Quote from: netrin on October 05, 2011, 11:28:42 PM

It is my impression that the ECB and PBC devalue because they must but the Fed because it can. Last month Cypherdoc made the point that the US banks have cleared their most toxic debt. US debt is a risk entertained by foreigners and citizens, not the financial institutions, which can not be said of Europe and certainly not China.

So while the US fundamentals sans military are poor, the money keeps rolling in and will continue as long as S. Europe walks the plank. This allows the Fed to stimulate the economy through inflation with the pretense of countering deflation.

With US interest rates approaching 0% while Greece approaches 100%, I can't help but see USD as a bubble. But I also don't see it popping before Greece. I foresee metal going parabolic only after a few sovereign defaults.

Yes, for now. That's how Bernanke got away with his first few helicopter drops - there was still some leeway. The window is now closed; most governments are backed into a corner and the reciprocating effects of competitive devaluation (it hasn't gone away, just slowed temporarily - the Swiss fired their salvo while everyone else is reloading) are coming back to drag on the US economy.

It's impossible to cause even a minor financial disturbance without international markets being affected to some extent. With the various bailouts, enough displacement occurred to further damage the underlying financial structure (esp. confidence and reliability of counterparty security). Politicians and monetary overlords have excused themselves from adhering to a "do no harm" credo.

The banks may have offloaded a portion of their worst liabilities, but it was tossed onto the plate of the institution they were bailed out by. Gov't has its back even further against the ropes because of that. If the losses were realized, that would be one thing - instead, by been shuffled elsewhere they're festering.

Quote from: cypherdoc on October 05, 2011, 11:49:37 PM

i think we would have to get down to about the fractional reserve norm of 10:1 as the banks used to be. with all the deregs like sweep accts that occurred since 2000 the primary dealers had gotten to 40:1 and i think FNM/FRE got up to 120:1. effectively they had NO reserve ratios which is how things got so out of hand. home buyers would need to put down the old usual 20% and the debt to income ratios would need to be restored to 1:3.

Right there - no responsibility on behalf of the banks; moral hazard.

Quote from: cypherdoc on October 06, 2011, 01:46:56 AM

bottom line is there is deflation occurring all around us in financial assets...

the only things that are still relatively high are goods and services which are already starting to come down.

this lowering of prices across the board is happening b/c of the global slowdown that is now painfully becoming apparent.

Yes, yes and yes; dominant for the past few months.

Quote from: cypherdoc on October 06, 2011, 01:46:56 AM

miscreanities whole argument is that the Fed is going to monetize all this bad debt. well when exactly is this going to happen? theres about $54 trillion in private debt out there so he'd better get going. he ignores that nothing has happened since QE2 ended and Op Twist is really net neutral.

Not merely "is going to" - is being forced to because of cause & effect. The banks figured out how to effectively monetize debt and until the debt instruments are unwound, it will remain as long-term, illiquid money. For an individual, this would be like having a retirement account - you have an asset, but it's locked up. If the Fed doesn't formally monetize the debt, there's no way it can be reverted back to simple loan structures in a timely manner.

How long does it take to unwind these instruments? Legal proceedings must take place to determine who the defendants and plaintiffs are in each case. With many securitized instruments having dozens or even hundreds on both sides, determining who is associated with what and collating that across multiple sets of records becomes daunting. It's like trying to figure out the path a dollar bill takes as it's used in various exchanges to understand how to reverse that exact series of transactions.

The task is daunting, to say the least. On top of that, how many lawyers have sufficient expertise and technical knowledge to properly navigate these financial instruments? How many disputes will there be? How will market value be determined? What about counter-claims and tertiary suits and on and on?

The debt cannot be unwound fast enough to ensure that business and the economy will function when deflation takes full hold. It may take a decade to make that happen. In the meantime businesses continue to fail, banks keep bleeding and government is still in panic mode. How many goods and services will remain? The power dynamic would shift entirely away from the current hegemony.

We cannot just look at the US. Fed-initiated QE forced other nations to follow suit. That disruption has finally percolated throughout the world. Each monetary authority that inflated alongside the US added to the problem. Sure, the banks have been rescued for now and some of the non-performing debt has been transferred to gov't books, but moving it around doesn't solve the problem of excess debt.

Quote from: cypherdoc on October 06, 2011, 01:53:49 AM

Bank stocks have been cut roughly in half since the highs from 3/09. this has contributed mightily to crimping their balance sheets in addition to the bad loans. so if these guys are the ones responsible for pushing money out into the economy via loans and they're not lending how is everyone supposed to get access to enough money to drive gold and silver to the moon?

Why do they have to loan out money? In order to make up for the crunch, they'll become more aggressive in other aspects. Encouraging the average Joe to deposit funds for trading will bring an influx. Proprietary trading desks are still all the rage. Not to mention the ongoing returns they're getting from gov't bonds. Kick leverage higher to allow for more flexibility.

Forget the banks, how much more will the government have to keep paying out to prevent the banks from deciding they can get better, reasonably risk-free returns by unleashing what reserves they can? In other words: if the banks keep being crimped, what is the threshold where they'll be forced to search for cash elsewhere unless the rates paid on reserves rise? How much further does deflation have to squeeze them for that situation to arrive?

Quote from: cypherdoc on October 06, 2011, 02:09:34 AM

what does this tell you about consumer credit?

...

with all the deflation occurring around us do you really think this graph continues its upward trend? i don't.

I agree. However, from the Shillings chart you posted earlier, it's rather obvious that gov't is picking up the slack where consumers are falling off. More recent information might show a different picture. I don't know of a more current data series or chart offhand - do you have one?

Quote from: cypherdoc on October 06, 2011, 02:14:26 AM

whereas the last graph showed a hook with a small gasp of a rebound, this chart has clearly rolled with no signs of coming back up.

...

if we were threatening hyperinflation, everyone and their mother would be rushing to the banks and borrowing to buy a house (a tangible asset whose loan would inflate away, ie, a free house).

Quote from: cypherdoc on October 06, 2011, 02:18:08 AM

here are those pesky banks again. do they look like they've been lending out debt money to the public? or is there something seriously wrong? we've been inflating uninterrupted for 40 yrs. does this graph tell you we're going to keep doing the same and drive gold and silver to the moon?

Quote from: cypherdoc on October 06, 2011, 02:21:15 AM

ah yes, credit cards. why the hell aren't you bums buying gold with that free Visa card with $50K automatic credit in the mail? oh, you mean they aren't mailing those out anymore?

Again, slack in financials is being picked up by gov't. Also note that lending is still occurring, it just isn't at as rapid a rate as it was at the peak. It isn't as though everything freezes up all at once.

Quote from: cypherdoc on October 06, 2011, 02:25:30 AM

in all fairness i should show this one too. however, its been well documented this consists primarily of student loans. higher ed has gotten away with murder way longer than it should have primarily by selling the story that if you don't get a degree you won't be able to compete in this new recession type economy. this is a sham and the link to Seton Hall shows this is rapidly coming to an end.

Absolutely. One question: what happens when large numbers of students aren't occupied with studies and are unable to find jobs? Panacea? I'd lean toward unrest. Maybe those loans will continue after all...

Quote from: cypherdoc on October 06, 2011, 02:30:52 AM

financial stress is rising once again. do these spikes occur in inflationary or deflationary times like we saw in 2008? more importantly, will the banks lend in this environment? no.

Rising, but nowhere near what we saw in 2008. Maybe that's because the stress is on the European side this time?

Quote from: cypherdoc on October 06, 2011, 02:34:20 AM

are ppl going out and consuming as if their USD's are going to be worthless? no.

Rehash of consumer slack being picked up by gov't.

Quote from: cypherdoc on October 06, 2011, 02:36:02 AM

is money moving thru the economy normally? or is all of it going to magically go into gold?

Yes, there are flow disturbances. This was acknowledged.

It must be kept in mind that the gold market is tiny compared to most others. Bonds, currencies and equities all dwarf the gold cap. Thus only a very small amount of flow needs to find its way to gold in order for major price moves to occur. There is also an entire world outside the borders of the US.

Quote from: cypherdoc on October 06, 2011, 02:39:01 AM

why is all this money fleeing from money market funds into bank deposits? its b/c investors are scared. scared that another fund may break the buck or that their European bond investments will go capoof. in other words, investors are fleeing into the USD and not much else.

Yes, although a stronger term might be necessary - terrified perhaps. A lot of capital is in the hands of non-professionals. These are people who don't understand exactly what's going on. They're the people who hear gold blasted in the news and get advice from their domestically-educated investment advisers whom have likely lost a good chunk of their own wealth as well. It's the blind leading the blind.

After taking stock of what's going on, those people will eventually dip a toe back in the water. It's a gradual process.

Quote from: cypherdoc on October 06, 2011, 02:43:50 AM

commercial paper funds businesses. no business lending, no ~~economy~~ growth. ~~no economy, no inflation~~.

This distinction is extremely important: monetary inflation is not the same as asset price inflation or economic growth. Businesses do not manage the money supply (derivatives and securitization by banks notwithstanding). Monetary inflation can provide room for business (and economy in general) to grow, but there is not a 1:1 relationship. Asset price inflation can result from monetary inflation, but only due to underlying supply/demand fundamentals.

Quote from: cypherdoc on October 06, 2011, 03:10:48 AM

here is a 10 yr gold chart with a hook at the end. now i ask you, how much different is this price graph than the economic data graphs i just showed you? gold is just a reflection of whats going on in the economy with speculation added in i submit.

Pay attention to the increasing volume at the bottom of the chart. Either HFT has progressively gone haywire, or rising amounts of capital are flowing into the sector. I will point out again that a $300 drop from $1,000/oz to $700/oz in 2008 was a 30% correction while the same $300 drop from $1,900/oz to $1,600/oz last month was only a 15% correction.

The price does not show the supply/demand fundamentals. Those are set up in almost exactly the same bullish formation as in 2008. At that time, price was also the only piece of data that was bearish for precious metals; misdirection.

Quote from: cypherdoc on October 06, 2011, 03:23:49 AM

how's your income by the way? inflating? i think not. and you're not alone.

Quote from: cypherdoc on October 06, 2011, 03:25:42 AM

you mean you're not going out and buying refrigerators, washing machines, ovens, etc?

Monetary inflation triggers asset price inflation, then wage inflation. Monetary inflation has been held in check, so now the crunch hits. Those are domestic factors. If that was the only concern, I might consider deflation a possibility. There are numerous external factors, so deflation is not an option.

Quote from: cypherdoc on October 06, 2011, 03:28:33 AM

this is precisely why Whirlpool looks as sick as it is. no manipulation of this price chart.
lines up pretty nice, eh?

Quote from: cypherdoc on October 06, 2011, 03:49:01 AM

now look at this 15 yr weekly chart of the S&P 500. stocks lead the economy. see that hook DOWN over at the far right? what does this tell you about where we're headed? we've formed a huge downsloping head and shoulders formation over the last 10yrs which is extremely bearish. again, if the economy and stocks tank, what will happen to gold which is also hooking down?

Maybe a detailed explanation is due, based on more than price action. Vague and intermittent associations offer tenuous arguments.

Quote from: cypherdoc on October 06, 2011, 03:55:57 AM

10yr weekly chart. just to make this argument complete, guess what chart this is and compare it to the above economic charts.

Again, pay attention to silver volume. Magnitude increases in volume suggest increased capital flows from rising demand. There is also a severe drop-off in volume on the second spike down as compared to the May 2011 decline. This suggests that there are very few longs bailing out.

The same numbers behind the scenes reflect another bullish setup, just as with gold. One more time: price is the only bearish data.

Quote from: cypherdoc on October 06, 2011, 04:11:38 AM

now this ones a little harder. flip all the other charts over top to bottom and what do you get?

A simple strategy is good, but I think you've gotten a bit too simple. The inverse association is intermittent.

For this thread supposedly being about global economics, there sure was a lot of gold-related sentiment in these recent posts.

I have to say, it was refreshing to see all of the STL Fed data sets displayed - thank you. So we've agreed again that deflation is the dominant force at the moment. This series started off very nicely. When it came to the price charts, there was no real explanation for why the price action in gold and silver are occurring aside from deriving meaning from the price actions themselves. Circular reasoning is a fallacy.

Let's take a look at some technical price analysis versus fundamentals.

What about lumber? It looks like it's in a range, but that's heavy. Deflation is in vogue.

Perhaps more paper will be needed for the myriad new legislation and IRS forms coming down the pipe? In all seriousness, there are so many uses for lumber (construction, repair, fuel, paper, etc.) that there really isn't any argument against it.

Still not convinced? Try AT&T on for size. Recession? Depression? Where? Business as usual, go back to your daily lives.

Would it stand to reason that the company is consistent because it's part of critical infrastructure?

No? Alright, I think Genesco's price chart looks great. So much for deflation, right? I mean, price is everything.

Or maybe this is due to the fact that brand recognition still counts, or at least because people still wear shoes.

I haven't seen a reply from you on the issues of:

Open Interest
Volume
Commitment of Traders reports
COMEX/NYMEX deliveries
COMEX warehouse inventories
SPDR ETF (GLD/SLV) trust holdings movements

I suggest we just see how things play out this month. After that, we can reassess what's going on and adjust our theories.

I'll leave with the news that over 1 million silver eagles have been sold by the US Mint as of October 3rd, following a near-30% drop from September 21st through the 26th. Silver coins sales were immediately halted for "repricing" purposes. Even with a similar decline of nearly 30% in price, gold coins are still being sold.

Silver sales are about 200,000 away from hitting a new record, and there is still one more quarter left in the year. It isn't as lofty, but gold is high also. I would think it safe to assume the fundamental of supply and demand is the cause. Where is the bubble? Participation is still low, and these buyers won't be letting go unless substantial profit is involved. If they view precious metals as insurance, they probably won't let go for any fiat price.

Got physical?

* And farewell, Steve Jobs.