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View Full Version : Before the FIRE Gold Update: Is $1,237 the new $720? - Eric Janszen



EJ
05-14-10, 02:13 PM
http://www.itulip.com/images/oildollargold.jpgBefore the FIRE Gold Update – Is $1,237 the new $720?

Gold is insurance that protects wealth against errant central banking policy orthodoxy and debt-inflation government economic policy that are the hallmarks of the FIRE Economy. The rising gold price represents an increase in the FIRE insurance premium. In 2001 when we bought gold at $270 per ounce as wealth insurance against FIRE, it was cheap. Yet 99 out of 100 investors were then afraid to buy it. At the rate we’re going, in two or three years most investors will be afraid not to own it, and the FIRE insurance premium will far higher than the four times greater price of $1,220 per ounce that new buyers must pay today.

Governments around the world stagger under the weight of public debts incurred to bail out economies from the FIRE Economy collapse of 2008 and 2009, which credit bubble bailed the economy out of the economic crash produced by the collapsing stock market bubble in 2001.

The gold price rose every year for the past nine. This year is no exception as one sovereign debt crisis after another ratchets public debt commitments higher and higher. Investors from all walks of life in ever-greater numbers seek to protect themselves against the next FIRE Economy crash and the subsequent reflation.

Did that sound like a cheesy late night TV ad for gold? Regrettably, our foreign, fiscal, energy, and monetary polices are a cheesy late night TV ad for gold.

Where it all started

Our original 2001 argument for buying gold: financial bubbles end in severe macro-economy contractions, macro-economy contractions lead governments to reflate with debt issuance and low interest rates, debt issuance and low interest rates result in higher debt loads relative to economic output, a high debt-to-output ratio reduces sovereign creditworthiness, lower creditworthiness reduces currency exchange rate value, and reduced currency value increases the nominal gold price.

Why gold and not other commodities? Because gold is the only commodity that central banks own.

Why do central banks own gold even though currencies have not been backed by gold since 1971?

Because central banks need to hedge the structural risks inherent in the politically unstable debt-based money system they oversee. They keep gold as insurance against possible—we’d say, likely—geopolitical accidents that could throw the system into chaos. As of 2001, the probability of an accident increased dramatically when the U.S. FIRE Economy suffered its first major shock since its formation the early 1980s. We joined the central banks then, adding a 15% gold FIRE insurance position to our own portfolio.

That was nine years ago. Since then, an additional factor favoring gold as wealth insurance came into play that we were not aware of at the time: Peak Cheap Oil.

Peak Cheap Oil

Easily and cheaply accessed oil supplies peaked globally in 2005. Oil E&P technology will fall farther and farther behind the demand curve from now on, with temporary demand interruptions and price declines caused by a series of oil price spike induced recessions in a process that we identified in 2008 as the Peak Cheap Oil Cycle. Markets noted the beginning of the first the Peak Cheap Oil Cycle process in 2003, bidding up the marginal cost of each new barrel of oil mined:
On a global scale, [oil] prices increased 234% from the 2002 recession low of $27 average annual to $91 average annual in 2008.

We expect a series of similar increases to occur in each Peak Cheap Oil Cycle. The next cycle may take oil to approximately $160 between 2011 and 2012, declining to approximately $80 in the recession that follows, based on calculations we did late 2008.

- Peak Cheap Oil Update - Part II: The First Peak Cheap Oil Cycle (http://www.itulip.com/forums/showthread.php?12797-Peak-Cheap-Oil-Update-Part-II-The-First-Peak-Cheap-Oil-Cycle&p=131461#post131461)Rising oil prices influence on the price of gold both directly and indirectly. An example of a direct influence is cost-push inflation from rising input prices to food production. That will increase inflation in some areas of the economy, which will be reflected in the gold price. This leads to a multitude of indirect influences of oil on gold prices. Food price inflation, a regressive tax, will in turn raise government compensatory expenditures on government assistance programs, such as food stamps. Peak Cheap Oil and government spending on defense go hand in hand. The year that Peak Cheap Oil began in 2001 is also the year that the Iraq War commenced and has, with the Afghanistan War, added $3.3 trillion to the U.S. fiscal imbalance since. Increased outlays will occur at the same time as high energy costs slow the economy, reducing tax receipts. We estimate net government saving at -21% during the next recession, up from -9% during the 2009 recession and -4% in 2003 recession.

Bottom line: High oil prices mean higher government deficits and a weaker dollar, which will also be reflected in the gold price.

iTulip.com Gold Timeline
2001 First gold positioning: Enter market with 15% position at $270 (http://www.itulip.com/gold.htm)
Argument that gold prices had bottomed and asset bubbles will lead to a weaker currency

2006 Gold update: What gold bubble? (http://www.itulip.com/forums/showthread.php?507-What-Gold-Bubble-Janszen)
Hold position at $720 despite frequent articles claiming gold a bubble

2009 Gold allocation increase from 15% to 30%: Road to Ruin: Final stretch (http://www.itulip.com/forums/showthread.php?8244-Road-to-Ruin-Final-stretch-Eric-Janszen&p=78579)
Increase gold allocation at $965 from 15% set in 2001

2009 Gold update: Gold over $1000 and still no gold bubble (http://www.itulip.com/forums/showthread.php?12675-Gold-update-Gold-over-1000-and-still-no-gold-bubble-Eric-Janszen&p=130303#post130303)
Hold position at $1000 despite frequent articles claiming gold is a bubble
We have witnessed to rise of gold from $270 to a recent new nominal high of $1,246. All along the way, we have heard repeated claims that gold was a “bubble” or otherwise over-priced. The loudest protests came in 2006 when gold reached $720. We, however, have maintained our 2001 forecast that gold prices are likely to peak in this geopolitical structural Great Shift in the range of $2500 to $5000.

DJIA/Gold ratio review

We have not once in nine years sold any gold. We do not trade in and out of rallies, although we have identified corrections for those of our members who feel compelled to trade (See Gold Update: The small trade within the big trade (http://www.itulip.com/forums/showthread.php?3413-Gold-Update-The-small-trade-within-the-big-trade)). Trading gold is inconsistent with the concept of gold as insurance. We do occasionally trade our bullionvault account (http://www.bullionvault.com/from/itulip) for the purpose of confirming or contradicting on the impact of sentiment and events on short-term gold price movements. We don’t publish the results of these trades because the idea of trading gold confuses the main point: we own gold as FIRE insurance against events that have not yet occurred. Further, our four-year record of gold trades is roughly 50%, netting close to zero net of taxes and transaction costs—just like everyone else.

“I’m new here and missed iTulip’s arguments about gold over the previous nine years. Too late to buy gold now?”

We've heard this question regularly since 2001, when gold traded at $400, $600, $800, $1000 and expect we'll keep hearing it asked for the next several years.

The question is itself problematic. Buying gold is not like buy stock in Apple Computer, or even like buying a commodity like oil or copper.

A rising stock price reflects the improving earnings prospects of a firm. A rising commodity price reflects either declining commodity supply relative to demand, or declining demand for the currency in which that commodity is traded relative to the supply of that currency, or both. Gold is more complex because it additionally acts as a currency itself (See The Fourth Currency (http://fourthcurrency.com)) because it is the only commodity held by central banks. For this reason gold acts as wealth insurance, specifically hedging the impact of excessive government indebtedness on the purchasing power of financial assets. The question “Is it too late to buy gold” is like asking whether it’s too late to insure one’s home against fire. Before the FIRE, no.

Before the FIRE

If you have fire insurance on your home, you’d only cancel that insurance policy if you were sure that the chances of a fire had disappeared. You might reduce our coverage if you thought the risk of fire had decreased. You might increase your coverage if you thought the opposite. We increased our gold position from 15% to 30% of our portfolio in early 2009 in response to the increase in FIRE risks as indicated by the execution of bank and financial system bailouts that more than doubled the Fed’s balance sheet.

The fact that the FIRE insurance premium has gone up four fold in nine years is a reflection of the popularity of the insurance, which may or may not indicate an increase in the risk of FIRE, but certainly the more widespread perception of risks.

This explains the recent gold price increases as stock and oil prices have fallen. More investors have come to the realization that they need the kind of wealth insurance that gold provides, while stocks continue to reflect a myriad of financial risks. Gold is acting as the recipient of flight capital from government debt and currency policies globally.

DJIA/Gold ratio indicator

The ratio of the DJIA to the gold price is barometer of long-term structural economic change and a market sentiment indicator. The price of the DJIA index tends over decades to move from a high to a low ratio as changes in the economy and markets push stock prices in one direction and gold prices in the other. The Great Inflation of the 1970s produced the previous peak in gold and bottom in stocks. The August 13, 1979 Business Week article The Death of Equities (http://www.businessweek.com/investor/content/mar2009/pi20090310_263462.htm) marked the bottom for stock market sentiment.

Market sentiment reaches extremes of “Stocks are Dead” at low DJIA/Gold ratios and “Gold is Dead” at high ratios.


http://www.itulip.com/images2/goolddowbirthrate.gif


Original iTulip DJIA/Gold chart from 2001


Our original August 2001 DJIA/Gold chart shows that the ratio peaked about a year before stocks peaked. In August 2001 stock prices were considerably down, as forecast in March 2000 (http://www.itulip.com/GlobeArchiveJanszen.htm), but gold prices had not yet started to rise; we waited until mi-2001 to get in. Our indicator was the Fed’s expression of worries about deflation, a consistent indicator of an intention to vastly expand the money supply. That was our signal to buy.

While we continue to expect to see the gold price peak and stock prices trough at a DJIA/Gold ratio between 2:1 and 1:1, with gold trading between $2500 and $5000 and the DJIA trading around 5000 as originally forecast in 2001, a view re-affirmed in our 2008 update, our 2010 update reflects two changes.

One, the peak in gold and trough in stocks is likely to occur sooner than 2018 as we forecast in 2008, reflecting the expectation of an 18 year period for stocks to reach “Stocks are Dead” sentiment extremes. We now believe that process will be shortened to 14 years and end around 2014 due to the combined impact of the Great Shift, described below. Two, given that the nominal price of the DJIA has remained higher than we expected, rising nominally 20% while falling 20% in real terms since the year 2000 peak as a result of the form of reflation policies, the lower DJIA ratio will likely be reached more by gold prices rising than by stock prices falling.

A ratio of 2:1, and with it a peak in negative sentiment about stocks, may be reached with the DJIA continuing to trade in the 10,000 range while gold prices rise to $5,000. If this appears inconceivable to readers, we recommend going back to read our original 2001 forecast for gold at $2,500 when gold was trading at 1/10 of that price and try to imagine how that forecast appeared at the time. Today a $2,500 price is only slightly more than twice today’s price, and gold at $5000 is only four times the current price, the difference between the price when we bought gold and the actual price today.


http://www.itulip.com/images2/djia-goldratio2010update.gif
DJIA/Gold ratio update May 2010


When will iTulip sell gold?

We will no longer own gold when the economic and market conditions that led us to buy gold in 2001 no longer hold, the coast is clear, and the form of wealth insurance that gold offers is no longer needed: when (central banks divest), the Peak Cheap Oil Cycle is over, and the dollar has been subsumed into a multi-lateral currency system.

The challenge will be selling gold at the right time during these processes and long before they are over. For a sense of the time scale, consider that six years of background work went into the policies of the Volcker Fed before they were executed on starting in 1979.

The Great Shift in progress indicators:


A change government policy to restructure (write off) debt rather than buy private debt with public debt, and old public debt with new public debt, and in the process further expanding total debt and worsening the ratio of debt to economic surplus. The write-off is most likely to happen by a combination of inflation and restructuring.
The end of the Peak Cheap Oil Cycle as indicated by the widespread substitution of diesel hybrid and liquid petroleum gas (LPG) powered autos for gasoline-powered autos.
The end of the Dollar Cartel as indicated by the adoption of federated European and Asian currencies backed by pan-European and pan-Asian tax authorities.

The most important idea to keep in mind is that the FIRE crises that we own gold to insure against have not happened yet, that the crises themselves will produce gold price volatility that is not the signal to sell, but that the crises will force the execution of solutions that will create gold price volatility at a higher price years later.

A series of crises will occur to produce the political forcing function to drive Great Shift policy changes. These crises will produce enormous volatility in all markets, including gold. The gold price volatility that occurs during the crises should not be confused with the price volatility we will see during the period of resolution when we should be selling gold, when we can expect 15% to 20% price moves intraday, such as from $2,500 to $2000, that lasts for several months.

Summary

Gold is wealth FIRE insurance. The insurance premium keeps rising as more investors see and smell the “smoke” as sovereign debt defaults, the inevitable result of financial system crisis bailouts. Peak Cheap Oil added fuel to the FIRE. First come the crises, then the resolution of the crisis. The time to get out of gold is between the end of the crisis period and before the onset of resolution. Stay tuned. It’s going to be a rough few years.

http://www.itulip.com/images2/billblack300.gifEric Janszen Interviews Dr. William Black: Has the USA become a 3rd world country?

Control frauds, aggressions dynamic, systems capacity problems, and the end of the world as we know it.

Eric Janszen: Anyone who has heard you and watched your testimony in front of the Congress and listened to you on Bill Moyers and Fox News have got to be scratching their heads and wondering how fraud on the scale you are describing is possible in the United States of America. We think of ourselves as a lawful country. That’s one of the reasons people come here.


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<embed src="http://www.youtube.com/v/3-HTylLzXu8&hl=en_US&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="385" width="480"></object>

Bill Black: We in the criminology biz, and we as regulators, take the combination of ethics, morality, peer and professional norms very seriously because it’s the most effective means of limiting not just criminality but abuses that can be close to as damaging as criminality. So while you want to stop all of those things, you can’t stop all of them, obviously, but you want to minimize them. So your question had this correctly in it: we do think of ourselves as a generally law-abiding nation and for a large range of purposes we are. But if the players in an industry can gain a competitive advantage by cheating and nothing breaks that, well then you to end up with an industry of cheaters. More ($ubscription) … (http://www.itulip.com/forums/showthread.php?p=161224#post161224)

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chr5648
05-14-10, 03:15 PM
We will no longer own gold when the economic and market conditions that led us to buy gold in 2001 no longer hold

Thats all you need to know, that sentence summarizes nearly everything.


PS. In regards to trading, its great to trade gold especially if you have a trend trading strategy, especially the past 3 months.

Chomsky
05-14-10, 03:41 PM
While we continue to expect to see the gold price peak and stock prices trough at a DJIA/Gold ratio between 2:1 and 1:1, with gold trading between $2500 and $5000 and the DJIA trading around 5000 as originally forecast in 2001, a view re-affirmed in our 2008 update, our 2010 update reflects two changes.

One, the peak in gold and trough in stocks is likely to occur sooner than 2018 as we forecast in 2008, reflecting the expectation of an 18 year period for stocks to reach “Stocks are Dead” sentiment extremes. We now believe that process will be shortened to 14 years and end around 2014 due to the combined impact of the Great Shift, described below.

[snip]

We will no longer own gold when the economic and market conditions that led us to buy gold in 2001 no longer hold, the coast is clear, and the form of wealth insurance that gold offers is no longer needed: when (central banks divest), the Peak Cheap Oil Cycle is over, and the dollar has been subsumed into a multi-lateral currency system.


So, you expect all that to happen by 2014?

grapejelly
05-14-10, 04:13 PM
thank you, EJ.

I don't view gold as insurance.

I view gold as the asset class to be in when the value of paper is falling.

Gold is a crappy asset. It is far better to invest in profitable companies. But the VALUE of companies is subject to the ebb and flow of PAPER.

Right now, the value of paper is falling as confidence in paper is subsiding. This is a slow process, but we are in a slow motion collapse of paper values caused by a multi decade runaway growth in paper, known as the finance economy.

This collapse is going to be very, very bad. I believe we are in a Depression now, and the next leg will be coming up probably next year, perhaps sooner.

The only thing to survive will be commodities and gold. At that point just as in 1982 you will be able to buy good companies for next to nothing.

That is why I own gold. If 15% is good, 70% is better. Keep 30% as a hedge.

icm63
05-14-10, 04:25 PM
Nothing goes up in a straight line...

$USD rally may force gold holders to bank some profits as they see the $USD strength may have leggs... The countries pegged to the $USD have been buying gold for years. The $USD is going up, soon the will bank profits as they realise this. Large funds want to own gold, and to get it at better prices is to force a sell off, getting $USD to new year on year highs might just do that. A serious world inflation problem is not in the near term, but a fews years down the track a period of $USD strength is just whats need to loosen your tight hands on your gold stash...

See here for non subscribers: http://www.screencast.com/t/YTZmNWIxNzc

Members here...
3307
and $USD
3308

we_are_toast
05-14-10, 04:42 PM
Thanks EJ,

This is one of the least ambiguous postings in some time, and much appreciated! Your logic seems reasonable, but I'm sure the community will have some disagreements, and will feel free to express them.

for example;


The end of the Peak Cheap Oil Cycle as indicated by the widespread substitution of diesel hybrid and liquid petroleum gas (LPG) powered autos for gasoline-powered autos.

The substitution of 2 oil based products (LPG, diesel) for another oil based product (gasoline) for a relatively small efficiency gain does not seem like anything near enough to slow down, much less prevent the repetitive Peak Cheap oil cycles. Especially since Oil demand from emerging markets will most certainly overwhelm the efficiency gains that will take years to implement in the U.S. It will be even more difficult to reach those gains if there isn't the political will to subsidize the technology change, and I don't see that happening in times of ever increasing deficits. And doing it by 2014 seems out of the question.

LargoWinch
05-14-10, 04:50 PM
Great summary indeed; I cannot wait to see what happens next!

One question: why is the Gold to Dow ratio is used instead of the Gold to S&P500 ratio? Shouldn't the later be a better indicator when considering survivorship bias?

Chris Coles
05-14-10, 04:54 PM
So, you expect all that to happen by 2014?

I read it slightly differently in that if $5,000 is the target, then we should expect that to be conservative, as EJ has been consistently so, and expect that the end game will be dramatic. But the real upside will be all those opportunities for the inspired entrepreneur 2015 onwards. Powder gets dryer day by day.

Southernguy
05-14-10, 04:58 PM
Dear WAT: I agree. As oil becomes scarcer, I don´t see any viable substitution.
2) We are today seeing 70 USD barrel. Time to buy some related shares ETF´s?

don
05-14-10, 05:24 PM
I haven't added to my gold stake in some time and feel it might be right to do just that. Any up todate recommendations on where and how to buy?

cjppjc
05-14-10, 06:01 PM
Nothing goes up in a straight line...

$USD rally may force gold holders to bank some profits as they see the $USD strength may have leggs... The countries pegged to the $USD have been buying gold for years. The $USD is going up, soon the will bank profits as they realise this. Large funds want to own gold, and to get it at better prices is to force a sell off, getting $USD to new year on year highs might just do that. A serious world inflation problem is not in the near term, but a fews years down the track a period of $USD strength is just whats need to loosen your tight hands on your gold stash...

See here for non subscribers: http://www.screencast.com/t/YTZmNWIxNzc

Members here...
3307
and $USD
3308

Shouldn't this post go into your gold to drop below 1,000 thead? Or the gold to drop below 800 thread? Or the .........

icm63
05-14-10, 06:03 PM
High Commissioner..

Funny.. please quote me correctly. I said 'may'. And the show isnt over yet...$USD is knocking on the door of a new powerful trend...

cjppjc
05-14-10, 06:14 PM
High Commissioner..

Funny.. please quote me correctly. I said 'may'. And the show isnt over yet...$USD is knocking on the door of a new powerful trend...

I MAY have to go back and check your verbage. Insert smiley here please.

zoog
05-14-10, 06:16 PM
“I’m new here and missed iTulip’s arguments about gold over the previous nine years. Too late to buy gold now?”

We've received this question regularly since 2001, when gold traded at $400, $600, $800, $1000 and expect we'll keep hearing it asked.

The question is itself problematic. Buying gold is not like buy stock in Apple Computer, or even like buying a commodity like oil or copper.

A rising stock price reflects the improving earnings prospects of a firm. A rising commodity price reflects either declining commodity supply relative to demand, or declining demand for the currency in which that commodity is traded relative to the supply of that currency, or both. Gold is more complex because it additionally acts as a currency itself (See The Fourth Currency (http://fourthcurrency.com)) For this reason gold acts as wealth insurance, specifically hedging the impact of excessive government indebtedness on the purchasing power of financial assets. The question “Is it too late to buy gold” is like asking whether it’s too late to insure one’s home against fire. After the fire, yes it is.

The original buy gold call was "before my time", and even after discovering iTulip sometime late in 2006, I debated with myself about whether or not it was worth it to buy gold in one form or another. I dipped my toes in the water but nothing significant.

In late summer 2008, EJ had posted that gold would not fall below approximately $780. That fall, some iTulipers squabbled about whether or not that was a good call, as gold sometimes dropped to the low 700's. I decided "close enough", and made three separate purchases; two when gold was about $780, and one when gold was about $720.

I chose to buy GTU so the ups and downs were a little different than actual bullion. Far and away the best investment decision I've ever made (most have ended up flat or a loss, it seems :eek:). My GTU investment in that account is up about 70%. I had previously purchased CEF, at various prices, and that is up about 35%.

Wealth preservation is a core tenant of iTulip. I giggle to even use the word "wealth" to describe what I have but nonetheless, I still want to hold onto it! Despite how nice those percentages look, I know when it's all said and done, and iTulip gives the sell gold call, I will roughly end up with the purchasing power of my original investments. Better than ending up with less, I say.

metalman
05-14-10, 06:18 PM
Shouldn't this post go into your gold to drop below 1,000 thead? Or the gold to drop below 800 thread? Or the .........

eh... you no likey icm's previous calls?

http://i41.tinypic.com/ad2cer.jpg

jtabeb
05-14-10, 06:22 PM
www.bulliondirect.com (http://www.bulliondirect.com)

50% gold /50% Silver by dollar purchase amount, Physical BULLION ONLY!!! (If you have $10K then, by my book, you should be $5K gold, $5K silver).
Coins better than bars, .999% pure or better.

I've done a wee bit of business over the years and they have always been outstanding. (They will even hold it for you in their vault, and you can later choose to get physical delivery).

(Okay, Okay, maybe a lot more than a wee bit of business) ;)

icm63
05-14-10, 06:26 PM
Metalman..

In my defense..$USD doing just fine...
http://www.itulip.com/forums/showthread.php?13516-USD-may-have-legs

My crime is that I may be early on the Gold thoughts...

metalman
05-14-10, 06:36 PM
Metalman..

In my defense..$USD doing just fine...
http://www.itulip.com/forums/showthread.php?13516-USD-may-have-legs

My crime is that I may be early on the Gold thoughts...

all respect, my friend... you have a record of calling for dollar rallies & gold corrections that don't materialize... a contrarian among contrarians... i salute you!

http://i42.tinypic.com/nvuyi1.gif

icm63
05-14-10, 06:47 PM
.."dollar rallies"..

I see nothing, I see nothing....Sgt Schultz

metalman
05-14-10, 07:19 PM
.."dollar rallies"..

I see nothing, I see nothing....Sgt Schultz

dollar up over eu shit storm...

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=line&graph_id=0&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23B3CDE7&graph_bgcolor=%23FFFFFF&txtcolor=%23000000&ts=8&preserve_ratio=true&fo=ve&id=DTWEXM&transformation=lin&scale=Left&range=Custom&cosd=2010-01-02&coed=2010-05-07&line_color=%230000FF&link_values=&mark_type=NONE&mw=4&line_style=Solid&lw=1&vintage_date=2010-05-14&revision_date=2010-05-14&mma=0&nd=&ost=&oet=&fml=a

gold, also...

http://www.kitco.com/LFgif/au2010.gif

unlucky
05-14-10, 08:11 PM
The original buy gold call was "before my time", and even after discovering iTulip sometime late in 2006, I debated with myself about whether or not it was worth it to buy gold in one form or another. I dipped my toes in the water but nothing significant...

My experience with this site has been similar to yours, Zoog. I first came across it around 2005/2006. At the time my peers were borrowing heavily to invest in property, or to buy cars and foreign holidays. Banks were actively encouraging borrowing for any purpose whatsoever. I inquired about borrowing a modest 20,000 euros to top up a business investment and I was offered 50,000 no questions asked and no security required.

I didn't take it. The world seemed to have gone mad - or was I the crazy one? Then by accident I discovered this site and finally found a coherent explanation for what was going on. As I read through the material here, I realized that a) I was not crazy, and b) the world was heading for deep shit. Nevertheless I remained a little skeptical because I felt that some of the material here was a little doomerish / conspiracy theory oriented, and anyone who uses the web learns to take such material with a pinch of salt.

Then in mid-2007 those two Bear Sterns hedge funds went belly up, rumours of big problems with MBS started spreading widely, in August iTulip warned of an impending collapse and a few days later the story broke on the MSM when the ECB launched massive intervention to save the banks. I was stunned. There are lots of websites warning of some future disaster in one form or another, but iTulip is the only place I have come across that warned of an imminent major catastrophe that actually happened.

After that I started building up my position in Au to the recommended 33% of liquid. I'm not particularly wealthy but at least I know that this portion of the wealth I've earned is protected. I worry a lot about the other 66%. But most of all I get frustrated when the price jumps suddenly and I am looking at fewer oz per euro for my earnings next quarter :)

I think the task of iTulip has become much more challenging in recent times because the authorities have now recognized the existence of a threat to the regime, and they are responding to it in both word and deed. It was easier to predict what would happen next when the player on the other side of the chessboard was apparently asleep. The authorities have been awake since 2008, they have limited options due to the mistakes made in the past, but their activities may also become more erratic as the situation grows more serious.

icm63
05-14-10, 08:19 PM
re read what I said dude..

USD rally may force gold holders to bank some profits as they see the $USD strength may have leggs... The countries pegged to the $USD have been buying gold for years. The $USD is going up, soon the will bank profits as they realise this. Large funds want to own gold, and to get it at better prices is to force a sell off, getting $USD to new year on year highs might just do that. A serious world inflation problem is not in the near term, but a fews years down the track a period of $USD strength is just whats need to loosen your tight hands on your gold stash...


In my defense, the $USD will reach A POINT when gold rally attracks large profit taking...

In your defence, so may the $USD rally reach a point for a sell off..

ThePythonicCow
05-14-10, 09:43 PM
www.bulliondirect.com (http://www.bulliondirect.com) Interesting ...

Can anyone compare BullionDirect (Austin, TX) with APMEX (Oklahoma City, OK)? I'm about half-way between them, near Dallas, and have been using APMEX.

I've been happy with APMEX but if I had good reason, could switch.

Does anyone know of a similarly good dealer in the Dallas area? I like the idea of being within driving distance for some situations.

LargoWinch
05-14-10, 09:48 PM
Interesting ...

Can anyone compare BullionDirect (Austin, TX) with APMEX (Oklahoma City, OK)? I'm about half-way between them, near Dallas, and have been using APMEX.

I've been happy with APMEX but if I had good reason, could switch.

Does anyone know of a similarly good dealer in the Dallas area? I like the idea of being within driving distance for some situations.

Well, 1,073 miles is not exactly close, even for a flying Cow, but they sure are funny! (I highly suggest sampling a podcast when both Eric and Joe are on; they are good).

http://allamericangold.com/index.html

Too bad they won't ship to Canada. :(


PS: I have no affiliation with them; I am just a podcast PTG fan.

jtabeb
05-14-10, 10:41 PM
You don't have to worry about the other 66% you know, you can just as easily choose to put them where the other 33% are. (And yes you do indeed sleep better, trust me, okay?) ;)

thriftyandboringinohio
05-14-10, 11:00 PM
Thank you, EJ.

jtabeb
05-14-10, 11:48 PM
I think you should revisit your own article here.

http://www.itulip.com/forums/showthread.php?9707-Everyone-is-wrong-again-%E2%80%93-1981-in-Reverse-Part-I-The-Great-Divide-%E2%80%93-Eric-Janszen

It is very, VERY GOOD. I think you lose sight of it too often. I think you had it EXACTLY correct in that article. (And present day circumstances seem to provide AMPLE evidence towards it's validity).

If you take what Bill Black says, and what you say in "Everyone is wrong again, 1981 in reverse" and do a little thought experiment, where does that leave us?

Well, for MY MONEY (My GOLD and SILVER Money err, currency, that is). This guy completes your thoughts and takes the thought experiment to it's logical conclusion.

I Highly recommend that you all give this a read (for what it's worth).

(I know, I know, can't happen, won't happen, blah, blah, blah)

For all of you arguing the above, Give me a cogent argument why it WON'T HAPPEN, given what we observe in government policy action today.

C'mon, GO AHEAD. TELL ME. What exactly is going to stop this train wreck BEFORE the onset of hyper-inflation? Not a failed bond auction, certainly. Not a failure to monetize bad assets and debts. And there is no political will to reform the system or rein-in BLATANT criminal activity and accounting fraud (on ALL levels, I might add). So, come on, do your best. Prove Nassim Taleb and the hyper-inflationists wrong.

I Dare you to DO IT! (Because I don't think that it is possible)

And THAT my friends, leaves ONLY THIS:
Gold: The Ultimate Hedge Fund (http://fofoa.blogspot.com/2010/01/gold-ultimate-hedge-fund.html)


http://2.bp.blogspot.com/_cvdgPlEKW9k/S1auDds0pMI/AAAAAAAABBA/njvI6nMkq-0/s400/Hedge_fund.jpg (http://2.bp.blogspot.com/_cvdgPlEKW9k/S1auDds0pMI/AAAAAAAABBA/njvI6nMkq-0/s1600-h/Hedge_fund.jpg)


http://fofoa.blogspot.com/2010/05/hair-of-dog.html

There are some clever deflationists that will tell you that the dollar is going to rise in value giving Ben, Tim, Barack and the entire DC gang a lengthy free lunch, all because of the giant debt overhang in the economy that backs the US dollar. The thinking goes something like this. The world is full of debt. The dollar is backed by this debt, and is therefore balanced by it. As long as the debt remains, it must be serviced with dollars which drives up the demand for dollars, and therefore the value of dollars. If the service of the debt starts to fail then the dollar will start to fall making the service of the debt easier (with cheaper dollars) and the service will then resume, raising the dollar back up. I call this the see-saw theory...

The problem is, you see, the biggest debtor of all is the very printer of the currency all that debt is denominated in. And this debtor is now picking up ALL of the slack left behind by everyone else. Only his debt service will never fail, because he can print that service with the click of a mouse. And since he doesn't have to seek dollars on the open market, his debt has the OPPOSITE effect of all other debt. Instead of driving up demand for the dollar, it drives it down (and drives up supply at the same time)!

Normal debt = dollar demand up, dollar supply down.
US Fed Gov't debt = dollar demand down, dollar supply way up!

As the dollar starts to fall in value, this has no effect whatsoever on the ability of the world's biggest debtor's ability to service it, and therefore has no see-saw-leverage effect that raises the value of the dollar back up. Instead, it has the exact OPPOSITE effect... once again. Because now this biggest debtor must print even MORE dollars to suck in the same SUBSTANTIAL AMOUNT of the real economy at ZERO cost.

And here is another way I illustrated this effect in pictures...

This first diagram shows how private debt service, private reinvestment and productive enterprise normally act as a counter-cycle to credit-based inflation. But the only way it works under the global dollar reserve system is for the debt hole to grow infinitely deeper while the accumulation of paper bonds and bills is piled infinitely higher. There is no balance or reset mechanism in place. Only catastrophic collapse:

http://4.bp.blogspot.com/_cvdgPlEKW9k/S-yf_ref58I/AAAAAAAABKw/PY_vujvtGio/s400/Debt_Cycle.jpg (http://4.bp.blogspot.com/_cvdgPlEKW9k/S-yf_ref58I/AAAAAAAABKw/PY_vujvtGio/s1600/Debt_Cycle.jpg)
This next diagram shows in a simple picture what happens when the private debtor fails to keep up with infinite expansion. This is Greece as well as your neighbor that lost his house. Once you remove the private counterbalance the Fed must pick up the slack. Notice that there is no longer a counter-rotational flow:

http://1.bp.blogspot.com/_cvdgPlEKW9k/S-yf_ENW2eI/AAAAAAAABKo/-I0HGtiHG9s/s400/Debt_Cycle_2.jpg (http://1.bp.blogspot.com/_cvdgPlEKW9k/S-yf_ENW2eI/AAAAAAAABKo/-I0HGtiHG9s/s1600/Debt_Cycle_2.jpg)
This next diagram shows about where we are today. We are monetizing the failing debt. We are replacing credit money with base money, and the US federal deficit is the enabler of this process. As FOA said:

My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationist get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms!"

http://3.bp.blogspot.com/_cvdgPlEKW9k/S-yf-pz2PWI/AAAAAAAABKg/6KjV3L4zvFU/s400/Debt_Cycle_4.jpg (http://3.bp.blogspot.com/_cvdgPlEKW9k/S-yf-pz2PWI/AAAAAAAABKg/6KjV3L4zvFU/s1600/Debt_Cycle_4.jpg)
At some point soon, in between the above diagram and the next one, the markets are going to repudiate any more dollar debt in recognition of what is unfolding. This event will propel us into this last diagram as the Fed will be forced to print every last dollar spent by the US federal government, and that's a lot of dollars. This diagram represents Weimar Germany in the 1920's, Zimbabwe in the 2000's and the USA in the 2010's:

http://4.bp.blogspot.com/_cvdgPlEKW9k/S-yf-e4Q55I/AAAAAAAABKY/2xwnf1z_idw/s400/Debt_Cycle_5.jpg (http://4.bp.blogspot.com/_cvdgPlEKW9k/S-yf-e4Q55I/AAAAAAAABKY/2xwnf1z_idw/s1600/Debt_Cycle_5.jpg)
(The above diagrams came from my post Greece is the Word (http://fofoa.blogspot.com/2010/02/greece-is-word.html))

A little "hair of the dog" I'd say. Or maybe a little too much "hair of the dog".

jtabeb
05-15-10, 12:10 AM
More perspective for those that are lacking.

http://ftalphaville.ft.com/blog/2010/05/14/232151/rosenberg-gold-is-now-in-a-bubble-not-a-chance/

AND

http://www.breakingviews.com/2010/05/13/Gold.aspx?sg=false

gnk
05-15-10, 01:30 AM
...and the dollar has been subsumed into a multi-lateral currency system.

I'm assuming you are referring to the potential (or in the workings) emergence of the SDR here? (Or a similar global monetary scheme)

And thus, the end of dollar hegemony? If so, would this not affect our "exorbitant privilege" as the Euros would say - thus making oil, if not most imported resources much more expensive? What would the subsequent inflationary aspects be if we could no longer export our inflation as much as we used to? I would assume rather problematic.

gnk
05-15-10, 01:49 AM
hey jtabeb - are you also familiar with Antal Fekete?

Here's an interesting short read:

http://www.professorfekete.com/articles/AEFPositionPaper1.pdf

Andreuccio
05-15-10, 03:07 AM
I find pricing to be better on BD.

Chris Coles
05-15-10, 03:39 AM
This is a little like watching a War Game; but the war is being fought between national currencies. At the moment, the US Investment banks are winning hands down with the $US gamely fighting to subdue the rest of the planet; particularly the Euro. But we all know that the $US has an especially weak flank and sometime soon someone is going to marshal sufficient forces to drive a coach and horses through into the next phase of the war. No graph goes up forever.

Chris Coles
05-15-10, 03:46 AM
Interesting ...

Can anyone compare BullionDirect (Austin, TX) with APMEX (Oklahoma City, OK)? I'm about half-way between them, near Dallas, and have been using APMEX.

I've been happy with APMEX but if I had good reason, could switch.

Does anyone know of a similarly good dealer in the Dallas area? I like the idea of being within driving distance for some situations.


Come on Wriggly; what you really mean is you want to be first in the queue to find out if the AU is really there and if not, to be able to catch up with the truck running off with it.

Pascal
05-15-10, 07:46 AM
As this article rightly discusses, the key question is when to sell.

Jim Sinclair has had some interesting observations on that. Jim thinks that the dollar will be replaced by a new currency and that there is a good chance that its replacement will need to be at least loosely linked to some tangible asset since confidence in pure fiat will be shattered. An example might be France after one of its great fiat inflations. To restore confidence it issued a new currency backed by land that the government stole from the church if I recall correctly. In our case, gold would be the most obvious choice. It's internationally accepted, we supposedly have lots of it (and whatever amount the government says we have will be accepted -- forget about an audit), and at the right nominal price the amount we say we have could back lots of currency.

If this occurred then there would be no price collapse such as happened in 1980. Instead gold would trade in a band around a floating value linked to the amount of currency and/or debt issued.

Alternatively, there are plenty of examples of countries successfully replacing failed currencies with new ones backed simply by stronger promises to not over-inflate. Germany in the 1920s might be an example of this. In such a situation PM prices presumably would fall hard immediately after the new currency announcement if the government's promises were widely accepted.

Looking at it purely from a PM standpoint, I hope it goes the way Jim Sinclair speculates. Otherwise timing the exit will be critical and will be a game of some chance -- even if iTulip manages to give us an ace hole card :)

gnk
05-15-10, 09:13 AM
As this article rightly discusses, the key question is when to sell.

Jim Sinclair has had some interesting observations on that. Jim thinks that the dollar will be replaced by a new currency and that there is a good chance that its replacement will need to be at least loosely linked to some tangible asset since confidence in pure fiat will be shattered. An example might be France after one of its great fiat inflations. To restore confidence it issued a new currency backed by land that the government stole from the church if I recall correctly. In our case, gold would be the most obvious choice. It's internationally accepted, we supposedly have lots of it (and whatever amount the government says we have will be accepted -- forget about an audit), and at the right nominal price the amount we say we have could back lots of currency.

If this occurred then there would be no price collapse such as happened in 1980. Instead gold would trade in a band around a floating value linked to the amount of currency and/or debt issued.

Alternatively, there are plenty of examples of countries successfully replacing failed currencies with new ones backed simply by stronger promises to not over-inflate. Germany in the 1920s might be an example of this. In such a situation PM prices presumably would fall hard immediately after the new currency announcement if the government's promises were widely accepted.

Looking at it purely from a PM standpoint, I hope it goes the way Jim Sinclair speculates. Otherwise timing the exit will be critical and will be a game of some chance -- even if iTulip manages to give us an ace hole card :)

Good observation Pascal.

I agree with your point. I was just going to add that to my question above. I don't think the new global monetary regime is totally hashed out yet - nonetheless, the issue is being discussed much more openly and much more often. To me, that means a transition may be in order sooner than originally planned. Both EJ and Jim Rickards seemed to have observed this and I would agree.

That said, I agree that should gold make it into this basket of currencies, at a high valuation, then it may become a permanent store of value at such a valuation - thereby making the exity strategy and timing of such a moot point. I don't rule out this scenario.

In the alternative, influential elements in the US or EU may decide to ignore this global push and use some sort of gold backing in their own currencies. That would likely involve a high valuation of gold, with the same consequences for gold investors.

c1ue
05-15-10, 09:16 AM
Funny.. please quote me correctly. I said 'may'. And the show isnt over yet...$USD is knocking on the door of a new powerful trend...

This trend is going to last at most until July. If Greece showed the euro Emperor had no clothes, in summer the States will reveal King Dollar has no clothes.

As we speak California lurches towards yet another $20B deficit; for a presently $84B budget with $60B in previous deficits, this is quite serious.

A Latvia style state austerity regime means tens, if not hundreds, of thousands of laid off state government employees and or 30% cuts in pay on top of previous cuts.

And how will that affect the CA economy?

The other JIMy COFFas are right behind.

The difference is that Greece is like Nevada in size, but California combines Greece's problems with Spain's size. And there ain't no German pot of gold to steal from.


Jim thinks that the dollar will be replaced by a new currency and that there is a good chance that its replacement will need to be at least loosely linked to some tangible asset since confidence in pure fiat will be shattered.

I disagree with this. A tie-in of the existing dollar to a tangible commodity is out of the question due to the Ponzi nature of the debt. A new currency doesn't change this; only if the old currency is destroyed (i.e. all present savings destroyed) would said new currency be useful in any way.

And if the attitude in http://www.itulip.com/forums/showthread.php?15389-The-alternate-view-Confessions-of-a-Wall-Street-Nihilist/page3 is correct - and I personally believe it is - then there will be luge runs in Hell before the US governing elite voluntarily does this.

gnk
05-15-10, 09:23 AM
I disagree with this. A tie-in of the existing dollar to a tangible commodity is out of the question due to the Ponzi nature of the debt. A new currency doesn't change this; only if the old currency is destroyed (i.e. all present savings destroyed) would said new currency be useful in any way.

And if the attitude in http://www.itulip.com/forums/showthread.php?15389-The-alternate-view-Confessions-of-a-Wall-Street-Nihilist/page3 is correct - and I personally believe it is - then there will be luge runs in Hell before the US governing elite voluntarily does this.

If you believe in the characterization of "ponzi nature of debt", then you must also admit that all ponzi schemes ultimately fail. Which would include the current system. Thus, in my view, the dollar would have to go back to a gold backing of sorts to retain credibility.

Basically, your saying that going to gold will kill the ponzi nature of debt.... but isn't that fiat debt scheme already terminally ill? Is it not a moot point?

unlucky
05-15-10, 09:29 AM
You don't have to worry about the other 66% you know, you can just as easily choose to put them where the other 33% are. (And yes you do indeed sleep better, trust me, okay?) ;)

I have been tempted to do that, and I do understand the rationale behind it :) Hyperinflation is a possible outcome but as someone with only passing knowledge of financial matters I find I cannot reach any definite conclusions about it.

On the whole I appreciate the measured approach advised by EJ taking due regard of the many uncertainties we face. I will probably increase towards 50% once things calm down for a while.

xela
05-15-10, 11:16 AM
Nothing goes up in a straight line...
But the USD/EUR can?
Look, failure to bring back down gold in usd (good luck with that, sans CB selling) means they have to squeeze the euro shorts, euro-gold is now parabolic.

jtabeb
05-15-10, 11:22 AM
What if things don't calm down?

metalman
05-15-10, 11:22 AM
But the USD/EUR can?
Look, failure to bring back down gold in usd (good luck with that, sans CB selling) means they have to squeeze the euro shorts, euro-gold is now parabolic.

gold rising in all currencies... gold is the only appreciating currency...

charts from 4th currency site... http://fourthcurrency.com/...




http://www.research.gold.org/assets/image/research/img/charts/dailyshort_1.gif
Gold in US dollars daily


http://www.research.gold.org/assets/image/research/img/charts/dailyshort_2.gif
Gold in EU euros daily


http://www.research.gold.org/assets/image/research/img/charts/dailyshort_3.gif
Gold in Japanese yen daily


http://www.research.gold.org/assets/image/research/img/charts/dailyshort_4.gif
Gold in British pound sterling daily

jtabeb
05-15-10, 11:26 AM
From my post above

"debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationist get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms!"

vinoveri
05-15-10, 12:28 PM
So fiat currencies go down and confidence in them wanes in accelerated fashion, and gold shoots upwards of $5,000.

Governments agree on a new currency system, which may involve gold, but as a pre-requisite for the new system (as in 1933), gold bullion ownership by private citizens is banned once again for the 'good' of all, and everyone is required to exchange their gold (at the banks of course) for fiat money, and then a devaluation of the currency occurs.

So how does one prepare for this eventuality? I for one don't think the governments are going to let a handful of those perspicaceous folks who bought and hoarded gold (and who they can blame for the collapse of fiat currencies ) to profit from their foresight.

xela
05-15-10, 01:12 PM
No disagreement, metalman, not sure how exactly it relates to my answer to icm63, tho.

jtabeb
05-15-10, 01:33 PM
So how does one prepare for this eventuality? I for one don't think the governments are going to let a handful of those perspicaceous folks who bought and hoarded gold (and who they can blame for the collapse of fiat currencies ) to profit from their foresight.


Have faith, hope for the best and work to make the world a better place.

What else can you do?

I would point out that this really wouldn't be for the "good of all", now would it? It would be for the good of a FEW (who got us into this mess in the FIRST PLACE) at the expense of everyone else in the world. If you don't like that outcome, FIGHT against it! Don't just sit there and accept it.

(It's not enough to point out the problems in the world, you have to find solutions to all of these problems and get the solutions to the point of realization. Getting those solutions realized is the HARD part, they are easy to come up with.)

c1ue
05-15-10, 01:50 PM
Basically, your saying that going to gold will kill the ponzi nature of debt.... but isn't that fiat debt scheme already terminally ill? Is it not a moot point?

No, because thinking the transition from existing currency to the new one is possible without a 'cleaning out' of the previous currency's stored value means that the existing government won't ever do it.

The Ponzi nature of debt means in turn a Ponzi nature of government unless a leader emerges who is willing to pay the price to guide through the incredibly painful transition.

Obama's cynical devouring of America's 'hope' has likely destroyed any chance of this.

Hence JT's investment strategy makes much more sense today than it did in the fall of 2008.

The point about 'nihilist' is that no government composed of FIRE-servant, weasel politicians will voluntarily undergo the wrenching societal upheaval associated with fixing the system.

jtabeb
05-15-10, 02:22 PM
Hence JT's investment strategy makes much more sense today than it did in the fall of 2008.



Yes but I made the exact same justification then, as I do know. (It's just that no one believed me at the time.) I believed me, so to me at least, it made just as much sense then as it does now.

vinoveri
05-15-10, 03:19 PM
Have faith, hope for the best and work to make the world a better place.

What else can you do?

I would point out that this really wouldn't be for the "good of all", now would it? It would be for the good of a FEW (who got us into this mess in the FIRST PLACE) at the expense of everyone else in the world. If you don't like that outcome, FIGHT against it! Don't just sit there and accept it.

(It's not enough to point out the problems in the world, you have to find solutions to all of these problems and get the solutions to the point of realization. Getting those solutions realized is the HARD part, they are easy to come up with.)

Respectfully, one man's faith, hope, and good works, are another's superstition, blind optimistm, and misdirected sentimentality paving the way to meddlsome butt-inski-ism. Remember, Goldman Sachs and many others think they are doing God's work. The road to hell is paved ... and all that ...

My question still stands. You say convert your assets to PM, and I'm sympathetic to doing that in a more measured fashion, but I simply ask, what are you doing (or will do) to mitigate the potential of confiscation/taxation. I am simply pointing to a potential problem with PM strategy in the long run. If you haven't thought that far, fair enough, but,and I may be wrong, I doubt you bought your PM based on your faith, hope, and trying to make the world a better place?

shiny!
05-15-10, 04:59 PM
Interesting ...

Can anyone compare BullionDirect (Austin, TX) with APMEX (Oklahoma City, OK)? I'm about half-way between them, near Dallas, and have been using APMEX.

I've been happy with APMEX but if I had good reason, could switch.

Does anyone know of a similarly good dealer in the Dallas area? I like the idea of being within driving distance for some situations.

Not w/in driving distance to you, but check out Tulving and Colorado Gold. Don't forget to factor in shipping costs when you compare.
www.tulving.com (http://www.tulving.com) and www.coloradogold.com (http://www.coloradogold.com)

I wish I could afford their minimums.

c1ue
05-15-10, 07:45 PM
Yes but I made the exact same justification then, as I do know. (It's just that no one believed me at the time.) I believed me, so to me at least, it made just as much sense then as it does now.

And again, I've never said your decision wasn't good for you.

I merely pointed out that there are other options than going 3G (guns, gold, groceries).

Looking at historical examples of fiat currency failure and/or hyperinflation - staying IN the country has never been the optimal choice.

Because staying in the country means all the laws aimed at redistribution as well as fiat reinflation fully apply to you.

gnk
05-15-10, 09:19 PM
So fiat currencies go down and confidence in them wanes in accelerated fashion, and gold shoots upwards of $5,000.

Governments agree on a new currency system, which may involve gold, but as a pre-requisite for the new system (as in 1933), gold bullion ownership by private citizens is banned once again for the 'good' of all, and everyone is required to exchange their gold (at the banks of course) for fiat money, and then a devaluation of the currency occurs.

So how does one prepare for this eventuality? I for one don't think the governments are going to let a handful of those perspicaceous folks who bought and hoarded gold (and who they can blame for the collapse of fiat currencies ) to profit from their foresight.

Would you rather own worth-less stock or worth(much)less paper dollars, than something worth much more, yet taxed much higher?

We all get to choose our poison - yet I do subscribe to diversification to an extent. Disclosure: I am mostly in cash, metals ETFs, and Gold.

I am leaning towards the view that in the upcoming years, there will be such a catastrophic destruction of wealth (think Exter's pyramid) that governments will not (over)confiscate gold, if at all, as it will be one of the few remaining "seeds" of wealth for future growth in the private sector.

Another argument: the plutocrats are not new to gold. Their accumulations probably rival those of emperors past. I would think they would have a say in how gold is taxed in the future.

Invest like these Giants do, and you will share in their fate. Or would you rather prefer to share in the investment fate of the remaining 95% of the population? Take your pick.

And one more, yet less likely scenario: gold effectively is remonitized. That is, you go to a bank, any bank, and exchange your gold for redenominated dollars. This would shift gold ownership back into the banking sector, as it used to be. This is a scenario I thought of when I was analyzing the possibly reasons for India and China to engage in a "gold ownership society" promotion. Something's up.

jtabeb
05-15-10, 09:45 PM
"I doubt you bought your PM based on your faith, hope, and trying to make the world a better place? "

Actually, I did for that very reason, I just see nothing wrong with getting rich WHILE making the world a better place at the SAME TIME! (and If you doubt that rejecting authority that treats you unjustly can cause real and meaningful change, I think you should talk to Rosa Parks).

And I did "get that far" r.e. taxes, unfairness, injustice, etc.. It's simple, we all just work together to restructure the entire world's financial and monetary system, That's it. How 'bout that, is that far enough for ya? (A bunch of independent agents acting collectively in the world market place, to make change happen when there is neither the political will to so and to restore justice to the financial system). What's not to like: Get rich AND make the world a better place. We do what I outline below, and we accomplish BOTH!


Here is my plan exactly to deal with the problems you bring up (and reform the system and end corruption):

http://www.itulip.com/forums/showthread.php?15075-If-you-REALLY-WANT-TO-FIX-THINGS...

And so, my fellow Americans: ask not what your country can do for you—ask what you can do for your country.
My fellow citizens of the world: ask not what America will do for you, but what together we can do for the freedom of man.
Finally, whether you are citizens of America or citizens of the world, ask of us the same high standards of strength and sacrifice which we ask of you. With a good conscience our only sure reward, with history the final judge of our deeds, let us go forth to lead the land we love, asking His blessing and His help, but knowing that here on earth God's work must truly be our own.

So what is this wonderful solution? The one that singly, no one could succeed with, but collectively, would be unstoppable.

Perhaps I'm getting ahead of myself. You see it is no good proposing solutions if you don't know what the problem is.

So what is it then, our problem. Not the SYMPTOMS, but the true and real cause, the ROOT CAUSE, as it were?

Well if you've read up on the history of monetary inflation in the French Republic, I think you'll find your answer.

In it, you will find all of the symptoms that our failing society displays today.

If you doubt my claim, please read this short work and TELL ME, what symptoms do we have now that did not exist then? I would argue, NONE. Our society is exhibiting ALL of the problems, ALL of the fears that brought down that once new, once great creation of men's minds, the republic.

http://books.google.com/books?id=jSt...age&q=&f=false (http://books.google.com/books?id=jStx9gEb6cUC&dq=fiat+money+inflation+in+france&printsec=frontcover&source=bn&hl=en&ei=QbK6S93LNYiC9ASL4tyBCA&sa=X&oi=book_result&ct=result&resnum=4&ved=0CBgQ6AEwAw#v=onepage&q=&f=false)

If the symptoms are the SAME, what was the proximate cause?

Can you guess?

Yes, Inflation.

I will let you find the proof of this in your own comparison of the symptoms then versus our symptoms now. What is illuminating however is the fact that the author goes to great lengths to establish the cause of these symptoms.

What I advocate is what I like to call "The Trading Places" strategy.

Not this

<object height="385" width="480">


<embed src="http://www.youtube.com/v/5MF6AtI2dpA&hl=en_US&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="385" width="480"></object>

THIS

<object height="385" width="480">


<embed src="http://www.youtube.com/v/_gekaEzqj5g&hl=en_US&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="385" width="480"></object>

Everybody lives, nobody dies (Randolph is okay in the end) no shots get fired.

How to accomplish this wonderful feat? Simple, it's just a variation on the old Alchemists dream. Instead of Lead, we just turn PAPER into physical gold and silver, that's all. (All of it, into all of it). No stocks, no bonds, no futures, no cash. All of your savings, all of your investments, aside from what you need to survive on. That's all. It's that simple. Fix the root cause of the money disease and the symptoms disappear. And they go away FOREVER, and it can be done in a DAY.

The corruption machine dies it's proper death, and we get to start again, the way it was supposed to be. A real economy for real people limited by productive capacity and not subject to that which is well-intended but ultimately fails due to man's unquenched thirst for avarice. A linear system bounded by linear resources, not an exponential system that is rushing head-long into a finite-resource wall that emperils us all. We either fight to the death over the worlds remaining resources, or we scale back, and find a new way forward that allows us to progress at a linear pace.

The money system is the key. Without it, the abuses and corruption that we have now would not be possible. The TBTF's, TARPS, EXECUTIVE COMPENSATION, WARS, they all go away. Starve the beast is the essence, but let's make sure of what we WANT to starve.

It is the things that degrade, divide and destroy our society. Not the things that provide comfort to the afflicted. Not things that make our society grow and prosper and provide opportunity, compassion, and happiness.

The speech below by Francisco D'Anconia in Ayn Rand's "Atlas Shrugged" says all that needs to be said. We are, right now, living in the world described below. Together we posses the power to put and end to this horrible mutation called a financial system. But ONLY together can we accomplish this task.

I've read the book, and there is only on flaw in her logic that I can detect and that is on the subject of the individual. You see, she argues (and I bought, for a time) that we are each individually responsible for everything in our own lives. We determine our own success or failure. This is true except for one CRITICAL POINT. What determines each of us? She implies that we are each the sum total of what we were born with. She is incorrect. We are each a product of all of those that made an IMPACT in our lives. Their COLLECTIVE ACTION molds who we are. It can be positive, allowing us to achieve our full God given potential. Or it can be negative, holding back our development to the lowest subsistence level existence or worse, MUCH worse. It can turn us into animals that feel no human grace, empathy or emotion. This happens not because of the people that we are, but because we were prevented from developing into the people we were SUPPOSED to be.

I'm well and truly blessed. All my bumps and knocks were ALL in the right direction. I don't know how or why it happened that way, only that it did.

So I would ask you to make an active choice and decide what kind of world you truly want to live in. And, to understand that choices have consequences. Failing to ACTIVELY Choose one, will lead DIRECTLY TO THE OTHER.

That is our CHOICE. Choose, or it will be chosen for you. Chose well, however. Because you only get to make this choice once. An opportunity exists to allow you the leisure of time, but time doesn't last for ever.

So choose, and I hope you chose with me. Tomorrow is another day but there might not be another tomorrow.

(Oh, and here is why it only takes a day)

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pococansado
05-15-10, 10:08 PM
Does anyone know of a similarly good dealer in the Dallas area? I like the idea of being within driving distance for some situations.

google dillon gage. they had a walk-in retail desk a couple of years ago. decent inventory, good pricing, big operation.

Shakespear
05-16-10, 04:33 AM
jtabeb

Thanks for refering us to the book Fiat Money Inflation in France.

http://www.scribd.com/doc/13599566/Fiat-Money-Inflation-in-France-How-it-Came-What-it-Brought-and-How-it-Ended-1914

That is a great find !!!

I am currently reading about the French Revolution and this book is looking to be both interesting and relevant to what is happening today.

This part from the Introduction hits the head on the nail.



The story of "Fiat Money Inflation in France" is one of
great interest to legislators, to economic students, and to
all business and thinking men. It records the most gigantic
attempt ever made in the history of the world by a government
to create an inconvertible paper currency, and to
maintain its circulation at various levels of value. It also
records what is perhaps the greatest of all governmental
efforts with the possible exception of Diocletian's to
enact and enforce a legal limit of commodity prices. Every
fetter that could hinder the will or thwart the wisdom of
democracy had been shattered, and in consequence every
device and expedient that untrammelled power and unrepressed
optimism could conceive were brought to bear.
But the attempts failed. They left behind them a legacy
of moral and material desolation and woe, from which one
of the most intellectual and spirited races of Europe has
suffered for a century and a quarter, and will continue to
suffer until the end of time. There are limitations to the
powers of governments and of peoples that inhere in the
constitution of things, and that neither despotisms nor
democracies can overcome.

Legislatures are as powerless to abrogate moral and economic
laws as they are to abrogate physical laws. They
cannot convert wrong into right nor divorce effect from cause,
either by parliamentary majorities, or by unity of supporting
public opinion. The penalties of such legislative folly
will always be exacted by inexorable time.
And this was written in 1914 !!!!!
Correction:

The present edition is not published, but simply privately
printed for his and my own personal use, with reference
to a future edition definitive. No copies of this present
edition will be offered for sale under any circumstances.
ANDREW D. WHITE,
Cornell University, September, 1912.
This book is a Diamond :-)

I got curious regard what were some great events in 1914. Here we have some :-)

<big>Major Events of 1914

Ford Motor Company announces an 8-hour working day, paid at a minimum, $5 per day.

First World War (http://www.fun4birthdays.com/remote/index.php?pfm=books&pfs=first+world+war) begins when Austro-Hungary mobilizes against Serbia (http://www.worldtravelguide2.com/serbia.php) after Archduke Franz Ferdinand is assassinated in Sarajevo (http://www.fun4birthdays.com/remote/index.php?pfm=books&pfs=Sarajevo).

USA (http://www.vacation2usa.com/) and Panama (http://www.worldtravelguide2.com/panama.php) sign Panama Canal Treaty.

Last known Passenger Pigeon (http://www.fun4birthdays.com/remote/index.php?pfm=books&pfs=Passenger+Pigeon) dies in Cincinnati Zoo (http://www.vacation2usa.com/p1_state_ohio_attractions_cincinnati_zoo_and_botan ical_garden.php).

Federal Reserve (http://www.fun4birthdays.com/remote/index.php?pfm=books&pfs=Federal+Reserve) Bank of the United States (http://www.vacation2usa.com/) opens.
</big>

Chris Coles
05-16-10, 05:17 AM
Together we posses the power to put and end to this horrible mutation called a financial system. But ONLY together can we accomplish this task.

I've read the book, and there is only on flaw in her logic that I can detect and that is on the subject of the individual. You see, she argues (and I bought, for a time) that we are each individually responsible for everything in our own lives. We determine our own success or failure. This is true except for one CRITICAL POINT. What determines each of us? She implies that we are each the sum total of what we were born with. She is incorrect. We are each a product of all of those that made an IMPACT in our lives. Their COLLECTIVE ACTION molds who we are. It can be positive, allowing us to achieve our full God given potential. Or it can be negative, holding back our development to the lowest subsistence level existence or worse, MUCH worse. It can turn us into animals that feel no human grace, empathy or emotion. This happens not because of the people that we are, but because we were prevented from developing into the people we were SUPPOSED to be.


JTABEB is absolutely correct. We all have to stand up to be counted and make our own contribution. Some of you will already know of my own input to this part of the debate with previous posts on iTulip that resulted in my contribution which revolves around my free PDF book: The Road Ahead from a Grass Roots Perspective www.chriscoles.com/page3.html (http://www.chriscoles.com/page3.html)

What you will not know is that my thinking on the idea of "Local" Capital Spillway Trust funds; targeting local savings as local equity capital for new private sector job creation has been given to the people. Not not some form of altruism, simply that on my own, it would be impossible to take my thinking forward.

That in turn has caught the eye of the Bank of England who have asked me to carry my thinking into the UK government. More on that as events occur.

Two further thoughts spring to mind about Gold. If you look at the past experience with Roosevelt, the one option left untouched was Gold held by foundations. If you take that and add the idea of creating your own community, (not as a single individual, but as a group of concerned local citizens), "Local" Capital Spillway Trust fund; and place the savings into Gold and ask the recipients of the equity capital, (to create new local jobs), to also pass the savings invested into their new business into Gold, you may have a better solution than simply hanging onto the Gold yourself.

Food for thought?

Pascal
05-16-10, 07:39 AM
So fiat currencies go down and confidence in them wanes in accelerated fashion, and gold shoots upwards of $5,000.

Governments agree on a new currency system, which may involve gold, but as a pre-requisite for the new system (as in 1933), gold bullion ownership by private citizens is banned once again for the 'good' of all, and everyone is required to exchange their gold (at the banks of course) for fiat money, and then a devaluation of the currency occurs.

So how does one prepare for this eventuality? I for one don't think the governments are going to let a handful of those perspicaceous folks who bought and hoarded gold (and who they can blame for the collapse of fiat currencies ) to profit from their foresight.

My guess is that our rulers will not choose to confiscate this time. To get there, as Bill Murray says, you have to get inside the little critters' (politicians) skins and think like they do.

The only time I know of when all gold was confiscated was in the 1930s. Conditions and potential motives are very different today. In the 1930s devaluation there were three objectives. The first was to devalue the dollar so as to reduce the value of outstanding private debt. The second was to save the remaining banks by raising the nominal value of their collateral. Official devalution accomplished these objectives. Today there is no requirement for an official devaluation. It can and is happening freely in the open market constantly. Further, Bernanke and Co. can speed this process up at any time if they choose.

Now, Roosevelt did not have to steal people's gold to devalue. He could have simply declared that all contract clauses specifying gold payment were null and payable only in dollars without adjustment for his 60% plus devaluation. This would have achieved the first two objectives. Doing it this way would have had the added benefit of increasing the public's spending power by 60%. Master planner that he was, Roosevelt presumably believed that the government could spend this wealth more effectively, ergo the confiscation and third reason for what he did. The difference once again is that our devaluation is already occurring. To benefit in the same way Roosevelt did, our politicians would have to confiscate and then devalue again.

We do still have a few constitutional protections so any current confiscation would require paying the current market price. Since any crisis forcing the politicians to restructure the dollar will be fueled by a loss of confidence in fiat, a confiscation and subsequent devaluation would be counter-productive. Devaluations do not restore confidence and restoring confidence in fiat.

With all of that said I do believe that there is a chance of confiscation but for a different reason. If the amount of new currency that can be issued is some multiple of the amount of gold held, then our rulers would have a motive to seize every ounce they could find. The difference, again, is that they would almost certainly have to pay the market price. We would have been largely protected from past inflation and would simply have to find other means of dealing with the future inflation.

Could official manipulation lower that current price some just before a confiscation? Of course. And that would be disgusting as well as unfortunate for late buyers. For early buyers it would not likely make much difference.

One other thought that I think gnk also mentioned. China's rulers appear to be encouraging their citizens to buy PMs. The Chinese know that they will need eventually to raise internal demand. To do this they need a middle class, which is a worthy goal in and of itself. To have a middle class there needs to be some store of wealth and buying power. The Chinese leaders undoubtedly understand the wasting value of Western currencies as well as their own, which is somewhat tied to the dollar. Encouraging gold ownership would help create middle class buying power as existing currency systems fail. How does this affect us? It just might be too politically embarrassing for our leaders to confiscate gold while our main rival, an openly authoritarian one at that, allows free ownership.

You asked: "How does one prepare for the risk of confiscation?" The answer is to be sure you have some for them to confiscate. They will pay the market price.

jtabeb
05-16-10, 10:50 AM
If you take that and add the idea of creating your own community, (not as a single individual, but as a group of concerned local citizens), "Local" Capital Spillway Trust fund; and place the savings into Gold and ask the recipients of the equity capital, (to create new local jobs), to also pass the savings invested into their new business into Gold, you may have a better solution than simply hanging onto the Gold yourself.

Food for thought?

Funny, I have talked extensively with others that hold capital in PMs and have been arguing that when the time is right, we need to pool our resources (metals) and form some kind of capital source that provides funding for development of productive businesses. True capital allocators, as it were, to worthy and productive businesses. This seems to be a great vehicle with which to do that.

My brain likes your food, Chris! ;)

shiny!
05-16-10, 11:00 AM
China's rulers appear to be encouraging their citizens to buy PMs. The Chinese know that they will need eventually to raise internal demand. To do this they need a middle class, which is a worthy goal in and of itself. To have a middle class there needs to be some store of wealth and buying power. The Chinese leaders undoubtedly understand the wasting value of Western currencies as well as their own, which is somewhat tied to the dollar. Encouraging gold ownership would help create middle class buying power as existing currency systems fail. How does this affect us? It just might be too politically embarrassing for our leaders to confiscate gold while our main rival, an openly authoritarian one at that, allows free ownership.

I think one reason that China is encouraging its citizens to buy gold is because at some point the government may want or need it, and they will order the citizens to turn it in as their patriotic duty. Free gold for government.

I don't believe the U.S. government will do door-to-door confiscation of gold. It would be political suicide, and wouldn't be cost-effective because so few Americans own gold, and what they do own isn't enough to significantly plug the holes in the deficit. The big wealth to be plundered is in IRA's and 401K's.

What government WILL do is impose a large, say 90%, "luxury" tax on gold transactions. This will be politically palatable amongst the voting majority, the "have nots". When that happens, gold owners will choose to sit on their gold for a few generations, as they did when Roosevelt "confiscated" gold. Gold transactions will take place "underground".

Just my $0.02.

jtabeb
05-16-10, 11:09 AM
They do that and they kill capital formation for a "few generations" as well, which also would be political suicide.

shiny!
05-16-10, 11:17 AM
They do that and they kill capital formation for a "few generations" as well, which also would be political suicide.

I've never credited politicians with an overabundance of brains.

jtabeb
05-16-10, 12:35 PM
Well, maybe their "suicide" will present a chance for all of us to move on. (Darwinian selection at it's finest.)

Pascal
05-16-10, 01:49 PM
I think one reason that China is encouraging its citizens to buy gold is because at some point the government may want or need it, and they will order the citizens to turn it in as their patriotic duty. Free gold for government.

I don't believe the U.S. government will do door-to-door confiscation of gold. It would be political suicide, and wouldn't be cost-effective because so few Americans own gold, and what they do own isn't enough to significantly plug the holes in the deficit. The big wealth to be plundered is in IRA's and 401K's.

What government WILL do is impose a large, say 90%, "luxury" tax on gold transactions. This will be politically palatable amongst the voting majority, the "have nots". When that happens, gold owners will choose to sit on their gold for a few generations, as they did when Roosevelt "confiscated" gold. Gold transactions will take place "underground".

Just my $0.02.

China has enough US currency reserves on hand to buy up about half the world's existing gold if it could do so at today's prices. Not sure it needs to back-door it through its citizens.

You could be right about a punitive tax. It seems like they should have better targets though (thank you Goldman, et al).

Rather than confiscation I think the bigger issue will be choosing a sell point based on fundamentals. The key to those fundamentals will be, I think, the ones EJ has outlined with a possible modification for a new currency regime at least partly linked to gold.

ThePythonicCow
05-16-10, 04:59 PM
google dillon gage. they had a walk-in retail desk a couple of years ago. decent inventory, good pricing, big operation.
Thanks. I take it that they are engaged in a wider array of investments than just precious metals, and that they do not have a retail gold business over the web - right?

thriftyandboringinohio
05-16-10, 05:06 PM
China has enough US currency reserves on hand to buy up about half the world's existing gold if it could do so at today's prices. ...

I doubt they would get that much at any current price. Price elasticity of supply would kick in.


...I think the bigger issue will be choosing a sell point based on fundamentals. The key to those fundamentals will be, I think, the ones EJ has outlined...

That's my current interest, so I find this commentary by EJ fascinating. I began accumulating physical gold and avoiding dangerous assets 8 years ago, thanks largely to iTulip. And it's proven to be a fabulous strategy. If the sell point for our physical is less than 8 years away (EJ targets 2013) I'm ready to start thinking about exactly how and when. Advanced planning sure helped when I was getting into this excellent position. I'm ready to start planning and positioning to execute the exit strategy and stick the landing.

In the Boy Scouts they taught me to "be prepared". If the exit is only 36 or 48 months away, I have some work to do!

Pascal
05-16-10, 06:57 PM
Same here Thrifty.

I've always found the selling decisions to be a lot tougher than the what and when to buy decisions. Likely to be especially true for this particular investment.

pococansado
05-16-10, 08:20 PM
Thanks. I take it that they are engaged in a wider array of investments than just precious metals, and that they do not have a retail gold business over the web - right?

don't know PC. i never had any interest in their other businesses, or in buying gold over the web. for the thirty years i lived in dallas, DG was just the place to go with cash in your pocket, place your order, inspect your purchase, and walk out. on one occasion they didn't have the qty on hand and shipped it. i didn't like that, but it turned out ok. should have called ahead.

ThePythonicCow
05-16-10, 09:01 PM
don't know PC. i never had any interest in their other businesses, or in buying gold over the web. for the thirty years i lived in dallas, DG was just the place to go with cash in your pocket, place your order, inspect your purchase, and walk out. on one occasion they didn't have the qty on hand and shipped it. i didn't like that, but it turned out ok. should have called ahead.
Thanks - those details help. Sounds quite interesting.

Chris Coles
05-17-10, 04:33 AM
I doubt they would get that much at any current price. Price elasticity of supply would kick in.



That's my current interest, so I find this commentary by EJ fascinating. I began accumulating physical gold and avoiding dangerous assets 8 years ago, thanks largely to iTulip. And it's proven to be a fabulous strategy. If the sell point for our physical is less than 8 years away (EJ targets 2013) I'm ready to start thinking about exactly how and when. Advanced planning sure helped when I was getting into this excellent position. I'm ready to start planning and positioning to execute the exit strategy and stick the landing.

In the Boy Scouts they taught me to "be prepared". If the exit is only 36 or 48 months away, I have some work to do!

Surely the problem is: that with any other something of value, you might be correct to step out at the upside, but the question to ask in this case must be; what do you get in return when you sell Gold?

ThePythonicCow
05-17-10, 10:45 AM
what do you get in return when you sell Gold?Well, first of all, you make sure you have zero debt and own your home, car and a good supply of the tools and dry goods of use to you over the next few years. Be sure you have some way to eat and drink "off the grid" (I have bags of rice and beans, a good Berkey water filter (http://www.berkeyfilters.com/), a lake within walking distance, some liquid propane tanks, a propane fired outdoor gas grill and a pressure cooker.) Reduce cash flow needs to a modest fraction of reliable income.

Then I suspect, if you have money left over, you invest in farmland, mines, and other such basic commodities. I'll probably resume investing in gold mining stocks, as this has been an area where I've long played with good success overall, but that's not an easy area for most investors. There may be a period between when I sell my gold and silver, and when I choose to get back into gold mining stocks, during which I'll as nervous as a cat on a hot tin roof.

unlucky
05-17-10, 11:09 AM
What if things don't calm down?


Well right now I'm heading towards 50% without doing anything :eek:

raja
05-17-10, 03:23 PM
EJ's article did not discuss the possible government-originated risk of gold ownership, which would seem important when considering when to sell gold.

When raja would like to sell his gold:
1) Before the government decides that gold owners would be a politically safe, readily accessible source of funds to help feed it's ongoing Ponzi scheme, and decides to tax gold profits at 90% or thereabouts. Couldn't happen? Remember the 90%+ income tax brackets.

Say you bought gold for $270 in 2001, and sold at $5000 . . . well, you'd clear $472 after a 90% gold profit tax. Whoopee, you've doubled your money over 15 years! Of course, over that time period inflation may have reduced that $472 to $100 in real terms, so you'd have only lost about half your original investment. :eek:
But wait, it gets better. If the government does impose a big tax on gold profits, expect the gold price to plummet. What's the point of owning something when most of the profit is taxed away? So maybe gold drops back down to . . . $1232, or lower by the time you sell.

2) Before the government decides to institute a new currency and doesn't want any competition for this new fiat money, so it decides to ban personal gold ownership, similar to Franklin's gold grab during the Great Depression. You turn in your gold for the old dollar, which is then devalued 90% by the creation of the New Dollar. (This scenario suggested by vinoveri in a previous post).
Good luck timing these . . . .

From Denninger yesterday:

We're not looking at hyperinflation folks, in my view - we're looking at a deflationary collapse. Cash is perfectly fine but make damn sure it's really cash and not some exotic "cash equivalent" that can get gated. This means, unfortunately, money market funds are no longer safe with recent changes to SEC regulations. If you fear hyperinflation do not look to Gold, instead buy a small (5% of your total portfolio) position in far out of the money LEAP CALLS on the major indices, spread across them. Why? Because (1) the tax structure on gold is unfavorable, (2) gold has never performed well on a contemporary basis .vs. inflation and (3) you can't eat it. If you try to get around the tax man structure you're going to get creamed; governments can and WILL prevent that from working. My recommendation thus is to buy insurance against a hyperinflationary event using instruments that do not try to evade the formal financial structure, are levered (to get around the tax hit) and are defined risk (so as to avoid losing your ass if you're wrong.)

raja
05-17-10, 03:49 PM
hey jtabeb - are you also familiar with Antal Fekete?

Here's an interesting short read:

http://www.professorfekete.com/articles/AEFPositionPaper1.pdf
Thanks for posting this . . . .
It's good when both sides are presented . . . .

Here are some excerpts:
it is possible to have a shortage of money simultaneously with the overworking of the printing presses. Hyperinflation is not the same as the ultimate inflation of the money supply. It is the ultimate depreciation of the currency unit.

People postone buying indefinitely because they expect prices to fall further. This is hyperdeflation. It manifests itself in the ever rising value of the currency unit. It is important to remark that it can happen while some prices are still rising. Other than gold, food and energy are two important exceptions. People have to eat, and they want to keep themselves warm and mobile, no matter what. Paradoxically, this may reinforce deflation. Because of rising food and energy prices people will have that much less to spend on other goods, accelerating price declines in other sectors. This defeats the arguments of Turk and others who try to refute the case for deflation by pointing to high or rising cost of food and energy.

I am not trying to adjudicate between the two schools of thought, one asserting that hyperinflation and the other asserting that hyperdeflation of the dollar is inevitable and imminent. I am merely trying to point out certain facts about deflation that most people areunaware of, or tend to ignore.

All the signs around us point to deflation. The money supply is being pumped up on an unprecedented scale, but all it does is pushing on a string. You cannot make a case, as Turk is trying to do, out of the fact that the price of crude oildoubled as compared to its recent low. Another fact, more startling, is that the price of crude oil has declined 45 percent as compared to its all-time high. We must see the general decline in world prices, even though in some cases they may be disguised as a loss of pricing power of the producers. True, list prices have not declined, but nobody trades them. They are for window-dressing only.

But why is it that the inordinate money creation by the Fed is having no lasting effect on prices? It is because the Fed can create all the money it wants, but it cannot command it to flow uphill. The new money flows downhill where the fun is: to the bond market. Bond speculators are having a field day. Their bets are on the house: if they lose, the losses will be picked up by the public purse. But why does the Fed under-write the losses of the bond speculators? What we see is a gigantic Ponzi scheme. The Treasury issues the bonds by the trillions, and promises huge risk-free profits to the bond speculators in order to induce them to buy.

But why is it that the inordinate money creation by the Fed is having no lasting effect on prices? It is because the Fed can create all the money it wants, but it cannot command it to flow uphill. The new money flows downhill where the fun is: to the bond market. Bond speculators are having a field day. Their bets are on the house: if they lose, the losses will be picked up by the public purse. But why does the Fed under-write the losses of the bond speculators? What we see is a gigantic Ponzi scheme. The Treasury issues the bonds by the trillions, and promises huge risk-free profits to the bond speculators in order to induce them to buy.

karim0028
05-17-10, 04:14 PM
EJ's article did not discuss the possible government-originated risk of gold ownership, which would seem important when considering when to sell gold.

When raja would like to sell his gold:
1) Before the government decides that gold owners would be a politically safe, readily accessible source of funds to help feed it's ongoing Ponzi scheme, and decides to tax gold profits at 90% or thereabouts. Couldn't happen? Remember the 90%+ income tax brackets.

Say you bought gold for $270 in 2001, and sold at $5000 . . . well, you'd clear $472 after a 90% gold profit tax. Whoopee, you've doubled your money over 15 years! Of course, over that time period inflation may have reduced that $472 to $100 in real terms, so you'd have only lost about half your original investment. :eek:
But wait, it gets better. If the government does impose a big tax on gold profits, expect the gold price to plummet. What's the point of owning something when most of the profit is taxed away? So maybe gold drops back down to . . . $1232, or lower by the time you sell.

2) Before the government decides to institute a new currency and doesn't want any competition for this new fiat money, so it decides to ban personal gold ownership, similar to Franklin's gold grab during the Great Depression. You turn in your gold for the old dollar, which is then devalued 90% by the creation of the New Dollar. (This scenario suggested by vinoveri in a previous post).
Good luck timing these . . . .

From Denninger yesterday:

We're not looking at hyperinflation folks, in my view - we're looking at a deflationary collapse. Cash is perfectly fine but make damn sure it's really cash and not some exotic "cash equivalent" that can get gated. This means, unfortunately, money market funds are no longer safe with recent changes to SEC regulations. If you fear hyperinflation do not look to Gold, instead buy a small (5% of your total portfolio) position in far out of the money LEAP CALLS on the major indices, spread across them. Why? Because (1) the tax structure on gold is unfavorable, (2) gold has never performed well on a contemporary basis .vs. inflation and (3) you can't eat it. If you try to get around the tax man structure you're going to get creamed; governments can and WILL prevent that from working. My recommendation thus is to buy insurance against a hyperinflationary event using instruments that do not try to evade the formal financial structure, are levered (to get around the tax hit) and are defined risk (so as to avoid losing your ass if you're wrong.)

My question then is, how would they know your cost basis? There is no place that i can find where your tax basis is kept, except in your head..... If the govt feels the need to tax gold 90% (outright robbing you) and gold is at 2K or 5K or whatever, then my best guess was that i bought at 4500 or so..... Whats to stop that?

pescamaaan
05-17-10, 04:35 PM
i buy from apmex.com - they have detailed records of everyone's cost basis, no? same goes for bullionvault, bulliondirect, etc etc etc...(though admittedly they did not ask for a SSN when purchasing)

i guess if you buy in cash from a local dealer you're all set?

Chris Coles
05-17-10, 05:19 PM
Wriggly, (and the others). Simply, the point I was trying to make was, in effect, is it not possible to jump, classically, out of the frying pan and into the fire? That there must be circumstances where you are always better off not selling but staying put; waiting out the transition between the collapse of the FIRE economy and whatever follows? That it might be better to wait for longer than EJ is postulating? That what you buy with your Gold may be, in all circumstances, not such a good deal as staying put? That once in Gold, stay in Gold.

ThePythonicCow
05-17-10, 05:30 PM
My question then is, how would they know your cost basis? There is no place that i can find where your tax basis is kept, except in your head..... If the govt feels the need to tax gold 90% (outright robbing you) and gold is at 2K or 5K or whatever, then my best guess was that i bought at 4500 or so..... Whats to stop that?
Good points. Your comments would lead one to think that "they" won't tax gold based on one's profit (sell price minus cost basis), for lack of a well documented cost basis.

Therefore, sooner or later, they will find other ways to make one eventually wish that one had not remained invested in gold. In the 1930's, FDR confiscated it, then devalued the Dollar against his newly expanded hoard of gold. In the 1980's, Volcker turned the corner on Dollar inflation fears, cramming down the price of Treasuries (jacking up their interest rates) hard enough to put a floor under Treasuries and begin a 30 bull market in them. Gold backed off from its peaks when this was done and was a poor investment for the next 20 years.

Perhaps this time around we'll see much of the gold held by private Chinese interests end up helping fund a greater Chinese holding of SDR's. Or perhaps we'll see the beginnings of a multi-decade bull market in SDR's (though not a market that us peons get to play in directly), which would correspond to another bear market in gold.

The inflation vs deflation argument has become a hot potato, as do seemingly all important topics. iTulip does a good job of not getting caught up in much of the agit prop, but perhaps not so (in my view) on the inflation vs deflation topic.

My (non-iTulip compliant) view is that tracking debt creation is more useful than tracking retail prices of some basket of goods. The massive "money printing" by the Fed is being "sterilized" rather affectively, meaning that they are monetizing the debt of favored insiders, while depriving debt to others. Giant holes are being blown in the balance sheets of less favored corporations, banks, governments (federal, state and local), pension funds, and individuals, as the value of their assets and their cash flows both collapse, while their debts (secured by those assets and cash flows) become increasingly onerous. The collapse of retail sales volumes is a more important driver of retail pricing than any abundance of cheap and easy money. For us peons, there is no such abundance. Any company with a non-trivial amount of debt or another wise high fixed cost structure has to squeeze suppliers, customers and employees to survive.

For now, all national fiat money is increasingly suspect, racing to the bottom while gold shines. At some point, in perhaps a year or two, "they" will crank up the volume on the economic stress machine all the way to "11" on the dial, and come riding to the rescue with a major reset of the international monetary system. That will usher in a "new era" with a new world-wide reserve currency (based out of BIS/IMF/G20) supported by a world-wide regulatory, economic and taxation structure "just affecting the rich bad banks and spendthrift nations" for now, though imposing "well deserved" austerity on the citizens of one or two dozen bankrupt nations.

I detoured from the topic of gold to inflation because I suspect that when the matter of failing confidence in numerous national currencies, including the Dollar, is resolved by this major reset, then will be the time to move out of gold ... plus or minus a few days. That minus could hurt; the time to move may come the day before we know when or where to move. For now we have to take that risk, being prepared to lose some wealth in the crossover but still doing the best we can until then.

In short, what's sometimes called "inflation", meaning in this case a loss of confidence in the legal tender of the land, is what's driving gold at present. At some point, that confidence will bottom out, likely I suspect in the days before a major reset. That will be the time to move, if only one can anticipate it and if only one can figure out where to move to, without excessive loss of wealth in the transition.

Bruno T
05-17-10, 05:58 PM
High Commissioner..

Funny.. please quote me correctly. I said 'may'. And the show isnt over yet...$USD is knocking on the door of a new powerful trend...

You may die today. Or you may not. You may win the lottery today. Or you may not. I can flip a coin and it may land heads. Or it may land tails.

"May" is a great word when you make your living making "predictions", isn't it?

Mn_Mark
05-18-10, 12:24 PM
Good points. Your comments would lead one to think that "they" won't tax gold based on one's profit (sell price minus cost basis), for lack of a well documented cost basis.

Therefore, sooner or later, they will find other ways to make one eventually wish that one had not remained invested in gold. ....

I detoured from the topic of gold to inflation because I suspect that when the matter of failing confidence in numerous national currencies, including the Dollar, is resolved by this major reset, then will be the time to move out of gold ... plus or minus a few days. That minus could hurt; the time to move may come the day before we know when or where to move. For now we have to take that risk, being prepared to lose some wealth in the crossover but still doing the best we can until then.

In short, what's sometimes called "inflation", meaning in this case a loss of confidence in the legal tender of the land, is what's driving gold at present. At some point, that confidence will bottom out, likely I suspect in the days before a major reset. That will be the time to move, if only one can anticipate it and if only one can figure out where to move to, without excessive loss of wealth in the transition.

The best idea I've come across for what to do when the government tries to take the profitability out of gold ownership is other commodities: oil, timber, steel, agricultural commodities, base metals. Like gold, they have intrinsic value. They are easy to buy and sell, unlike real estate. They hold their value in a high-inflation environment, and yet they can't really attract extraordinary, targeted government penalties like precious metals can because they need to be used by everyone and the government can't risk choking off the economy by putting special high taxes on the commodities that everything else is manufactured from.

The downside is the fluctuations in price, and the fact that if the economy is entering a very sharp downturn, the reduction in demand for commodities could significantly affect their value. On the other hand, as the economy recovers, there will be a voracious appetite for raw materials.

So diversifying among oil and the other commodities is much like the suggestions some people make for stocking up on ammo or food or the other necessities of life, except you're stocking up on the broader, economy-wide, society-wide necessities. It's a lot easier to do that than try to convert all your savings into tins of food and crates of ammo - and then try to sell them later when the crisis passes. Obviously you need an adequate supply of those personal necessities and of all of the things you consume. But for those of us who have savings beyond what can be completely converted into those personal necessities, commodities provide an alternative on a large enough scale to be useful.

The trick is knowing what commodities to get into and when to get out of gold. Gold's rise over the past decade has been spectacular but gradual enough that it hasn't attracted any particular government looter (to use Ayn Rand's term) attention yet. But if we get a big multi-thousand dollar price increase, I would think that somewhere in the midst of that would be the time to not worry about wringing every last drop of profit out of it and to sell a lot of gold and get into a basket of oil and the other commodities (and perhaps stock indexes, if the gold/Dow ratio is down around 1 or 2). I expect that those days of multi-hundred dollar gains in gold is going to attract the attention of the poor saps who always get in at the end of the bubble, as well as the government leeches looking for a way to "spread the wealth around" for the "common good", and that will be the time to take profits and get the hell out of the gold arena while the gettin's good.

I think one could be in very nice shape if, after the smoke clears from a serious economic collapse, you're sitting there with a fat portfolio of oil, steel, timber, copper, and so on. Sort of like Scarlett O'Hara prospering with her second husband's timber business as the South began to rebuild:)

ThePythonicCow
05-18-10, 02:52 PM
google dillon gage. they had a walk-in retail desk a couple of years ago. decent inventory, good pricing, big operation.
I just spoke with Dillon Gage on the phone for the first time now. Dillon Gage has a minimum order size of $3000, and they quoted $22 for one ounce American Silver EAGLE coins.

On their website just now, APMEX single one ounce American Silver EAGLE coin price is $21.92, or $21.12 for quantities of 100 or more. It looks like I'll be sticking with APMEX -- better meets my needs (a cheapskate small fry ;)).

Hmm.... Bullion Direct looks to be $21.19 for a single one ounce American Silver EAGLE coin. That's a good price too.

medved
05-18-10, 02:59 PM
My question then is, how would they know your cost basis? There is no place that i can find where your tax basis is kept, except in your head..... If the govt feels the need to tax gold 90% (outright robbing you) and gold is at 2K or 5K or whatever, then my best guess was that i bought at 4500 or so..... Whats to stop that?

The "best guess" approach will go away in a while. Remember, when dealing with IRS the burden of proof is always on you, and presumption of innocence does not apply. So, if you don't have a cost basis record, they will assume your cost basis to be zero (gift, lucky find or worse yet, illegal untaxed transaction).

raja
05-18-10, 07:27 PM
The best idea I've come across for what to do when the government tries to take the profitability out of gold ownership is other commodities: oil, timber, steel, agricultural commodities, base metals. Like gold, they have intrinsic value. They are easy to buy and sell, unlike real estate. They hold their value in a high-inflation environment, and yet they can't really attract extraordinary, targeted government penalties like precious metals can because they need to be used by everyone and the government can't risk choking off the economy by putting special high taxes on the commodities that everything else is manufactured from.

The downside is the fluctuations in price, and the fact that if the economy is entering a very sharp downturn, the reduction in demand for commodities could significantly affect their value. On the other hand, as the economy recovers, there will be a voracious appetite for raw materials.


Your case for commodities is good . . . except the downside of price drops, which you mention.
And, it's a huge downside . . . .

Just at the time gold is soaring, the global economy will be collapsing. All commodities will be headed down because of demand destruction. What's the good of bailing out of gold at the top, only to put your winnings into a plunging asset?

Perhaps it would work if one sold gold, held onto the cash for awhile, and then bought commodities when they are at their nadir. But one of the main reasons gold would be rising is that inflation is also rising, and the value of the dollar is dropping. So the dollars you are holding after selling gold may lose value at the same rate as the commodities you want to buy.

Unfortunately, I don't have a solution.
I guess bailing out of gold in time is the important thing . . . and then decide what to do with the falling dollars at that point.

It would be nice to hear from EJ on this.
His post painted a rosy picture of spectacular profits resulting from following the iTulip path . . . but neglected to discuss the downsides and what might be done to avoid them . . . .
As I said in my previous post, the iTulip strategy could result in significant losses if the government interferes . . . something that I consider quite likely.

In my opinion, this topic should be the #1 discussion on iTulip, given the 30% gold allocation that is recommended . . . .

Mn_Mark
05-19-10, 09:00 AM
Just at the time gold is soaring, the global economy will be collapsing. All commodities will be headed down because of demand destruction. What's the good of bailing out of gold at the top, only to put your winnings into a plunging asset?
....


In my opinion, this topic should be the #1 discussion on iTulip, given the 30% gold allocation that is recommended . . . .

Agreed that this is one of the most important topics.

If we devolve to hyperinflation, then everyone will be looking to put their money into real assets. Getting paid twice a day so they can rush out and buy something, anything, before the money loses its value. In that environment I can't see how commodities could be dropping in value even if there is demand destruction. In fact, if I try to picture living in such a chaotic environment, it's hard to imagine people even being much concerned with the government or tax issues - the non-compliance would be huge at that point. Lots of black market activity, perhaps a general unspoken agreement to ignore tax laws as seems to have been the case in Greece leading up to the current problems.

On the other hand, if I recall correctly, EJ didn't think there would be hyperinflation but instead only a period of very high inflation.

I guess an interesting question for those who know where to look for statistics and charts would be: how do commodity prices behave in a hyperinflationary or very high inflation environment? How did they behave in Weimar and in Zimbabwe, versus how they behaved in Argentina, for example?

John Pugsley, in his old book "The Alpha Strategy", specifically addresses this issue of how to protect your savings from inflationary collapse. He concludes that you need to do the following:

(1) Invest in knowledge and the tools of your trade first
(2) Invest the maximum possible in those goods you can buy now, store, and eventually consume (everything you use, from food to clothing to medicine, etc, that is storable)

(3) For the rest, invest in real goods you can eventually sell or exchange. These he breaks into several subcategories:

manufactured goods, which he dismisses as poor mediums of exchange since you buy them at retail price and they become obsolete unpredictably;
collectibles, which he dismisses as being too fickle; and
raw commodities, which he sees as the best option.
The advantages of raw commodities:

they are always in demand and never go out of style or become obsolete
the markets are large so they're easy to resell
they're used worldwide
they carry a relatively small markup from producer to buyer
He argues that a major disadvantage of gold and silver is the government's interest in intervening/controlling/manipulating/taxing them. Another is that as the currency becomes unstable, precious metals prices fluctuate wildly, making them risky.

He advocates that precious metals be a part of your inflation-protection plans, but because of those disadvantages, they not be the major part. His main recommendation is to focus on the industrial (copper, zinc, lead, tin, nickel, aluminum) and strategic metals (mercury, platinum, palladium, chromium, cobalt, cadmium, and tungsten). He recommends diversifying among at least three and preferably six or eight of these.

ThePythonicCow
05-19-10, 01:15 PM
On the other hand, if I recall correctly, EJ didn't think there would be hyperinflation but instead only a period of very high inflation. Despite a post I made yesterday discussing hyper inflation or deflation of the Dollar, I have to think that EJ is right here. No hyper stuff, just high stuff.

For hyperinflation (or hyperdeflation) one needs, in my view, a smaller isolated currency in a large sea of foreign currency. The smaller isolated currency can end up making sustained hyper-fast moves against the foreign currencies.

The Dollar is neither a small or isolated currency. It is half of the world's currencies (give or take.) It is (I suspect) written into over half of the world's contracts and long term arrangements. The Dollar has immense inertia. Imagine navigating the entire fleet of the world's oil tankers, all congregated within the Persian Gulf. Nothing happens hyper-fast ... except and unless some "out-of-band" event applies, such as a giant asteroid or a barrage of nuclear bombs on those ships, or a Bretton Woods III revalues the Dollar in terms of some new currency arrangement. All such singularities I can imagine would be essentially instantaneous.

flintlock
05-20-10, 08:42 AM
We can't lump all commodities into the same category. Metals, lumber, and other things construction/growth related are one thing. Things like food and oil we need to exist are another. I agree with Raja that the issue of what the government will do about Gold in the future is a major one. I'm not as worried about what to do with the proceeds of my gold when I sell it. I don't see it being time to sell gold unless the economy is on the rebound. And if that happens, they'll be plenty to invest in.

lsa420
05-20-10, 09:57 PM
www.bulliondirect.com (http://www.bulliondirect.com)

50% gold /50% Silver by dollar purchase amount, Physical BULLION ONLY!!! (If you have $10K then, by my book, you should be $5K gold, $5K silver).
Coins better than bars, .999% pure or better.

I've done a wee bit of business over the years and they have always been outstanding. (They will even hold it for you in their vault, and you can later choose to get physical delivery).

(Okay, Okay, maybe a lot more than a wee bit of business) ;)

I also use and recommend Bullion Direct.

jtabeb
05-21-10, 01:03 AM
I must say that as an American, I'm quite a bit disappointed by some of the posts here.

Two points, No one is arguing that gold and silver are the biggest winners in the soverign debt crisis problem AND, will continue to be so, the only reservations come from what the government will do to "rob" precious metals holders of their well deserved gains. (Through confiscation, opressive taxiation, or making holding and transacting in gold illegal).

I remember the words of one of my IPs when I asked about making a decision and then getting monday-morning quarterbbacked, after the fact.

His response was, and I kid you not, "FUCK'EM!".

That is my EXACT response to any government action to do any of the above to my PM holdings. They want to tax me at 90%, confiscate my holdings, or make it illegal, FUCK'EM! (I would well and truly rather dump my PM's in the ocean or a sewer, or otherwise make them unavailable, rather than submit to bullshit like that.) I will buy gold and silver BECAUSE logic tells me that they will CONTINUE to be the best perfoming asset class of the next 10 years, just as they have been over the last 10 years. If the government wants to PUNISH me for using my brain and providing for my family and myself, FUCK THEM! (And some lucky treasure hunter is going to strike it rich when they find the Stanta Tabeba some day). Seriously, get a backbone people, stand-up for yourself and your rights, or get run over. The defeatism I see in some of these comments makes me NOT proud to be an American. I don't advocate for violence or civil unrest, but I sure as hell advocate for peaceful civil disobdience! Grow a pair and take a stand, or live with the consequences. You all are talking like the civil rights folks were following the letter of the law or something. I hate to point it out to you, but civil disobideince is still BREAKING THE LAW. (Because the LAW unchecked can be wrong or immorale, if we don't challange immoral laws, then they stand).

I don't mean to lecture (even though I am), but please for the sake of the country, don't surrender your quest to see justice done or give up the fight to make sure we have "liberty and justice for all" because SOMEONE ELSE says "that's not the way things work around here". My God! To think where we would be as a nation if the people of the civil rights movement, or of the women's suffrage movment, or the abolishionist movement , and every other progressive movement that effected real political change had given up so easily.

Demand Justice, and settle for nothing less.
(And buy gold and silver if you wish, BECAUSE everything you know tells you that these will be the only things left standing when everything is said and done).

IF you don't think this then DON'T buy gold and silver. But Please, let's not devolve into having a "sour grapes" argument of Aesop's Fables fame.

If you think gold and silver offer the best return with the lowest risk then Buy em. If you don't, then don't. (and if the government tries to rob you, then FUCK'EM!):mad:

Can we agree on that?


V/R

JT

ThePythonicCow
05-21-10, 01:34 AM
Good points, jtabeb.

If I may paraphrase, it seems to me you're reminding us that a thief (including the U.S. Federal government) has no right to your property. But if it looks like they are going to get the property anyway, despite your best efforts, it is better to destroy that property so that no has the use of it than to allow the thief to get it.

Also, you're reminding us that thieves prefer to pick on wimps than someone who will likely resist. Playing "nice" so they won't hurt you is seldom a good tactic.

aaron
05-21-10, 02:00 AM
"as the economy recovers"

:)

That is a seriously large assumption. What if we cannot start a war somewhere? How long did the economy take to recover after the first Great Depression?

Unless they are going to monetize gold, I do not see them taxing it at any greater rate than other gains (which will be very high). If they decide to monetize it, we will have ample warning. Moreover, since it is an international store of value, the black market will thrive.

Chris Coles
05-21-10, 05:51 AM
Demand Justice, and settle for nothing less.
(And buy gold and silver if you wish, BECAUSE everything you know tells you that these will be the only things left standing when everything is said and done).

IF you don't think this then DON'T buy gold and silver. But Please, let's not devolve into having a "sour grapes" argument of Aesop's Fables fame.

If you think gold and silver offer the best return with the lowest risk then Buy em. If you don't, then don't. (and if the government tries to rob you, then FUCK'EM!):mad:

Can we agree on that?


V/R

JT

Absolutely, we can agree on that. VERY well said.

raja
05-21-10, 11:16 AM
That is my EXACT response to any government action to do any of the above to my PM holdings. They want to tax me at 90%, confiscate my holdings, or make it illegal, FUCK'EM! (I would well and truly rather dump my PM's in the ocean or a sewer, or otherwise make them unavailable, rather than submit to bullshit like that.)
jtabeb,

With your strategy you may lose all your accumulated wealth. That's not where I'd want to end up.

That doesn't mean I wouldn't take actions to attempt to stop government theft . . . but I'm not going to fight any battles if losing is a certainty. So that's why I'm not putting all my eggs in one basket.

Your strategy may have some reasonableness to it for someone who is young and can make up the loss. However, I'm retired and to lose all my assets would mean working at Walmart as a greeter when I'm 80 years old . . . except that with the way things are going, there will be so many others vying for the position it would be next to impossible to get the job.

Debt-freeTICer
05-23-10, 07:39 PM
Would you rather own worth-less stock or worth(much)less paper dollars, than something worth much more, yet taxed much higher?

We all get to choose our poison - yet I do subscribe to diversification to an extent. Disclosure: I am mostly in cash, metals ETFs, and Gold.

I am leaning towards the view that in the upcoming years, there will be such a catastrophic destruction of wealth (think Exter's pyramid) that governments will not (over)confiscate gold, if at all, as it will be one of the few remaining "seeds" of wealth for future growth in the private sector.

Another argument: the plutocrats are not new to gold. Their accumulations probably rival those of emperors past. I would think they would have a say in how gold is taxed in the future.

Invest like these Giants do, and you will share in their fate. Or would you rather prefer to share in the investment fate of the remaining 95% of the population? Take your pick.

And one more, yet less likely scenario: gold effectively is remonitized. That is, you go to a bank, any bank, and exchange your gold for redenominated dollars. This would shift gold ownership back into the banking sector, as it used to be. This is a scenario I thought of when I was analyzing the possibly reasons for India and China to engage in a "gold ownership society" promotion. Something's up.
I would like the community's advice/opinion of how PM ore held in the ground would be effected by confiscation or remonitization.

To be specific, I have a friend/partner who is the sole owner of mining claims containing an old producing silver mine. He has reports from a major mining company, showing there are 1.6 million oz. silver "blocked out" and "probable" remaining in the mine. He is 80 years old and is looking to sell the mine. Is this a good time to sell? If silver is going to take-off soon?

I hold 700 acres of claims adjacent to his, and have recently made what appears to be a new silver discovery (only an indication at the surface) on my claims. If he sells, I will be inclined to piggyback my holdings on his and cash out.

Mining Claims are considered Real Property and are available for 1031 Exchanges. We recently sold some other claims on a 1031 Exchange.

If SHTF, I have thought of this as a possible hedge against a doomsday scenario, because the mining could be paid in silver produced.

gnk
05-23-10, 08:20 PM
I would like the community's advice/opinion of how PM ore held in the ground would be effected by confiscation or remonitization.

To be specific, I have a friend/partner who is the sole owner of mining claims containing an old producing silver mine. He has reports from a major mining company, showing there are 1.6 million oz. silver "blocked out" and "probable" remaining in the mine. He is 80 years old and is looking to sell the mine. Is this a good time to sell? If silver is going to take-off soon?

I hold 700 acres of claims adjacent to his, and have recently made what appears to be a new silver discovery (only an indication at the surface) on my claims. If he sells, I will be inclined to piggyback my holdings on his and cash out.

Mining Claims are considered Real Property and are available for 1031 Exchanges. We recently sold some other claims on a 1031 Exchange.

If SHTF, I have thought of this as a possible hedge against a doomsday scenario, because the mining could be paid in silver produced.

I am now firmly in the remonetization of gold camp as the most likely scenario to play out. You bring up a good question. Honestly, I have no idea because of carrying costs and other factors that make your investment a lot more complicated than owning the metal in plain sight. I have owned gold miner stocks, but not an actual mine.

And your's is silver, not gold... But here's something you may find interesting. Hugo Salinas Price, a hard currency Austrian, wants Mexico to monetize silver. He has some very strong views on the subject that I agree with: http://www.rightsidenews.com/2010052310298/politics-and-economics/hugo-salinas-price-why-silver-should-be-legal-mexican-currency.html

As you know, silver also has tremendous industrial uses so regardless of monetization, there will always be a strong market for it.

But also keep in mind that Australia is enacting a mining tax of 40% on profits. More countries could follow suit, especially if precious metals are remonetized. That's the only way to recapture one's national wealth in this day and age of foreign miners operating internationally. And you know what else? Countries are starving for cash... miners are a lot easier to pick on than the population at large.

I see Australia's scenario playing out as a more likely occurrence than FDR's scenario of individual confiscation.

Hopefully someone else will chime in here with better info than I provided.

Good luck with the mine!

shiny!
05-24-10, 09:55 AM
I hold 700 acres of claims adjacent to his, and have recently made what appears to be a new silver discovery (only an indication at the surface) on my claims.

Will you be my new best friend?

Ben
05-24-10, 03:04 PM
"I am now firmly in the remonetization of gold camp as the most likely scenario to play out."

The MOST likely?

Our debt problems are bad, but a 10% inflation (which could be partly concealed by fudging the figures) for 6 years would reduce them by about half. And then they would be in line with historical norms as a percentage of GDP. The dollar could also devalue.

This seems way more likely than monetizing gold.

Plus most mainstream economists won't consider the idea for a minute.

gnk
05-24-10, 03:21 PM
"I am now firmly in the remonetization of gold camp as the most likely scenario to play out."

The MOST likely?

Our debt problems are bad, but a 10% inflation (which could be partly concealed by fudging the figures) for 6 years would reduce them by about half. And then they would be in line with historical norms as a percentage of GDP. The dollar could also devalue.

This seems way more likely than monetizing gold.

Plus most mainstream economists won't consider the idea for a minute.

Your analysis is too linear, and too sterile. It's a big world out there - lots of other moving parts.

There are way too many other factors at play that would destroy the casual 10% for 6 years scenario. It would turn into hyperinflation.

Your scenario neglects the bond market reaction, interest rate volatility, increased currency wars, CDS market, trade wars, oil costs, economic consequences of lost productivity, etc... it would be catastrophic. Actually, I would love to see government try this... (not really) but it would only make my most likely turn into most definitely!

Mainstream economists are the problem, not the solution. Either they will be forced out of the drivers seat, or the market will force them out. One way or another, they are done.

You know what else?

This is not a monetary crisis. It's a gold crisis.

FRED
05-24-10, 06:51 PM
One man vs. the gold bubble (http://wallstreet.blogs.fortune.cnn.com/2010/05/19/one-man-vs-the-gold-bubble/)

c1ue
05-24-10, 07:15 PM
The Dollar is neither a small or isolated currency. It is half of the world's currencies (give or take.)

TPC,

I'd just like to point out that if - for whatever reason - the rest of the world decided it didn't want US dollars anymore and 'return to maker' the lot, what do you think would happen regarding inflation?

pescamaaan
05-24-10, 08:16 PM
Bloomberg Article: Gold Rising as Euro Weakens Spurs More Speculation

http://www.bloomberg.com/apps/news?pid=20601087&sid=a6f.XxAJB0Rc

LargoWinch
05-24-10, 09:12 PM
One man vs. the gold bubble (http://wallstreet.blogs.fortune.cnn.com/2010/05/19/one-man-vs-the-gold-bubble/)


I hate gold. It does not pay a dividend, it has no value,

Woa; talk about discrediting yourself. :eek:

ThePythonicCow
05-24-10, 09:48 PM
TPC,

I'd just like to point out that if - for whatever reason - the rest of the world decided it didn't want US dollars anymore and 'return to maker' the lot, what do you think would happen regarding inflation?
That would be a good time to be invested in what America euphemistically calls the "Defense" industry.

FRED
05-26-10, 12:54 AM
That would be a good time to be invested in what America euphemistically calls the "Defense" industry.

We prefer to call it the "disinfrastructure" industry. :cool:

Jay
06-05-10, 03:49 PM
TPC,

I'd just like to point out that if - for whatever reason - the rest of the world decided it didn't want US dollars anymore and 'return to maker' the lot, what do you think would happen regarding inflation?
Back to this argument are we? Look what a little use of the rating agencies has done to the Euro. The US has lots more options to keep the dollar from disintegration.