Economic Crisis Avoidance Deus ex Machina - Part I: Active Asset Price Inflation - Eric Janszen

[dcarrigg]

Re: EJ’s Secret Message

No, unfortunately my late friend, Mike Robertson made very little:

"The CFTC raised margin rates to 100%. The Hunts were accused of market manipulation and ordered to unwind their position.

They were subpoenaed by Congress to testify about their true motives. After a decade of litigation, Bunker received a lifetime ban from the commodities markets, a $10 million fine, and was forced into a Chapter 11 bankruptcy.

Mike saw commissions worth $14 million in today's money go unpaid.

In the end, he was only left with a Rolex watch, his broker's license, and a silver Mercedes."

Quote by John Thomas


I met Mike in the mid 80's and became a close friend. We spoke frequently and I saw Mike one or two times a year, the last time a few months before his death at 61.

I miss him, but still keep in close touch with 8 of our other buddies that spent a lot of time together with Mike and I.

Truly sorry about that story. Feels as if it helps me understand your perspective. Mean that in the truest and most sincere way possible.

[vt]

Re: EJ’s Secret Message

No, unfortunately my late friend, Mike Robertson made very little:

"The CFTC raised margin rates to 100%. The Hunts were accused of market manipulation and ordered to unwind their position.

They were subpoenaed by Congress to testify about their true motives. After a decade of litigation, Bunker received a lifetime ban from the commodities markets, a $10 million fine, and was forced into a Chapter 11 bankruptcy.

Mike saw commissions worth $14 million in today's money go unpaid.

In the end, he was only left with a Rolex watch, his broker's license, and a silver Mercedes."

Quote by John Thomas


I met Mike in the mid 80's and became a close friend. We spoke frequently and I saw Mike one or two times a year, the last time a few months before his death at 61.

I miss him, but still keep in close touch with 8 of our other buddies that spent a lot of time together with Mike and I.

[Chris Coles]

Re: EJ’s Secret Message

A great friend, now deceased, was the Silver broker for the Hunt brothers

He must have made more money from the trading than the Hunt Brothers.

[thriftyandboringinohio]

Re: EJ’s Secret Message

Of course, it's impossible for an embargo to last forever because the ultimate goal is to dump whatever existing stock just before the bubble bursts. So at some point, the oligarchs would need to dump their palladium. It's like timing to dump all your bitcoins onto fools when the price was $19k.

Yup. I wonder if there is any signal to watch for palladium other than the spot price that might give a trader a little extra time to buy in?

[touchring]

Re: EJ’s Secret Message

Any Russian embargo would probably fail to keep the price up for more than a year or two.

Of course, it's impossible for an embargo to last forever because the ultimate goal is to dump whatever existing stock just before the bubble bursts. So at some point, the oligarchs would need to dump their palladium. It's like timing to dump all your bitcoins onto fools when the price was $19k.

[thriftyandboringinohio]

Re: EJ’s Secret Message

A great friend, now deceased, was the Silver broker for the Hunt brothers

Way cool vt!

[vt]

Re: EJ’s Secret Message

A great friend, now deceased, was the Silver broker for the Hunt brothers

[BK]

Re: EJ’s Secret Message

Well said!

[thriftyandboringinohio]

Re: EJ’s Secret Message

Some years ago iTulip threads were chock full of discussion about precious metals. One concept that emerged was that although all the precious metals are rare and expensive - gold, silver, platinum, palladium, rhodium - gold stands alone as true money. All the others, including palladium, have some industrial demand for using them up. So the prices of the other precious metals behave differently than gold, rising and falling with the industrial economy, with stockpiles depleting as they are consumed. So palladium supplies could indeed be choked off by Russia to drive the price up. But only temporarily. While palladium is the best material for it's markets, other materials and techniques can be pressed into service to substitute for palladium. Any Russian embargo would probably fail to keep the price up for more than a year or two.

Of course if you were the lucky person holding palladium when it happened you could laugh all the way to the bank, and the Russian oligarchs may indeed give it a go. I've seen something like it done once before - google "Hunt brothers corner silver market".

[touchring]

Re: EJ’s Secret Message

It's super hard for me to know what's moving on the commodity front. Weren't they saying palladium was spiking in the spring because of Russia and potential sanctions? I have no idea how that would actually fit into the supply chain. Have to figure biggest raw supplier is Russia and biggest buyer is China. Does China slow-down affect this? Their car numbers are crashing hard. A lot of variables in there.

Russia can limit supply to push up the price of palladium.

[jk]

Re: EJ’s Secret Message

. But nobody really needs to have gold, not the way people truly need to get food and medicine.

gold's lack of utility is one thing that makes a perfect neutral settlement asset. it can be priced arbitrarily without in any way affecting the industrial economy [except for the production of wedding rings]. cb's have been accumulating gold again since 2013. it's the only thing they own other than the sovereign bonds of other countries. the usd, in the form of treasury instruments, is losing its role as THE reserve asset. it is being demoted to A reserve asset. other currencies can be held but lack the deep bond markets and/or convertibility to allow them to have major roles. there needs to be a neutral reserve asset. it will be the sdr, or a revised sdr including a commodity/gold component, or just plain gold. to serve this role, however, gold will have to be revalued sharply upward. the people who say there's not enough gold to serve this function are ignoring the fact that all you have to do is, e.g., add a couple of zeroes to the price and you've got plenty. china's reserves may be much greater than we know. if, for example, the chinese say that starting tomorrow they will buy or sell gold at 100 barrels of oil/oz of gold, that will be the price, established in an instant. and the price of gold in dollars will have to equal the price of 100 barrels of oil at that time. oil can go down or gold can go up, or some combination, but that ratio will be established.

[dcarrigg]

Re: EJ’s Secret Message

I own a little bit of Palladium. It taught me about my flawed thinking on investments. I bought my few coins when Palladium was trading at $750/oz and within one year the price collapsed to $300-$400 range. In the last year Palladium is on fire and I think its due to scarcity/automobile manufacturing. Again, I find myself struggling with the constant problem with any investment is this the high or is Palladium signaling inflation is on the way?

Should I convert my Palladium to Gold?

Or will auto manufacturers shift away from Palladium for catalytic converters.

Wish I could see the future.

How high will Gold go and when are completely unknowable.

It's super hard for me to know what's moving on the commodity front. Weren't they saying palladium was spiking in the spring because of Russia and potential sanctions? I have no idea how that would actually fit into the supply chain. Have to figure biggest raw supplier is Russia and biggest buyer is China. Does China slow-down affect this? Their car numbers are crashing hard. A lot of variables in there.

[BK]

Re: EJ’s Secret Message

I own a little bit of Palladium. It taught me about my flawed thinking on investments. I bought my few coins when Palladium was trading at $750/oz and within one year the price collapsed to $300-$400 range. In the last year Palladium is on fire and I think its due to scarcity/automobile manufacturing. Again, I find myself struggling with the constant problem with any investment is this the high or is Palladium signaling inflation is on the way?

Should I convert my Palladium to Gold?

Or will auto manufacturers shift away from Palladium for catalytic converters.

Wish I could see the future.

How high will Gold go and when are completely unknowable.

[thriftyandboringinohio]

Re: EJ’s Secret Message

You are spot on touchring. I don't claim to understand how much the cost of mine production affects the price of gold. Figures for all-in mining cost are murky. Some of the most profitable mines may be producing new gold as low as $600 /oz. Typical cost may be more like $1000/oz. Given that 98% of the gold available to buy today was mined long ago it's tempting to think mining costs are irrelevant. But I can't let go of my suspicion that most of that old gold is not available to buy, so the price of newly mined gold seems pretty important for the market price.

You point about inelastic supply is more clearly true. Plus the small size of the gold supply amplifies those effects. The entire world supply of gold, above ground plus below ground, at today's prices might be worth 10 trillion dollars. That's a big number by any standard, but the size of the world's capital markets (stocks + bonds + bank assets) might be $300 trillion, and world GDP might be $75 trillion. Since the gold supply is both relatively small and highly inelastic, sudden investor interest in gold could make for an explosion in the gold price. But nobody really needs to have gold, not the way people truly need to get food and medicine. So it's just as rational to predict investors might lose interest in gold and the price drops to nearly nothing. It's a fact that a gold price spike COULD happen, but it's only a hope or a hunch that one WILL happen. I've been holding mine for 15 years, and I've become jaded to the wild-eyed predictions of a gold price explosion just around the corner. I've been reading those since 2001. Still I think it's a good wager and I'm happy to bide my time, waiting for a good moment to sell it.

[touchring]

Re: EJ’s Secret Message

Thanks touchring, that's a view of gold pricing I have never before considered.
My knee-jerk reaction is to disagree and dismiss it, but the idea is pretty good and deserves more consideration than that. Let’s address your point with facts.

At least superficially, the price of gold is widely perceived to rest on the assumption it is rare. Clearly there is not a truly unlimited amount available, the planet is finite. But if we are speaking philosophically and we are including here the faint traces of gold floating in sea water in parts per billion, and the nano-particles dispersed in beach sand, and the amounts way down in the molten core of the earth, there may be such a huge amount that it can be considered unlimited. But we can't get any of that gold at a price some person is actually willing to pay in cash. It seems fair to disregard this vast amount of unconventional gold because it is unrecoverable.

The World Gold Council says we have about 190,000 metric tons of gold mined and above ground now.

Total above ground stocks (end-2017): 190,040 tonnes

Jewellery: 90,718 tonnes, 47.7%
Private investment: 40,035 tonnes, 21.1%
Official sector: 32,575 tonnes, 17.1%
Other: 26,711 tonnes, 14.1%

The World Gold Council also estimates below ground reserves of 54,000 tonnes. That is the amount of gold ore still in the ground at active mines, and gold deposits known to geologists which we expect someone will build a mine to get. Gold mining production has been running about 3,000 tonnes a year. With those last facts we can finally address your point.


The world supply of refined gold above ground goes up about 1.5% each year from mine production, and it can keep doing that for about 20 years at current course and speed. As far as we know, the world supply of refined gold above ground can increase by another 25% in total, and then that’s it, we are out. No more additional gold. If we imagine people become desperate and start bidding up the price ever higher, perhaps small amounts of marginal low grade gold ore could be mined and recovered, but certainly far less than we mine today. And today we only grow the gold supply 1.5% each year.

So I therefore conclude that gold is not a commodity in unlimited supply, like wheat or rice or lumber where we can always get some more. Instead gold is a limited and fixed supply, much like paintings by Rembrandt or like Stradivarius violins. For all practical purposes there just won’t be any more found or made. Its price has little to do with inflation, but instead depends on how much someone wants to pay you to purchase the gold you have in your pocket today.

Did I miss your point entirely?

Thanks for replying. You didn't miss my point but inflation does play a part to some extent as it costs money, energy and labor to dig the gold out of the ground. Gold supply is also inelastic meaning if there's a sudden increase in demand, it's not possible for producers to suddenly produce more gold as it will take years to explore and open a new mine.

There could be many factors determining the price of gold but the market appears to have not factored in fully the growing scarcity of newly mined gold.