Inflation and “Price Stability”

We still remember when sometime in the mid 1980s, the German Bundesbank proudly pointed to the fact that Germany’s y/y consumer price inflation rate had declined to zero. It was considered a “mission accomplished” moment. No-one mentioned that economic nirvana would remain out of sight unless price inflation was pushed to 2% per year.

 

CPI, annual rate of change. During the “stagflation” period of the 1970s, Congress enacted the Federal Reserve Reform Act and the Humphrey-Hawkins Act, which specified a list of miracles the Fed was supposed to perform.

 

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The Negative Interest Rates Abomination

Our readers are probably aware that assorted central bankers and the economic advisors orbiting them occasionally mention the “natural interest rate” (a.k.a. “originary interest rate”) in speeches and papers. It is generally assumed that it has declined, which is to say, time preferences are assumed to have decreased.

 

This is actually an understatement…

 

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How to Hang on to Greenland

Jim Bianco, head of the eponymous research firm, handily won the internet last Thursday with the following tweet:

 

 

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Big Moves in Silver

Last week, the prices of the metals fell further, with gold -$18 and silver -$0.73. On May 28, the price of silver hit its nadir, of $14.30. From the last three days of May through Sep 4, the price rose to $19.65. This was a gain of $5.35, or +37%. Congratulations to everyone who bought silver on May 28 and who sold it on September 4.

 

The recent move in silver [PT]

 

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The Future and the Past

Securities and Exchange Commission Rule 156 requires financial institutions to advise investors to not be idiots. Hence, the disclosure pages of nearly every financial instrument in the U.S. are embedded with the following admission or variant thereof:

 

“Past Performance Is Not Indicative of Future Results”

 

“Buy and hold”… “The market goes always up”… “No-one can time the market”… “Buy the dip” “With what? You said not to sell anything”… “Simple, mortgage the farm…”  The image above shows roughly what happens right after everybody feels the warm & fuzzies due to the fact that the market has been going up without a hitch for quite some time. Once the  conviction that it can only rise further is widespread and firmly embedded in investor psyches (who cares about valuations?), this is often what the next scene looks like… [PT]

 

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Paying a Premium for a Lack of Default Risk

The price action got pretty intense last week! The prices of the metals were up Monday, Tuesday, and Wednesday. But Thursday and Friday, there was a sharp reversal and the silver price ended the week below its close of the previous week.

 

The net speculative position in gold futures has become very large recently – the market was more than ripe for a shake-out. [PT]

 

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A Case of Highway Robbery

What if the savings in your bank account lost 55 percent of its value over the last 12 months?  Would you be somewhat peeved?  Would you transfer some of your savings to another currency?

 

USD-ARS, weekly. For several years the Argentine Peso has followed a certain pattern: it declines mildly, but steadily, with little volatility for long time periods, and then spikes in crash waves whenever a crisis situation comes to a head. In early 2011, it took roughly four pesos to buy one US dollar – which was already an enormous loss of value relative to the 1:1 exchange rate that prevailed under Argentina’s currency board prior to the government default and banking system collapse of 2001. When Mr. Macri was elected president, it was widely held that his market reforms would finally repair Argentina’s economy, which had been ruined by almost two decades of economic mismanagement and inflation under the previous Peronist administration. Alas, Macri made a mistake no Argentine government that gains the trust of foreign investors seems able to resist: he embarked on a big borrowing spree, much of it denominated in USD, until it became clear that the government would no longer be able to defend the peso or service its debt. Then he exacerbated his mistake by borrowing even more money from the IMF – which should be filed under “a movie we have seen before”. And just as had happened in that earlier escapade, his government is now likely to default on its IMF loan as well. Not surprisingly, the peso has collapsed – and in well-worn fashion Macri is now trying to save the village by destroying it and has introduced capital controls. [PT]

 

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Listless Nikkei

On 24 July 2020 the Olympic Summer Games will begin in Tokyo, the capital of Japan. Olympic Games and Soccer World Cups are among the largest sporting events in the world.  Do you perhaps also think that these events may affect the performance of local stock markets?

 

Olympic Summer Games 2020 – official logo (left), and a fan-made logo (right) by designer Daren Newman [PT]

 

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Freedom Rock

Hong Kong ranks among the freest societies in the world. Not only economically, but socially it is a very liberal place. It was marinated in British ways until 1997, much longer than Singapore and other colonies. Then China took it over as a special administered region, which according to the agreement with the UK meant that it was only nominally to be under Chinese control for the next 50 years. It was possibly the only colony in which a vast majority of citizens did not want the British to go.

 

Hong Kong skyline at night [PT]

Photo credit: Timon Studler

 

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Fiat Money Woes

Monday was Labor Day holiday in the US. The facts are that the euro lost another 1.4%, the pound another 1.1%, and the yuan another 0.9% last week.

 

Assorted foreign fiat confetti against the US dollar – we have added the Argentine peso as well, as it demonstrates what can happen when things really get out of hand. [PT]

 

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Brainwashed by Academe

Not a day goes by that doesn’t supply a new specimen of inane disclarity.  Muddy ideas are dredged up from tainted minds like lumps of odorous pond muck.  We do our part to clean up the mess, whether we want to or not.

 

No longer in demand: famous Enlightenment philosopher John Locke (1632–1704), who is widely considered the “Father of Liberalism” (classical liberalism, that is). [PT]

 

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Intense Price Action

The price action was pretty intense last week, most of it on Friday. The statement by President Trump, not to mention Fed Chairman Powell’s hint of further rate cuts, impelled people to buy gold and silver, whose prices went up $14 and $0.29.

 

10-year treasury note yield – plumbing new lows for the move… [PT]

 

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Most read in the last 20 days:

  • The Hollow Promise of a Statist Economy
      Brainwashed by Academe Not a day goes by that doesn’t supply a new specimen of inane disclarity.  Muddy ideas are dredged up from tainted minds like lumps of odorous pond muck.  We do our part to clean up the mess, whether we want to or not.   No longer in demand: famous Enlightenment philosopher John Locke (1632–1704), who is widely considered the “Father of Liberalism” (classical liberalism, that is). [PT]   These days, individuals, who like John...
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      Fiat Money Woes Monday was Labor Day holiday in the US. The facts are that the euro lost another 1.4%, the pound another 1.1%, and the yuan another 0.9% last week.   Assorted foreign fiat confetti against the US dollar – we have added the Argentine peso as well, as it demonstrates what can happen when things really get out of hand. [PT]   So, naturally, what is getting play is a story that Bank of England governor Mark Carney said the dollar’s influence...
  • Hong Kong - Never the Same Again
      Freedom Rock Hong Kong ranks among the freest societies in the world. Not only economically, but socially it is a very liberal place. It was marinated in British ways until 1997, much longer than Singapore and other colonies. Then China took it over as a special administered region, which according to the agreement with the UK meant that it was only nominally to be under Chinese control for the next 50 years. It was possibly the only colony in which a vast majority of citizens did not...
  • Suffering the Profanity of Plentiful Cheap Money
      A Case of Highway Robbery What if the savings in your bank account lost 55 percent of its value over the last 12 months?  Would you be somewhat peeved?  Would you transfer some of your savings to another currency?   USD-ARS, weekly. For several years the Argentine Peso has followed a certain pattern: it declines mildly, but steadily, with little volatility for long time periods, and then spikes in crash waves whenever a crisis situation comes to a head. In early 2011, it...
  • Don’t Be Another Wall Street Chump
      The Future and the Past Securities and Exchange Commission Rule 156 requires financial institutions to advise investors to not be idiots. Hence, the disclosure pages of nearly every financial instrument in the U.S. are embedded with the following admission or variant thereof:   “Past Performance Is Not Indicative of Future Results”   “Buy and hold”... “The market goes always up”... “No-one can time the market”... “Buy the dip” “With what? You...
  • A Wild Week - Precious Metals Supply and Demand
      Paying a Premium for a Lack of Default Risk The price action got pretty intense last week! The prices of the metals were up Monday, Tuesday, and Wednesday. But Thursday and Friday, there was a sharp reversal and the silver price ended the week below its close of the previous week.   The net speculative position in gold futures has become very large recently – the market was more than ripe for a shake-out. [PT]   Silver made a round trip down from $18.35 to...
  • Will the Nikkei Win the Next Olympic Games?
      Listless Nikkei On 24 July 2020 the Olympic Summer Games will begin in Tokyo, the capital of Japan. Olympic Games and Soccer World Cups are among the largest sporting events in the world.  Do you perhaps also think that these events may affect the performance of local stock markets?   Olympic Summer Games 2020 – official logo (left), and a fan-made logo (right) by designer Daren Newman [PT]   Let us examine whether and in what way such major sporting events impact...
  • The Weird Obsessions of Central Bankers, Part 3
      Inflation and “Price Stability” We still remember when sometime in the mid 1980s, the German Bundesbank proudly pointed to the fact that Germany's y/y consumer price inflation rate had declined to zero. It was considered a “mission accomplished” moment. No-one mentioned that economic nirvana would remain out of sight unless price inflation was pushed to 2% per year.   CPI, annual rate of change. During the “stagflation” period of the 1970s, Congress enacted the...
  • The Weird Obsessions of Central Bankers, Part 1
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  • The Weird Obsessions of Central Bankers, Part 2
      The Negative Interest Rates Abomination Our readers are probably aware that assorted central bankers and the economic advisors orbiting them occasionally mention the “natural interest rate” (a.k.a. “originary interest rate”) in speeches and papers. It is generally assumed that it has declined, which is to say, time preferences are assumed to have decreased.   This is actually an understatement...   Although interest is generally associated with money, the...
  • Why Are People Now Selling Their Silver? Precious Metals Supply and Demand
      Big Moves in Silver Last week, the prices of the metals fell further, with gold -$18 and silver -$0.73. On May 28, the price of silver hit its nadir, of $14.30. From the last three days of May through Sep 4, the price rose to $19.65. This was a gain of $5.35, or +37%. Congratulations to everyone who bought silver on May 28 and who sold it on September 4.   The recent move in silver [PT]   To those who believe gold and silver are money (as we do) the rising price...

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