One of the only things I have walked away from the study of economics with is the law of supply and demand. It may not be as cut and dry as the books teach, but the over all theory works to find an equalibrium concerning price.
This summer we have seen some very important goods fall prey to shortages of supply. The first was corn and other food staples. Because of this many farmers slaughtered their animals because feed was high priced. So soon we will see shortages of meat.
Another supply concern is that of precious metals. Platinum miners went on strike in South Africa and were followed by gold and silver miners. This will create a supply crunch down the road.
As for precious metals, investment demand has been quelled by paper products. This will not help industrial demand. If there is ever industrial shortages the price will rise. This is one reason rising investment demand may help create price appreciation - it could squeeze industrial demand.
Food products are not so easily created. People can eat less meat if the price rises too high, but since everyone eats the inflation will be obvious to the status quo. Precious metals can rise and not everyone cares. Many people think gold is a barbarious relic; they don't understand that it is being used to shore up Central Bank balance sheets across the world. They don't understand that in every cell phone there is fifty cents worth of silver. They don't understand there is platinum in every catalytic converter. They don't understand that gold is in every computer's mother board.
With rising costs due to monetary policy, with rising costs due to peak resources, a major supply crunch will throw a wrench into the system. I expect the above two examples (meat and metals) to do just that next year.
Wednesday, October 24, 2012
Sunday, October 21, 2012
Precious Metals, Asian Trading, and the Election
While precious metals have moved lower over the last couple of weeks, the dollar has not budged. Since last summer there has been a disconnect in the long trend, the long trend which had the dollar move inversely to all assets. First the dollar strengthened, stocks fell, but gold moved up - this was the case last August. Then the dollar stayed flat while gold fell and stocks moved up. Now we are in another round of capitulation where the dollar stays flat while assets move lower. The message to take away from this is that another major move is at hand. Capitulation of a trend always results with such.
What will the next move bring? Nothing is certain so let's analyize what has happened in the past to best understand the future.
One of the greatest moves of capitulation, and something still fresh in my memory, was the huge drop in silver in the Spring of '11. Let us not forget when the move happened - it happened in overnight trading. Asia was the live market when it happened. This means one of two things: Either China and other Asian States took it down, or JPM and Co. have great access to those markets. This means that we should not trust Asia to support the Precious Metal market. They are supporting the Status Quo just as much as any of them.
Now let's move to the current happenings - the election. One of two things are happening here: Either the Blue Team and the Red Team have agreed on terms for oil, gold, and stocks, or there is no more either/or and there is now a Purple Team who have an exact idea of what will happen. Although oil and gold is high, it could have gone higher by now if the Fed had juiced the flow of funds. This would have had stocks higher and pensions and IRAs/401ks with them. I think that people closing in on retirement are blind to what rising gold implies (the death of fiat instruments) and higher stocks would have trumped higher oil prices. I think that higher asset prices would have been in Obama's favor for this reason. The fact that they didn't move higher and that corporations are reporting poor earnings shows that the CEO class is pro GOP. Yet economics (Neo-Keynesian theory) have set the table for the Democrat party.
If Romney wins he says he will label China a currency manipulator from Day One. This has heavy implications because the world will know how weak Romney is from the get go. If he doesn't give China this label he is a Flip-Flopper of epic proportions, but if he does then he is willing to sacrifice the dollar for the favor of the Corporate Class. I say this because if China strengthens the Yuan it will take the dollar down by 20% over night, and will then force a run on the dollar that would equal another 20%. This would see stocks rise, albeit equal to the dollar's drop in nominal terms, but basically if you are like most people and don't have your life savings in stock you will be broke. Wages will not rise proportionally either. Hard assets will also rise, and who can buy gold for $3k? Not many people.
The fate of the dollar has an enevitable one, but with Obama it will happen more slowly. I am not saying one choice is better than the other, but I want to make this observation so we know what will happen when the election happens. I think that until the election the game will be on pause. Sometime after the election, maybe in November, maybe December, but by January, the fate of America and the dollar with it will come to pass. The Fall of the dollar will last for a few months, upon which time it will die and a New World of old will emerge.
What will the next move bring? Nothing is certain so let's analyize what has happened in the past to best understand the future.
One of the greatest moves of capitulation, and something still fresh in my memory, was the huge drop in silver in the Spring of '11. Let us not forget when the move happened - it happened in overnight trading. Asia was the live market when it happened. This means one of two things: Either China and other Asian States took it down, or JPM and Co. have great access to those markets. This means that we should not trust Asia to support the Precious Metal market. They are supporting the Status Quo just as much as any of them.
Now let's move to the current happenings - the election. One of two things are happening here: Either the Blue Team and the Red Team have agreed on terms for oil, gold, and stocks, or there is no more either/or and there is now a Purple Team who have an exact idea of what will happen. Although oil and gold is high, it could have gone higher by now if the Fed had juiced the flow of funds. This would have had stocks higher and pensions and IRAs/401ks with them. I think that people closing in on retirement are blind to what rising gold implies (the death of fiat instruments) and higher stocks would have trumped higher oil prices. I think that higher asset prices would have been in Obama's favor for this reason. The fact that they didn't move higher and that corporations are reporting poor earnings shows that the CEO class is pro GOP. Yet economics (Neo-Keynesian theory) have set the table for the Democrat party.
If Romney wins he says he will label China a currency manipulator from Day One. This has heavy implications because the world will know how weak Romney is from the get go. If he doesn't give China this label he is a Flip-Flopper of epic proportions, but if he does then he is willing to sacrifice the dollar for the favor of the Corporate Class. I say this because if China strengthens the Yuan it will take the dollar down by 20% over night, and will then force a run on the dollar that would equal another 20%. This would see stocks rise, albeit equal to the dollar's drop in nominal terms, but basically if you are like most people and don't have your life savings in stock you will be broke. Wages will not rise proportionally either. Hard assets will also rise, and who can buy gold for $3k? Not many people.
The fate of the dollar has an enevitable one, but with Obama it will happen more slowly. I am not saying one choice is better than the other, but I want to make this observation so we know what will happen when the election happens. I think that until the election the game will be on pause. Sometime after the election, maybe in November, maybe December, but by January, the fate of America and the dollar with it will come to pass. The Fall of the dollar will last for a few months, upon which time it will die and a New World of old will emerge.
Wednesday, October 10, 2012
The 9th
We are now about to witness the first pitch of the top of the ninth. The Fed will issue its MBS buying for the month tomorrow (the eighth business day of the month) and serve up half a trillion dollars out of thin air. These dollars will be used to front USTs to the PDs and fractionally reserve assetsso to keep the system leveraged. What we have seen since the QEX announcement has been a rearrangement of chairs on the Titanic - it's all going down man.
It starts tomorrow and the top half will last until about January 20th. During this time the system will be releveraged by about 10:1 from where it is now. After that and until about March 30th the system will be releveraged again 10:1. The leverage from where we are now will be 100:1.
I think that everyone who reads this blog already knows what is about to happen (all FX is about to get thrown in the furnace of the Central Banks). I think by January 20th anyone paying an ounce of attention will notice that the fiat system is slipping into oblivion (they will notice because of higher gold prices). I think by March 30th everyone will notice (due to significantly higher gas prices).
I am looking at the DXY retesting 81.5 next week and then moving sharpley lower after the Fed not only buys more MBS but loans against them and expands their balance sheet. I think this will cause gold to move higher. It will take silver with it. Oil will move too as it is a part of the complex but it will lag if only by inches.
It starts tomorrow and the top half will last until about January 20th. During this time the system will be releveraged by about 10:1 from where it is now. After that and until about March 30th the system will be releveraged again 10:1. The leverage from where we are now will be 100:1.
I think that everyone who reads this blog already knows what is about to happen (all FX is about to get thrown in the furnace of the Central Banks). I think by January 20th anyone paying an ounce of attention will notice that the fiat system is slipping into oblivion (they will notice because of higher gold prices). I think by March 30th everyone will notice (due to significantly higher gas prices).
I am looking at the DXY retesting 81.5 next week and then moving sharpley lower after the Fed not only buys more MBS but loans against them and expands their balance sheet. I think this will cause gold to move higher. It will take silver with it. Oil will move too as it is a part of the complex but it will lag if only by inches.
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