A $650+ Million Sell / 5,000 contracts

The sheer volume of contracts traded on the sell side represent stiff resistance.

Recall Silver had over $2B Sell Side during one day March – again, fairly stiff resistance.

A thousand words on Gold’s downtrend channel in Foto below –

The Cons First

Thinking of adding to a Precious Metals position or beginning one?

A High Probability it is Not appropriate at this juncture.

Opportunity lay ahead for the patient.

99% of time – investing is doing near nothing having faithfully planned your arrangements correctly. All that’s left, the 1% (it’s far less actually) – is to finance your plan.

So Why no now?

It’s only no to the >1%.

Primary Dealers are choking on inventory – this is never a good sign.

Supply Chains are flush – plenty of metals available.

Primary Dealer Bids for everything but select numismatic coins & bars are at a discount to the spot price for Silver and Gold. If your transaction sale is less than $10,000 or the dealer has quantity of current inventory positions which exceed their needs – you can count on far less than what is quoted on their website.

Let’s take a Kilo Silver Bar by example – this is offered @ $659.41. The Prop Desk to which Buys you Precious Metals you Sell to them is offering $545.00. or $16.95 per Troy Ounce while Spot is $17.29. The Dealer captures $10.93 on Spot arbitrage and $114.41 on Spread.

Why sell at a loss – well if you hadn’t quite thought through your “Plan” you might sell in some form for distress – be it Pysch-Income or real income or perhaps you planned on off-setting some gains elsewhere?

Regardless of the event – it makes no sense.

Best to stop and regroup – And plan.

Many websites dedicated to selling Precious Metals while offering “For Entertainment Purposes Only” analysis are flush with Fear, Fright and Folly. This has become far less effective over the past six years – And with good cause, it’s exhausitng reading Drama daily.

The ample majority of it is wild speculation and ego.

While we’re on the subject of speculation(s) – Speculative positions are at extremes and rarely end well.

Big Fish eat little fish by the schoolyard – best to consider home-schooling and ignore the rote method of Herd behavior.

Yes things are indeed coming to a head, our systems are broken… nothing new there. It’s been on-going for decades, tomorrow the Sun will rise and set once again. The sky will be some semblance of Blue with streaks of chemistry.

We cannot control that which is not within our grasp.

All we can do is our best within our own arrangements.

Consent was abdicated long ago for our moral and ethical obligations to assure those in power did not abuse it.

Oops.

I’m raising my hand in guilt as well, but just barely as it’s not trying for me to resolve a proportionally clean conscience now as in retrospect – having honored my obligations to fellow man, woman, child and unborn.

But I’ve digressed and tend towards doing that.

If you had planned to invest $10,000.00 or even $500.00 in Hard Assets – now it is time to sit on your hands and enjoy the show. Commit no more than 10% of your investible Capital for a 5 – 7 year duration. There is nothing wrong with averaging in when it’s according to plan.

Summer is ahead and volumes will be low enough to move around Price at will for those perpetrating alleged “Price Discovery” – Free Markets at their least attractive season of the annum.

Pioneers rarely inherited the land – settlers’ came out ahead.

People racing to buy precious metals are those who believe the promoters – who have a large vested interest in offloading their ample inventory, only to raise their premiums when price moves again them.

If it’s part of your plan – And you are the patient sort, then buy all means execute your plan.

Wade into the waters.

Ideas are plentiful, execution counts.

Turbulence

The Precious Metals Complex is performing once again, sidelined until after the Federal Reserve raised their short term rate from 75bps to 100bps. Forward guidance – indicates 5 additional rate hikes remain throughout 2017 & 2018.

Mixed signals remain across durations – short, intermediate and long term trends have a number of pro’s and yet a few cons remain.

Price and Time are the final arbiters – these are hindsight. Mark Twain had it correct – what is past it indeed prologue. Historical precedents are being formed during a prolonged Bear Market.

What rhymes does often repeat.

Patience is a best investment practice, exercising it saves sleep, time and hard earned money. Positioning for future – unseen events are far easier to remediate when prepared & balanced; walking in the general direction as opposed to a trot, gallop, canter or run.

Unmasking inputs into Investment Decision Making (IDM) process begins with simple to understand concepts.

An excellent IDM practice is to not “get out over your skis” – for those of you who remember “Wild World of Sports” – recall the “Big Jump” and it’s resultant end – “The Agony of Defeat.”

Begin with what you believe is Capital you need to protect. Simply put, what you would prefer returned to you – return on Capital being ancillary.

Bond Market Participants will experience returns in the form of net interest. They will discover loss in the form of Price, once again recognizing the inverse relationship. Everyone will lose a hand here – sans the Primary Dealers.

A basic and direct IDM Plan might look something like this:

5% – Physical Cash

25% – Physical Precious Metals

20% – Long Positions indexed to Precious Metals

50% – Flexible Capital for Business or Business Investment

If you have not put pen to paper or fingers to keys to Plan your Finance and Finance your Plan. Begin with your needs, consider the usual suspects – obligations, cash flow & net.

Now would be an excellent period to review what exists or to begin.

Change remains the only constant, time is as important as Price.

Value and it’s meaning to your arrangements is personal and needs to be explored on this level. Understanding this will provide you with the leadership you require to not follow, but lead.

Noisy Indicators – IDM

Fed Chairperson, Janet Yellen should have been asked – “Did the return on savings rates move today?”

No, the privilege of first abuser lay within the Financial infrastructure frequently referred to as the “Big Blue.” A chasm so deep and wide, it absorbs all light and projects a near endless sea of deep blue vignette which deepens to black.

Return on long-term capital (Savings for us regular Folk) in a Zero Interst Rate Environment (ZIRP) are near Zero – effectively non-exsistent. The risk averse who choose not to re-enter an arena where once bitten… did not require demure shyness – Cash is considered “Safe.”

On the Flip Syde-

Pensions, quite clearly face a duration mismatch. Assumptions of 8% returns which did not pan out  – create very large issues over time.

20 – 30 years down the line tends to be difficult to manage when you can only see out to year end bonus. Fiduciaries have acted in their self-interest for a very long time.

And so everyone will lose a hand, some potentially a great deal more.

The halcyon days of Rainbows and Butterflies – were further removed once again today. It will be interesting to observe how much longer this charade persists, it should have ended long ago.

Revisionism

We have so grossly stretched the bounds of rational – a lie becomes the truth if repeated frenetically enough – although there are fewer believers.

Diminished simple concepts with refractory abundance of subjectivity; the facts are washed, rinsed and spun into convenient archetypes – excuses masquerading as reason.

Reason looking for logic, cause ignoring effect.

There is a collective sense something’s deeply askew.

The collective is missing the mark by a wide margin and the present rhetoric is merely compound obfuscation by orders of an absurd magnitude.

Removing stability from Socioeconomic systems misinforms participants as to consequences of their selective order. There is no free lunch, there never was nor will be – it is a zero sum game.

Money has undergone a remarkable shift during the past 100+ years; the moneyness of money far more so. Relationships once heralded as constants are being tested and failing. Intervention is the culprit as stage managed metrics send signals so distorted, the entire process now resembles a malignant and disfigured growth.

Inflation represents the Illusion of Price, but chooses to ignore the Value of Structural changes abundant within our Global Economic System. If competition is allowed as the final arbiter of Price, then Value must represent failure of repressive, interventionist policies aimed at managing balance outside of “Free Market.”

It is clear the Central Planners have failed the “Value” proposition. Their perpetual motion machine is in need of participants. Government, will no doubt provide the additional ticket purchases with ever increasing fiscal malfeasance.

By devaluing what constitutes “Money” they had hoped to add more inertia to their growth engine in order to service the debt. The seizure is immense as the velocity of “Money” has fallen precipitously – signifies failure. They’ve known this for some time, the Citizen-Consumer is rapidly waking up to it.

Price & Value have waged a heated competition well into the seventh decade of the Illusory Privilege, spilling further into the non-productive and potentially largely inflationary Financial Economy which rewards first abusers of Monetary privilege. Those with first order access to new issuance of credit/debt suffer the least, the consequences of such are a burden carried best by those outside the matrix of the Financial Economy – the common man, woman and child of every Nation.

The Ides of Fall

The early Roman calendar (750BC) contained 10 months. March was the beginning of the New Year. The ides of March—March 15—initially marked the first full moon of a new year.

Romans celebrated the new year with festivals and offered sacrifices to the Roman deity Anna Perenna for a happy and prosperous new year.

The Julian calendar, proposed by its namesake – was reformed in 45BC.

For 700 years the Ides were a cause for celebration, much in the same way humanity celebrates New Years Eve today.

The soothsayer warning Caesar was referring to the early calendar and not the Julian calendar.

Many in alt.media are issuing warnings about March 15th, 2017 – it would appear the Obama / Boehner’s Debt Ceiling aversion’s end marks the beginning of many sordid events. 

A global economic system awash in debt has rarely ground to halt on the issuance of further debt. There were past Government shutdowns and their attendant cause/effect, but – by and large our arrangements simply ground forward under increased liabilities.

It seems more than a tad bit ironic the $20 Trillion level is as significant as touted, unfunded liabilities exceed this amount by 10 – 12X. Global Economic activity is waning – increasingly, the signs become ever more apparent.

And strangely enough, I’ve heard no outward discussion by the Hoi Polloi of any of it. Rather, it appears the hamster wheel continues to turn slightly quicker. This is not lost of Central Banks.

A precipitous din continues to echo within the Global Financial arrangements – it’s time to set aside Health Care Reform and focus upon raising the Debt ceiling. This will simply allow the Treasury to borrow money to pay existing bills for spending that Congress has already approved.

It does not authorize new spending. Were an agreement not met by the deadline – The US Treasury would suspend the sale of state and local government bonds, which count against the national debt.

Congress has missed prior deadlines to do so in the past.

It has, without exception, taken action before the Treasury’s coffers were bare. In 2011, Congress was unable to increase the debt ceiling by that year’s May deadline. This resulted in Standard & Poor’s downgrading the government’s credit rating for the first time in history.

Congress finally lifted the debt limit in August, two days prior to the Treasury being absent of funds to pay the bills.

It seems reasonable to expect a similar result with some form of resolution arriving late this Fall, perhaps as early as August or as late as November.

During this timeframe, our arrangements have the stored potential to be very real.

Gold & Economic Freedom – Alan Greenspan

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term “luxury good” implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society’s divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the “easy money” country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (“paper reserves”) could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates. The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain’s abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed “a mixed gold standard”; yet it is gold that took the blame.) But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

Alan Greenspan

The DIY Economy

 

The American publishing billionaire Steve Forbes once trumpeted a flat-rate income tax so simple you could fill it out on a postcard. The Russian government recently took his advice about the flat tax to heart.

Black Markets are frequently blamed for reducing tax revenues.

Scarcity is very real in a number of Nations who have employed price controls of varying forms. These citizen consumers quickly discovered – necessity dictates – ingenuity, improvisation and self-reliance.

Needs are the core preferences of individuals, these necessary components of our arrangements have the greatest impact on an Economy.

Participants who rely solely upon their own skills and standing rather than a regulatory stamp of approval are quite often labeled fugitives.

In reality, the DIY commerce stakeholder provides real value to society in most cases, public goods being a notable exception as we tend to act in our very own self interest.

The “things” which comprise our “arrangements” are provided outside regulations – organic free markets are strengthened by the circulation of assets like Cash, Bitcoin, Precious metals and what is deemed to be of “Value” in exchange.

The value proposition itself is self-evident – the clear benefit from peer-to-peer DIY networks over central planning  – is unimpeded commerce, free of government interference.

Declining confidence within our failing systems will provide opportunities within the new arrangements of the DIY Economy.

Volatility: Of Whipsaws & Buzzsaws

The importance of using different time frames for a proper Market perspective is essential to Investing. Durations matter, they must be properly defined. Short, Intermediate and Long Term planning provides an excellent guide.

All too often the Fundamentals of the Precious Metals Complex are interwoven into Short Term Investment advice – much of it unqualified and for “Entertainment Purposes Only.” Events are extrapolated to such a degree, their meaning is often lost.

Fundamentals, by there very nature, are important. When the playing field is managed for the sake of itself, it’s difficult to properly estimate their effects as all too often they are mitigated by forces maligned against them.

Mass Psychology’s role in shaping Markets is vital to managing sentiment. Media’s credibility has been waning for some time. Once bitten, twice shy.

They are “Fotos” which provide ample scenery for what is transpiring within a Market. Frequently Markets provide very mixed signals due in large part to the very integrity of the market participants on all sides.

A large Jigsaw puzzle, quite large indeed, begins to take shape providing a far more balanced view – one that instills confidence based upon a more complete understanding as the pieces come together.

A vantage point, a vista with fewer obstructions and emotional whims remains the Investors ideal position.

AuAgB will begin to unmask these inputs into Investment Decision Making (IDM) over the coming weeks. We will provide a rationale and pragmatic approach to the field of view and it’s scenery.

Political Opportunism and Globalization

Globalization has the potential to be more a political than a technological phenomenon.

Opportunity in Globalization can be easily reversed. This has been the case throughout recorded history.

The time honored theory of international trade suggests that while trade may raise incomes generally – it produces winners and losers.

If the losers are politically powerful, they may convince their governance to impose protectionist measures. Importantly, history tells us that this is not just a theoretical curiosity –  since this is precisely what happened in late 19th century Europe.