Author Archives: Keith Weiner

     

 

 

Everybody Has a Plan

Not too long ago, we wrote about the so called Modern Monetary so called Theory (MMT). It is not modern, and it is not a theory. We called it a cargo cult. You’d think that everyone would know that donning fake headphones made of coconut shells, and waving tiki torches will not summon airplanes loaded with cargo. At least the people who believe in this have the excuse of being illiterate.

 

A few images documenting cargo cults on the island of Vanuatu. Left: a wooden plane made by the John Frum cargo cult, which is going strong to this day and has actually become a political party. In the middle is a ceremonial cross erected by the John Frum cargo cult. According to one of the cult’s leaders, its members consider John Frum their Jesus whom they expect to return one day (with a big load of cargo). Even funnier are the guys to the right, who belong to a different Vanuatu-based cargo cult, the Prince Philip Movement, which worships the Duke of Edinburgh whom it considers a divine being. Apparently members of the Yaohnanen tribe in Tanna saw how much respect was paid to Queen Elizabeth during her visits to the island and concluded that her consort had to be a being from their legends, the son of a mountain spirit and a “brother to John Frum”, who is also widely expected to return one day (with cargo). Prince Philip was long unaware that he is revered as a god, but since he has learned about it, he frequently exchanges gifts with the movement (he usually sends them signed photographs of himself, and they send things like traditional pig-killing clubs and other useful implements in return). What the members of the John Frum and Prince Philip cults don’t know: they clearly have what it takes to become modern-day mainstream economists. A second career path is open to them. Your cargo awaits, brothers! [PT]

 

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Bitcoin Gets Juiced

The prices of gold and silver were up $19 and $0.48 respectively last week. But that’s not where the massive inpouring of groceries went.

 

When Friday began (Arizona time), Bitcoin’s purchasing power was under 75 grocery units (assuming a grocery unit is $100). By evening, speculators added 25 more grocery units to the same unit of bitcoin.

 

Bitcoin, daily – shortly after breaking below an obvious lateral support level, Bitcoin did an about-face on steroids and rallied $3,000 from low to high in the space of a few hours. Interestingly, this rally was presaged by a number of subtle technical signals – bullish divergences with several of the major “alt coins” emerged on occasion of the seeming break-down on October 23, while concurrently a stealth rally in BSV that had started a day earlier refused to be derailed by the sell-off. These are the types of signals we tend to follow in the cryptocurrency markets – we consider them to be traces left by the biggest traders in these markets. Both breakouts and break-downs of resistance/support levels always have to be closely examined for divergences. Note that technical analysis is the only sensible approach to trading in cryptocurrencies, as it is impossible to gauge their “fundamental” value. The latter depends on all sorts of assumptions, all of which could be wrong. Clearly though, cryptos remain an excellent playground for nimble traders. [PT]

 

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Ominous Pronouncements

The prices of the metals barely budged last week. It is interesting to note that last week, more than one central banker felt it necessary to say something about a possible next crisis. And at least one of them said something about gold.

 

Lost as always, and apparently slightly nervous these days… [PT]

 

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Spillage

The price of gold dropped $16, but the price of silver was all but unchanged. Whereas last week we said:

 

“…the consumer goods stockpile stored in Treasury bonds (to extend our half sarcastic, half tongue-in-cheek analogy) increased this week.”

 

The 10-year note takes another peek at the wide spaces below its 50-day moving average. [PT]

 

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Respectable and Not so Respectable Assets

The price of gold went up 8 bucks, and the price of silver went up a penny last week. These were not among the capital assets that could be liquidated for greater quantities of consumer goods last week. Nor were equities.

 

A respectable, mother-in-law-proof speculation: the 10-year US treasury note. [PT]

 

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An Accident in Waiting

The price of gold dropped $20, and silver 43 cents. For reference, $20 was once worth just about an ounce of gold. Dollar was a unit of measure, a weight of gold equal to 1/20.67 ounce of fine gold.

 

A gold certificate from the time when the dollar still represented a fixed weight of gold [PT]

 

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Liquidity Shortage

Last week the price of gold rose $28, and silver $0.53. But the prices of the metals was not the big news last week. The price of repo — a repurchase agreement, to sell and repurchase a treasuries — skyrocketed. Banks were thirsty for liquidity, and only cash can quench it.

 

Last week’s “oops” moment in repo land as the overnight general collateral rate briefly soared to 10% (we will soon publish a detailed summary of the sequence of events that has led to this hicc-up). [PT]

 

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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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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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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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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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An Era of Low Time Preference

Last week the price of gold moved up another $16, and the price of silver was up $0.14.

 

10-year treasury note yield since 1999 – it is almost back at the multi-decade low of 2016. The only other time in history when US treasury yields were this low was in 1944-1945, when the Fed was actively suppressing yields in order to provide cheap financing for the war effort. One year later (from mid 1946 to mid 1947) the CPI jumped to more than 17% per year. By 1951 it had reached 21%. At that point the Fed and the US Treasury finally agreed that the Fed should stop pegging long term treasury yields – which promptly proceeded to rise relentlessly for the next three decades. [PT]

 

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