12 replies to this topic

[Steve Netwriter]

It seems a shame for really insightful or enlightening or just particularly good posts to just disappear into the depths of threads.
So, I'll try and post here any I spot. Feel free to post any you think deserve the title.

I have clicked "reply" on the original post, and then copied/snipped the text, so you can follow the quote back to the source if you wish.

===============

Another unintended, yet totally predictable effect of the government/central bank interest rate manipulation.

This is economic 101: capping the price of anything generates shortages.

In this case, the price of credit (the interest rate) has been artificially set lower. The result is a shortage of credit.

This will make the onrushing economic depression more prolonged because the market will not clear until interest rates are allowed to rise.

and this reply:

This is the first time I've heard it expressed in those terms - it makes perfect yet terrifying sense.


The problem's don't stop when they actually have to raise rates.

Higher rates will lead to:-

More loan defaults
A deeper housing crash
More small business loans called in (especially those using their home as collateral)

This will result in:-

Falling tax receipts

This will lead to:-

More Govt borrowing to cover spending commitments
Higher bond yields having to be offered by the Govt for investors to buy Gilts

This will relult in:-

Higher levels of Taxation (45% is just the start)

This will create:-

less economic activity....more loan defaults ...etc, etc, etc

The UK's only short term chance of survival is to cut spending massively. If they let the currency crash, we'll get massive inflation and we come full circle to the Government having to introduce  higher interest rates. Which leads us right back where we started.

DOOOOOM....

[Steve Netwriter]

Hmm   Maybe the Q&A should be rephrased / broken down as follows

1.  Can we avoid a long drawn out recession = looks impossible
2.  Can we avoid a long drawn out recession turning into a depression = doesnt look good
3.  Can we avoid hyper inflation / painful deinflation or even both = doesnt look good
4   Can we avoid a melt down of the World's major currencies ie USD/Euro/GBP following the stupidly expensive bank bail outs = hope so but doesnt look good - not considering point 5.    
           + What will happen when the USD tanks ?
5.  Can we avoid a global financial meltdown following a $62trillion CDS explosion as per cgnao's prediction?  I wet my pants on this one!   !
6.   Even if we survive all of the above and come out of recession circa 2013, will the world be producing enough oil to satisfy its needs ?

Thats all without mentioning the geopolitical issues of Al Qaeda et al, Piracy on the high seas and FWIW's "Acopolipse Now"     scanario

Hey FWIW - have you read up on the  Kondratieff cycle ?   If we are now in a  Kondratieff winter then this is the time of war, apparently  

Ps I remain positive at heart, but perhaps not in my thinking

[Steve Netwriter]

Bobsta,
I believe this is just the natural aspect of Forward contracts pricing in the interest rate differential of the 2 currencies involved.
If you think of currency trading as taking 2 opposite positions in different currencies, lets say if you short 100 GBP/JPY it is similar to:
1- borrow 100 GBP
2- sell your 100 GBP
3- get 100 * 207.5 (whatever spot price is at the moment of the transaction) = 20,750 JPY

So you end up with 2 positions:
+20,750 JPY on which you can receive "credit" interest (~0.25%)
-100 GBP on which you have to pay "borrowing" interest at overnight (ie ~5% depending on the spread of your dealer)

After 3 months the trade would cost you the interest rate differential (~5%) on the notional amount of the trade (100 GBP) which is equal to 100 x 5% /4 = 1.25 GBP or 1.25%. When applied to the spot price of 207.5 for example, this gives 207.5*1.25% = 2.59 = 259 pips (roughly the figure you are seeing with your futures dealer) with a 3-month forward price of 207.5 - 2.59 = 204.9.

I hope this makes things clearer for you. This is one the basis of the carry trade strategies in currency trading (ie sell the low-yielding currency such as JPY and buy the high-yielding currency such as NZD, AUD) to earn the interest spread - additionally if enough people follow this logic, this will push the low-yielding currency price down and high-yielding price higher. Similarly some people use the carry trade to borrow in yen and invest in stocks, properties, etc in other currencies (JPY or CHF mortgages were quite popular still this time last year for UK buyers of foreign properties, and this was a real idiocy: would you have taken a JPY mortgage in July 07 at GBP/JPY=250 and with the rate at 200 your GBP liability would have increased by 25%   ).

I guess it depends what your time objective is but personally I trade on a long term basis and tend to ignore the interest costs and only consider the total outcome of the trade (ie P/L +/- interest).
As for GBP/JPY I believe the value of the pound ignores the terribe state of UK plc whereby JPY has been driven down too much by an excess of carry trade. These 2 should re-adjust and produce some good return (although the interest differential is costing me money everyday). This is also a simple hedge out of the pound (although not very diversified)

PS: I would recommend that you take a look at my FX online broker (fxtrade at oanda) who have a very simple and no-nonsense platform which allows you to understand how interest works (they charge interest on a second-by-second basis and you can have whatever transaction size you like up to a leverage of 50x) - although it is surely not as interesting as spread-betting from a tax perspective - for non-doms, they are based offshore (in Canada).

[Ziknik]

I guess this is the practical side of all our speculations.  What does the scary economy mean for property prices in the future? Should we save our money and wait for prices to come down or buy now and watch our mortgages get inflated away.  I think these questions will be troubling thinking people to no end in the next year or so.

Personally, I would consider myself wealthy not when I had a huge pile of money or a stack of gold but when I had property by which I could enjoy certain conditions in life. Money is the means. With only a deposit saved towards property and confronted with the conundrum of falling asset prices on the one hand and threatening inflation on the other, it makes sense to go into gold which inflation proofs those savings and also acts as a solid store of value in case everything, including currencies, continue to depreciate/deflate.

I do not expect to see inflation break out any time soon.  It would all be too easy... suddenly property prices would stabilise, reverse and head back up to the collective relief of all, suddenly the economy would kick back in to life... it is not going to happen. I suspect there will be a lot more pain ahead as the real economy deteriorates, uemployment grows, assets prices deflate and foreclosures increase . The longer this carries on the more desperate the government will become with more draconian measures.  imo after a year of pain and with increasingly crazy policies we will eventually see an inflation which could quite possibly become rampant and uncontrolled [hyper].

What does this entail for buying property/land. imo after a year or so, after prices have came down [and I think they will drop faster once this deflationary period truly starts to bite] it may be a good idea to buy property with a 50% mortgage though also making sure to have further funds at hand so you could pay that mortgage if needed.  I know, neither a lender nor a borrower be but given a possible inflation it would make sense to have a mortgage. Also, I imagine many who remain sitting in their "STR" deposits, while waiting for prices to continue their decline, may be priced out if the inflation hits quickly enough.   The beauty of keeping your deposit in gold here is that it covers both eventualities.

So in sum, what do I want? I want property near the beach... to grow spuds and catch fish. Such a self-determined life goes some way towards securing a wealthy and prosperous life. What do I want? Inflation or deflation? Well, deflation would suit my purpose most but I do not think it will be as simple as that.  Though we have deflationary forces at work now, I am persuaded that at some time in the near future we will have inflation in prices as currencies devalue and collapse. Given this scenario it is not about absolutes but about timing.

[Steve Netwriter]

Hi Warpig,

You will sleep better at night owning metals during this catastrophe as it plays out - I do, that's for sure. When I was playing gold and silver stocks up to about a year ago, I was not sleeping at night - too volatile and I could sense a general DOW crash, which would pull all metals stocks down, so I got out.

At one point I was 50 per cent of all my net worth in AUY Yamana (I got a bit carried away day-trading!), margined x 2 too!, around 15 or 16 dollars, just for a few days, and then I had my epihany and got out completely, and of course AUY collapsed to 4 or 5, and is rebounding to 6, but if I had stayed in, I woud have been wiped out, especially on margin.

Prior to this I was 100% in metals, silver gold in a 60/40% ratio. Ideally, long term, gold is the SAFEST way to go, but I always have a problem with patience, tho trying to change that.

I sold half to play the gold and silver miners, and now am fully 100% invested in silver 100oz bars, kept in a safe place on my property. The ratio of gold to silver is exceptionally high now, around 80 to 1, and I am going to switch between gold and silver as this volatile ratio swings up and down. I will do all this with physical, not digital trades. It has all worked well so far regarding the trading, but I am well underwater because of the silver collapse. However I am not margined, so can wait it out for silver to rebound to 20 and head north. I originally bought gold at 630, and silver at 13.30 - I am still buying silver at 10'ish, and I guess I am averaged in at maybe 14/15/16'ish, I don't know. At the moment I look at my stash and say to myself, the world financial system is collapsing in slow motion, be patient, because when gold goes to 1200 next April, silver will follow at 30, when gold hits 2500, silver will follow exponentially. I've also just bought a large chunk of gold at Gmoney to cover my daughter's future, by means of transferring out of a zombie pension fund I was in and going for a Gmoney SIPP.

1) Would you keep any in cash in any currency?

Not much, no. For me, a few thousand bux is all I keep in cash. My other half and I know the score, and know that a black swan at any time can change things v quickly indeed, and black swans can in Murphy's law fashion come along in pairs or triplets (see Taleb) - so you gotta be in it to win it. I expect to be protected with metals, but I also expect to become quite 'rich' in a detrioratingly awful world when the collapse occurs in earnest, my eventual aim being to sell most metals at the right time in exchange for a safe house in a safe place with resources, i.e a yacht too, for self sufficiency. So practically speaking I don't need cash - if I need cash QUICKLY I go to my local gold/coin/pawn shop guy and he gives me cash on the nose for a 100oz bar, no paperwork, no trail, if I can wait 2 weeks I put the bar on eBay and get an extra 300 bux. This is like averaging out! It is safer than a bank - who needs cash. And once gold/silver uptrend again, you are merely dipping into your savings! Remember, gold is MONEY!!! IT IS CASH!!!

2) What percentage physical gold would you buy?

100% silver at this high ratio. If silver hits 25 or 30 next spring and the ratio drops to 50 or less, swap for gold. Repeat back and forth, in physical only.

3) What percentage physical silver would you buy?

I am a gambler so silver holds by far the most potential upside. It will way outperform gold at current artificial prices. When silver spikes tho, it does tend to collapse v quickly, the trick is to swap into cash or gold at the right time. And for me I would only cash out to buy a house or farm. So depending on endgame circumstances I would go gold again.

4) What else would you buy to make sure you don't put all of your eggs in one basket? NS&I indexed linked certs?

No paper at all, we are in endgame collapse. Get out of the UKPound, it is going to collapse big time.

5) Given the rate of decline and we're at the 11th hour, over what time frame would you average in to be safe?

I would go all in immediately to be SAFE - if you wait, something may happen out of left field, and it may cost you more to get in. Silver at 10 is a total giveaway, I don't care if it drops to 5 again, because eventually it will be trading in the 100s of dollars. Also, hold physical ONLY - no paper gold at all.

I'm sure this is all too gung-ho for you Warpig, but I hope it gives you some ideas. Good luck whatever you do!

[Steve Netwriter]

BTW, while those here who like Gold have been waiting for Gold to vault through $1,000,
I just clipped a nice quick 30% profit in less than 3 weeks trading other stocks.

That is just as good as a jump to $1,300.  

So I had as good as a profit as that sort of jump, while Gold bulls here are still waiting.
Best of all, 80% of my original investment is now sitting there in Cash.  If I put it
into GLD, and we see that sort of jump up, I have won twice, while others here win
only once!

Well done for your quick profit. You need to realise a lot of the people who are into gold are not traders, we have other professions and are trying to protect our wealth and supplement our current earnings during the ongoing currency crisis.

The level of understanding you have in the markets is admirable, but I am sure it has taken you a longtime and cost you some money in mistakes to get there. Personally I have concentrated on getting good in my profession which I do very well out of usually. I prefer doing an honest days work for an honest days pay and feel better about working hard and producing something at the end of it. To me not everything in life is about making money, it is more about enjoying your time while doing it. While you have made some money out of your trades I have done some work and earned around £2500 which I can put into gold if I wish, so the won once bit does cut it with me either.

I think part of the problem that has got us into this mess is the desire by people to make money off trying to trade into and out of financial instruments. We need to go back to a society where we work hard to produce & sell physical things, rather than financial instruments that enable some to gain as others lose. You have made money out of buying a option then selling it for more, but think to yourself someone somewhere has been on the other end of that deal and has lost money. Trading is quite similar to gambling in my eyes, someone wins - someone loses. No one has lost out by me earning my money, in fact they have gained by buying my service. Take a look at this recommendation I received last week from a client;

“My designs demand the best imagery which is why I've constantly used XXXX XXXXXXXX for all my photographic needs. XXXX is an expert in all things photographic and his cool, laid back studio (with great music!) is a place where creative ideas just happen. If you hire XXXX you won't be disappointed."

Please don't take this as a personal attack, it isn't. I commend you for providing this site to help people make discussions and reach a level of understanding with what is happening in the world. I am just trying to explain that being a financial trader is not for everyone and that a lot of the goldbugs on here are not attempting to be traders, but merely trying to stop our lives being destroyed by this mess created by the current system.

On your last statement about putting money into GLD, have you not been reading all the information that has been posted here and elsewhere about the problems with EFTs. Do the really own the gold they say they do or are they just part of the problem, derivatives based on the price of gold? If this whole financial mess has been caused by the massive build up of leverage and counter party risk caused by derivatives, how is holding a derivative of gold going to help when the SHTF?

[DisposableHeroes]

--- I've removed this quote because it looks like I said it, when in fact I was quoting someone else --- Steve

TENKOTO, Senegal: A reef of gold buried beneath this vast, parched grassland arcs across some of the world's poorest countries. Where the ore is rich, industrial mines carve it out. Where it is not, the poor sift the earth.

These hard-working miners include many thousands of children. They work long hours at often dangerous jobs in hundreds of primitive mines scattered through the West African bush. Some are as young as 4 years old.

In a yearlong investigation, The Associated Press visited six of these bush mines in three West African countries and interviewed more than 150 child miners. The agency's journalists watched as gold mined by children was bought by itinerant traders. And through interviews and customs documents, they tracked gold from these mines on a 4,800-kilometer, or 3,000-mile, journey to Mali's capital city and then on to Switzerland, where it entered the world market.

http://www.iht.com/articles/2008/08/11/africa/mines.php

Anything to do with money results in another person getting exploited.

[lowrentyieldmakessense(honest!)]

OK it was on HPC and i have noticed that they have deleted the links to his posts but this should make people think

1) Dramatically shrinking economy, leading to
2) Soaring defaults, leading to
3) Massive bank losses, leading to
4) Severe contraction of lending, leading to
5) Further shrinking of economic activity, leading to
6) Collapsing tax receipts, leading to
7) Exponentially increasing budget deficit, leading to
8) Higher taxes, leading to
9) Further horrendous contraction of economic activity, leading to
10) Huge political pressure for easier credit and bank bailouts, leading to
11) Further dramatic expansion of the money supply, leading to
12) Runaway inflation and currency depreciation, leading to
13) Skyrocketing prices and long term interest rates, leading straight back to 1) in a vicious circle of biblical proportions

[Steve Netwriter]

Interesting to see the usual jokey comments like "bury it in your garden/under your mattress"  along with the other predictable phrases such as tinfoil hatters, shot guns and beans, mad max etc... You could almost make a game of anti gold-bug bingo.

The phrase 'goldbug' is a label and like all labels, it allows the person labeling to make out that differences are fundamentally at odds with those from the majority, a process called Antilocution or 'othering' as in other than us, not the same, different, abnormal, weirdo, nutjob, to be avoided.

Allport’s Scale of Prejudice goes from 1 – 5.   http://en.wikipedia.org/wiki/Allport%27s_Scale

Scale 1, Antilocution

Antilocution means a majority group freely make jokes about a minority group. Speech is in terms of negative stereotypes and negative images. This is also called hate speech [2]. It is commonly seen as harmless by the majority. Antilocution itself may not be harmful, but it sets the stage for more severe outlets for prejudice.

"First they ignore you, then they laugh at you, then they fight you, then you win " M.K Gandhi

They can't ignore us anymore, though I think in general we are still in the laughing phase at the moment, with just a few very vocal critics up for a fight.

Anyway on the plus side I learnt a new word today.

ethnophaulism (plural ethnophaulisms)

1. Creating negative cognitive images of a different group, negative worth and/or caricatures (jokes having to do with someone's features).

2. Using derogatory or disparaging words.

[Steve Netwriter]

Do not feed the trolls.

I have a hypothesis that the 'global conspiratorial mind' is a phase that usually passes in a few years, or alternatively it burns out people. Sometimes people get on medication or wisen up. This is a learning process.

Usually others cannot speed the process up. This 'global conspiracy is everywhere' contaminates usually fairly young, fairly easily impressionable and those still developing in his critical faculties. In the end, they are usually all the better for it, but the process can be painful.

While I wish these believers (yes, it is a faith) would understand that some of us non-believers have actually read the Quigleys, Tarpleys, Griffins, Suttons, Astles, Decamps and then some. Some of it even "time before the all revealing truthful Internet" and before there were people like Alex Jones frothing at the mouth (and making money off it). We have walked the same path, worn similar thoughts and come through on the other side. Unfortunately, some were trapped in the maze and never got out.

We have come to understand what actual proof is and how easily gullible the human mind is with suitable rhetoric and hyperbole. And yes, this can apply both for the 'global conspiracies' as well as the ruling elites soothing words 'nothing to see, everything's ok'. The funny thing is, these can both be wrong at the same time, neither automatically proving the other. That's the nature of reality - it's not dichotomic, even if human thought mostly is.

One should:

  "Rarely attribute to malice that which can be adequately explained by stupidity."

For better or worse, uncoordinated stupidity is often the more likely explanation. Especially when there is proof of such.

For the 'global conspiracy' minded, if you are interested in really finding out the truth, I recommend some alternative reading to hone your critical analysis skills. Not meant to debunk any theory you may believe in, but to find out, whether it is really a theory to begin with and how you can yourself debunk it, IF it needs debunking.

Twelve Virtues of Rationality

The Method of Multiple Working Hypotheses, T. C. Chamberlin

Critical Thinking

Fallacies in reasoning

Cognitive biases in human thought

For the advanced monk:

Scientific Methods; Jarrad (2001)

An Intuitive Explanation of Bayes' Theorem

I can guarantee you that Alex Jones and his ilk will never recommend you to read these, continually refer to these or apply the methods diligently themselves.

And this is not because the contents of the writings are some NOD-serving brainwash propaganda (they don't attack *any* particular theory - they are method studies), but ironically enough, because they can protect you against brainwashing - and not just any single type, but ANY kind. Including the kind branded by.... < fill in here >

I try to make this my last post on the subject in general. From hereon I will try to stick to my own advice - don't feed the trolls and just killfile all the 'global conspiracy is out to get us!' meme contaminated posters. This forum deserves better.

[nicejim]

I liked that Halcyon one too. I made a note of the links for future reading, so something good has come out of the recent conspiracy threads.

[littledavesab]

I am going to take the liberty of posting this here.  Hope there are no objections.  Is certainly noteworthy in my opinion

re inflation vs deflation

I am a 'depends-how-you-define-it' ist .

Using the expansion of money and credit definiton, I used to be an inflationist . But I now see that way of thinking as too simplistic and indeed last year's bust put pay to that theory.

Every time I hear an eloquent deflationist - such as Mish - argue with an inflationist , the former wipes the floor with the latter imo. Even when - as Mish did in the fsn show a few weeks back  - the meaning of the words gets defined early in the discussion, the inflationists always seem to fall back on some irrelevant, academic definition of the word as their way of winning the debate or saving face.

In simple terms money supply is expanding, credit is contracting. The latter outweighs the former. But printing of money leads to market imbalances - perhaps what we are seeing now.

Ultimately, the whole argument has become too theoretical and irrelevant. What we want to know is where prices are going. In which case I subscribe to Bubb's theory of manic swings and Hotairmail's theory of volaflation. It is best not to get hung up on a definition.  The problem with Bubb's theory is timing the swing. I am currently reminded of the period from summer 2006 through to early 2007, when many of us lost fortunes shorting a market that only wanted to go up. We were right about a bust coming, just wrong on the timing. I felt at the time I never wanted to short an inflationary market again, so did not sell nearly enough to profit from the bust of 2008.

Bubb is a trader and the more you trade the more mistakes you make. But, ultimately, he makes a lot more than he loses. Goldfinger has his eye on the larger picture and is accumulating more and more gold and silver, growing his wealth that way. He buys more on dips and stops buying when the price spikes. I am somewhere in between the two. Goldfinger works so he doesn't need to trade to make money. Bubb lives off his trading. Both strategies work for the individuals concerned.

All I think you need to know is that gold , being a form of cash, does well in the environment following a deflationary crash, or as Hoye calls it a post-bubble contraction. The idea that it is a hedge against inflation in bollocks. We had inflation of money and credit through the 80s and 90s and gold fell. Assets associated with credit, such as houses , are far more vulnerable in this environment. If hyperinflation does come, houses may go up nominally, but gold will go up by more and the gold to house ratio will fall.

http://www.greenenergyinvestors.com/index....mp;#entry132014

[Steve Netwriter]

This is the sort of post I love to see. Discussion, personal opinion are fine, but what I really like is a post with good content. Something informative.
Great post

so much to say so little time....

when it comes to silver, I am a fundamentalist  

I believe we are at 5 mins to 12 with silver, we have all seen the pretty charts informing us that silver will be one of the first metals to face supply exhaustion if extraction carries on at current rates:

http://terresacree.org/ressourcesanglais.jpg

http://www.newscientist.com/data/images/ar...05/26051202.jpg

Therefore, due to the above and other reasons I believe that in my lifetime, the pos will significantly increase. My strategy is simple - accumulate silver whilst it's cheap, if the comex price drops, great - this helps you in this goal (provided the physical is cheap). I view silver as part of my pension portfolio, I would rather save in silver than any other metal (though palladium comes very close).

The demands on silver as an industrial metal should not be overstated, this one liner sums up all you need to know about demand:

Since I began writing about silver, one of the first facts which really caught my eye was that there had been more, new silver patents than for any other metal.

We can have long and drawn out arguments over silver vs. gold, but there is nothing new here. Go back 110+ years to the time of Bryant and the silverites and you will see that silver vs gold arguments are nothing new. The first 5 mins of chapter 4 of 'The Driver', by Garet Garrett are well worth a listen.

This was the study looking at the gold-silver-copper relationships i referenced: http://www.virtualme...pdf/FSB0904.pdf

pg12/13

From January to July 2008 silver, gold and copper moved in close formation.
Then, as the global financial and economic crisis intensified throughout the
summer of 2008, the silver price appeared to respond more like that of copper
than gold, falling to about 40% below its start 2008 level. However, even during
this period silver occasionally rallied in line with gold (most notably during
Lehman BrothersÂ’ collapse in September) and, from about November onwards,
it has rallied with gold, even slightly outperforming gold in early 2009.
Statistically speaking, the relationship that silver has with gold is stronger than it
has with copper. Since 2008 the daily price change in silver in percentage terms
is correlated 59% with that of gold, 42% with copper, and 64% of both
combined.
So at times silver acts like a monetary metal, and rises with gold, while at others
it performs more like an industrial metal such as copper, although as might be
expected from their histories generally silver trades more similarly to gold than
copper.

Write silver off at your peril

from:
http://www.greenenergyinvestors.com/index....st&p=156486