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EJ
06-18-10, 01:47 PM
http://www.itulip.com/images2/burundi300.jpg


Gold may decline 50% before the World Cup is over

And the World Cup may be won by a herd of wild Burundi elephants

Monday Morgan Stanley issued a headline grabbing prediction that gold prices may crash 70% as they did in the 1980s:
Possibility of gold experiencing a meltdown (http://economictimes.indiatimes.com/view-point/Possibility-of-gold-experiencing-a-meltdown/articleshow/6045049.cms)
Ruchir Sharma - Times of India

It is hard to drown in a sea of liquidity. That's the notion the bulls are keeping their faith in despite the myriad of structural problems in the global economy. But in what’s reflective of the widespread optimism on gold, even the bulls want to hold on to the yellow metal as a lifebuoy — just in case.

Gold is the best performing asset class this year and while most other financial assets have struggled to make their way back to pre-Lehman levels, the yellow metal is up by more than 50% since September 2008. As a result, gold is currently trading well above the long-term average levels relative to stocks and bonds and also in comparison to its own historical trend-line .

ETF holdings for copper total 50 days of demand for the commodity in contrast while aluminum and zinc ETFs represent around 100 days of underlying demand. The daily turnover in gold ETFs — now at $3- $4 billion a day — is up nearly 10fold from levels of three years ago.

Investment demand currently represents the largest component of overall demand for gold compared with a mere 4% just a decade ago.

Some gold bugs are throwing about very aggressive price targets of $2,000 or $3,000 an ounce, from levels of just over $1,200 an ounce now.

If the yellow metal does reach those levels, it would form a bubble of epic proportions. Gold’s peak at $850 an ounce in 1980 marked one of the biggest bubbles in post WWII history and the yellow metal then fell by more than 70% in the following two decades as real interest rates rose and the global economic environment improved significantly. At $1,800 an ounce in current dollar terms, gold would be at the same level as at the absolute peak in 1980.

(Ruchir Sharma is head of emerging markets at Morgan Stanley Investment Management)

(Hat tip to member hayekvindicated (http://www.itulip.com/forums/showthread.php/15925-Morgan-Stanley-Gold-could-drop-70?p=164863#poststop))
The author makes a number of valid points, such as the high level of money flows into gold ETFs, but he misses the single most important contributor to the extraordinary event of gold's continuous nine year rise, and it’s not gold bugs. He, like most analysts, does not understand the role gold plays as a sovereign global financial asset and currency.

Gold hedges currency risk, and currency risk is rising

Gold hedges the second order effect of bad fiscal policy, a weak currency.

Remember this?

"We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power."
—Alan Greenspan, appearing before the Senate Banking Committee on Feb. 15, 2005, in response to Democratic Senator Jack Reed of Rhode Island on the topic of funding Social Security.
- Debtor Nations Dream of Deflation, April 6, 2005 (http://www.itulip.com/forums/showthread.php/611-Debtor-Nations-Dream-of-Deflation)
That’s Greenspan reminding a U.S. senator that a central bank can print the money to pay for government spending programs till the cows come home but as the purchasing power of tax revenues declines, so will the fortunes of elected officials. Take your pain now not later.

But they never do. One policy error leads to another. The ultimate source of the currency risk that gold hedges is politicians kicking the debt can down the road to the next election.

The U.S. government has over the past ten years financed two seriously expensive bread and circus events, first the technology stock bubble, second the housing bubble. They first allowed asset inflation to get out of control and then, after the bubbles collapsed, dipped into the public till to bribe the public with their own money to keep quiet about it.

Ten years after the tech bubble popped, the NASDAQ remains 50% below its peak. Ten years from now, so will housing (See Housing Bubble Correction: Fifteen Years to Revert to the Mean, January 20, 2005 (http://www.stalewww.itulip.com/forums/showthread.php/132-Housing-Bubble-Correction)). When the asset price deflation in the FIRE Economy threatens to spill over into the Productive Economy through the private credit markets and commercial banking system, causing a "break in the chain of payments" as the classical economics called it. As businesses fail and unemployment rises a recession and output gap develop, the difference between potential and actual economic growth. Elected officials are then compelled to rush in with emergency spending to halt the incipient deflation spiral process. Economists on the government payroll, or who hope to be, then get on TV as they did in late 2008 and early 2009 to explain how the emergency government spending will not only halt the economic collapse, which it does, but will also miraculously produce more tax revenue than it consumes, which it will not.

This obvious fallacy is called the “Keynesian multiplier,” as if government borrowing—collecting tomorrow’s taxes today and adding interest expense to it—can possibly be cheaper than collecting taxes out of income as you go along, which option has been eliminated politically by the crash produced by asset price inflation.

The entire string of events started with captured regulators permitting the asset price inflation in the first place but doesn't end with bailing out households and business from the nasty effects of the bubbles' collapse using future with tax revenues collected from mostly middle class citizens who benefited no one bit from the bubbles themselves. The process will go on and on, eventually resulting in a weak dollar and the kind of inflation that a weak currency produces, from the rising the prices of imports. For a net energy importer like the U.S. that means higher fuel and food input prices to food manufacturing that producers may not be able to pass on to customers. That will result in a stealth inflation by a steady decline in the quality of food and other products, even as prices remain steady or event decline (See Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again, Dec. 2008 (http://www.itulip.com/forums/showthread.php/6993-Fed-cuts-dollar-Fire-sales-vs-FIRE-sales-Duh-flation-and-Bezzle-shrinks-again-Eric-Janszen?p=66592#post66592)). As you see gasoline and food prices rise, or food packages shrink and high quality ingredients replaced with low quality ingredients, remember that the process started with the bubbles in the late 1990s. It be viewed as one gigantic and continuous fraud spanning, so far, a decade.

By the time it all plays out and tomorrow’s U.S. dollar has substantially less purchasing power to buy imports than today’s, I’m certain that the thread of causation that we have tracked here since 1998, starting with the technology bubble, will be utterly lost. The forgetting of the roots of economic devolution is a function of how the story is retold.

Historical Amnesia

An Argentine economist told me last year that the people of Argentina popularly recall the period of the late 1980s as their day in the sun. Argentina’s leaders secured foreign loans that produced a great economic expansion that the populace attributed to the wisdom of their leaders and their own productivity. Twenty years later the debt proved to be their ruin, but that’s not how they remember it. They only recall the boom that the borrowing paid for. The average Argentine does not connect the debt that resulted from the 1980s borrowing to the economic misery they've suffered since 2001 when Argentina's economy collapsed in an inflationary crash from which it has yet to recover.

Ten years from now, when the full impact of the U.S. asset bubbles of 1998 to 2008 are fully felt, the dot com era, when money flowed like oil from a geyser, before the wars and financial crisis, will be remembered as the good old says, the high water mark for American power and influence. Not one in a million Americans will connect the antecedents to financial crisis and excessive government borrowing to the inflation that we will experience in the future. Not our readers, of course.

As American living standards decline for broad swaths of the population, first by underemployment and unemployment, then by inflation, the thread of cause and effect will be lost by a media that’s forced by its consumers to report daily events without context, as if the latest stage in the ongoing crisis fell out of the sky, from the clouds.


http://www.itulip.com/images2/incomesvsfood1948-May2010.gif
Americans experience periods when food prices rise faster than incomes as inflationary


During the period from after WWII until the U.S. abandoned the international gold standard, food prices remained steady while personal incomes increased. Then, from the late 1970s and again since 2000, food prices increased faster than personal income. That inflation era is seared into the memory of anyone who was high school age or older at the time. Since late 2007, personal incomes plunged while food prices, after a brief decline, continued to rise -- no wonder we have 40 million Americans on food stamps. Today's inflation is experienced more by lower income groups rather than society as a whole. This disparity will be relevant in future elections and is likely to result in demands for compensatory tax cuts for lower income groups and higher taxes at the top.

A well engineered asset price inflation is a political checkmate for its instigators and beneficiaries. Politicians whose elections are financed by the investment banks that trade in asset price inflation, such as the sellers and raters of mortgage securities — the asset price inflation industries of the FIRE Economy — turn their sometimes opponent, sometimes friend, the central bank, into an agent of wealth transfer by forcing them to either directly bear the risk of loss or take responsibility for the collapse of the financial system. Only the issuer of the world’s reserve currency can behave this way and get away with it, although I’d argue that this last time was the last time.

Spain’s is an example of a poorly engineered asset price inflation by a country that is not the issuer of the world’s reserve currency. The result? An economy in recession and 20% unemployment. Now Spain’s creditors demand austerity, as if the nation was flying high on an inflationary boom. Far from it. Austerity programs sink over-indebted countries by reducing economic output and the ability to repay debt. Default now and get it over with, is my advice, because once the IMF is done with you and the capital and entrepreneurs leave, there will be no one left but the oligarchs to run things.

If government spending in response to financial crisis is the primary source of currency risk today, who is the source of demand for gold as a currency hedge that is driving gold prices to new highs?

The great central banking paradox

Central banks are in theory politically independent from national legislatures, but not insulated from government largess. To protect themselves, they hold gold.

Who are the world’s largest gold hoarders? Governments.


http://www.itulip.com/images2/goldreservesQ32009.gif
Central bank holdings of 31 countries plus the IMF with gold reserves in excess of 100 tonnes each


I found this most curious of all the facts I came across back when I did my original research into gold in the late 1990s before taking a 15% gold position in 2001, a year after liquidating technology stocks in the spring of 2000. All of the papers written by economists on a central bank payroll asserted that gold no longer had any role as a monetary unit backing any national currency—not dollars, nor deutschmarks, nor yen.

Gold was unplugged from the global monetary system by the Fed in 1971 like a toaster on fire when the US found itself unable to make foreign debt payments in gold. Yet even as I’m reading these central bank protests against gold in 1998 the Bank of International Settlements data show that three decades after spurning it central banks still owned 25% of all of the gold ever produced since the birth of Christ. And not only a few of them held a metal they professed to be of no value as money, but nearly all of them did so, and still do.

Now, most articles you’ll read about gold claim that it is just a commodity whose value is levitated artificially above the level justified by jewelry and industrial demand by the religious fervor of mystics and fruitcakes known as “gold bugs.” The theoretical price of gold as determined by demand for industrial uses is the real and rational price and the incremental price produced by the demand for gold by gold bugs is an unreal and irrational gold bug premium, so the argument goes. Once the magic disappears and rationality returns, the gold price will collapse along with the gold bug premium. Maybe by 70%.

The first to put a version of this argument forward was Chairman of the Bank for International Settlements William White. In 1972, a year after the international gold standard ended, he proclaimed that gold without central bank demand as a monetary asset was free to fall from its then fixed price of $35 to its true market value as an industrial commodity to "...around $7.50 per ounce." Then, over the eight years that followed, the gold price proceeded to rise to more than 100 times the Chairman’s price forecast. Gold has proved similarly uncooperative since 2001, rising more than four fold despite dozens of articles by various flavors of William White since then predicting an imminent price collapse.

Gold cannot be “just a commodity” if gold is the only metal owned by central banks

Central banks don’t own silver, or platinum, or copper, or lead, or aluminum, or zinc, or nickel, or any other metal for that matter but only one metal, gold, and not a few pounds but 30,000 tonnes of it. So the next time you come across the uninformed opinion that gold is a commodity like platinum and over-priced due to the irrational enthusiasm of crackpots, kooks, and cranks, remember that gold is the one and only commodity owned by central banks and in monumental quantities. Literally.

Why do central banks still own gold? I wondered back in 1998. Why didn’t central banks sell the useless yellow metal and use the proceeds for more constructive purposes than hoarding?

So I began to look for a credible explanation for this apparent contradiction. The only argument I could find that had any merit was that central banks did not want to disrupt the gold mining industries of gold producing countries, such as South Africa’s, where Brazil is playing North Korea not talking rabbits from Burundi at the World Cup is as I write, by dumping large quantities of gold onto the global market.

The argument is not baseless. Even if central banks dis-hoarded the 36 thousand tonnes of gold reserves they had in 1971 at the rate of only 1% per year, that represented 25% of the 1,500 tonnes of total gold production that year. The sudden addition of 25% to the supply in any commodity is guaranteed to depress the price, unless demand picks up to absorb it. And even if central banks maintained a rate of sales of 25% of production for the past 30 years, by 2001 they’d still have 22,000 tonnes of the gold left. Selling that much gold without wrecking the gold market for gold producers and exporters indeed appears impossible.

Since 1971 when the international gold standard ended, central banks have managed to sell off more than 6,000 tons, and approximately 2,500 tonnes of reserves, or about one year of global production, since 2001 when we took our gold position.

That works out to 10% of annual production, in rough numbers. Yet over that nine-year period, the price of gold increased more than four fold. Presumably if sales increased several times that average since 2001 the gold price might not have gone up as much, but the assertion that central bank divestiture of gold cannot be accomplished without materially undermining gold producers is not supported by recent history.

Even as central banks lightened their load of gold since 2001, not everyone sold, particularly since the start of Gulf War II in 2003.


http://www.itulip.com/images2/goldreservesales2001-2009.gif
China and Russia have been major gold buyers since 2003


From a geopolitical perspective it doesn’t take a rocket scientist to understand why China and Russia in particular started buying gold while other counties, though not the US, sold it since 2003: as the largest lender to the US, it is imprudent for China to not insure against the risk of a devaluation of America’s $60 trillion and growing contingent liabilities. The fact that the dollar is a reserve currency is the one and only reason that the dollar has not already weakened precipitously. Primarily via swap agreements and purchases of dollar denominated debt, foreign lenders have kept the U.S. government and its currency afloat. The dollar is not a market-priced currency any more than the U.S. housing is market priced. The latter is a ward of the state, 90% maintained by government subsidies of the mortgage credit market, and the former by foreign and domestic subsidies, by official and “private” sources, of the U.S. government credit market.

Central bankers worldwide are in the awkward position of needing to profess 100% confidence in a hopelessly flawed and outdated international money standard while simultaneously hedging its potential demise with a reserve asset that they claim to have abandoned nearly 40 years ago. On the one hand they are all-in on global monetary system based on a fiat currency issued by a single nation with a declining global output share, an unsustainable structural fiscal deficit, $60 trillion in total contingent liabilities, and dependence on asset price inflation for economic growth, with no path out of any of them under a political system dominated by special interest. On the other hand they have to hedge the risk that some day systemic flaws are expressed as a currency crisis. The only way to do that is with the only international currency in existence that does not have national origins: the fourth currency, gold.

Who’s got the gold?

At north of 8,000 tonnes, the United States government is by far the world’s largest gold hoarder. By way of comparison, the 484 total pallets of $100 bills shipped from the Federal Reserve Bank of New York to Iraq on C-130 transports in 2003 were worth $12 billion and weighed only 363 tonnes, according to a Majority staff memorandum to the House Committee on Oversight and Government Reform, Feb. 6, 2007. If the pallets were piled with gold instead of $100 bills, at 363 tons they’d carry 11.7 million ounces. That works out to $14.4 billion at today’s $1,233 per ounce gold price but only $4.2 billion at the 2003 price of $363 when the payment was made, the authorization and use of which remains a mystery. Since then, a pallet of $100 bills has plummeted from a value of three times its weight in gold to 83%. The decline is not coincidental. That $12 billion was minuscule compared to the trillions squandered on war and financial mishaps since. The Iraqis should have demanded the $12 billion payment in gold. Today they’d have $41 billion.

This leads us once again back to the one and only rational explanation why so many central banks still hold so much gold so many years after official use of gold to settle international payments ended.

Gold is the one and only pure-play insurance policy available against a disorderly disintegration of an outdated, US-centric global monetary order straining under the weight of government debt taken on to keep angry voters off the streets. Gold remains on the balance sheets of central banks as insurance against a global currency crash. As long as it does, it remains on our personal balance sheets, too.

Countdown to crisis

As the risk of the kind of currency crisis that gold insures against rises, so does the price of that insurance. When we bought gold in 2001 the market priced the risk at $270, and as of today June 18, 2010 at $1,259. This year central banks became net buyers. Here is today’s report from the World Gold Counsel on the latest IMF report that sent gold prices to new highs.
Official sector gold reserves as at June 2010

European central banks sold virtually no gold over the past quarter, save a small amount for minting gold coins. Total sales by European central banks have amounted to just 1.8 tonnes since the third central bank gold agreement began in September of last year. The only sales of note made via CGBA3 have been by the IMF, which has sold 38.7 tonnes since mid-February. We expect the IMF to sell at a similar pace this quarter.

Outside of the agreement, the main purchases reported over the last quarter have been by Russia and the Philippines, both of which have long-standing gold buying programmes. The Central Bank of Russia bought another 26.6 tonnes of gold over the past quarter, taking its total gold holdings to 668.6 tonnes or 5.5% of its total reserves, and remains the 9th largest official sector gold holder. The Philippines central bank bought 9.5 tonnes of gold in March, taking its gold holdings to 164.7 tonnes or 13.7% of total reserves.

The Saudi Arabian Monetary Authority reported last quarter that “gold data have been modified from First Quarter 2008 as a result of the adjustment of the SAMA’s gold accounts”, meaning SAMA’s gold reserves are now reported to be 322.9 tonnes or 2.8% of reserves, from 143 tonnes or 1.2% previously.
The Saudis turn out to own more than twice as much gold as previously reported, a 179 tonne difference.

Conclusion

For gold to plunge 70%, as the Morgan Stanley analysis predicts, a credible proposal to pay down U.S. government debt and reduce contingent liabilities must be constructed and make it through the gauntlet of dozens special interest groups. How likely is that to happen?

The recent performance of the U.S. political system at the relatively simple task of getting more health care to Americans at a lower cost does not encourage optimism. A debate about the value of reducing the 40% health care cost overhead created by health insurance companies was turned seemingly overnight by the health insurance industry’s media into an free-for-all about death panels and socialism. Now imagine how swiftly a discussion about needed cuts in military spending to help bring the budget deficit in line will be turned by the military industrial complex into a media circus about aiding terrorists, replete with images of nuclear weapons going off on American soil.

Since 2001 I have not lost a minute’s sleep worrying about gold prices plunging. Instead, I worry about the disastrous financial condition of U.S. households and the U.S. government, and the lack of political will to address them, that threaten the very foundation of the global money system. This is the reason for gold’s relentless rise.

The problems are structural. They are endemic. Current course and speed perhaps only war will dislodge the special interests that perpetuate them.

Gold prices do not float on a sea of liquidity, as Ruchir Sharma claims. They float on a sea of dangerous fallacies — that asset bubbles don’t cause lasting damage to economies, the Keynesian multiplier, that the U.S. can continue to borrow to finance its fiscal deficit, and the invulnerability of the dollar as a reserve currency.

We are not willing to bet against global central banks. They’re betting on gold. We don’t blame them, and everyone is catching on.

See also:
Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen (http://www.itulip.com/forums/showthread.php/13706-Lessons-of-the-American-Lost-Decade-%C2%96-Part-1-The-gold-bugs-were-right-Eric-Janszen?p=141535#post141535)
Before the FIRE Gold Update: Is $1,237 the new $720? - Eric Janszen (http://www.itulip.com/forums/showthread.php/15580-Before-the-FIRE-Gold-Update-Is-1-237-the-new-720-Eric-Janszen?p=161353#post161353)
Gold Myths Cheat Sheet (http://www.itulip.com/forums/showthread.php/11804-iTulip.com-Gold-Myths-Cheat-Sheet?p=121715)

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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c1ue
06-18-10, 02:20 PM
EJ,

You noted the reason for China's buying of gold - to hedge its large US dollar exposure.

However, while Russia also has large reserves of dollars, is it as clear that Russia is hedging its dollar (and euro) exposure or something else?

As I posted in the 'Who owns the world's gold' thread put up by Munger, Russia is unique in having an extremely low money supply vs. gold ratio. The EU and China are distinguished (?) by having the highest.

While a new reserve currency is likely years off - much less a gold based one - perhaps you might expound on how present gold reserves might translate into future purchasing power (or not). Clearly gold as a pure commodity is an inadequate characterization; is the view of gold as purely a currency hedge similarly inadequate in the face of a possible conversion, either via proxy or directly, into currency?

This I think would be a great service to all iTulipers.

lsa420
06-18-10, 03:12 PM
EJ - f*cking beautiful! The bread and circus reference put the icing on the cake.

metalman
06-18-10, 03:18 PM
huh... look at that...

http://www.itulip.com/../images2/incomesvsfood1948-May2010.gif
Americans experience periods when food prices rise faster than incomes as inflationary

food prices start to rise right after the usa dumps the gold standard in 1971... must be a coincidence ;_UN

ThePythonicCow
06-18-10, 03:21 PM
And the World Cup may be won by a herd of wild Burundi elephantsHeh -- where's the game post mortem, pictures of the key plays and YouTube video of an interview with the Burundi goal tender :o??

I skimmed the entire article and all I could find was a bunch of gold analysis +=(.

EJ
06-18-10, 03:45 PM
EJ,

You noted the reason for China's buying of gold - to hedge its large US dollar exposure.

However, while Russia also has large reserves of dollars, is it as clear that Russia is hedging its dollar (and euro) exposure or something else?

As I posted in the 'Who owns the world's gold' thread put up by Munger, Russia is unique in having an extremely low money supply vs. gold ratio. The EU and China are distinguished (?) by having the highest.

While a new reserve currency is likely years off - much less a gold based one - perhaps you might expound on how present gold reserves might translate into future purchasing power (or not). Clearly gold as a pure commodity is an inadequate characterization; is the view of gold as purely a currency hedge similarly inadequate in the face of a possible conversion, either via proxy or directly, into currency?

This I think would be a great service to all iTulipers.

A temporary return to a fractional gold-backed dollar for international transactions does not require all nations to have the same amount of gold relative to the domestic money supply, only enough gold to cover foreign exchange needs.

icm63
06-18-10, 06:49 PM
EJ your maybe like Time or Newsweek, a contrarian indicator

Sure 50% decline is a safe bet to fail, BUT 15% mild pullback is a chance..

Non subscribers : http://www.screencast.com/t/NmM2Njc2

3400

I am no Elliot waver, but this looks a sure thing to me..some sort of ABC pull back is way over due !:o

cjppjc
06-18-10, 10:42 PM
EJ your maybe like Time or Newsweek, a contrarian indicator

Sure 50% decline is a safe bet to fail, BUT 15% mild pullback is a chance..

Non subscribers : http://www.screencast.com/t/NmM2Njc2

3400

I am no Elliot waver, but this looks a sure thing to me..some sort of ABC pull back is way over due !:o

With all due respect..........

metalman
06-18-10, 10:53 PM
With all due respect..........

if stocks can climb a wall of worry, why not gold?

icm63 is a contrary indicator... 'correction due' = new high

icm63
06-19-10, 01:02 AM
icm63 is a contrary indicator... 'correction due' = new high

Hey don't bag me, all the Elliot Wavers out there, and there is a ton of them see RED FLAGS with gold right now, and I was just pointing that out.

Sure we may get a blow off top, race up to 150 on the GLD, as nobody knows when the next 15% correct will come from and at what level it will start !

Dont kill the messenger !

Chris Coles
06-19-10, 02:46 AM
EJ,

While a new reserve currency is likely years off - much less a gold based one - perhaps you might expound on how present gold reserves might translate into future purchasing power (or not). Clearly gold as a pure commodity is an inadequate characterization; is the view of gold as purely a currency hedge similarly inadequate in the face of a possible conversion, either via proxy or directly, into currency?



There is one other currency not on this table today; stock.

For want of a better hedge; why not new stock in new start up companies, where instead of acting on the possibility of an increase in asset value, the investment is made on the expectation of regular dividends?

In which case, the best place to put the value, once the trend in Gold tops, is surely new investment, not any form of currency?

hayekvindicated
06-19-10, 05:26 AM
...........uninformed opinion that gold is a commodity like platinum and over-priced due to the irrational enthusiasm of crackpots, kooks, and cranks............

Jimmy Rogers (of all people) says things like this. I find his chapter on gold (written in 06/07 as part of his book on commodities) quite interesting. He was of course completely wrong. All the arguments he makes in that chapter for why gold is not a great investment are precisely the reasons why it is a great investment in the environment we are in right now.

Since he wrote it, gold has comfortably outperformed all the commodities that he was pitching for.

In a zero interest rate environment, gold is a substitute for currency (that's how I've always seen it). Neither pay any interest but only one of them cannot be printed at will.

GRG55
06-19-10, 07:00 AM
EJ your maybe like Time or Newsweek, a contrarian indicator

Sure 50% decline is a safe bet to fail, BUT 15% mild pullback is a chance..

Non subscribers : http://www.screencast.com/t/NmM2Njc2

3400

I am no Elliot waver, but this looks a sure thing to me..some sort of ABC pull back is way over due !:o

I am still waiting with eager anticipation for the $600 per ounce gold price you promised us last year... ;-)

GRG55
06-19-10, 07:04 AM
Heh -- where's the game post mortem, pictures of the key plays and YouTube video of an interview with the Burundi goal tender :o??

I skimmed the entire article and all I could find was a bunch of gold analysis +=(.

A herd of wild Burundi elephants can't win the World Cup...the refs will disallow the winning goal...

jpatter666
06-19-10, 07:10 AM
A herd of wild Burundi elephants can't win the World Cup...the refs will disallow the winning goal...

Well here's a link to the team practice sessions....

http://www.cnn.com/2010/WORLD/africa/06/18/mckenzie.elephant/index.html?hpt=Sbin

BlackVoid
06-19-10, 09:11 AM
Elliot Wave - ROFL :D

The most prominent EW analyst (Prechter) is wrong about gold since 2001. EW is useless.

RTQ
06-19-10, 09:53 AM
In addition to the country holdings of gold, the holdings by various funds (such a the Canadian Gold Trust and various ETFs) is truly amazing, approaching the scale of some of the countries in the middle of the bar chart in the article, so there is certainly a lot of demand these days for gold.

c1ue
06-19-10, 10:20 AM
There is one other currency not on this table today; stock.

For want of a better hedge; why not new stock in new start up companies, where instead of acting on the possibility of an increase in asset value, the investment is made on the expectation of regular dividends?

In which case, the best place to put the value, once the trend in Gold tops, is surely new investment, not any form of currency?

Chris,

Actually I agree, but not with the term stock. I believe that this is an ideal period to try and build a new business - at least one with some type of pricing power. It is as good a use for existing cash and anything else. It is what I am doing now - after having prepared the hidey holes in a couple other nations.

But I won't use the word stock, because the stock market and all its participants are one gigantic casino using marked cards and 'Casablanca' style roulette wheels.

And of course the corollary of investing into building a new business: tremendous risk.

The business I am building has as bulletproof a business model as I can think of, yet I consider my chances of achieving my goal as likely no better than 30%.

But that 30% represents an income stream of $6M/year; well worth the $100K plus 1+ years of time I am putting in - and the upside is getting bought out for high 7 or 8 figures.

Conversely, this type of investment is both difficult to find - without being the actual entrepreneur - as well as not ideal for someone seeking income from their money - unless there is truly a large enough amount to spread the risk around to a dozen or more similar opportunities.

raja
06-19-10, 10:50 AM
For those looking to buy gold in the near term, what do you think about the assertion that, if the stock market crashes, investors will be forced to sell their gold in order to raise cash. So, gold prices would go down for a while.

I agree that the gold price seems almost certain to continue it's rise over the long run . . . but if the market takes its double dip, it seems possible that gold would also take a hit . . . and create a good buying opportunity . . . . .

Better to wait and buy after the crash?

EJ
06-19-10, 12:11 PM
There is one other currency not on this table today; stock.

For want of a better hedge; why not new stock in new start up companies, where instead of acting on the possibility of an increase in asset value, the investment is made on the expectation of regular dividends?

In which case, the best place to put the value, once the trend in Gold tops, is surely new investment, not any form of currency?

Chris,

If by stock you mean stock in private companies, I entirely agree. As I told subscribers six months ago when I set out to look for alternatives to diversify out of our nearly 10 year old gold and Treasury bond portfolio, the only under-priced asset I could find is entrepreneurs. The value of entrepreneurs has been beaten down by two successive busts over our gold and Treasury hold period. In the wake of the recession, despite talk of recovery, early stage companies are not getting funded at any price that two years ago would have been. The severe reduction in the stream of new start-ups coming on line has grave implications for the U.S. economy. In March, I conveyed my concern in an Investor's Business Daily article (http://blogs.investors.com/click/index.php/home/60-tech/1197-ten-years-later-the-internet-bubble-burst-still-resonates).

I spent many hours talking to fund managers and regulators to find a way to put iTulip subscribers who are potential start-up investors together with those who are entrepreneurs in some kind of fund, but the regulatory hurdles are insurmountable. Blue Sky laws make it impossible for any but high net worth households to invest in private companies. Regulators are perfectly glad to allow anyone to invest in poorly regulated public FIRE Economy industry companies and take tremendous losses as a result, but assume that the average person's judgement is not sufficient to determine the risk of investing in a fund that invests in early stage companies, the lifeblood of our economy.

I haven't given up on my investigations. However, continuing my now 12 year old project to manage my own account in public as a way to give an alternative perspective to the din of stocks and houses Wall Street media sales pitches that passes for business news in the U.S. is vastly complicated by the fact that I am moving into asset classes that are inaccessible to the average reader. This may force a decision to move to a subscription-only business model and the elimination of the free area of iTulip.com. That decision has not been made but is under consideration.

Out of those investigations of start-ups came two investments that I made this week that I will share with readers in time when it's appropriate. I recently sold some, not a lot, of gold to diversify into one of these two start-ups. The other I invested in out of a "cash" account (liquid short-term bonds). From my perspective, selling a portion of a gold allocation that is up 4.7 times since I took it makes sense, even if I expect gold prices to rise further. Why? Because I believe that my portfolio is over-weight gold and because I believe that the return on investment in these start-ups will be greater. I'm looking to increase my IRR without increasing risk. Another option for diversification that we will investigate are MLPs. Think of it as a continuation of my sales of technology stocks in 2000: sell stocks at a bubble high, sit in cash and Treasury bonds for a year, take a gold position at a 20 year low in gold prices, sell some gold and bonds at all time high prices to buy into technology start-up companies priced at a 20 year lows. The core gold position that hedges Ka-Poom, of course, remains untouched.

we_are_toast
06-19-10, 02:10 PM
Chris,


I haven't given up on my investigations. However, continuing my now 12 year old project to manage my own account in public as a way to give an alternative perspective to the din of stocks and houses Wall Street media sales pitches that passes for business news in the U.S. is vastly complicated by the fact that I am moving into asset classes that are inaccessible to the average reader. This may force a decision to move to a subscription-only business model and the elimination of the free area of iTulip.com. That decision has not been made but is under consideration.

Out of those investigations of start-ups came two investments that I made this week that I will share with readers in time when it's appropriate. I recently sold some, not a lot, of gold to diversify into one of these two start-ups. The other I invested in out of a "cash" account (liquid short-term bonds). From my perspective, selling a portion of a gold allocation that is up 4.7 times since I took it makes sense, even if I expect gold prices to rise further. Why? Because I believe that my portfolio is over-weight gold and because I believe that the return on investment in these start-ups will be greater. I'm looking to increase my IRR without increasing risk. Another option for diversification that we will investigate are MLPs. Think of it as a continuation of my sales of technology stocks in 2000: sell stocks at a bubble high, sit in cash and Treasury bonds for a year, take a gold position at a 20 year low in gold prices, sell some gold and bonds at all time high prices to buy into technology start-up companies priced at a 20 year lows. The core gold position that hedges Ka-Poom, of course, remains untouched.

Well now, this ought to spark some conversation.

I always thought the free/subscription business model for a website like iTulip was a very good model. Other similar websites use the same model. I imagine that iTulip.com isn't making a killing, but it certainly helps with the branding of "Erik Janszen". I know that splitting the reports into free and subscription sections must be time consuming, but that can't be difficult enough to do away with the free section.

Since the free subscribers don't have access to the paid subscriber area, you would be denying the paid subscribers access to the opinions and information provided by the free subscribers. In effect, telling the paid subscribers in the neighborhood bar that they can no longer go over and talk to the free subscribers on the other side of the room. Kind of takes the neighborly out of the neighborhood bar analogy.

Actually, how iTulip runs it's business is none of my business, but I am a bit curious how doing away with the free area helps the paid subscribers.

ThePythonicCow
06-19-10, 02:51 PM
Well here's a link to the team practice sessions....Awesome - thanks.

ThePythonicCow
06-19-10, 02:55 PM
Actually, how iTulip runs it's business is none of my business, but I am a bit curious how doing away with the free area helps the paid subscribers. I was wondering the same thing.

Spartacus
06-19-10, 04:25 PM
Actually, how iTulip runs it's business is none of my business, but I am a bit curious how doing away with the free area helps the paid subscribers.

My take on Erik's post is that if he's getting into investments that are not available the general public, having 1 site with a wall between restricted investors & general investors may not be a good idea.

Too easy for a member to innocently copy & paste info into a free thread.

Think "regulation" (if you can without laughing - some people do still run afoul of SEC & the like).

CanuckinTX
06-19-10, 05:56 PM
Or what if even more people turn to gold after another market crash and the price just continues to drive higher? I think we already had that 'sell anything liquid' period and so maybe the next time we might have the same effect on gold but it could be much shorter and fall much less before going quickly higher.

I'm not saying buy now, just saying there are lots of alternative things that could happen. My own plan is to just buy at set intervals and at set fixed amounts until I've got as much as I want to hold. That way I take the indecision out of the equation. I got tired of holding off wondering if it was going to fall a few more bucks and then I kept paying more by waiting.

jpatter666
06-19-10, 07:08 PM
Or what if even more people turn to gold after another market crash and the price just continues to drive higher? I think we already had that 'sell anything liquid' period and so maybe the next time we might have the same effect on gold but it could be much shorter and fall much less before going quickly higher.

I'm not saying buy now, just saying there are lots of alternative things that could happen. My own plan is to just buy at set intervals and at set fixed amounts until I've got as much as I want to hold. That way I take the indecision out of the equation. I got tired of holding off wondering if it was going to fall a few more bucks and then I kept paying more by waiting.

Yep, bought PMs (paper, allocated and physical) until I was reasonably confident in the levels. I'm not going to be a Master of the Universe like jtabeb, but me and mine shouldn't starve either.

Also been *slowly* leveraging into various oil positions (mainly the shovel makers -- read drillers and pipelines). I think energy is the real currency in the end.

ThePythonicCow
06-19-10, 07:32 PM
My take on Erik's post is that if he's getting into investments that are not available the general public, having 1 site with a wall between restricted investors & general investors may not be a good idea.

Too easy for a member to innocently copy & paste info into a free thread.

Think "regulation" (if you can without laughing - some people do still run afoul of SEC & the like).But in that case, even most of us on the paid member side would have to leave iTulip, because we are not high net worth investors.

In other words, if EJ legally requires a forum for high net worth investors only, perhaps he needs to start afresh.

But I should quit speculating; I've probably drifted too far afield from whatever EJ has in mind or might do.

EJ
06-19-10, 07:48 PM
My take on Erik's post is that if he's getting into investments that are not available the general public, having 1 site with a wall between restricted investors & general investors may not be a good idea.

Too easy for a member to innocently copy & paste info into a free thread.

Think "regulation" (if you can without laughing - some people do still run afoul of SEC & the like).

There are a thousand sites around that offer opinions on stocks, bonds, commodities and other assets, but where is the accountability? I want to know that the person giving an opinion has a personal stake in the outcome of acting on that opinion. That is the standard that iTulip has maintained here for 12 years. The positions in gold, Treasuries, savings bonds and CDs that I have been in for nearly a decade and have outperformed stocks were easily purchased by anyone. The assets that I am buying now to diversify out of Treasuries in particular cannot. The quandary is how to maintain the same level of accountability we have kept for 12 years without abandoning many of our highly valued members along the way?

You can already see a divergence occurring. As we begin to talk more about positions in accounts with $250,000 minimums, many readers are legitimately going to start to ask, "How is this relevant to me? Sell Treasuries and buy what?"

But I think I may have come up with a creative solution to a problem that has occupied my these past several months. I can't divulge it here yet but we've gotten it past the SEC lawyers and I'm cautiously optimistic that it will work out. Stay tuned. Thank you for your support.

ThePythonicCow
06-19-10, 08:21 PM
But I think I may have come up with a creative solution to a problem that has occupied my these past several months. I can't divulge it here yet but we've gotten it past the SEC lawyers and I'm cautiously optimistic that it will work out. Stay tuned. Thank you for your support.Good luck and thanks for giving it a go, regardless of how it turns out.

Chris Coles
06-20-10, 05:21 AM
EJ, everyone,

being across the pond, I have had to catch up with the conversation. I start here, rather than with the earlier post by EJ as it is clear to me that some of you do not fully understand the depth of the problems facing anyone with any form of idea related to new investment. What has happened is that the FIRE industry, over a period of some decades, (this is not a recent thing), has created an industrial rule structure for what one might describe here in the UK as the Financial Services Industry, but what is generally described, here on iTulip, as the FIRE economy. The rules absolutely preclude any individual investment advice not originating from an industry insider acting under the rules set out by the FIRE economy.

It is today, a criminal offence, (not a slap on the wrist, but you face jail), to give any form of investment advice unless you are certified under the rule structure of the FIRE economy. Moreover, the rules are now deeply embedded into every layer of the industry and are immensely complicated. Some references will help you:

http://siteresources.worldbank.org/ECAEXT/Resources/258598-1256842123621/6525333-1263245503321/Regulation_ch3.pdf

http://eu.techcrunch.com/2010/04/25/new-eu-rules-could-kill-off-european-vc-and-screw-startups-lets-stop-them/

http://blog.taragana.com/business/2010/05/18/european-union-agrees-on-new-rules-for-hedge-funds-in-attempt-to-tighten-financial-regulation-62463/

http://www.edhec-risk.com/performance_and_style_analysis/IAMA

And those are just some headlines. To get a better view, try these:

http://www.fsa.gov.uk/Pages/handbook/index.shtml

On the face of it, at first sight one can be forgiven for feeling the existing system is set up to help; but when one dives into the depths of the regulations, you will keep coming up against strong buffers to prevent investment at the grass roots of any local community. The FIRE economy has created a monster set of rules entirely centred upon their maintaining complete control of the investment mechanisms that have, IMHO, created a feudal mercantile economy that serves no one BUT the FIRE economy. They centre that control on the one message that seems so fair and reasonable, prevention of loss of the investment; prevention of failure....sic!

But that message suits a bank that lends money into a local community that it not only requires to be refunded, it also requires more in the shape of interest on the loan to also be returned to the bank. Thus bank lending automatically drains prosperity from the local economy into the bank's economy. Sound familiar?

Equity investment, on the other hand, is free money, freely invested, with no certainty of it being returned to the original investor. The more you invest with new equity into your local community, the greater the investment circulating within your local community; the greater the long term prosperity. All of you have been watching your local prosperity decline without understanding that the mechanism causing the decline is the very same one supposedly working so hard, under strong rules to prevent such loss.

My starting point for the debate is exactly opposite to EJ. For those that do not already know; I am the epitome of the classic struggling inventor. But in many ways we have both come to exactly the same conclusions; the existing system for investment of equity capital is not functional.

As I see it, the problem EJ faces, is that the rules may cause the sudden complete closure of iTulip, if he continues with the way the site and the membership is structured. So he is trying to find a way forward while still providing his excellent leadership through iTulip.

Returning to the wider debate about the system being not functional from my personal viewpoint, it is not only not functional; In my opinion, it absolutely prevents the ongoing establishment of a free society. That the present rules and investment mechanisms have created a feudal western civilisation, not unlike the worst examples from ancient history. By Western, I mean on both sides of the Pond. The US and Europe.

Again, on my part, I had opened the debate a long time ago with presentation of evidence to the Wilson Committee http://www.jstor.org/pss/2982159 Investigating the functioning of the City of London way back in the 1970's which got me a full page business page feature in Investors Chronicle, May 1978. Later still, after being placed into the position of applying for patents but being unable to raise the funding to even process the applications, let alone start the development of the embedded ideas, I had presented sufficient and very detailed evidence to the Bank of England during the early 1990's to get myself into direct correspondence with the then Governor, Eddie George and again, facing the same problems right now, with the present, Mervyn King.

To overcome the difficulties, as I see them; presented by the FIRE economy, I have created a new format for local communities to take up themselves without my input, (if that is their wish). The rules revolve around what I believe is a fundamental requirement IF, I stress the IF, you believe in the principle of freedom for the individual in a free society and their right to own the product of their own intellect; by stressing the notion of free enterprise. That the manager of the business owns the business; but accepts the consequent responsibilities to the investors. Rather than as now, the investor owns the business. I stress that seemingly insignificant detail, as I believe that insignificance lies at the heart of why we have become a feudal mercantile society.

I believe that the only way forward, when we come to the end of the rise in the price of Gold, is to invest equity under the rules of a free society, under free enterprise terms, back into our local communities.

The links to the full story can be taken from my personal web site www.chriscoles.com (http://www.chriscoles.com) The free PDF book The Road Ahead from a Grass Roots Perspective contains in the first chapter, a short record of my own experience. The rest is up to each and every one of you. You need to understand that, my view is; the only way forward is each and every one of you has to take responsibility for your own communities. You cannot afterwards complain if you continue to lose prosperity to the FIRE economy, while turning your backs and expecting someone else to make your individual decisions.

What I have done is set out a draft set of rules based upon my own personal experience and have made a full public statement that they now belong to the ordinary people and that I will help anyone, in any way I can, if they wish to follow the path I have laid out.

ThePythonicCow
06-20-10, 06:16 AM
It is today, a criminal offence, (not a slap on the wrist, but you face jail), to give any form of investment advice unless you are certified under the rule structure of the FIRE economy. Moreover, the rules are now deeply embedded into every layer of the industry and are immensely complicated.Dang -- what has the corptocracy not f'd up?

Thanks for spelling this out, Chris.

LargoWinch
06-20-10, 07:52 AM
There are a thousand sites around that offer opinions on stocks, bonds, commodities and other assets, but where is the accountability? I want to know that the person giving an opinion has a personal stake in the outcome of acting on that opinion. That is the standard that iTulip has maintained here for 12 years. The positions in gold, Treasuries, savings bonds and CDs that I have been in for nearly a decade and have outperformed stocks were easily purchased by anyone. The assets that I am buying now to diversify out of Treasuries in particular cannot. The quandary is how to maintain the same level of accountability we have kept for 12 years without abandoning many of our highly valued members along the way?

You can already see a divergence occurring. As we begin to talk more about positions in accounts with $250,000 minimums, many readers are legitimately going to start to ask, "How is this relevant to me? Sell Treasuries and buy what?"

But I think I may have come up with a creative solution to a problem that has occupied my these past several months. I can't divulge it here yet but we've gotten it past the SEC lawyers and I'm cautiously optimistic that it will work out. Stay tuned. Thank you for your support.

Thank you EJ and iTulip for looking after us. After all, things are really not easy in the Asylum Economy.

I wonder if this new direction will affect iTulip's previous inclination of "moving into oil"? It was previously stated that up to 20% of the current cash allocation would be moved into this asset class...

Also, and this is perhaps more related to my own personal situation, is the fact that virtually all my cash holdings are in retirement accounts called RRSPs (similar to a 401(k)), to maximize the after-tax returns of the recommended portfolio. Now, how can an investor located outside the US can invest into "private investments" let alone using retirement funds, seems like mission impossible.

I would lastly point out that even if I am prevented from participating into EJ's latest and greatest idea, a macro update once in a while coupled with the good folks around here is more than enough for me to stick around until they shut down the internet and iTulip with it (or vice versa). As I said before, my education funds previously allocated to a Master in Financial Engineering in London, UK at an Ivey-league school (offer which I declined in 2007) is still very much intact (actually grew quite a bit thanks to iTulip and EJ) and is now fully dedicated to a self-learning journey starting here.

D-Mack
06-20-10, 03:27 PM
Maybe when the USMNT will face France in the final. lol


Why should we believe the numbers for the US amount of gold ? Who reports it and who audits it ?


Lokks like Pritchard is also reading itulip.


Gold reclaims its currency status as the global system unravels

...
By Ambrose Evans-Pritchard
..

The World Gold Council said on Friday that the central banks of Russia, the Philippines, Kazakhstan and Venezuela have been buying gold, and Saudi Arabia’s monetary authority has "restated" its reserves upwards from 143m to 323m tonnes. If there is any theme to the bullion rush, it is fear that the global currency system is unravelling. Or, put another way, gold itself is reclaiming its historic role as the ultimate safe haven and benchmark currency.
..
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7841961/Gold-reclaims-its-currency-status-as-the-global-system-unravels.html

RTQ
06-20-10, 04:07 PM
EJ,
Thank you in advance for sharing what you can when you can. In the meantime, I am simply using USO as a start to diversification from pure cash/gold, and eagerly await additional ideas to consider. The continuing release of information on the GoM geyser (see http://globalwarming.house.gov/mediacenter/pressreleases_2008?id=0272#main_content#oilspill ) suggests bad things can still happen in the current situation, such as tip over of the blowout preventer or subsidence of the seafloor in that area due to erosion under the seafloor, all pointing to a potentially more restrictive drilling future in the U.S.-controlled portion of the GoM and consequent reduction in new supply.

LargoWinch
06-20-10, 07:23 PM
EJ,
Thank you in advance for sharing what you can when you can. In the meantime, I am simply using USO as a start to diversification from pure cash/gold, and eagerly await additional ideas to consider. The continuing release of information on the GoM geyser (see http://globalwarming.house.gov/mediacenter/pressreleases_2008?id=0272#main_content#oilspill ) suggests bad things can still happen in the current situation, such as tip over of the blowout preventer or subsidence of the seafloor in that area due to erosion under the seafloor, all pointing to a potentially more restrictive drilling future in the U.S.-controlled portion of the GoM and consequent reduction in new supply.

RTQ, I would like to point out that spot Crude Oil hit a low of $30.28 pb on Dec. 28, 2008. Based on today's spot price for Crude Oil of $77.92 this represents an increase of 157.3%.

Meanwhile, USO is up only 7.1% over that period!, while DBO did much better with an increase of 30.0% over the same time frame. Of course even DBO's performance is disappointing considering the increase in the spot price of Crude Oil.

icm63
06-20-10, 08:31 PM
The most prominent EW analyst (Prechter) is wrong about gold since 2001. EW is useless.

Every analyst gets a trade wrong.

Did you see EJ pick the Current $USD strength:NOPE!
Did you see Prechter pick strength in the $USD recently : YES!

http://www.wealthdaily.com/articles/robert-prechter-turns-bullish-on-the-us-dollar/1946


Elliot wave and GANN only work when it fits, sometimes it does and sometimes it does not.

Just keep an eye on the higher highs and higher lows, etc...

Spartacus
06-20-10, 09:21 PM
Elliot wave and GANN only work when it fits, sometimes it does and sometimes it does not.

yeah, so does a flipped coin. Pay me & I'll make predictions for you .. unlike Prechter & Gann, and much better than both combined, I'll be right 50% of the time.

PS and FYI, with that attitude you're ripe to be picked clean by a good con artist.

icm63
06-20-10, 10:27 PM
Let me guess Spartacus, you retired at 25, worth millions from your trading fortune, cause your always right!

I never defended GANN or the Elliot wave approach, BUT I have seen experts in their field do just fine ! Then again I have seen someone do real well on just moving average cross overs, nothing more:
Ref: The magic of moving avergaes by Scot Lowery (Traders Press)

WDCRob
06-21-10, 09:08 AM
Entrepreneurs as the undervalued asset class. Makes perfect sense. Please do keep us posted EJ, and I hope you're able to get that limit down under $250k.

EricPhan
06-21-10, 10:48 AM
http://taxprof.typepad.com/taxprof_blog/2010/06/johnston-.html

Quick read on MLP and taxes. This chart summarizes the differences between corps, partnerships, and MLPs

3408

metalman
06-21-10, 05:07 PM
http://taxprof.typepad.com/taxprof_blog/2010/06/johnston-.html

Quick read on MLP and taxes. This chart summarizes the differences between corps, partnerships, and MLPs

3408

mlps may be a good investment... but are they moral? :o

metalman
06-21-10, 05:10 PM
Chris,

I recently sold some, not a lot, of gold to diversify into one of these two start-ups.

gold off 2% since then?

LargoWinch
06-21-10, 09:17 PM
mlps may be a good investment... but are they moral? :o

Depends how your taxes are used for I guess...

Now back to Oligopoly!

metalman
06-21-10, 10:19 PM
Depends how your taxes are used for I guess...

Now back to Oligopoly!

on second thought, if someone's figured out a way around the tax regime, power to them. bring on the mlps!

jtabeb
06-22-10, 05:56 PM
"Returning to the wider debate about the system being not functional from my personal viewpoint, it is not only not functional; In my opinion, it absolutely prevents the ongoing establishment of a free society. That the present rules and investment mechanisms have created a feudal western civilisation, not unlike the worst examples from ancient history. By Western, I mean on both sides of the Pond. The US and Europe."

Yep, We are at that "John Galt Moment". More precisely, If I don't trust the economic system, and think I will only get screwed for my productive efforts, why in the hell would I want to set myself up as a wet nurse to a bunch of leaches? (Or if you prefer, do I WILLFULLY CHOOSE to continue to serve as an enabler for a drug addict?)

I think it all comes down to this. We all (I think all) want to save America but we don't want to be FIRE enablers (and their minions in the political and MSM class). What is MOST IMPORTANT (or should be IMHO) is taking care of our fellow Americans and making their collective lives better. But this places us in the untenable position of supporting the very thing that we are trying to eradicate or denying economic life blood to our fellow citizens. Great choice, right?

So what's the way out? I'm going to have to go with Andrew Jackson on this. We will have no gain until we take the pain (and END the Den of Vipers and Theives, err, the FED). And, most imporantly, that natural resource constraint clock just keeps on ticking away while Rome Burns. And, in this game, if you run out the clock, you don't win, you die (or revert back to a subsistence level of survival, which of course is impossible for most people in industrialized societies). So yeah a whole crap-load of people die. or as EJ positied, you just have a nice war which would, of course kill a bunch of people (with the added bonus of totally destroying the economy due to the combined effects of the energy price spike AND the diversion of supplies from commercial to military use). Win the War, destroy your Country and your Economy. Umm, yeah, me thinks this is a poor choice.

So THE CHOICE, THE ONLY CHOICE that does not result in our complete and utter self-imposed annihilation IS:

A. Some variation of this (Charter STATE BANKS in each and every state and use them to hold gov depository reciepts) With a 100% RESERVE requirement, I might add.
Andrew Jackson believed that the Second Bank of the United States was unconstitutional and that it posed a serious threat to the American economy and its democratic political institutions. Though its charter was not set to expire until 1836, BUS president Nicholas Biddle requested and received a congressional recharter in 1832. Jackson decided to veto the bill. Jackson escalated this so-called "Bank Andrew Jackson believed that the Second Bank of the United States was unconstitutional and that it posed a serious threat to the American economy and its democratic political institutions. Though its charter was not set to expire until 1836, BUS president Nicholas Biddle requested and received a congressional recharter in 1832. Jackson decided to veto the bill. Jackson escalated this so-called "Bank War" in 1833 when he removed federal government funds that were on deposit with the BUS and distributed them to loyal state banks. War" in 1833 when he removed federal government funds that were on deposit with the BUS and distributed them to loyal state banks.

B. Dump the entitlement system, the tax system and the bugetary process and move to a system where there is no private credit (loans of funds in my (or a bank's) possession, YES, credit created out of thin air, NO) and provide everyone with a guaranteed income. Have a consumption tax, and if Hudson is to believed, a property tax. You pay for services from the government (you can choose to spend your guaranteed income however responsibly or irresponsibly you wish). And of course you have to have some pre-refund mechanism on the consumption tax so that people who spend 100% of their income on necessities are not taxed on the privlage of living. If I were king for a day, I would open up the option of "PAID" volunteer work in comunities and schools etc. that is strictly in addition to you guaranteed income level, not a replacement or a net reduction. I love the idea that people can get paid for helping other people, so, Heck, I say "Make it happen".

Now all we have to do is crash the currency and the international monetary system and re-institute national currencies that are settled in gold for international trade transactions and we are in business!

(Of course this requires that all currencies are FREELY priced in gold instead of gold being priced in currencies) Hey, I can dream right? (As I see it, I'm free as long as I know I'm free, if I forget, well, then, I'm not) Note to self, "Always know I'm free".

Okay, good, moving on...

Then you get what's called "a self-sustaining recovery", but not before.


You know what the difference between us and a Horse is?

A horse that is dying of thirst will drink if you lead him to water. We won't+=(

jtabeb
06-22-10, 06:35 PM
If you could find a way (ANY way), to make these types of investments available in say $5K-$10K "chunks" I really think we could make some progress AND have a competitive product to offer MAINSTREET investors. I have no idea how you would do it, but if you made it possible for regular folks to buy in 5-$10K chunks at a time, man that would really be something.

I'll take 2 $10K chunks please (or 4 $5k ones). NO, I'm not selling gold, I'm selling some guns, that's different ;)

ADDED

Actually, the MORE I think about it, this could work pretty damn well, as long as you COMPLETELY EXCLUDE the TBTF banks or any other TARP recipient. What YOU COULD do is make this available to small investors in say the previously mentioned $5-10K chunks, This must be ACTUAL EQUITY mind you, not borrowed funds, and these small retail investors bail out of the broad indicies, the banks can step with with their TARP monies to keep the broad stock market afloat. (Mind you I would be SHOCKED, SHOCKED, I tell you, if you were to tell me that this has already been occuring).

I think you could get all the start up capital YOU NEED if you could make this available to mom and pop retail investors, AS LONG AS YOU EXCLUDE the TBTF and TARPs.

What's the market cap of mom and pop and pension retirement funds? Yeah, I know, it's risky and people would have to accept that risk. But Come ON! Between EJ and wallstreet, I would take EJ ANY day! (Even if it were much risker).

I'd rather honestly loose money to a man I trust, than be swindled out of my retirement savings by some wall street goon. (I advise a lot of people, weather they want the advice or not, I bet you could find a lot of retail investors who would find this attractive.) You have to be willing to accept RISK of FAILURE, but I think people are ready for a chance to take back some control over their own lives.


Hey, next time you have a policy advice discussion, Bring this up.

I think you have something much bigger (in a good way) than you realize.

Even if you had position limits so people didn't go all wacko and jump in with both feet (participation restrictions based on you net worth, for example), this would still fill two very important needs.

You Fund our Starving Startup's (esp Alt E please, for me, okay?)

AND

You offer an escape vehicle from FIRE for the masses.

Good job EJ, I just hope you think bigger in scale than you are now. This could be a really great win-win for retail investors, start-ups, and our national strategic interests.

Give it a go man, you'll have my word of mouth support (and I have a VERY loud mouth).

V/R

JT

Bearster
06-23-10, 12:49 AM
How can one say "well regulated" in the same breath as discussing the monopoly that FIRE has established for itself? Regulation is always sold on the basis that it would "protect" the poor, ignorant, dumber-than-sh*it, irrational individual. But every bloody bit of it is designed to protect incumbents against competition. Back when the US was founded, there was one distinction made in law between who could or could not invest, sign a contract, etc.:

"Are you 18 or older?"

Chris Coles
06-23-10, 04:35 AM
Jtabeb, We can see you jumped out of the sack with a bee under your proverbial bonnet; but mean well for all that. ;_TU

Your confusion is that the solution requires any effort to disturb the existing system; I completely disagree with that. IMHO all that is needed is a realisation that the answer lies in recognising the long term effectiveness of a local "Community". Another way of describing that would be your local "Tribe". It was only recently that I fully understood why primitive societies settle down into tribes. A tribe is surely a group that has a wide ranging understanding of what they believe the rules should be and how they should be applied. The result is you end up with a group of families of every age group and abilities all working together as a community. That such a group has an aiming point and an unspoken, unwritten general agreement, to work together to the betterment not of one or two individuals within the local community, but to the benefit of the whole community.

So why not define the iTulip community in the same way? And set out to create prosperity throughout the iTulip community to the betterment of all, each to their ability and input? Some with funding, others with intellect?

We do not need a nation, or the complexity of all the unwanted support mechanisms; we simply need to agree among ourselves and get on with it. BUT, with one proviso; this is not about America, because the iTulip community hails from all corners of the planet. So this is regardless of location; but is dependent upon a general acceptance for those within iTulip that wish to so set out upon such a new adventure.

So, why not?

jtabeb
06-23-10, 10:17 AM
Why not, indeed.

Chris, here is a question that I have not "cracked the code" on yet. How do I take my PM holdings and turn that into a service that provides local capital?

A "bank" if you will, but a bank more like the Islamic finance model, where every investment is EQUITY based rather than DEBT based.

I see no problem with a "rental cost" of money, to me it's the same thing as renting a car or a ladder. You pay a fee and then return the good after you are done using it. So loans on rental terms are okay as I see it.

The problem with all this is I just don't see how I can compete with an entity that can create credit out of thin air. Plus, because there are govermental "intrusions" on market pricing, I would not be able to offer terms to anyone on any asset like property or facilities, only equipment (the only free market left).

It would be suicide to place "hard capital" at risk due to purposeful governemnt induced market pricing distortions.

So I can't start, but the local community can't wait.

So can you "Square that Circle" for me? I want to do, but don't know how to do while the financial system that we have continues to exist.

Bad (Credit) capital always drives good (Equity) capital into hiding because there is no actual "skin in the game" in the first case. Where is the risk if you can just be bailed out willy-nilly (depending on your connections and the political whims of those that are in power).

That's the paradox that I'm having a very hard time cracking. I would appreciate your thoughts.

I simply do not understand HOW alternatives can compete while the status quo recieves unlimited state sponsored life-support. They can make ANY mistake (or commit ANY CRIME) and keep operating (And EVEN KEEP collecting their million+ dollar bonuses). I make one mistake and I'm through. I can't compete with that (I'm good, I think, but not THAT good!).

bill
06-23-10, 11:07 AM
How can one say "well regulated" in the same breath as discussing the monopoly that FIRE has established for itself? Regulation is always sold on the basis that it would "protect" the poor, ignorant, dumber-than-sh*it, irrational individual. But every bloody bit of it is designed to protect incumbents against competition. Back when the US was founded, there was one distinction made in law between who could or could not invest, sign a contract, etc.:

"Are you 18 or older?"

Details for your viewing.
http://www.c-span.org/Watch/Media/2010/06/22/HP/A/34468/HouseSenate+Conference+Cmte+Meeting+on+Financial+R egulation+Bill+DAY+5.aspx

http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/Financial_Regulatory_Reform020210.html

http://www.nytimes.com/2010/06/23/business/23regulate.html?ref=business


Published: June 22, 2010

<SCRIPT type=text/javascript>var articleToolsShareData = {"url":"http:\/\/www.nytimes.com\/2010\/06\/23\/business\/23regulate.html","headline":"Auto Dealers Could Be Exempt From Proposed Regulator\u2019s Oversight","description":"The White House wanted the industry to face additional scrutiny as part of a consumer protection plan, but Senate Democrats yielded to centrist colleagues to get the broader legislation passed.","keywords":"Regulation and Deregulation of Industry,Automobiles,Law and Legislation,Gutierrez Luis V,Hensarling Jeb,Senate","section":"business","sub_section":null,"section_display":"Business","sub_section_display":null,"byline":"By <a href=\"http:\/\/topics.nytimes.com\/top\/reference\/timestopics\/people\/a\/binyamin_appelbaum\/index.html?inline=nyt-per\" title=\"More Articles by Binyamin Appelbaum\" class=\"meta-per\">BINYAMIN APPELBAUM<\/a>","pubdate":"June 22, 2010","passkey":null};function getShareURL() { return encodeURIComponent(articleToolsShareData.url);} function getShareHeadline() { return encodeURIComponent(articleToolsShareData.headline) ;} function getShareDescription() { return encodeURIComponent(articleToolsShareData.descripti on);} function getShareKeywords() { return encodeURIComponent(articleToolsShareData.keywords) ;} function getShareSection() { return encodeURIComponent(articleToolsShareData.section); }function getShareSubSection() { return encodeURIComponent(articleToolsShareData.sub_secti on);}function getShareSectionDisplay() { return encodeURIComponent(articleToolsShareData.section_d isplay);}function getShareSubSectionDisplay() { return encodeURIComponent(articleToolsShareData.sub_secti on_display);}function getShareByline() { return encodeURIComponent(articleToolsShareData.byline);} function getSharePubdate() { return encodeURIComponent(articleToolsShareData.pubdate); } function getSharePasskey() { return encodeURIComponent(articleToolsShareData.passkey); } </SCRIPT>The day was largely devoted to the details of new consumer protections. Democrats agreed to place the new regulator inside the Federal Reserve (http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_reserve_system/index.html?inline=nyt-org), as the Senate had proposed, rather than creating a freestanding agency, which was the House proposal. The Fed would provide funding, but the regulator would have considerable autonomy and its head would be a presidential appointee.

ThePythonicCow
06-23-10, 07:06 PM
The problem with all this is I just don't see how I can compete with an entity that can create credit out of thin air.The essential element of a healthy society is that most of its individuals have a future, a future worth working toward, a society in which it is worth improving their abilities and worth to themselves and those around them.

Debt in all its forms is an exchange of present value with future value. Too much debt creates "debt slavery", destroying people's futures as surely as other forms of slavery, tyranny and abject poverty.

The nature of the debt or of the lender or of the means of creating the lent value are all secondary. If the lent value can be created all too easily for essentially zero cost to the lender, then this encourages too much lending, which leads to too much debt and to debt slavery. It's the excess debt and ensuing debt slavery, destroying people's futures, that is the essential failure in such cases. Licensing banks to lend as much as they can, for the mere cost of making a matching pair of bookkeeping entries, is but a means to that end.

There is a delightful, truly delightful, post by someone evidently of Chinese heritage at An Open Letter From A Chinese Reader- “Social Inequality” and The “Destructive Cycle” of China (http://israelfinancialexpert.blogspot.com/2010/06/open-letter-from-chinese-reader-social.html) which spells out this and much more, from a perspective quite different than the American one I hold.

P.S. - Perhaps one of the messages that Chris Coles, EJ and others have for us, as they seek to find better ways to contribute to the well being of our society even as they seek to protect accumulated wealth is that it is not just about "guarding one's stash", but rather it is also about increasing the value of one's contribution, be it of labor, insight or wealth investment, to the family, friends, communities and society about one.

leegs
06-23-10, 07:41 PM
I just have to say how much I appreciate the last few posts by JT, Chris and PC.

EJ
06-23-10, 08:09 PM
The essential element of a healthy society is that most of its individuals have a future, a future worth working toward, a society in which it is worth improving their abilities and worth to themselves and those around them.

Debt in all its forms is an exchange of present value with future value. Too much debt creates "debt slavery", destroying people's futures as surely as other forms of slavery, tyranny and abject poverty.

The nature of the debt or of the lender or of the means of creating the lent value are all secondary. If the lent value can be created all too easily for essentially zero cost to the lender, then this encourages too much lending, which leads to too much debt and to debt slavery. It's the excess debt and ensuing debt slavery, destroying people's futures, that is the essential failure in such cases. Licensing banks to lend as much as they can, for the mere cost of making a matching pair of bookkeeping entries, is but a means to that end.

There is a delightful, truly delightful, post by someone evidently of Chinese heritage at An Open Letter From A Chinese Reader- “Social Inequality” and The “Destructive Cycle” of China (http://israelfinancialexpert.blogspot.com/2010/06/open-letter-from-chinese-reader-social.html) which spells out this and much more, from a perspective quite different than the American one I hold.

P.S. - Perhaps one of the messages that Chris Coles, EJ and others have for us, as they seek to find better ways to contribute to the well being of our society even as they seek to protect accumulated wealth is that it is not just about "guarding one's stash", but rather it is also about increasing the value of one's contribution, be it of labor, insight or wealth investment, to the family, friends, communities and society about one.

Exactly. Think about it this way. Who would you rather "give" to? Option 1: the man or woman with a passion to create something out of nothing as all entrepreneurs do, with the will and intellect to turn the abstract into the real, not spinning gold or even necessarily producing exquisite creations but channeling the most base human passions to improve incrementally on all the blood and sacrifice of the soldiers of invention that went before them, creating value "out of thin air" as it were. Option 2: someone who seeks a guaranteed income no matter whether they contribute value or not?

Chris Coles
06-24-10, 06:04 AM
This is turning into a very thought provoking debate. First off, Wrigley, can you find out who wrote the wonderful description of the Chinese position and EJ, can you take them on board as a full member? Whomever wrote that can make a useful contribution here on iTulip.

Jtabeb, as I see it, you are still looking at this as a form of constitutional problem, the individual against the system; where I am seeing this as; we must find a way forward, but outside of or regardless of the system. What we face is indeed, very similar to the problems outlined in China if for no other reason than they were instigated by the current Western value system we are all entrained inside. The FIRE economy drives the inequality of the West from the same ethos as it has driven inequality in China.

To be able to move forward, we need to start to think for ourselves and stop looking at the future through solutions provided by the FIRE economy rulebook. So the first thing to do is throw that rulebook out the window.

So, in fact, Jtabeb, you, and one or two others have started a small ball rolling that makes sense. Let me try and explain why. All of us have to use existing FIRE economy institutions to deposit money. Not that I have any, but the process always forces us to add whatever we have to the existing FIRE economy. Every transaction we make bolsters the existing dysfunctional system. The old fashioned way out of this dilemma was to pay in cash, what was once reviled here in the UK as the Black Economy. Cash! But that does not serve us, so what we do need is a new bank; an iTulip Bank. A bank, created simply to keep the iTulip community funds out of the existing FIRE economy. Banked in the old fashioned way, all deposits made in Gold, all transactions relative to a agreed value of Gold. Set our own Gold standard. The iTulip bank must be international and thus the first question is where do we go to establish it?

So we start with our own system, completely external to any existing system and we then set out to establish our own rules of engagement. There are still stable currencies, or we can establish our own as another form of barter. Personally I believe we must use an existing currency, but to remember, over a relatively short period of time, no more than say a decade, our validity will become so strong in an uncertain world, we will become the leaders of the new age to come. The iTulip community will set the standards from now onwards. We set out to lead; not to follow.

I was about to use the word "if", and stopped myself. We must and will.

So the first thing is the bank and location and currency.

jtabeb
06-24-10, 06:36 AM
"So the first thing is the bank and location and currency."

Cool, I'm all in.

But just remember, this is where the "Multi-Metallic Metal Standard" comes into it's own. Gold, Silver, Platinum, Palladium, Rhodium, at their own "floating" exchange rate to one another. No fixed ratios, but a market driven process for determining how many of one will get you X many of the other.

All Bimetallic (plus+) standards fail when they try to maintain an artificial fixed exchange rate based on an arbitrary ratio.

Hard capital is HARD capital! We need the Itulip bank to work up and down the capital structure, you can only do that if your Hard capital "units" are sufficiently varied enough to deal with all types of capital projects. 400 Toz gold bank bars for say a new chip fab, 1/10 Toz Silver coins for say a micro finance capital project. Point is you have to meet ALL different sizes of capital needs to really offer a viable solution.

And, just to go way WAY out on a limb, if you could set up our own exchange rate mechanism, you could not just limit yourself to currencies but could also service "digital credits", he kind you get when you buy a song on Itunes or what you purchase stuff with on Xbox live. Could you imagine having a free exchange rate mechanism where you could start with "virtual currency" and, if you had enough of them, turn them into real currency and eventually say PMs?

It's too bad that a google or an apple or a microsoft is thinking about this. Think about the synergy you could gain from say a Google online platform married with this type of banking service. Think of the customer base and the depth of the capital structure. Imagine if you had a COMMON platform that served as the defacto standard used by ALL THREE of these players. NOW think of he customer base and capital structure. Remember, we are strictly talking EQUITY CAPITAL here.

You marry an existing technology company to this idea and you have growth rates and global reach that only the Web can provide. Think about that for a second.

ThePythonicCow
06-24-10, 08:27 AM
First off, Wrigley, can you find out who wrote the wonderful description of the Chinese position The blog that posted it rather pointedly avoided providing any identifying information, so I was presuming that the Chinese author preferred to remain behind the scenes. Certainly I would, if I lived in China these days and wrote such a piece.

ThePythonicCow
06-24-10, 08:34 AM
The iTulip bankGoldmoney.com provides for gold, silver and platinum holdings and transfers.

I suspect it would be a poor use of our limited resources to attempt to duplicate or improve on that.

Chris Coles
06-24-10, 05:03 PM
Goldmoney.com provides for gold, silver and platinum holdings and transfers.

I suspect it would be a poor use of our limited resources to attempt to duplicate or improve on that.

In one sense, you are correct, but on the other hand I was using the wrong term; Bank. What I meant to say is we need to think of creating a system external to the existing FIRE economy. Right now, every transaction bolsters their system. So instead of bank, insert into your thinking a new system and even more so the need for a new savings institution. A means to spread the load.

tsetsefly
07-21-10, 08:05 PM
so the world cup ended almost 2 weeks ago.. no gold crash...