Gold and Silver Current Thoughts 10-28-2015

Today we got a taste of Fed policy and we see what it means for the stock market as that’s all the stock market knows to do is follow the Fed. It reminds me of that silly song that came out awhile back; “What does the fox say?” Of which no one knows the answer. In this case, “What does the Fed say?” is what the market waits for with baited breath. It’s ridiculous the market behaves this way and it will come back to haunt those invested in it at some point just like it did in 2009. But for now we lean long the markets.

Gold didn’t take the news as well as the stock market. It sold off and gave back all it gained and then lost $14 more dollar before settling at $10 down for the day. It’s less than $100 from it’s 52 week low and everyone is out buying mining stocks like it’s the bottom, but I have stuck with and still will stick with my lower low calls below $1,000. It was a $33 drop from high to low.

Yesterday for the Seeking Alpha subscribers I said the following that I would like you to ponder on for a bit;

“It’s kind of strange actually. All the while gold was moving lower, interest rates were falling. Now all of a sudden the threat of interest rates rising is bad for gold and no rate rise is good? Seriously? I’ll stick with my stronger dollar weaker gold theory thank you very much. But I don’t ignore what main street thinks for the short term and trade it accordingly.”

This time around gold didn’t move up with the “no rate increase” announcement but guess what did? The dollar moved higher and gold fell like a rock.

Below was an email that came to me today where he asked me questions on various issues related to the Fed, economy, currencies, other writers, China, the Great Depression and the 1970’s. I think you’ll enjoy the good questions and my replies.

—Carbon and Growth

The global economy is predicated on cheap carbon energy and population growth, both phenomena are changing dramatically (increasing in cost and decelerating, respectively).  Thoughts?

In a deflationary credit contraction, things get cheaper, including energy. Look at oil and natural gas for example. I have been saying oil will go lower for some time now. 30’s easily. However, energy costs will eventually rise. Part of it might be the threat or actual war (a given with our leaders) and in my next book I do recommend energy as good investments, including solar.

—Special Drawing Rights

Renminbi inclusion is all but certain.  Possibly gold backed? Soon?  Someday?  Thoughts?

SDRs in general?

China doesn’t want to do anything to hurt their cheaper prices, so why would they want to make their currency stronger. Backing any currency by gold is an illusion and it would destroy capitalism as we know it. I go against the Austrian’s on this. But also know we are destroying capitalism because of cronyism anyway, lol. No gold backed Renminbi. But yeah, inclusion in SDR is a possibility “someday.” Keep in mind that China is a complete disaster as they have not gone through their shadow banking crisis yet.

—Renminbi as a World Reserve Currency

Thoughts?

China is the future great superpower. But they can wait 100 years for the U.S. to capitulate because of their own ineptness if they have to.

—Names I Follow:

Tyler Durden, on Zerohedge. David Harvey, Chris Martinson, Jim Rickards, Nicole Foss, Arthur Burman, Rune Likvern, Steve Keen.  Your thoughts on these folks / their take on things?  Followup: who am I missing from this list, in your opinion?

Zerohedge is a perennial doom and gloom site just like Daily Reckoning. Don’t know David Harvey. Chris Martenson I know of through a guy I follow Mish Shedlock who first introduced me to Steven Keen and somehow Nicole Foss and her views on deflation. I met Steve Keen and Nicole Foss, who I quoted in my book, at a sustainability conference in Michigan a number of years back. I still follow them, yes. Jim Rickards I respect but always the same song and verse. Arthur Burman don’t know. Rune Likvern don’t know.

Instead of following certain individuals I do read a ton and look at the data and make my own conclusions of what’s going to occur next. There is no doubt in my mind that we are heading towards a deflationary nightmare and the Fed knows this and they just can’t raise rates. They may try to but it would only be to give the illusion they have credibility.

—History:

What, in your opinion, is the best single account of The Great Depression?

That the Fed, through the government will do anything to save it’s ass and the banks ass. Like confiscate gold and devalue the dollar and bank holiday’s. It’s all about the banks and their survival.

What, in your opinion, is the best account of the 1970s?

In a way, it turned out to be brilliance in severing the ties to gold with our central banking system in settlements between countries. It allowed the most massive expansion in history, after a decade of uncertainty. But it has come at a price with what every politician (except for Trump and Ron Paul) never mentions; the national debt.

—Manipulation:

Some see prices as deeply manipulated with natural prices for silver at $100 or more and gold to $7000.  How lunatic are these numbers?

All commodities are falling in price. Are they manipulated? When all prices were rising, were they manipulated? It’s not price that matters but purchasing power. A gallon of gas was close to 25 cents in 1964 and today a gallon of gas can be had in most places with the exchange of a 1964 quarter for the scrip of the day at $2.27 a gallon. It can actually buy you more than a gallon which tells me that oil is a better buy than silver right now (at least before today’s big run up in oil).

—Hyperinflation:

The world we’re talking about is not Gaussian.  I’m reading Nassim Taleb’s ‘Anti-Fragile’ and ‘Black Swan’ at the moment.  What do you make of the threat of hyperinflation in the USD?

For there to be hyperinflation in the USD, we would have to by default have the opposite in the EURO, YEN, POUND etc. Have you seen the Debt to GDP ratio of these countries? They are much worse than the U.S. “Perception” means investors should flock to the U.Dollar as they have since 2011 and to U.S. treasuries, which they also have. The dollar should take off higher from here. But eventually it will be all currencies that have unsustainable issues. Pricing them in each other is the illusion. Not too many people understand this.

—The Federal Reserve:

ZIRP…  +%.25 …(Oh f$&k!)….  ZIRP…. NIRP?   It feels like the wheels are coming off.  Any thoughts on NIRP?  Exotic / rare Fed moves?

Yes, the Fed will do anything to save itself. Negative rates are not out of the question. It would be an admission of failure in my book (literally).