PMS: Precious Metals Squeeze?

With the Dow futures down a couple of hundred (actually it’s more), the first thought that crossed my mind was “Gee, one of the Chinese markets must be back from going Lunar…”

Well, sure as (Insert your favorite term here), yes the Hong Kong market was back and instead of being King Kong, it had a better than 3% beat-down. In fact, it was almost a 4% beat-down.

Now, should the U.S. go through something like that, based on the Wednesday close, of 15,914, the drop would come in at 613 points..

Is this what I expect today?  No, of course not.  That would be too simple and too logical.  At least until Janet Bringer of Free Money is done talking to the Senate.  Then?  Well, you never know, but a couple of hundred down pretty much seems baked in the cake.

Besides, Ms. Yellen was already blaming the Rest of World (RoW) for our woes, anyway, so here’s our chance to do the Fedriotic thing and prove she was right.  We know the Fed is on pins and needles about the next couple of weeks in China because stories are making the rounds like The Fed is watching China very, very closely right now; who wouldn’t?

This set up was only the first punch in the eyeballs this morning.

The REAL one is something I’ve had written down on the backs of envelopes for a long time and never spoken too much publicly about it – not wanting to be an alarmist and all.

But has it occurred to anyone besides me that would are in many ways set up for a perfect paper-metals squeeze?

Let me explain:  I have seen estimates that there is as much as 100:1 coverage (printed paper promising gold or equivalent in cash) for every ounce of physical gold out there.

Even if you discount this deeply, you still can see a situation where the paper-hangars might was to get a little closer in terms of marking their paper to market.

So here is this morning’s mental exercise:

Pretend for a moment that we have one investor who had purchased a piece of paper that claims to be backed by gold.  Our paper gold owner may have – and this is being terribly conservative here – nine players who will sell an ounce of paper gold and there could be one player who has the honest-to-God physical.

Which one does he buy?  I would hope the physical since we have been telling readers forever that if you buy paper gold, you aren’t getting the gold, you are getting a piece of paper with words on it.  Oh, sure, gold may be one of the words but the underlying is, well, emphasis on the second half of that word, if that’s not too obscure for this hour.

Even so, the gold may not have gone anywhere in price, because there was only the one buyer.

Well, suppose now that the paper gold people decide to sell a lot more paper.  And maybe they are going out to buy some commodities to hedge.

The very first thing they find is that no one wants to sell physical gold.  Oh, drat. 

At one point this morning the price of gold was up 3.52%.  And for a one day move, a bump in gold of more than FORTY BUCKS begins to get our attention.

If you aren’t a long-term subscriber to our Peoplenomics.com newsletter, you may have missed our many discussions on relative value.

I won’t give you the whole rhyme and verse about how the numbers work out in the long term, but remember in 2001, Ures truly bought physical gold when it was $273 per ounce.  This was August of 2001.

How has our lone gold coin done since back then? 

Well, since we bought it, the price of the yeller dog is up 4.53 times.

Now, the S&P closed that day at 1,133.58 – this was before 9/11, remember.

Now, let’s say that the S&P miraculously closes today right at the Wednesday close.  That index was up how much since the day I bought that lone gold coin?  1.634 times.

But even this doesn’t give us the absolute by-God reality of purchasing power because so far we have not even tried to consider the impact of inflation.

Over at the Minneapolis Fed, they have a Truth Detector right on the home page on the right side called “What is a Dollar Worth?”

If you put in the price of something in 2001 and the price it to 2015, you will find that something needs to have gone up 1.336 times its pricing in 2001 in order to be approximately where inflation puts things today.

With this in mind, we see that the real return on gold has been pretty damn good – far better than investing in the S&P.

In fairness, a staunch defender of the stock paradigm could argue that “Ure is all wrong because he doesn’t count dividends!”

All of which is true.  But I don’t count commissions, changes in the Index as things come and go, and I don’t even begin to grapple with the tax implications of this and that. 

Important disclosure here:  I still have a tax loss carry-forward this year because before we started going to “the boats” (the casinos in Boosier City, LA) I stay play-at-home gambler in my spare time with a few non-critical dollars.  Bad move.

When comes to the real “What do we do with the large pieces of net worth?” There is still NOTHING like a paid off home, even if it’s a comfortable, totally ticked-out mobile home in the East Texas Outback.  The second and third place when I was working this out back then was bonds and gold.  In 2005 we loudly announced buying that lone silver round between $6.94 and $7.03.  Still, with silver, the future’s market puts it at a high of $15.75 so far today.. You can run out the numbers compared to the S&P but you should be able to do it in your head if the coffee has kicked-it yet.

The only bitch about being ridiculously RIGHT in the long-term is that the tax rate on non-numismatic coin and bullion was up to 30%, but even this in a 10-year period still seems to have kicked the butt of almost all paper assets.  Maybe you bought GoPro early, I don’t know.

We can talk about all kinds of who’s and what’s  but I don’t have time for that.  For what it’s worth, with Iran looking at coming off the Petro Dollar and with the Saudis unloading assets while driving down the price of oil, and with a Muslim Civil War on the horizon in the Middle East (and with Europe full of potential partisans to take the fight there, too), and with idiots in Washington insisting on bringing potential partisans here, too, there is nothing so reassuring as living by the Law Of One.

One gold coin, one long gun, on box of ammo, one pistol, one garden, one year of taxes ahead….well, you get the idea.

People are easily confused by zeroes.  Try to get over that.  Look at something else.  One dollar in 1913 will buy about 4.2-cents today – paper goes down in value.  So it TAKES MORE PAPER over time, and this is why gold is up.  More paper (what do you think the Bureau of Engraving and Printing does?).

Buy things of enduring values:  Solid relationships, paid off property, steady income in current dollars, and small investments in things that have worked for a few thousand years.  Gardens and gold come to mind.

And no, we are none to keen to trade either for paper, thanks.

With countries like Sweden about to push their negative rates even further into the red (you pay the bank to hold onto your own money, instead of getting interest on it) the scam of digital currencies is finally outed. 

You do get this, right?  If everything is in digital money, there is absolutely no check on how government and banksters can collude to rip you off.  Go read the story on Sweden over here…it’s sickening.

Government’s Big Problem is that they are trying worldwide to get everyone who is a “little people” stampeded into the digital world where protections don’t exist.  And by branding people as terrorists and criminals for just having their own cash money on hand, well, that’s not the game and never was.

It’s about keeping everyone behold to The Man, who in this case may be a GS-20 we have never even heard of.  That’s be the pay grade for the federalcrat who runs the computer models that are likely coming to a terrible conclusion we’ve been anticipating for years:

“If we don’t really screw the people, this sucker’s gonna blow!  It will be a (gulp) Second Depression.”

Which very well could be what comes next.  If this move in the next week or three takes out 1,720 or so on the S&P, you will be sorry you didn’t heed our advice to live below your means back when it could have been a voluntary decision on your part.  Now, it might just be made for you.

Oregon Standoff

Should be over thanks to Michele Fiore. Nice to see her make the WaPo today.

What Cleveland Ohio Teaches?

Two things:  1. How to inflame racial tensions with moves like Cleveland to Tamir Rice estate: Kindly pay $500 ambulance bill.  2. If you’re looking for a sensitive, caring city administration, you may wish to keep looking.

So What Does Flint, Michigan Teach?

Oh, that there could be manslaughter charges coming if there was negligence in the lead pollution poisoning that has been going on up there.

Worse, though?  It’s not just Flint that has the problem – it’s more or less all over the place which is why people like us with the delusion of living forever drink ONLY filtered water and why do you think we have our Berkey water filter ad at the top of the right column””?

Korea Heating

North Korea to expel S. Koreans from joint-run Kaesong industrial complex is only part of the story.  The real deal is this operation is how the North gets what little hard currency it can bring in and by closing it down, the East-West conflict takes on a new tone.

Remember what wild animals do when cornered?

Maybe it starts with executing the top General in the NK Army, ostensibly on corruption and graft charges.  Could it be he was really popped for refusing to saddle up and ride south?

And So…

The nice thing about days like this is it leaves us with the tantalizing question:  Will continuously expanding hypercomplexity be able to overcome compound socioeconomic insanity?

When you see the big flash, you have your answer. 

We don’t need a global reset.  We need a global re-think.