. It’s really two things. So, in my training, as it were, as a trader, ya can’t be over-focused on whatever your idea is of where things should be going, or where you think they should be, or what the value should be. Prices really do have to dictate what your reaction to—prices - in some sense your reality. That isn’t to say they reflect the reality of the real world, but they are your arena. I mean, it’s - they’re the incoming arrows that you’ve got to duck away from and what-not. So, if you ignore prices, you lose money. And so, from a standpoint of trading, prices are it. Prices are everything. Prices determine whether or not you fail or succeed; whether or not your trade was good or bad. And so, in that sense, prices are everything.

But, from the standpoint of: are we going to use these prices as predictors of our future, are we going to find more oil, are we going to do more of this, more of that; well, prices are, I wouldn’t say irrelevant, but they’re not - it’s not the same game you’re playing. You’re playing a forecasting sort of what is the world going to look like in 20 years. And that’s sort of your pay grade, if you will. And, what I deal with - my daily prices; it’s really more of, okay, so am I going to succeed or fail based on what I see going on right now, or for the next, you know, however many days.

And, again, I have a daily market commentary, and so it is a daily timeframe. And, so that’s the other piece of this. I mean, when I sit here and I do commentary about gold and then I say: “Well, the trend is this, that, this, that.” If you step and look at the three-to-six-month thing, you can say: “Well, gosh, with negative rates, gold looks pretty good.” And, I keep having to add that in, because I’ll say: “Oh, gold’s in a downturn now,” or whatever. But negative rates - really - gold seems to really like that. I mean, take today for example. Gold is, gold is down, but really gold got a bid. It looked like it popped back up 10 bucks, and our downtrend may not last that long. In fact, it may, I won’t say it’s over, but it had a pretty good bid on some pretty good volume.

So, I don’t know. I kind of like gold just in its, well, to go back to my Friday night thing (chuckles), but I really think gold is quite strong right now. And, especially, if you compare it to where we were last year, it was just, it was just—and, again, it’s less fun to talk about gold going down, because what if you say gold is going down to a bunch of gold bugs. They get upset. Imagine that.

Chris: Well, it’s almost the struggle between what should happen and what will happen, and I have a big soft spot in my heart for what should happen, because it sort of is a little bit of, it’s got a little right from wrong, it’s got, you know, it’s got evil characters, good characters. It’s got a little of that polarity built into it. Now, here’s the thing, negative interest rates should be a huge lift to gold. Remember, it was, for a long time, people would say about gold: “Oh, it’s just a pet rock. It doesn’t pay any interest.” Now, we can say: “Well, at least it doesn’t cost you anything.” Right?

Dave:  Exactly.

Chris: And, but let me couple that to the idea that Japan is a very wealthy nation, the third largest economy in the world. Abe has just won majorities in both the Upper and the Lower Houses. He has got just a completely open field now to go forward and wreck the end like he wants to. And, well, because, you know, Japan is just an export nation. That’s it. That’s what they do. They import raw materials. They export finished goods. They make money on the vig between the, the spread between those two things. That’s what they do. So, he really needs a weaker yen. I think he’s going to get it. I, for the life of me, am still stumped by why people in Japan have such a strong affinity for Japanese government bonds at this stage, given all of those signs.

But, here we are, and you know, we can still clearly say that as positive as negative interest rates ought to be, they still aren’t really as conductive or conducive yet for higher gold prices as I thought. And, I’m going to go back to Grant Williams. I still think “not enough people care,” to paraphrase, his Nobody Cares piece from a year ago.

Dave:  Yeah, that nobody cares thing was - that was a homerun for me. Bottom line is big money has to agree with - with whatever it is your viewpoint is. And, if they don’t, then it doesn’t matter what your viewpoint is. You may even be right, you know, in the long run, but until big money starts to act on that, it doesn’t matter. So, in some sense it’s, what is it - Flex says gold is just a price. It’s not a pet rock per se, but it doesn’t have a yield and it, it’s just a price. And, so what do you think it’s worth as—it’s not like silver where you can make a big solar panel out of it. So, in some sense, how many people want to buy it is really what determines where gold goes. I mean, it’s a funny thing. People say: it’s money, it’s this, it’s that. But it, it really is just—because, there’s 170,000 tons of it lying around. It’s not like it goes away.

Chris: Well, right, but it does flow from point A to point B, and it goes hither and yon. And, of course, we know that there’s been a heavy flow from West to East, and that’s been persisting for a while. Longer than I thought that it would. I thought the West would want to hold onto it, but if the West doesn’t care, then it doesn’t matter. You’d be willing to sell it right out to the very last ounce if you just don’t care. I think that they do care more than they let on. I trust what people do before what people say. I’m that kind of guy.

I haven’t seen the central banks really in a hurry to sell their gold off, you know, outside of Canada, which did it a while ago. But, recently I haven’t seen that behavior. So, that’s kind of big money, and in fact, central banks have been accumulating. So, I can find all of these constructive narratives to build for gold in terms of where it’s flowing, who’s doing the buying. Things like that. But, still it’s clearly, I would say, I mean, it’s had a good run this year in 2016 on a percentage term. But, you know, over the last five years, it’s really gone nowhere and it gets up/down.

So, I would say that—this is the surprising part, Dave—if you said, you sat me down 10 years ago and said: “Chris, here’s the landscape, right. Central banks are printing like crazy. In fact, in fact, the Japanese central bank owns their government bond market. They are just printing as fast as the government wants to spend, buying it all up. And, interest rates are actually negative.” I wouldn’t have believed you, but they’re negative across trillions, tens of trillions of dollars of sovereign debt. What’s gold doing? And, I’m just telling it’s, has to be exploding. But, it hasn’t.

Dave:  Well, well, to me, most inflation comes from private debt creation, and so what you’ve talked about is buying a bunch of government bonds, and as we know, that really hasn’t caused inflation, because it hasn’t caused—well, first of all, there’s not only private debt growth, but there’s also monetary, money velocity. And, so if velocity tanks and private debt growth basically doesn’t go anywhere; you don’t have an inflationary impulse in that sense. And, so that, if you look at private debt growth in China, it has been falling in terms of the rate of private debt growth.

And, that, and that is what I believe caused the commodity down cycle that sucked gold down along with it. And, that’s why, again, we were all promised hyperinflation. Did we get hyperinflation? No, we did not. So, the Western gold buyers said, “Hey, we didn’t get hyperinflation, so I think I’m going to sell.” And, more of them and then more of them sold and then pretty much nobody cared. But, now they’re like, hey, new thing, negative rates, wait a minute, negative rates, hey, gold is good. So, they’re coming back on.

And again, things don’t turn on a dime. People sort of have to come in slowly. Different people get convinced at different levels and I think it’s just going to be, I mean, gosh, I’d say 300 bucks in six months is pretty good.

Chris: Yeah, absolutely. Now, let’s, this idea of debt creation. This is really the cornerstone of the whole thing, of course. And, this is, you know, the original Crash Course, really. I mean, I’ve been, this is where my brain has been for a long time. We have an inflator dye system and the very center of the engine is, of course, debt creation, because that’s how we create our money. And, so it gets loaned into existence. And, yeah, we’ve pile on a huge amount of—according to McKenzie, 40-some trillion dollars of new debt just got, or 57 trillion, sorry, from 2007 to current. And, that was only through 2014. So, pick a new number, whatever it is, 60, 65, 70, some number, tens of trillions of dollars have been printed. And, I would think, wow, that’s got to be inflationary, but it hasn’t. I mean, it’s been inflationary for financial assets. Let’s be clear about that. And, it’s been inflationary for the people who are at the front of that trough. Try buying trophy properties, Gulfstreams, big jewels, Warhol paintings, that kind of stuff.

But, leaving that little piece aside, really, when we look at what happened, governments went heavily into debt; distributed that money out. That wasn’t as inflationary as we thought it was going to be for a variety of reasons. And, then corporations sucked up a huge amount of new debt, and they didn’t do anything really inflationary with it either. They retired shares, so they did a lot of financial engineering.

So, I’m starting to develop this narrative that says that financial engineering really is more about sloshing money about the plate, and it’s not about actually creating anything productive. And, so that’s the missing transmission piece in this story.

Dave:  Right. So, if you have debt creation, the question is where does that money get spent. If the money gets spent in the asset market, then asset market - asset prices go up. But, if the money gets created and spent into the real economy to build a house or to buy a car, then that - that causes more consumer inflation. With globalization, though, we have this weird thing where we don’t have wage growth, because the wage - kind of the wage growth leaks overseas. And so, even though we have a spike in money here, for some reason, it doesn’t - it doesn’t get through to wages. And this is, I think, one of the things Fed has been surprised with. Because, again, we went and spent 20 years doing globalization. Hey, wait a minute, we don’t, I don’t have wages going up anymore. What’s going on with that?

So, I mean, that - that’s a piece that was going on during the ‘70s, and that’s why labor unions were all strong and what-not. And now, with globalization, they’re gone. And so, we had a big thing about raising minimum wage. But boy, I read a stat where it said that if you adjusted for inflation, it was, well, I shouldn’t say, because I don’t remember it. But, it wasn’t that much of an increase if you adjust for inflation. So, again, it’s sort of the transmission. like you said, the transmission mechanism, if it’s to assets, it really doesn’t cause the inflation that they wanted to cause, and it’s not getting to the consumers to make their wages go up. So, it’s, their trick just—maybe that’s why the gold price didn’t, didn’t go up there, too. I don’t know.

Chris: Well, I think the transmission mechanism is important to understand, because the idea of inflation by itself is not a good or a bad thing. They talk about it like it’s a necessary thing. Inflation’s helpful if the people who are receiving the inflationary increases are the same people who hold the debts that they need to pay back.

Dave:  Right.

Chris: That - you need that coupling there. So, it doesn’t really help that - it’s like that old maxim, you know, an economist has one foot in boiling water and one foot in liquid nitrogen and he says, “On balance, on average, I’m fine.” Right.

Dave:  Yes.

Chris: The on average piece isn’t working here, so the Fed did. They funneled all this money into the markets and, guess what, the markets went crazy with it. You know, the price/earnings ratios, I know that you could find some value plays out there, but I’m still astonished when I do my screens of stocks and I say: “Show me screens of stocks with PE’s over 200 who have a market cap over a billion,” right. So, these are big companies. You get a lot of screens of companies. And so, it’s really an astonishing thing there where you’ve got people saying, “Yeah, I’m willing to accept 200 years of current earnings before I’m going to get my dollar back from this particular ‘investment.’” Right? So, that just shows that we’re like a pretty aggressively liquefied environment at this point in time. That the central banks are doing everything they can to perpetuate that.

But, let’s get back to that on-balance quote. They’re shoving all this money in and it creates this higher appearance of things being okay. But, it’s not okay on, you know, the on-average is hiding the fact that none of that really seems to be going from - I’m going to say upper-middle class on down - is getting none of that. And, those people have flat wages, if you believe the inflation numbers. If you believe inflation might be a percent or two higher, which I happen to believe, than officially reported, they’re actually sinking. Ergo you get the political environment that we’re in with a lot of unhappy people and confused pollsters. Like, why are these people so unhappy? I’m doing great in D.C. My life is fantastic.

So, I think that what’s really happened here is that the Feds’ models of we push this stuff out and wonderful things happen; I think that transmission mechanism is broken. Globalization is one piece. Here’s the second piece. Our markets are broken. They don’t function like they used to. They are very asymmetrically tilted towards big players, more well-connected players, people with microsecond co-located servers. There’s a - almost like piranhas - you know. They get first dibs on the carcass in the water, you know. There’s not a lot left for the other fish downstream once they’re done with it. That’s my view. I think, you know, those are some really big trends that have been hard to understand and get my hands around. Because, the changes in the marketplace in the last 10 years are probably the most sweeping, extraordinary, complicated changes that have happened ever in the history of markets.

Dave:  Yeah, so where did you want me to contribute to that?

Chris: I want to know how we’re supposed to trade this.

Dave:  Oh, right. Okay. Well…

Chris: Like, I’m going to, I’m trusting that you’re going to say: “Chris, that’s just how they happen to be, so let’s just accept that and move on.” What’s the acceptance part of this? How do we accept this as traders?

Dave:  Right. So, it’s about timeframes. So, if you want to compete, right, if you want to compete in their timeframes, you’re going to lose. So, you’re entirely right about that. If you want some perspective on just how horrible markets were back then, my favorite quote is, of course, the Where are the Customers’ Yachts book, in where a guy was allegedly taken down to the docks in New York. And, the tour guide says: “Well, now, I want to show you the bankers’ yachts, and I want to show you the brokers’ yachts.” And, the guy asks, “Where are the customers’ yachts?” Everybody laughed. Customers don’t. So, bankers and the brokers have made money from time—and, this book, by the way - that’s the funny part - it was written in 1940. So, have things changed? Eh, probably technology’s changed, but do they, do they front-run your orders? Yes.

Great, a great trader that can help me learn about basics has said this has been happening forever, and he’s quite unhappy about it. That’s sort of his reason for existence is to educate people how not to buy what they are selling. Again, we had a post, we had a post on Peak Prosperity by a guy who came and said, “Yeah, so the silver’s running out, you got to buy now.” And, I looked at this and I said, “Right.” So, guy works for a bouillon provider, and he says, “You’ve got to buy now, because silver’s running out.” Oh, interesting. This is no different than what the sell-side analysts do for us. They try to get you to buy for whatever emotional reason, because it benefits them.

And, so, yeah, what you got to do is not trade in their timeframe. So, you can’t trade in the Citadel’s timeframe. And, I agree with you about the stops. They’ll know where your stops are placed, and so you kind of got to not use them. You can’t - you can’t really have stops. You can sort of assume that the stops are going to run or put them - put them as a mental stop and then just execute it. That’s what - that’s what I do. I’ll look and say, but you gotta be really disciplined to do that. Say, well, it went against me and I think I will just, right, there, I think this is my stop and I’ll get out now. But, you can’t play their timeframe game, and it’s also the case where articles in the news are written to motivate you to sell through either fear or greed or what have you. I mean, it’s a rigged game. It’s a rigged game if you play by their rules. So, what you gotta do is trade longer timeframes and, well, at least I’m working on writing some code to try and help me sort wheat from chaff.

But, it’s not an easy thing, like you say. And, I don’t know if it’s dramatically worse now. I mean, if I read what the old book said, it seemed pretty bad back then. Maybe we just, I don’t know, maybe it’s just the fact that computers do it so fast that we can no longer compete in that timeframe, either. I don’t know.

Chris: Well, it’s interesting, you know, of all the hedge funds, the hedge funds have had a pretty bad run lately. The most recent article I read said that, well, they did except for one subclass of hedge funds, and those were basically momentum traders. And, so these are just, I hesitate to use the word hedge fund, because the word hedge is in there. It implies that you’re long something, short something else. You’re hedged and you’re going to make some money on your genius alpha picks. But this hedge fund, these hedge funds, all they do is they have computers that are just there sniffing for the direction of things, and then they see a direction, they jump on, right. And, so that’s been a fairly lucrative strategy for these funds.

So, it’s not hard for me to imagine that if I were going to co-locate some of my New York Fed staff in Chicago, because we didn’t want any more Sandy flooding. That was the reason they gave. Oh, Chicago, we’re going to pick Chicago. Also happens to be where the Chicago Mercantile Exchange is located, fancily enough, which is a place where you can, with extraordinary leverage, toss money into the market and get the momentum guys interested. If I was going to write a novel—I’ve said this before, but I’ll say it on air—if I was going to write a novel about how I was manipulating the markets for policy aims, I would be doing it through highly leveraged vehicles, dumping money and trusting that all those piranhas that represent the momentum traders are going to do my heavy lifting for me. I just have to throw a few bucks in there. I just have to get the thing going.

I think that’s what I’ve seen happening, because I follow a wide variety of market indicators that say all of a sudden everything just reverses this other direction. And, I watch things, the fair value premium explode, I watch the tick explode. I watch certain things, and it happens so fast now that I can tell you that those sorts of changes weren’t happening when I was watching those indicators 10 years ago. So, maybe it’s either just new market structure, but here’s my theory. It’s that new market structure plus if I was in charge of trying to make sure these markets didn’t fall, because I was worried about that, this is what I’d be doing. And, here’s my rule of life, Dave, when I’ve thought of something, somebody way smarter than me has already implemented it.

Dave:  Well, I totally believe on an intraday basis that all those things are quite possible. It is the—but, if you look at a six-year timeframe, the intraday stuff won’t, it’s not like you can add it all up and do it every day and the result will be X. You’ve got to push money into the market to make it go higher on a more permanent basis. You can’t simply—again, Citadel, if they, if they go home flat at the end of the day, they, I don’t, okay, I’m speaking out of turn, because I don’t know what their, what their methods are. But, my guess is they are not taking directional bets. They are doing the momentum thing during the day and going home flat, or something like that. Again, there’s no way to, there’s no way to sum up all of the trickery you’re talking about and end up with a higher market as a result.

Now, I do believe that you can cause a reversal intraday by doing exactly what you say. I’m certain of that. I’m certain that’s possible. In fact, I would be interested in writing some code to sense that and jump on board just to, just again, if making money is what your metric is, then, yeah, gee, if you can catch what they’re doing then by all means. But, it won’t push the market up in the long term, because that requires money flow in; money flow that’s directional; money flow that takes a position. And, my guess is that’s pension funds that are doing that, because these guys are desperate for return. And they cannot afford to miss out on any rally. And, I believe that’s what’s pushed us over the highs is—now, now maybe the plan, maybe the plan is you get the directional change to happen in the tactical level, and then maybe you have a good day. And, then the pension funds look and say: “Oh, my gosh, we got a rally. Quick, I’ve got to buy.” And so, but I suspect that they have to be in there, that there’s gotta be big money in there buying to, and buying and holding to keep those prices going up. That just - I don’t think it’s a sum total of trickery. I just, I just don’t think that works.

Chris: I agree over the very long haul. It can’t work. But, I think over the short haul, and for me that’s, that can extend out to years. So, but you could run that code, right. I think if I were you, I would check Japan, right, because we know for a fact that the Japanese central bank has been buying the ETFs; is now a majority of many of those products. And, preferentially, buys during downtick days or days where the market looks like it needs support. So, if you’re gonna say: “Listen, I know central bank is doing it. I know they’re dumping money in, and I know they do it during preferential moments in the markets.” If that would be the market, I would suggest it would be detectable, if it’s going to be detectable anywhere. Because, we already know it’s happening.

Dave:  That’s interesting. Yeah, I mean, I haven’t looked at it. I’m one of these people where, say for example, a great case is manipulation. People are saying: “Oh, this is manipulated, this is manipulated.” And, I went and looked. I’m like, oh, now look at that, sure is. And, so again, if I find evidence for it, I’ll change my viewpoint right away, but until I’ve actually put eyes on it and seen, or slash, if I can, if I can make money doing it…

Chris: Uh-huh.

Dave:  …then I’ll be like, oh, yeah, by the way, it’s manipulated all right.

Chris: Well, I love that piece you did. So let’s just contrast two thing, silver and natural gas: both very highly volatile commodities, both with industrial uses, both mined, as it were, taken out of the ground and consumed. Should be fairly similar in how they trade, and you found vast differences in how they trade.

Dave:  Well, boy, you caught me a bit. Now, I have to remember back to what I actually wrote. Yeah, my memory is that nat gas was—well, see, the other problem with nat gas is that it has these tanks and these storage things. It’s easier to store silver, because it’s just a lump of silver. And, so cheaper and easier to put it there and sell. There is, there’s that aspect of it. I suspect it’s more like, I would guess copper in a sense, where, I mean, copper’s not going to leak out of a tank and it doesn’t cost too much to store a big pile of copper. So, in terms of carry cost, I would guess that there, that would be a factor to some part of the dynamic there.

But, certainly, you know, if—I looked at the last, the last rally in rally and I don’t know, I don’t have any evidence for it, but my guess is, if I were them, I would buy, causing the crazy rally all the way up and make money. And, then I’d flip it and go short and push it all the way down. I mean, again, these guys are here to make money and they’re going to terrify the shorts on the way up and then they’re going to terrify the longs on the way down, and they’re going to make money on both sides of it. And, that’s, I mean, again, if they - if they had a decent amount of control of a small market and the ability to do this without anybody really monitoring what they do, that’s what I’d do. Again, I wouldn’t restrict myself to just short. I just wouldn’t.

Chris: Oh, no, absolutely. This is a wash, rinse, repeat. Make money both directions. That’s their job. And, by the way, we do focus on precious metals and I do believe that people need access to precious metals to protect themselves from a - the currency nightmare that’s coming. Anybody in Japan, if you’re listening, get out of the yen, please. Do yourself a favor. If you money in an Italian bank, don’t, okay. These are just some things. But, what do you do with that money, particularly in Europe where the bail-in provisions are now entrenched. It’s like, well, just get out if you can. Big companies have trouble, but small investors, I think can at least park some of their money in cash and precious metals. Things like that.

But, leaving, you know, putting all that into a space, I see these sorts of shenanigans, Dave, in all kinds of products out there. I see it in a wide variety of commodities. I see it in a wide variety of single-share issues. I think I see it in the broader market. It’s just, it gets back to where are the customers’ yachts. The point of the game is to take your money.

Dave:  Yes, 100%.

Chris: Yeah, that’s the point.

Dave:  100%. It’s all a skimming thing, and they’ve got, yes, 100%, I agree.

Chris: Yeah, so watch “Wolf of Wall Street.” It’s the best documentary of our time. Well, except for “House of Cards,” but…

Dave:  Oh, so just, just as an aside, in the, speaking of the “House of Cards,” where Michael Gov [PH] stabbed his buddy, Boris, in the back, and now has been kicked out of the government. I saw that. It’s interesting that the new prime minister seems to have a sense of fair play, which I thought was interesting. Did you, did you notice that?

Chris: No, no, I didn’t see that part.

Dave:  So, he was, I forget what Gov’s position was in the government, but May, when she formed her cabinet, gave Boris, the foreign minister, which of course he’s not particularly diplomatic…

Chris: No, no, I saw that. That surprised the heck out of me, and that’s the last job I would give that guy, literally.

Dave:  Right. Donald Trump, you’re the, you’re the Secretary of State, same sort of thing. So, but it’s like, well, pal, you’ve been stabbed in the back by your buddies, so guess what, you’re going to become foreign minister and the guy who stabbed you in the back, you know what, you’re out of the government. And, I thought, I looked at that, and I thought, that’s pretty classy. It’s an unusual thing. It’s like the guy in the “House of Cards” just got kicked out of the government. Wow. That’s, it’s like, I don’t know, I don’t know anything about her particularly, but I thought was a particularly, it was cool, I liked it. Anyhow.

Chris: Well, accountability and actual consequences, yeah, we’re starved for those over here in the United States. I don’t know how it is over in Thailand, but, oh, my gosh, accountability seems to actual run counter to what it ought to be. Like, what, you got promoted. That’s - that, okay.

Dave:  No, it’s, as I’ve written on the site many times, there’s a darkness at the heart of our civilization right now, and it’s big. It’s just big right now. And, the markets are a part of that, but it’s just a small part. I mean, it’s, the whole—what was the legislation that was just recently passed by the Senate, the GMO labeling laws. We wouldn’t want Vermont to actually be able to label something that it’s got GMO in it. So, we’ve got to go and kneel to Monsanto and whoever else, and I don’t know the issues that well, but again, this is, I mean, just the sheer number of, sheer amount of corruption. See, that pisses me off.

Chris: Yeah. Well, we’re in agreement on that; violent agreement.

Dave:  I mean, I guess I’m used to, I’m used to the corruption in the markets, because they’ve been this, they’ve been here since time—it’s like I’m expecting my pocket to be picked. It’s like part of the game. But, I don’t know, somehow it’s, somehow it’s expected in the markets and I’m just on guard for it. But, when it happens in, I don’t know, other places it bothers me more, something like that.

Chris: Well, absolutely. This has been a ripe year for people, particularly with access to the Internet, to find lots of things to get a little bit outraged about, if you choose. And, the political process has been as ugly as anything, and it’s not just the quality of the candidates. But if you really look at what’s happened, and particularly what happened to Bernie Sanders. That election was stolen from him, flat out stolen.

Dave:  California, we’re not going to count the three million votes, 75% of them went to Sanders. Oh, we’re not going to count those, because uh, what, not really sure, but we’re not going to count them. Oh, we’re counting them very slowly and, oh, these didn’t make it into the cut, and by the time they count them, Bernie Sanders will be, he’s already, he’s already said, “Okay, atta girl for Hillary,” and, ahh, oh well.

Chris: Yeah, yeah.

Dave:  Gets me upset.

Chris: Well, and particularly for the United States, which, you know, runs around and bombs countries for not being democratic enough. You would think that you would have your own institutions pretty, pretty rock solid. And, the United States has some of the least secure voting systems in the world, and they are routinely abused. And, anybody with even passing statistical knowledge can say that’s, that’s an impossible result, right. They just…

Dave:  I gotta say, I was in a state of blissful ignorance until I, until I read your, your piece on that just recently. And, I looked at that and, I mean, my background for years and years of software and before that, it was, oh, when I was an undergrad, I might’ve broken into a system or two back in the day.

Chris: Of course, who didn’t?

Dave:  But, I did it in a particularly high-tech way. But anyhow, we’re not going to go into that. No, but I looked at that and I thought, right, so I get these updates based on my experience in the past about security; security breaches from the Secret Service. They do this sort of for businesses to assess, assess where their vulnerabilities are. And, they’re pretty clever. I mean, I went to a conference and the guys out there are really pretty clever about how they do things. And, the voting machines would be pretty easy compared to say all the stuff guarding real money. Because, again, if you’re guarding real money and the money disappears, people say: “Wait a minute, my money’s gone,” and they complain to the Secret Service. But, how do you know if the votes are deferred unless you, I mean, that’s not like there’s a pot that gets stolen; that’s gone once, you know, it’s taken. It’s this, it’s this really ephemeral thing which you don’t really know the right answer for anyway. And, so if it changes, how do you really tell? And, so I mean, I don’t think it would take much, just based on my experience. And, so again, when I read your article it just all clicked. It was like, oh, wow, oh, yeah, this is, this is owned. This is all totally owned. Maybe not all of it, but I think, I think what the struggle is - is how far to push things before it becomes too obvious. And, so that’s really, how much should we have the candidate win by. Boy, that’s too obvious. Maybe we won’t do that far type of thing. I mean, again, I don’t know if it’s everywhere, but it’s, it’s enough to where, it’s easy enough to where I’d be, I’d be shocked if it wasn’t 30%, 30% of the machines.

Chris: Oh, yeah. And, it’s key swing states that are the most heavily bastardized at this point in time. And so, the general thing is listen, when you’re in a winner-takes-all environment, 50.1%; that’s all you need, right. It doesn’t, you know, and so they, the first returns—it was funny watching this. You know, you plot it out, in 2000, 2004, when they were sort of getting this down, they had these atrocious results that got posted. Like, more people voting than lived in the county kind of stuff, right. Because, there’s some poor guy in a room somewhere just sort of like coding stuff in, just like throwing votes hither and yon, and so they had a few, a few errors. They’ve gotten a lot better at it. It’s much more sophisticated. But you can still see, detect vote drift and you can look at what happens in cumulative counts over time that things happen that really shouldn’t happen. And, would be prima facie evidence in other countries of voting fraud and irregularity like they had in Austria. Very proud of Austria. They had, the constitutional court looked at the returns and said, “These, these stink to high heaven. We don’t know how or why. We can’t account for it. So, we’re going to redo the entire election, and we’re going to do it differently,” right. I thought that’s how you do it in a democracy, right. In the United States, it’s like, oh, well, that’s, that was so yesterday. We can’t even, like why even look at California and bother counting those things. It’s done, it’s already done.

Dave:  So, so my viewpoint on that is, again, I’m judging on where I was before I read your piece. If you are looking for your keys and you’re sure they’re not in the kitchen, it doesn’t matter how many times you look in the kitchen, you will not find those keys. If you’re sure that your processes are democratic and they’re good, you will not see irregularities. But, once you change your mind and say, “Hey, I’m open now,” oh, my God, look at all that. And, it’s all, it’s all there, it’s just all there.

Chris: Yeah.

Dave:  So, again, I think part of the problem is we just, I mean, I just don’t think people believe it’s happening. Because, our story, our national story is, well, we’re a democratic country and our institutions are solid and they’ve been solid for 200-and years. And, well, no, that’s just a story.

Chris: And, that narrative drives everything and so this is, this is why, this is such a fascinating period of time right now. And, I love your market commentary, but I think I love even more everything that you write about, your understanding of humans, human nature, because of your own - you know - work and having done your own inner explorations to understand the importance of narrative. And, how belief systems really come into play, and that’s the softer side of what we do at Peak Prosperity is to try and understand—look, it’s not the data. The information alone is obviously insufficient. It’s just merely interesting unless people are going to act on it or it’s going to shift something, or it’s going to create some new outcomes. It’s otherwise useless.

But, to get to those new states of being, to those changes, now you have to walk through behaviors, which means you have to walk through beliefs, which means you have to come to grips with the idea that humans do a cortex, but also a very large and active limbic system. And, that, and I’m not talking this, I’m not talking as some enlightened Buddha who’s got it all worked out. Trust me, my limbic system’s alive and well.

Dave:  So, hang on a minute. I’m a software guy, not a hardware guy. So, what’s a limbic system?

Chris: So, the limbic system is the brain stem, as it were. It’s the place, it’s your emotional center, so we have two functioning parts of our brain and grotesque, grossly, they said a long time ago, you know, you have your reptilian portion of your brain, and then we’ve got this more modern version that’s on top, right. So, we have, it’s kind of like we had an old COBOL system that somebody then put a whole bunch of like, you know, much more elegant, you know, Java programming on top of it, or something. But, the COBOL system, that limbic system, is where our, our emotional responses come from and are keyed into. And, so when people get PTSD, for instance, what they’ll, what happens is the memory gets encoded, not in their cortex, it gets encoded in their limbic system. And so, if you do a PET scan of somebody, a brain scan of somebody who’s suffering a panic attack, a PTSD-induced panic attack, you’ll see that their brain is lighting up almost entirely in the little brain stem area, in the limbic system, and not lighting up in their cortex. So, you can talk to these people all you want, give them modulating drugs that dial down the activity in the cortex, but it doesn’t matter. The brain is still firing alert warning signals out from a very deep area. So, the emotional center of us, which is really still encoded in the limbic system is driving the ship. And, all the other stuff is sort of laid on top of that.

Dave:  The most fascinating scientific explanation I’ve heard for this is a guy—I want to make sure it’s right—Bruce Lipton, I believe, was the guy.

Chris: Yeah, the biology of belief guy.

Dave:  That’s right. And, he talked about you have two computer systems in your brain. And, of course, I like that, because I’m a computer guy.

Chris: Good.

Dave:  One is an extremely fast computer, it’s a 40 gigahertz processor and it responds instantly to any problem that comes up. It allows you to drive and chat with your friend and not even know where it is you’ve gone. You can’t remember anything. Because, your fast computer’s taking care of all of it. All the stuff you learn when you’re a kid, it’s all in the fast computer, and it sits there and it takes care of life for you. It literally does everything. Your slow computer is, I guess, your cortex, which can, it’s maybe 40 bits a second. It’s very slow. And, it can think about one thing at a time. And, so if your slow computer tries to deal and override your fast computer, the fast computer’s going to win, unless you have some technique for getting into that fast computer and taking that bit out that was programmed in there by the PTSD experience. Again, once you have a massive emotional experience, bam, it gets into the fast computer, because the fast computer says, “Hey, this is part of survival. I mean, we got to do this or else we’re going to die. So, quick, put a program in here, slam it in there,” and it’s in there for the rest of our lives. Until you can do something to change that fast computer, your slow computer has no chance. Anyhow, so I thought that was a really fascinating viewpoint, and it really, of course, being a computer guy, really resonated with me.

Chris: Well, good. Now, we can extend that metaphor just a little further. Because, it turns out that - that the really traumatic things that got encoded in us, particularly things that happened before we developed a verbal capacity at all, so let’s call it anything below the age of three on average. That stuff actually gets encoded and stored in the body, and we have, you know, people are like, “What? Why do we have a brain’s worth of neurons in the gut? And, what, you know, what do we mean? My gut says…” The truth is we have a huge amount of processing that happens in there and it’s got a parasympathetic and a sympathetic nervous system. And, it’s all tied into our neuroendocrine system. That’s why, you know, fight or flight, when you get scared, your adrenals, like know to dump a bunch of adrenaline and help you run fast and jump high and all that. So, these two systems are actually very much talking to each other all the time.

And, modern psychology has spent a lot of time in the head, and more recently we’re discovering that we have to include the body in that as well. And, this is a very exciting branch of research that I’ve come across, where people are making really important, big changes in terms of dealing with past traumas and being able to release those and step into a new, renewed sense of life.

A whole separate side conversation, but for our purposes, for me, it’s no longer sufficient to say, “We’ve got some great information. We’re going to share it.” We have to understand…

Dave:  Right.

Chris: …the impact of sharing that information on people’s existing neuron systems. We can call it a belief system, but there was a wiring that says, “This is how the world works.” And biology said, “That’s useful.” Evolution said, “That’s awesome,” right. We’re going to wire you up in a certain way. But to get people to change, you have to understand that we’re running into wiring, both hardware and software, you know, to put in that metaphor. Both of those things are functioning, and it’s a big investment for somebody to say, “I’m willing to recode and rewire my system.”

Dave:  Yeah, no, so what’s your—I know this is a side conversation, but it’s suddenly—what would you recommend as a book to read about that? I didn’t know you had neurons in your gut. Again, I’m a software guy, so...

Chris: Ah, so probably one of the best places to start for this, and this has been my Bible for a couple of years now. I read and reread this book. It’s called Healing Developmental Trauma. And, it’s by a guy, Heller, H-e-l-l-e-r. He’s a psychiatrist out of the L.A. area, and he’s developed a, pulled together, you know, like Jung did a good job, Freud did a good job, but, you know, we’ve learned a lot since. And so, this is really taking, as far as I’m concerned, sort of like Next Gen understanding of how humans operate. And, even though the title’s around development trauma, it’s really a book about how humans work. And, it’s - it’s really fascinating; and so it takes the latest that we know about neurology and how this nervous system operates in the body and the brain, everything we know about brain structure. Oops, and then, you know, couples it over with how we’re, how we are both aided and harmed by certain experiences we might’ve had.

And so, in a synthesis, I would say it’s one of the first places I found that explicitly says talk therapy has it’s limits, because it’s just hitting one of the three axis. You need to have your mind, your body and your spirit all engaged to really shift something. And, so spirit, call it whatever you want, chi, life force, God, it doesn’t matter, you know, energy, people have all sorts of different names for it. But, it’s clearly a thing that's—we have energy patterns that stand up in our body and we can explain neurologically how that happens now. But, if you’re just talking about stuff, you get so far. But, if you can talk about it and experience it through the body, and have a shifting of the energy pattern, I’ve seen people heal in, or shift in minutes where they’ve been talking about stuff for decades and it didn’t work.

So, this is super exciting, and I—yeah.

Dave:  Talk doesn’t do, I mean, like you said, if you talk about the, just the simple, I mean, yours sounds much more complete, but if you look at it from the simple point of view of the fast and the slow computer, if you’re just talking to the slow computer and saying, “Hey, slow computer, you should change this.” And, it says, “Yes, I should.” Of course, the fast computer is completely unaffected by the whole thing.

Chris: Yep.

Dave:  If you only, and this is, to bring this back to what we’re talking about here, information which I, I guess I tend to over-focus on, just thinking about what you’re saying. I focus too much on information. Because, there is this, these two other massive pieces that are in fact required to actually bring about real change. It’s very interesting. Good takeaway from this, I think.

Chris: Yeah, and I think, I think this is, this is part of the, of the friction between the information and the gold bug camps, right. And, it’s because they’re just, they’re coming from completely different directions. I believe there’s a way to weld them and overlap them in all of this. But, it begins with the idea that—and, I do, I’ve got the gold bug gene in me, which I will, let me expand it and explain what I have. I have a right from a wrong gene, and I have a sense of what should be happening, right. So, here’s my view of the world. We should be noticing that we’ve lost 40% or more of the insect species, right. I just drove up to upstate New York yesterday, before I flew out here. And, that’s a six and a half hour drive, and we didn’t get a single bug on the windshield in middle of July. No, no, nothing, right. We used to have to clean off the windshield constantly when I was a kid, right. And, I don’t know why. You know, is it farming, is it habitat loss? It’s all rural farms. So, it must just be the way we—who knows what it is. But, I instinctively go, I think this is bad. I think losing your insects, I think losing the bottom of the food pyramid’s a bad idea, right, just as a biologist, I’m like, I think that’s awful. Or, losing phytoplankton in the ocean, same thing.

And, so I have this sense that what we should be doing as a nation, as a species, is having very different conversations than we’re currently having. But, we, to get there some things are going to have to happen first, and I think we’re going to have to have the sorts of soul-shattering experiences, which might be the Dow losing 90% of its value, or something that signals to people that it’s, that it’s time, you know, we’re the drunk in the gutter. And, I do believe that all of the suppressing and elevating and propping and weaseling that happens in the markets is simply designed to prevent us from looking in the mirror and saying, “It’s time to do things differently.” So, that’s, that’s my view.

Dave:  So, I would agree with you in that. I don’t think this is a cognitive thing. I think that’s in the, that’s a gut thing. They don’t want things to blow up, and so what more can we do to keep it from blowing. And, it’s fixing the symptoms everywhere. Oh, well, if we patch this, we patch that then we won’t see the symptoms of all these issues. But, I guess, I mean, I was struck when you were talking about it all. If you go along, again, I’ll go back to the keys in the kitchen. If you don’t expect to see anything wrong, you won’t see it. If you don’t really notice the flies on the windshield, the bugs on the windshield - I mean, I’m not - I’m not a biology guy. And, so I would probably have driven the drive and not noticed that, just because I wouldn’t notice those sorts of things. And, like, in 2005, I didn’t know about peak oil until I read, like, wow, this is a deal.

And, so it, I think you’re right in that there has to be some sort of thing that happens to wake people up, whether that be the falling, a falling of the Eurozone or here in America. I don’t know what’s going to happen to us, but I think you’re right. There’s gotta be some “something” that jogs people out of their, their daily life, their work, their world. I don’t know what it’s going to be, but it has to be a feeling thing. I guess that’s what I come down to. It’s not a thinking thing, because thinking, as you have just pointed out, thinking gets us a very small part of the way. And, it’s only the opportunity to start feeling that actually causes real change and a real shift. It’s that feeling thing, like you said, that you could talk about and think about it, get information on it for the next 20 years and nothing changes. I think it’s an AA line. All of my best thinking got me here. Something like that.

So, yeah, the feeling thing, and sometimes, I remember a time when I was, I was training a student, not that I’ve trained many students, but the student wasn’t listening. And, so I had to actually give the student an action that had an emotional impact. Nobody got hurt, but the student never forgot, and it was the impact of the event that, ah, oh, I’ve got to listen to you. Oh, my way really won’t work. No, it won’t. Now, I could’ve spoken for minutes and it wouldn’t have gotten through. But, sometimes you just need to get punched.

Chris: Yep.

Dave:  Sorry, go ahead.

Chris: No, it’s absolutely true. And, it’s a well-known part of humanity, I think. There was this movie, “Kingdom of Heaven,” and anyway, there’s this one scene where the father is on his dying last words, and he’s conveying this really important soliloquy that his son is going to be able, needs to remember to pass to his son. And, he speaks the whole thing out and then slaps him really hard, right. And, that was what the Romans did was that when there was a really important lesson, you’d get clocked, because that would cement the learning right there and then. Where it’s just, and you extend that further, that’s PTSD, right. But, so we have ways of getting our attention finally captured, and you’re right, it’s not through that fast computer, that thing’s buzzing away. It’s cemented through that slower one.

And, so, you know, this exact conversation, Dave, is why I love Peak Prosperity, I love the people who’ve been drawn to it, that were curious. It all connects. We don’t know what’s going on. We got to keep figuring it out. But it’s been, for me, this has been like a giant, it’s like a continuation of what college should’ve been, which wasn’t for me, for a variety of reasons, right. But, what it should’ve been, which is that everything is connected to everything else. And if we’re curious, that’s what makes life fascinating and interesting and hopefully gives us an edge, time to time as, well, you know, when the big turning points come.

So, thank you for this very unexpected and wonderful conversation.

Dave:  Well, it wasn’t unexpected, Chris. You asked me—I’m kidding. It did take an interesting turn. I gotta say that. But it really, I’m going to have to think about, more about the feeling. I don’t know how I write about feeling in the gold blog, but maybe I’ll find some way.

Chris: Well, if you find a way, let me know, because this is my struggle all the time - is how do I, how do I bring all of these elements together. And, I haven’t quite got the, the feeling part. It’s hard to write about. It’s easy, when we have the seminar at Row, this part comes up in spades. It’s much easier to somehow transmit and communicate in person. The writing, um, you know, because again…

Dave:  It’s cold, it’s flat, it just sits there.

Chris: Yeah, you’re going through the fast computer when you’re writing, by definition, trying to—anyway, so…

Dave:  Something like that. All right. Well, good luck with your conference and, yeah, don’t get converted to that libertarianism thing.

Chris: Well, if it makes sense I will, but I, so far, no danger. I will, I’m okay so far.

Dave:  All right. Have a nice trip.

Chris: All right. Well, thank you for your time, Dave. I appreciate it.

Dave:  Okay. Bye-bye.

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35 Comments

Jbarney's picture
Jbarney
Status: Silver Member (Offline)
Joined: Nov 25 2010
Posts: 233
Should be good....

I will listen but wait for Jim H. to post!

 

robie robinson's picture
robie robinson
Status: Diamond Member (Offline)
Joined: Aug 25 2009
Posts: 1220
Thanks,esp the primer

In psychoneurodevelopement!

Oliveoilguy's picture
Oliveoilguy
Status: Platinum Member (Offline)
Joined: Jun 29 2012
Posts: 578
Thanks Dave

Great Interview.....I really appreciate Dave's contributions on the PM market. A few take-aways for me.

Dave:  "Well, well, to me, most inflation comes from private debt creation"    Don't we have a new housing bubble that has reached the heights of 2007? And auto load problems again......These would seem to fit the criteria of private debt creation. ??

Dave:   I’m used to the corruption in the markets, because they’ve been this, they’ve been here since time—it’s like I’m expecting my pocket to be picked.   I agree......and where there is corruption I have no interest in lingering longer than necessary....Dave:   So, it’s about timeframes. So, if you want to compete, right, if you want to compete in their timeframes, you’re going to lose...Therefore I agree with longer term defensive investments or better yet staying out of the market as much as possible.

That's my 2 cents....not worth a whole lot.

 

LesPhelps's picture
LesPhelps
Status: Platinum Member (Offline)
Joined: Apr 30 2009
Posts: 811
Excellent Interview; Insects

I found the off topic content more interesting than the on topic, in this podcast.

Chris's comment about the decline in bug population really made a light go off for me.  I've noticed a dramatic decline in mosquitoes and black flies in both Central and Southern Wisconsin.  Up to about 15 years ago, you didn't go outside in rural or suburban areas of Wisconsin without at least considering using bug repellent.  Today, there are a few weeks a year, where bugs are a minor nuisance.  The rest of the year, they are barely noticeable.  I've been clearing a back lot on my new property in Central Wisconsin quite a bit this year and have found one tick on my clothes.

I have thought several times over the last several years that something has changed, but never really considered the cause or ramifications.

A few years back, I read that insects have been largely unaffected in all of the mass extinction events, except one.  It is possible that we are creating a potentially unprecedented mass extinction event.

 

New_Life's picture
New_Life
Status: Gold Member (Offline)
Joined: Apr 18 2011
Posts: 395
Opposing View?

Chris/Adam -  what's your thoughts on Harry Dent view on Gold?

http://www.zerohedge.com/news/2016-03-23/“-greatest-crash-your-life-just-ahead…”-–-harry-dent-warns

 

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
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the off-topic

Les-

For me my light bulb in this conversation was something I knew intellectually, but didn't really get until I was there in real time talking with Chris.

For the vast majority of people, information simply doesn't move people.  Emotional experience moves people.

When I think back to my peak oil aha moment, I remember the emotion - not the particulars that got me.  "Can this be real?"  Shock, surprise, more than a hint of betrayal.  It was an emotional experience.

If we are to be persuasive, somehow we have to stir the emotions.  Back it with information so we aren't tricking anyone - but change only happens when it is accompanied by an emotional impact.

Applying this principle to the goals of this site, I am now clear that Americans will need to have an emotional experience to break them loose from the daily dose of hypnotism that modern society provides in all its forms.  A chart simply won't do it.

And that's why Chris wants his market crash.  Not because he wants people to be in financial distress - he wants them to have their emotional experience which will help break the hypnotism.

And for me personally, I need to consider that emotional system more, because its the key to everything.  Nothing happens without it.

Aha!

I'm not a salesman by nature.  They know this stuff instictively.  :)

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Good Podcast

What a fun podcast! It's funny how perceptions can change. In my mind, I pictured Dave as being a very tall person with a deep baritone voice - somewhat like John Wayne. ;-)

Two parts that struck a particularly strong note with me - the peak oil discussion and the lack of insects. I remember when I first learned about peak oil. I didn't believe it at first. I spent my time looking for alternate lines of thinking to discredit the peak oil discussion. There were a few out there, but they didn't hold water very well. At some point, I remember feeling a hollow feeling in my gut and a cold sweat overtook me. That's when it felt real ... and I had to change my line of thinking.

The missing insects issue is more of a symptom of our modern mindset. Our farming has become a financial commodity mining venture. Instead of coal, gold, or iron, farming mines food and fiber. The systems are set up to maximize profits - large geometric fields planted to a single growing commodity. Anything that makes the bottom line fatter is considered good. Since there are insects that consume some of the crop and spoil the appearance of much more, insects are considered bad. It may be only a few types that are causing the problems, but it costs too much to develop weapons specifically addressed to combat those particular pests when a cheap, broad spectrum pesticide promotes the bottom line.

If it were only one farm in the area incorporating this strategy, the impact wouldn't be significant. When all the farmers adopt similar strategies, the impacts are far ranging. Until it hits the bottom line, they won't voluntarily change their practices. Look at the plight of honeybees over the last couple of decades. It isn't good, but farmers are able to mitigate the problems so there isn't an overwhelming need to adjust seemingly successful farming strategies.

We have a similar mindset with the medical profession. Instead of curing a problem, the focus changes to covering up the symptoms or maintaining minimal bodily functions with pharmaceuticals. Got diabetic symptoms - don't worry about changing your diet or exercising habits ... just take this pill everyday. That's where the profit lies. It doesn't matter that this approach is marginally effective and very expensive. It supplies profits. As long as it is profitable and the entire system works, expect more of it.

Grover

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davefairtex
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corruption

OOG-

I agree with your attitude about the market.  If it didn't fascinate me so, that's how I'd approach it.  I'm trying to use my engineering skills along with my market understanding to come up with an edge.  Its not an approach that most people can take.

And you have to go in knowing they are working your emotional system really hard - via industry-written "news" articles, and "experts" talking their book, banging the close at OPEX and other strategic moments, by going after your stops, and "earnings expectations" (vs y/y comparisons), and "non-GAAP earnings", and Cramer with his buzzers, insider information, analysts who are actually salesmen, the list just goes on and on.

As for private debt creation - the rate is what matters, and the debt creation rate is nowhere near what it was during 2000-2008.  See the chart below: it was 7-12% back in the heyday, and its about 2-4% right now.  That's a huge difference.  This is both public and private debt - but private debt vastly outweighs the public debt.  (Fed debt: about 18 trillion, total credit: 64 trillion).

China has been doing all the heavy lifting when it comes to private debt creation.  I just don't have the timeseries to show you.

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Missing insects

The missing insect phenomenon is a really big deal to me.

Right now I am on an island in ME, and my wife and I have been coming here for 30 years.  This year we note that the first walk up the mid island trail has always required the use of a 'spider stick' to clear out the many orb webs from one's path.

Not this year.  No spider webs...you have to hunt to find a few small ones here and there, tucked high in the trees.

No insects = no spiders.  

Just as bad, no cormorants out on the water to speak of, and only a few gulls.  A tiny fraction of the wheeling clouds of raucous gulls I remember from a few decades back.

The mussels are all gone.  The few shells on the beach, once a bare foot hazard that was hard to avoid they were so numerous...for the first time we thought of gathering them, bagging them, and putting them away for future generations to marvel at because they may never come back.

It's as if the Rapture happened, only it wasn't the humans that got lifted away.

The fish and the insects and spiders and birds are missing.  I'm still here.

Now to find out that other people are having the same experience in different climes and regions is unsettling to me, to say the least.  In a local area you could make the case for over application of pesticides, but once we've got northern forests and coastal Maine and central Massachusetts and the entire drive up to NY from MA also wiped out...what the heck could that mean?

My wife Becca has the sense that mother nature is retracting her life, just reeling it in to wait for better times.  I have a sense of dread I never thought I'd get from the loss of insects...I always took them for granted.  

Again, as the base of a very complex system, insects cannot be lost without severe perturbations and consequences.  

I'd love to gather other people's insect impressions and anecdotes...

And then I'm going to hunt down some scientists who study these things quantitatively.

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Herbicides affect insects as well.

Many of us like to point the finger at pesticides as a prime contributor to decreased insect populations, but we forget that the almost ubiquitous use of herbicides to control weeds in croplands, headlands and ditches throughout NA, limits the number of flowering species that provide pollen and nectar sources for many varieties of flying insects. The more species you eliminate, the more interactions between species are reduced as well. Diversity is essential for a healthy eco-system and herbicides add to the burden. But try and sell that to the farmer that lives next door or the boys at Monsanto or Syngenta or BASF. Access to open water is also being reduced which, again, leads to habitat destruction and places for insects to live. (However, the mosquitoes seem to be doing okay in my backyard).

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Edwardelinski
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The same thing is happening on the Cape

I started bagging shells a few years ago.I display them in large glass vases.I consider them natures jewelry.Large unbroken pieces of coral are now selling for hundreds of dollars because they are so rare.Very little washes up on the beach...It just makes me sad...I believe your wife is correct..

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Lots of bugs here

Chris, I'm up in new york state's adirondack region. There is no shortage of bugs here. In fact, this year has been so hot and humid they are amplified. I'm being driven indoors by noon. I've been farming up here for a long time and I'll tell you that every year is a little different. Dry weather usually means fewer insect presence, hot wet weather brings them out. This has been one of the worst years for bugs here for us.

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The Archdruid?

Thanks to Chris and Dave both for a good podcast conversation.  I've just finished listening to it and a thought struck me with regards to the talk of trying to understand how to reach people when just information alone isn't enough.  I'm betting John Michael Greer might have something valuable to say on that subject if he were wearing his druid hat rather than his peak oil hat.  I'm not really familiar with his work as a druid, but from the bits and pieces he has dropped into his writing on the Archdruid Report blogs over the years I believe that a good deal of the druid "magic" is about finding ways to consciously reprogram what might otherwise be unconscious responses of our mind.  It might be worth contacting him to see if he'd have something to say on it for a future podcast.

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Quercus bicolor
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insects near Albany, New York
  • Wild honeybees in the hollow pine behind the chicken coop: about average traffic on warm sunny mornings.
  • Mosquitoes and blackflies - below average this year - dry weather combined with high temperatures make for fewer breeding pools?
  • Crickets - seem to be far quieter than average in terms of crickets this summer.
  • Cicadas - impressive noise today at a nearby natural area - so lots of them?
  • Fireflies - seem to be as many as ever.  They love meadows and thickets.  My relatively less "well kept" yard with lots of fruit trees and meadowy areas have far more than my neighbors yards.
  • Katydids - they're just coming out.  So far, it seems about average for early season.
  • Butterflies - seem to be fewer Swallowtails, still no Monarchs and generally fewer butterflies.
  • Moths - haven't noticed - I'll keep an eye out for them.
  • Beetles - no Japanese beetles on the raspberries this year, but it might be early for them?
  • Dragon flies - they're out there, but fewer than I remember - but I think that's because they peak in August and September.
  • I'm going to keep a close eye on the variety and # of pollinators on the mountain mint as it ramps up it's bloom.  It usually attracts many insects including many kinds of bees, wasps, beetles, butterflies and various predatory species including spiders.

I've been thinking about the windshield thing Chris.  From my perspective, insect populations might be significantly down in farm country, but even there, not 90%. Elsewhere, they are down less, other than specific species like the monarch butterfly.  If you're seeing a widespread decline in bugs on the windshield, could it be because the car you're driving is much more aerodynamic than the one your' parents drove when you were a kid?  The smaller bugs especially would tend to slip past the car in the laminar flow that the engineers try so hard to facilitate around all but the rear of the vehicle.  This results in a car with a low drag coefficient and higher gas mileage.  I'm guessing that with the older cars with more decorative shapes, gutters and window trim that sticks out, larger gaps between the hood and the fenders, more intricate a front grill areas and a generally boxier shape - the flow went turbulent even over the hood and windshield.

 

 

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bugs

Here in western NY we have fewer bugs this year that I attribute to the drought we're having. We had about an inch of rain today, the first time we've had that much in a day since last October. This is the driest year I remember in the 24 years I've lived here. Fewer deer flies, mosquitoes and Japanese beetles. Pollinators seem about normal. Swallowtails about normal. Very few monarchs but that's normal in the past few years. Lots of fireflies. We're hearing katydids in the past few days. Spiders are plentiful. Dragonflies about normal.  Caterpillars seem way down so far.

Insect populations vary year to year usually due to weather conditions.

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Key word. that: rapture

Interesting you should compare it to the rapture. Do you know what the word in the original greek means? It's related to the word "rape", and the best translation would be that the rapture is what is happening to the Syriac Christians, the kurds, the yezidi, and the others in Iraq.

So yes, that is really an appropriate comparison to what is happening to our wildlife.

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southeast NY

mosquitoes-I don't see/feel them in my suburb but no standing water here

butterflies-a few in the late spring

ladybugs-fewer

bees-none visible in the grass or honeysuckle or raspberry plants I have seen this year here but I don't get out often

dragonflies-a few

roaches-going strong

birds: more robins over the past few years and more cardinals as well; haven't seen a bluejay this year.

lots of hawks. lots. lowflyiing birds of prey  maybe its normal but more than I usually see. 

Not as many geese as in years past.

 

 

 

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birds

When i was growing up my job was to mow the lawn and clear the car window. You see 30 years ago if you let your car sit for too long then birds went to the toilet on it. It was a weekly job, cleaning car windows. I got really excited a few months ago when there was bird droppings on my car because I couldn't remember it ever happening since I was a child.

My car is always parked outside, surrounded by 20 fruit trees by a river. I see birds all the time, crows eagles, parrots, sparrows, owls, falcons, kingfishers, kookaburras, galah's, cockatoos and minor birds, i often wonder how many birds must there have been to see crap over car windows, and where they have all gone.

 

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Missing insects

I had not been attuned to this issue before this thread.  A couple of recent articles on the topic:

A Growing Crisis:  Insects are Disappearing, and Fast.

Defaunation in the Anthropocene

 

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Bump for Harry Dent forecast of Gold @ $700?

No one willing to bite? And no I'm not trolling! :D 

http://www.marketoracle.co.uk/Article54889.html

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The slow and the fast computer

Listening to the podcast but reading it at the same time, the change that happens towards the end when Chris speaks about getting through to people beyond words...  I felt more and more - what is the word? - excited? enthralled?  - all I can say is that an increased heart rate told me that something really very, very important had suddenly come into the conversation.  I loved Dave's realisation of this.

It all goes way beyond interest in gold, in the markets, concern about manipulation, the growing malaise in civilisation, peak oil, the symptoms of sad decline such as the loss of insects and so on - important though all these things are, of course.  What came across to me with sudden clarity was that to have the "right conversations" a shift really does need to happen, a jolt that goes beyond words.

How fascinating that a conversation about movement in precious metals etc could meander, in such an un-solemn and invigorating way, to looking at how we're going to have to find a way through to change both our ingrained prejudices and mindsets if we're to have any chance at all of bringing good changes to the  world.

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Insects

Here in our small corner of the Laurentians (Quebec, south-west), this year has few mosquitoes, but plenty of flies, deer flies, wasps, hornets, spiders, grass hoppers, butterflies, caterpillars, dragonflies, night butterflies, etc... 

We have four hives now and they are doing well (No ag in the area, so no pesticides).

Other fragile animals: amphibians. They seem to do well as we hear them every night.

Forest around the house is full of sound. Day and night. We will never tire...

Deers, skunks, porcupines and raccoons stay far from the house (They are not gone). I think they got a good year. Plenty of food. At least this saves our garden.

Snapping turtles went out of the lake to lay their eggs in the sand of our entrance and the skunks got their yearly omelette the following night.

There are four hummingbirds around the house (at least the ones we have seen at the same time).

Our lake got a bloom of blue-green algae. The cause is higher water temperature as well as less rain. They should be gone by the fall as there is no ag upstream.

Field mice are not doing very well. No worry, it's just a cat's issue... for them. wink

2009 was a terrible year (for us!): mosquitoes and deer flies everywhere. You could not walk outside without a net over your body. Since then, we have seen variability year over year.

Overall, 2016 looks like an average year.

I can't say that we have less insects here. Need to observe for a longer period.

 
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cmartenson wrote: The mussels
cmartenson wrote:

The mussels are all gone.  The few shells on the beach, once a bare foot hazard that was hard to avoid they were so numerous...for the first time we thought of gathering them, bagging them, and putting them away for future generations to marvel at because they may never come back.

I blame Hitlery

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Dent on gold

Where I think Dent is wrong on gold, is that he views it purely as a commodity, and as such it would go down in a big deflation. 

However, since 2006 gold has been outperforming commodities, which indicates it is actually behaving more like money than a commodity. As it is increasingly re-monitised in the eyes of investors (and eventually the public), gold should do well in any future crisis, whether inflationary or deflationary. The next crisis will bring us closer to a loss of confidence in central banks and their confetti money, and this can only be good for gold. 

Also, for what it's worth, Stan Druckenmiller said recently that he is 30% in gold.

While Dent seems to be a good guy with good insights, I'm becoming increasingly wary of anyone making predictions with 100% certainty.  The fact is, that nobody knows the future, and it's important to have the humility to recognise that. We can only deal in probabilities of future outcomes.

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gold
Eannao wrote:

Where I think Dent is wrong on gold, is that he views it purely as a commodity, and as such it would go down in a big deflation. 

However, since 2006 gold has been outperforming commodities, which indicates it is actually behaving more like money than a commodity. As it is increasingly re-monitised in the eyes of investors (and eventually the public), gold should do well in any future crisis, whether inflationary or deflationary. The next crisis will bring us closer to a loss of confidence in central banks and their confetti money, and this can only be good for gold. 

Also, for what it's worth, Stan Druckenmiller said recently that he is 30% in gold.

While Dent seems to be a good guy with good insights, I'm becoming increasingly wary of anyone making predictions with 100% certainty.  The fact is, that nobody knows the future, and it's important to have the humility to recognise that. We can only deal in probabilities of future outcomes.

if i recall, druckenmiller didn't actually buy gold, he bought GLD, an important distinction.

i wonder what goes on in the rarified air up there - surely he's aware of systemic risks on multiple fronts? maybe a heavy hitter like SD has a way to ensure that he does get the gold if it comes down to it, i'm sure he's done his homework. the rest of us would probably not be so lucky following in his GLD footsteps.

as far as dent, i think you are correct, he views gold as a commodity that will crash just like other commodities during the next deflationary downdraft, just like in 2008. and i think there will be some correction, though i'm skeptical of anything much under $1000 at worst case. i don't think dent is really considering capital flows and how they would gravitate towards and boost gold in the event of financial catastrophe.

bill holter has been writing about how comex has had many more customers standing for delivery than normal, and how comex appears to be tardy coughing up about 20 tons of gold for delivery last couple months, and how it wouldn't make sense for them financially to drag their feet on the delivery if they actually had possession of the gold for delivery.

lo and behold, steve st angelo (srsrocco) reports all of a sudden there has been 20 tons of gold imported INTO the usa FROM switzerland, very unusual, and just the amount the comex needs to fulfill their delivery requirements:

https://srsroccoreport.com/whats-going-on-record-swiss-gold-flow-into-th...

 

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dent & gold

Dent sees things through the lens of both demographics and a debt bubble pop.  Both of those two factors point directly to deflation.  All else being held constant, he'd probably be right; in a strong commodity downdraft, gold will lose.  We saw that in 2012-2015.  [Cue argument from the goldbugs insisting the cartel is all powerful...whenever the price drops...]

Problem is that along the way towards our date with deflation, we will have a sovereign debt crisis, and the big money won't just sit there waiting to be bailed-in or defaulted upon.  It will go somewhere - other currencies, other asset classes, and gold counts as a currency in this regard.

And then there is the helicopter money aspect.  No central banker could have even mentioned helicopter money during the 1930s in one of the main economies of the world - it was blasphemy.  Now its a topic of conversation, widely viewed as "the next step", so much so that central bankers feel they have to announce "they aren't going to do it now" (but that it is a "tool in the toolbox.")

So I don't think we'll have the standard Depression ending.  And we'll have a huge amount of big money racing hither and yon looking for a place to hide prior to the default/bail-in.  And when nations are threatening to leave the EU, that chaos will drive people to buy gold too.  Look at what happened during BRExit: gold went nuts, so much so they had to print 50k COMEX contracts to mute the ascent, and all it did was slow things down.

If you lived in Spain, and Spain was about to leave the Eurozone, how would you protect yourself?

* Spanish government debt = defaulted upon + denominated in pesetas

* Spanish bank deposits = possibly bailed in, denominated in pesetas

* Spanish real estate = subject to taxation, not mobile - but ok.

* gold = protects you from devaluation, cannot be defaulted upon, mobile if you have to leave.

* USD = protects you from devaluation, mobile if you have to leave, but subject to US government policy.

Again, deflation may be the logical end point if nature takes its course, but the experience you go through (say in Spain) might look a whole lot like a one-shot inflation via currency devaluation, COMBINED with a default.  And there is always helicopter money where the question is, how many helicopters, and how much money are we talking about.

 

 

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Edwardelinski
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Toronto Dominion lays out it's position:

The CIO of TD asset management layed out his position on gold this morning.The strategy and job one for him is wealth preservation.It really is no longer about making fistfulls of dollars,but,about holding on to what people have.His largest position gold.His anticipation of global and political events is one of protection for his clients.This is true.We now live in a world were we have to protect ourselves from monetary extraction.At the peak many have positioned themselves accordingly.When money runners confirm suspicions,it is even more alarming....

 

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Odd autodidactic creature is grateful

A really enjoyable interview. Thank you Dave for asking a good question and eliciting the book referral - I was mentally asking the same thing and I've just ordered "Healing Emotional Trauma' by Laurence Heller. 

I must be extremely odd as I seem to be able to take on board new information and integrate it into my world view even when it runs against my previous understanding.

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Poor Canada
Edwardelinski wrote:

The CIO of TD asset management layed out his position on gold this morning.The strategy and job one for him is wealth preservation.It really is no longer about making fistfulls of dollars,but,about holding on to what people have.His largest position gold.His anticipation of global and political events is one of protection for his clients.This is true.We now live in a world were we have to protect ourselves from monetary extraction.At the peak many have positioned themselves accordingly.When money runners confirm suspicions,it is even more alarming....

I thought that was a very telling move by the TD CIO, and one that confirms my recent experience at the wealth conference.  Suddenly, people in the west are 'beginning to care' about gold.

Speaking of TD reminds me of Canada, of course, poor Canada:

And then there was none: Canada sells its gold

Bullion Management Group Inc. | Mar. 10, 2016

Canada, bucking an international trend that has seen central banks become net buyers of gold since 2010, has sold off all its official gold holdings. Canada’s official international reserves last released by the Bank of Canada (BofC) on February 23, 2016 showed gold reserves at zero (0).

This is unprecedented. Canada now stands as the only G7 nation that does not hold at least 100 tonnes of gold in its official reserves. According to statistics from the World Gold Council (WGC), Canada’s current holdings would now rank it dead last out of 100 central banks, behind Albania at number 99.

A footnote says that the BofC still holds 77 ounces of gold, primarily in gold coins.

Fun Fact:  I have more gold in my personal possession than a G7 central bank.  

Somehow I don't believe I'll be able to say that for very long, and not because I'll be selling any, but for now it stands as a fact.

Canada has made a very odd choice here, and one that I don't fully understand.  When (not if but when) Canada's extreme over-indebtedness strikes and wobbles the banking system to its knees, Canada is going to wish very much that it had some stabilizing gold reserves.  

Would they get desperate enough to nationalize their gold mines?  I hadn't thought of that before, but perhaps the assumed geopolitical risk of Canadian gold miners needs to be nudged up to something higher than zero?

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I share that same oddity...
David Allan wrote:

A really enjoyable interview. Thank you Dave for asking a good question and eliciting the book referral - I was mentally asking the same thing and I've just ordered "Healing Emotional Trauma' by Laurence Heller. 

I must be extremely odd as I seem to be able to take on board new information and integrate it into my world view even when it runs against my previous understanding.

David - this is one of the defining features of the audience assembled here.  While far from perfect in this regard myself, I find that I am head-and-shoulders above the average person in this regard.

I love new frameworks an routinely shake up pretty big world views for myself.

Recent biggies have been utterly upending my belief systems about nutrition and health, the complete dismantling of time as an arrow, as well as my understanding of human psychology and development.  

Side note: if I could be a parent of young children all over again, man, I would do things very differently.  I guess that's what eventual grandparenting will allow.  

If your mind has been carefully observing humans and been curious about your own inner construction, Healing Developmental Trauma will be a real eye opener.  I am still integrating that book some months later, and will be re-reading it again soon to go another layer deeper.

 It is this restless curiosity that makes life wicked fun.  The more I learn, the less I know, and the more astonished I become.  

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Dent & Gold II
davefairtex wrote:

Dent sees things through the lens of both demographics and a debt bubble pop.  Both of those two factors point directly to deflation.  All else being held constant, he'd probably be right; in a strong commodity downdraft, gold will lose.  We saw that in 2012-2015.  [Cue argument from the goldbugs insisting the cartel is all powerful...whenever the price drops...]

Problem is that along the way towards our date with deflation, we will have a sovereign debt crisis, and the big money won't just sit there waiting to be bailed-in or defaulted upon.  It will go somewhere - other currencies, other asset classes, and gold counts as a currency in this regard.

This is my thinking as well.  If all things were held constant I think Dent has a defensible view.  But everything is in motion.

There's $180 billion of new money coming into just the western financial system alone per month.  Who knows how much more into China's through the front and back doors of their banking and shadow banking systems, respectively.

Huge pools of increasingly worried money are parked in places they can and will flee from at a moment's notice.  

Sovereign defaults are a mathematical certainty under the 'all things equal' model.  Which means printing "whatever it takes" is all but guaranteed too.  At least for a while.

Under all of that uncertainty I cannot get my brain to logically make a case for gold just being another commodity ready to get sucked under as big money sits around watching its fantasy wealth evaporate under the heat of a searing deflationary event.

The thought experiment I conduct is to imagine I have a billion dollars that I am fiduciarily responsible for, and upon which my paycheck also depends.

The questions are, where would I deploy it today, and where would I deploy it in a panic?  Who would I actually really trust to not steal my money?  Euro banks?  Nope.  US banks?  Only slightly less of a 'nope.'  Emerging markets? Hell nope. Japan?  Hahahahahaha!!

Cash and or cash equivalents to start, and tangible assets when the currency-on-fire part of this story gets going.  Gold is top of that list because there's an international system of transfer and settlements for gold so I could jurisdiction hop if I thought that necessary.  Real estate is too illiquid and utterly immobile for the big part of my holdings, so that would have to remain a reasonable but small percentage.  Ultra high grade corporate bonds make sense, as do core sovereign bonds (at first).

After sifting through all of the possible real asset holdings, gold floats to the top, at least for a while, after which we'll have to reassess, but having direct control of the means of production and primary wealth (water, food, minerals, energy) will re-emerge in people's minds at some point as the original form of true wealth.

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5683
China's M2

Here's a chart of the monthly change in China's M2, converted to USD, and run through a 12 point moving average to "roughly" seasonally adjust it.

As loan growth goes, so goes overall economic growth.  Although the series is choppy, you can see in the past 12 months, it has been falling off a cliff.  I think this is a big deal.  If growth in China goes, then the ability of all those debtors in China to pay off their debts falters too.  That would be China's "2008 moment" - possibly to be met by a massive swapping of debt for cash and also some equity.  No way China just lets the defaults happen.

And note the series is an "absolute number" - its not relative to size of the economy.  If it were a relative number, it would look even worse.

I'm claiming M2 is a proxy for their bank loan growth - since a new bank loan appears as a deposit somewhere in the banking system relatively soon after the new loan is made.  (I don't have their bank loan data - all I have is M2).  Original series (in RMB) here: https://fred.stlouisfed.org/series/MYAGM2CNM189N?cid=32329

New_Life's picture
New_Life
Status: Gold Member (Offline)
Joined: Apr 18 2011
Posts: 395
Thoughts on Dent & Gold

Appreciate all of the views on Dent & Gold, I believe seeing an alternative view allows approaching the subject with a new fresh perspective.

I particularly like Chris'es thought experiment, in a similar theme to some simulations I can imagine Jim Rickards would suggest.

As Grant Williams said during the minor financial wobbles of Brexit, Gold was a pretty good safe haven for those in the UK.

My own view is that Gold will be viewed as a mixture of a commodity, currency hedge, insurance and actual money. How that changes will vary on the individuals circumstances and the level of collective awareness of the situation that the worlds finances are in.

ps I also didn't mean to hijack a thread that was a very thought provoking wide ranging podcast, thanks Chris and Dave! :D

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 165
China Debt Crisis

Dave, 

having watched the Kyle Bass interview on RealVision TV, your chart seems to tie in with his current thesis; that a debt crisis has started to unfold in China, the scale of which may be greater than the 2008 debt crisis in the USA. China will be forced to recapitalise their banking system, and the yuan/renminbi will be devalued. This will export deflation around the world one last time.

I don't know what the knock-on effects of this will be or how best to play it, but Bass is bullish on Asia after the crisis.

Cheers, E.

 

Edit: Dave, I just noticed you covered this in another thread. You raised a really interesting prospect:

"China may export deflation in terms of product prices, but a whole lot of asset inflation will take place as a side effect as money flees the country.  Not everything will deflate in price.  Its just possible US equities would actually rise as a result of the capital flows.  Gold too.  A wave of money pouring into gold might well overwhelm the currency effect from the rising dollar."

 

Why is nothing ever straightforward?! Perhaps diversification is the only solution!? (across all asset bubbles!!)

lambertad's picture
lambertad
Status: Silver Member (Offline)
Joined: Aug 31 2013
Posts: 184
V bottom markets

So I had a good chuckle to myself today. I wanted to avoid studying last minute for my exam this morning, so I pulled up a 5 day chart of the DJIA on my phone. Those are some nice V-bottoms. Volume seems to be screaming out of the gates on the morning sell-offs then the volume drops and the chart goes back up. I'm sure other have more insight into this sort of thing than I do, but that just seems like an ugly 5 day chart. But hey, ALL TIME HIGHS BABY! BTFD!

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