Published here: http://goldsilverworlds.com/economy/preparing-barter-trade-not-loony-idea/
Let’s start with this fact; fiat (paper) currencies die – often spectacularly. That is why precious metals may someday be needed for barter and trade. Anyone who thinks it is silly to worry about such a thing is putting blind faith in Federal Reserve Notes.
The U.S. dollar is having a great run, no question. It will soon be 50 years since Nixon closed the gold window, thereby converting the dollar to a purely fiat currency. Five decades is longer than most purely fiat currencies survive.
Humans carry a normalcy bias. That helps explain why so many assume the unbacked Federal Reserve Note, which has served so long as our currency, will continue to serve in the future.
If you test that assumption, it quickly gets hard to defend.
Point to the exponential growth in U.S. debt, the unrestrained government spending throughout both Republican and Democratic administrations, and the extraordinary monetary policies of the Fed (particularly in the past decade) and reasonable people should acknowledge that the reign of “king dollar” is unlikely to last forever.
Most people don’t know the first thing about the dark history of fiat currencies around the world. Governments use them to borrow and print without limits. Suffer no delusions – fiat currencies were invented for precisely that purpose. The gold in the treasury has never been sufficient for the wars, social programs, and graft which are the hallmarks of a growing government.
America is no exception. Nixon slammed the gold window shut because nations – France in particular – saw the U.S. spending beyond its means and devaluing the dollar. So, our trading partners began swapping dollars for bullion. In order to stop the hemorrhaging of U.S. gold reserves, Nixon reneged on the commitment to redeem Federal Reserve Notes in gold.
Honest money in the form of gold, or currency redeemable in gold, imposes restraints that no expansionist government can abide – ours included.
The chart showing the growth of our national debt since Nixon broke the last remaining tie between the dollar and gold is hard to refute.
Whether or not the federal government can be trusted to make good on its commitments over time is a serious question.
It would be silly not to prepare for a collapse in confidence, and, by extension, a collapse in the dollar. And nobody should wait. Currency crises through history catch most people by surprise, then it is too late to prepare.
Governments are like the Ernest Hemingway character:
“How did you go bankrupt?”
“Two ways. Gradually, then suddenly.”
History is full of nations and currencies rolling slowly downhill for a while, then plummeting over the cliff.
You can show naysayers a picture of the recent hyperinflation in Venezuela:
Venezuelans who entered 2016 with all of their savings in bolivars probably didn’t know it, but they were in serious trouble. Within weeks they would be searching for scarce food with nothing to exchange but devalued banknotes – slips of paper which merchants suddenly loathed.
The above chart is based on “official” data from the Venezuelan central bank. The reality is even worse.
Grocers can’t keep enough food on the shelves because suppliers don’t want bolivars. Instead, much of the food is bought and sold in black and grey markets where people offer something more compelling in exchange.
Once lost, it is extraordinarily hard to restore confidence.
The Venezuelan government, and their bolivar, are struggling to maintain any sort of legitimacy. Total collapse is all but assured.
Granted, the USA is not Venezuela. Our dollar is the world’s reserve currency and the U.S. is much larger and wealthier than that South American nation. But much of the difference boils down to scale and timing. Venezuela is simply ahead of the U.S. on the same road to national bankruptcy.
Absent a course correction, there is little reason to think we won’t arrive at the same destination – hyperinflation and disorder.
It is possible America can make reforms before it is too late. But even those who are optimistic about President Trump enacting change for the better, must admit it is very unlikely that he will ever get Congress to cooperate. And it is that august body which is responsible for spending and debt.
Federal debt and entitlement obligations have kept growing, regardless of which party is in control.
If the U.S. returns to honest money and limited government BEFORE a crisis, it may be the first nation in history to do so. Anybody who doesn’t like those odds would be wise to hold some gold and silver for a handful of good reasons. Having something to barter with is certainly one of them.
Clint Siegner is a Director atMoney Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.
Published here: http://www.zerohedge.com/news/2017-07-31/bitcoin-gold-and-silver-report-30-july-2017
That’s it. It’s the final straw. One of the alternative investing newsletters had a headline that screamed, “Bitcoin Is About to Soar, But You Must Act by August 1 to Get In”. It was missing only the call to action “call 1-800-BIT-COIN now! That number again is 800 B.I.T..C.O.I.N.”
Is it about to go up? Maybe. We don’t know. And everyone should by now be skeptical of all “rocket to take off on XYZ date” claims. Between them, surely these newsletters have predicted thousands of the past zero blastoffs of gold and silver since 2011.
We have discussed bitcoin in the past, to argue that it is not money (a video here, and articles here and here). Bitcoin is not money because it is not a good. It’s just a number in a database. Money is a kind of good (genus). The most marketable kind (differentia).
Money must be a good because we are physical beings in a physical world and final payment—which is not demanded all the time, or even often—must be a physical thing that you can hold and touch in your physical hands. Bitcoin is not a physical good, so it represents, not final payment, but intermediate payment. It is not final until you trade the bitcoin for a real good. In the language of economics, a real good has utility apart from one’s hope to exchange it for something else. Bitcoin has no utility apart from this hope of its value in exchange, its price.
There is not one price but always two prices: bid and offer. When one has a thing and relies on someone else to buy it (or accept it in exchange), it is the bid price which is relevant. The offer price may be close above the bid, or it may be much higher. Typically sellers are reluctant to sell below their cost, but that has nothing to do with buyers. Buyers make a bid based on how they value it (or not).
This fact right here is sufficient to debunk the labor theory of value. Suppose producing a painting takes you 50 hours of labor plus $100 in materials. That does not matter. If your name is Banksy, people might be happy to pay tens of thousands of dollars for the painting. If your name is Keith Weiner, not so much (Keith is not known for having any skill at painting, though he can take some mean photographs).
For all commodities, for all real goods, for all tangible products, there is always a bid. Even a junk car is worth something to the scrap dealer. Even sand is worth something to the landscape contractor.
If a commodity is useful for something, it will have a robust bid. The price may be low or high, but the bid will be set by those who have a productive purpose in mind. If you can buy something, add a little bit of value from labor (e.g. cleaning it up) and sell it for $1,000 then you are willing to pay up to, say, $900.
Take copper. Copper can be used for wiring and plumbing (and many other things). If you manufacture plumbing, and you know that with a dollar worth of labor you can turn copper into a pipe that sells for $3.75, what are you willing to pay for the copper? Perhaps you would go up to $2.50 (it’s now about $2.85). If the price of copper drops, this new buyer will come into the market (for now, plumbing is made of plastic).
In this light, we now get to the 64 billion dollar question. What is the bid on bitcoin? What is it useful for, and who would buy it for that purpose?
Right now, bitcoin is a lot of fun. Its price is being driven up by frenzied speculators. With each new price level, proponents become bolder and more aggressive. Bitcoin will replace the dollar, bitcoin will go up to $1,000,000, the dollar is failing, get yours before August 1, etc. Many of these arguments were popular when the price of gold was rising relentlessly up through 2011.
But what’s the ultimate bid? Where is the floor, where it cannot go below because it’s just too profitable to buy it, transform it into a higher-value good to sell at a profit? Where is the floor where individuals will buy more and more because they want bitcoin in their living room, or in the tank of the car, or in their refrigerator, or in their basement?
It doesn’t exist, does it?
This is not a prediction for tomorrow morning. Indeed timing these things is impossible. However, there will come a point when the speculators turn. Perhaps their collective thumbs will move the planchette on the price-chart Ouija board to paint an ugly chart pattern (much uglier than head-and-shoulders). Whatever its initial cause, what will happen is clear in light of the above discussion.
The price of bitcoin could drop to any level. Incidentally, bitcoin could be used in exchange as it is now, whether its price is $0.01 or $1,000,000.
People often say that bitcoin is like gold, or even say it is “digital gold”. They are just trying to cash in on gold’s good name. The problem of the bid is another key difference between bitcoin and gold. Gold is an extremely useful commodity. Bitcoin is not any kind of commodity at all. It does not have a real bid at all, only the ever-changing bid of the fickle speculator.
The prices of the metals rose some more this week, with gold +$13 and silver +$0.24. However, that leads to the question: is it speculators getting ahead of the fundamentals, or is it real?
Three weeks ago, with the price of gold $56 lower and the price of silver $1.15 lower than today, we asked if that was capitulation. We cited some circumstantial evidence (plus a rising scarcity of both metals as measured by the cobasis). We did not call for a moonshot, but a “normal trading bounce within the range.”
Today it is time to ask if the bounce is down, and if now is the time for a normal correction. And if it’s the same answer for both metals.
We will show graphs of the true measure of the fundamentals. But first charts of their prices and the gold-silver ratio.
Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio moved down slightly this week. We find it interesting that the ratio did not fall farther.
In this graph, we show both bid and offer prices for the gold-silver ratio. If you were to sell gold on the bid and buy silver at the ask, that is the lower bid price. Conversely, if you sold silver on the bid and bought gold at the offer, that is the higher offer price.
For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.
Here is the gold graph.
The dollar fell again this week (the mirror image of the rising price of gold). As the dollar fell, the cobasis increased—gold became more scarce.
In silver, unlike in gold, as the dollar has dropped (i.e. the price of silver measured in dollars has risen), the metal has become more abundant.
Our calculated silver fundamental fell about 50 cents this week, or about 75 cents in the past few weeks. So while the price of gold may continue to rise to perhaps over $1,300 the price of silver could be a bit weaker. We calculate a fundamental gold-silver ratio of about 79 (chart here).
Coming back to the bid-ask spread, we thought we would publish another chart off our website. This one shows the bid-ask spread of spot gold and spot silver.
There are two salient features. First, note that the spread is really tight in both metals (though while the spread in gold dropped in mid-2016, in silver it increased). It is currently around 12 cents in gold. An ounce of gold is over $1,200 and the difference between bid and ask is $0.12 or 0.01 percent! In silver, it is around 4.2 cents, or 0.25 percent. Gold is more liquid, much more liquid.
Second, when the financial system buckled and nearly collapsed in 2008, the spreads widened to $2.40 and $0.10 in gold and silver, or 0.33 percent and 1.05% respectively. Compared to real estate in a normal market, both metals are extremely tight. Compared to illiquid assets during the peak of the crisis, it’s incredible. We recall a story of a guy who bought a famous painting by old master during the top in 2007. He paid, as we now recall, around $13 million. During the crisis, he was forced to sell it. He got $100,000. We assume the offer price on such a painting would still be $10 million or more. But $100,000 was the bid.
Published here: http://www.zerohedge.com/news/2017-07-31/gold-silver-ratio-could-be-creating-very-bullish-pattern
Below looks at the Gold Futures/Silver Futures ratio over the past decade. The ratio bottomed in 2011 and started moving higher, sending a bearish message to both Gold & Silver. The ratio has rallied since the 2011 lows, where it could be creating a “topping pattern” over the past couple of years.
CLICK ON CHART TO ENLARGE
The long-term trend in the ratio remains up since 2011, which is hard on metals. Over the past couple of years, the ratio could be forming a head & shoulders topping pattern, with the head taking place at the highs back in 2008. The short-term rally of late, could have completed the right shoulder, of this pattern at (2).
If this would happen to be a topping pattern, what it does at (3) becomes very important for both Gold & Silver bulls. Metals bulls want to see this ratio break support at (3) and head lower. If the ratio would break support, historically Gold, Silver and Miners would attract buyers.
If staying on top of pattern in Gold, Silver, Copper and Miners is of interest to you, we would be honored if you were a Premium or Metals members, as charts like this are shared each week with these members.
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- Latest developments show risks in crypto currencies - Confusion as bitcoin may split tomorrow - SEC stepped into express concern over ICOs - ICOs have so far raised $1.2 billion in 2017 - ICOs preying on lack of understanding from investors
- Physical gold not vulnerable to technological risk
- Beauty and safety in simplicity of gold and silver
Editor: Mark O'Byrne
Forks and ICOs solves bitcoin v gold debate
There is still a huge amount of noise in the bitcoin and cryptocurrency space but there have been a few developments of late which have pushed the space further into maturity.
From what I can tell from dinner party conversations people who are vaguely aware of bitcoin now know that there are two terms they need to throw into the chat in order to sound like they know what they are talking about. These two terms are ICO and Fork.
Price is also a major talking point at present. As ever the price of bitcoin remains volatile and headline-worthy.
This week will mark a point in cryptocurrency history as the most powerful of cryptocurrencies, bitcoin will experience a major technical change and the US regulator SEC has just made a significant announcement about fundraising in the space.
We have written previously about how bored we are with the bitcoin vs gold debate, but for those who still like to peddle it then they would do well to see how these latest developments put the issue to bed.
The break-up of the year
For a long time there has been a debate about the scaling of the bitcoin network. What is ultimately a required software upgrade has caused many arguments and fall-outs in recent years.
Pressure has been ramping up within the bitcoin community as to how certain problems can be resolved. The discussion may seem like something which is just technical but has at times become philosophical and political.
The main items up for debate are as follows:
Bitcoin is currently limited in the number of transactions it can process. Today, it can only process up to 1MB of transactions roughly every 10 minutes.
Owing to this limit, transactions take longer to approve during times of heavy use.
As all users pay a fee to miners to make transactions, this limitation on space has increased average fee costs.
Increasing the block size makes network nodes more costly, as node operators must store the entire copy of the blockchain as computer files.
Ultimately, the above comes down to the fact that the bitcoin network has failed to address problems associated with its current block size which are long wait times and high fees for transactions.
The debate has become so heated for obvious reasons - bitcoin was delivered to the world with a fairly strong set of principles.
However many believe that these principles either have to change in order to protect the future of the currency, or that the software must be upgraded in order to protect the principles.
A solution (called SegWit2x) had seemingly been reached, a week or so back. However not everyone was in agreement. As a result, last week a separate group of users announced that on August 1st they will split from off from bitcoin and create a new cryptocurrency called Bitcoin Cash.
This will likely cause a fork in the bitcoin network and result in two versions of the Bitcoin blockchain and two separate digital currencies. At this point there is likely to be a taking of sides by companies that operate within the bitcoin space.
The main difference between Bitcoin Cash and bitcoin is the block size. Bitcoin Cash will have a block size of 8MB, compared to Bitcoin's 1MB block size. In theory Bitcoin Cash's larger block size could prompt investors to flee Bitcoin in favour of the new currency. This would be negative for the original Bitcoin’s price.
Already I have received multiple emails from companies telling me which version they will be supporting and their reasons why.
So far it looks like the original bitcoin will be gaining the initial surge of support due to the unpredictability of something which was only announced a few day ago.
However, bitcoin owners will also end up with Bitcoin Cash (and a futures market is already open for the new currency) so we will watch this development with some interest.
What this whole drawn-out scenario will do, however, is serve as a reminder to regular crypto buyers and observers that no cryptocurrency is entirely without counterparties that can affect and arguably impact the future of your assets and the future value of them.
SEC, ICO and more acronyms
If you’ve been catching up with the latest series of House of Cards then ICO might sound like a reason for bitcoin to be banned outright as it is the fictional equivalent of ISIS.
But ICO in the real world is a very different thing, it stands for Initial Coin Offering.
‘An unregulated means by which funds are raised for a new cryptocurrency venture. ... In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin.’
According to Autonomous NEXT, ICOs have raised $1.2 billion in 2017 alone. Given Ethereum raised ‘just’ $18.9 million in its 2014 ICO this shows phenomenal hype (or promise) in the space is growing rapidly.
The hype has even grabbed the attention of that expert-investor and cool-head that is Floyd Mayweather ahead of his big fight with Irish MMA champion Conor McGregor. McGregor is thought to be a bigger fan of gold than cryptos and has tweeted about bringing "more gold back to Dublin."
When you see this sort of thing it is an example of hype and suggests valuations may be frothy and on the speculative side.
An ICO is really just a promise about the future of a cryptocurrency and the underlying technology.
Most of them are attempts to bring innovation to the fintech space. However concerns have been raised over the lack of due diligence being carried out by investors’ and some ICO projects are playing on this.
ICOs are the offering of crypto tokens which are bought by investors. This then funds ventures in the space. Inevitably the majority of them will fail, but many show great promise as we have seen with Ethereum.
ICOs are almost certainly here to stay. Not only are we seeing a similar movement of people from traditional banking into ICOs as we did in the early days of blockchain tech. But we have also seen the SEC feeling the need to get involved. As we have seen with bitcoin, this network effect of growing stakeholders is justifying the ongoing existence and development of ICOs.
Last week the SEC issued a guidance note that tokens issued by an Ethereum project called The DAO were securities.
“The Commission applied existing U.S. federal securities laws to this new paradigm, determining that DAO Tokens were securities. The Commission stressed that those who offer and sell securities in the U.S. are required to comply with federal securities laws, regardless of whether those securities are purchased with virtual currencies or distributed with blockchain technology.”
This means that all ICOs may be subject to regulations. This announcement was received relatively positively in the crypto space, however some experts believe the SEC are showing a lack of understanding as to how these things work:
Blockchain engineer Elaine Ou pointed out on Twitter, ICO’s are “Untraceable, international, [have] no central authority, [and] funds can’t be frozen. The SEC ICO warning is the best ad for ICO’s.”
What it ultimately shows, however, is that the blockchain space continues to impress with innovation and the amount of money it attracts. However, it is all extremely new, there is a lot of hype and open to a number of threats as well as opportunities.
There will be significant creative destruction in the space.
Conclusion - Beauty and safety in simplicity of gold and silver
Many people bought bitcoin in the early days and have just sat on it.
Happy in the knowledge that it didn’t cost them much and they’ll wait and see what happens to it. Most of these people check-in with the price and whilst the volatility might scare them they are ultimately delighted with the long-term price performance.
The bitcoin price has (of course) felt the impact of the recent changes and debates. However the overall crypto space remains relatively resilient as the market-cap has remained fairly constant in the last week. However, the bitcoin price has faltered.
The problem is that this so-called hard fork has got a lot of people worried.
It has reminded bitcoin holders of the presence of counter-parties in the network, who are able to make decisions about your assets without your say so, whether they are the bitcoin miners or the regulators.
Many googled terms include ‘will I still have my bitcoin after the hard fork?…What will happen to my bitcoin?…Will I own bitcoin cash as well as bitcoin?’
There is confusion and with confusion comes doubt which is never good for price.
The ultimate lesson from all of this debacle is that bitcoin and other cryptos are not worthy substitutes for gold and silver, no matter how much some would like to push this idea.
The joy of owning physical gold which is segregated and allocated in your name is that no-one can announce that they don’t like how gold is mined so they’re changing what you own.
It cannot be manipulated in such a way. If you own gold coins or gold bars, it cannot disappear. It cannot be diluted or suffer a company take over or be hacked. It cannot be affected by alternative versions of it.
Gold is gold and silver is silver. They do not change and are immutable. There is both beauty and safety in this simplicity.
One possible effect of the “America First” approach the Trump Administration vowed to take was a weaker US dollar. Shortly after we wrote about this earlier this year, the dollar index began a steady march lower, retreating 7% in just five months, from 102 in March to its current level of 95.
Not surprisingly, gold has risen almost 10% in US dollar terms during this time.
As recently as six months ago, many investors expected the dollar to continue its rally of the past few years based on stronger economic growth, via Trump’s agenda items, and tighter monetary policy by the Federal Reserve.
However, despite high expectations, so far Trump’s efforts to overhaul healthcare and reform taxes have fallen flat and have been short on substance. In addition, the continued investigation of Trump’s Russia ties has caused more investors to grow skeptical about the chances for meaningful reform, beyond unilateral executive action.
In a surprise move, the International Monetary Fund (IMF) just slashed its GDP growth forecast for the United States from 2.3% to 2.1%. It also cut its 2018 forecast from 2.5% to 2.1%. This type of revision hasn’t been seen anywhere in the world except for Brazil and South Africa, two deeply troubled economies.
The Fed has made good on two interest rate hikes so far in 2017, but based on weaker-than-forecast inflation and growth numbers, it will likely fall short of the four rate hikes it planned late last year. According to the Fed’s preferred method, Core PCE price deflator, inflation has been running well below 2%.
Economic growth, too, has been lacking—in the first quarter, it was just 1.2%, with consumer spending increasing only 0.6% year-over-year. Initial second-quarter GDP numbers are due on July 28 and may prove pivotal in the Fed’s decisions for the balance of the year. The Atlanta Fed is forecasting 2.4% growth, down significantly from the May 1 estimate of 4.3%.
But despite two rate hikes and impending balance sheet reduction, the 10-year yield has moved 15% lower since early March while the dollar has been weakening—both contrary to many forecasts at the start of 2017.
Typically, the Fed will raise rates when it thinks the economy is firing on all cylinders. But it’s becoming more evident that the Fed is now attempting to tighten policy into an economy that is weaker than in previous cycles. As exhibited by declining Treasury yields and very modest inflation, this is at odds with conventional market forces and investors’ expectations for growth.
At this point, Yellen may be forced to raise rates later this year. She needs to at least come close to the four rate hikes outlined for 2017 in order to have some ammunition if the economy falls into recession. Fed fund futures are currently putting the odds of one more rate hike at about 50%.
In the meantime, the Fed will continue to jawbone the market, a favorite tactic to influence investor behavior since it embarked on years of massive monetary accommodation to resuscitate the economy after the Financial Crisis.
However, the same way investors are growing leery of Washington’s political rhetoric, they are also putting less weight on the endless parade of speeches by voting members of the Fed—specifically, Janet Yellen, Stan Fischer, Bill Dudley, and Lael Brainard—in an effort to manipulate markets without doing anything.
Capital Goes Where Treated Best
While the dollar has been slumping and Treasury yields declining, quite the opposite is happening in Europe, where structural reform now looks more promising.
A huge rally has been underway in the euro, an indication of the demand for European assets. Also, German Bund yields have risen significantly, albeit from a low base, well out of the negative territory seen last summer.
The ECB is now about to embark on a similar adventure as the Federal Reserve is currently undergoing, normalizing monetary policy after years of quantitative easing and extremely low interest rates. Only time will tell if it has more initial success, but so far it looks promising on both the financial and political fronts.
As global investors continue to reprice expectations for structural reforms in the US and Europe, capital will continue to migrate into growth assets and safe-haven investments as an alternative to markets perceived as riskier.
A Positive Development for Gold
After trading as low as $1,050 per ounce in December 2015, gold has rallied over $200 to its current level of $1,255. The move higher has been filled with bouts of brief sell-offs and volatility, only to continue making “higher highs” and “lower lows,” technically a very positive development.
This has tested many investors’ patience and conviction, but those who bought on the dip have been rewarded.
As famous investor John Templeton stated, “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
And there is no shortage of potential catalysts to move this rally in precious metals, both gold and silver, beyond the skepticism phase: military intervention on North Korea, government shutdown as the debt ceiling is reached in September, further implications of Trump’s collusion with Russia, and the beginning of balance sheet reduction later this year by the Fed, to name just a few.
Any one of these has the potential to make the 20% move we’ve already witnessed in gold look like peanuts. If you have not done so already, now is the time to add the ultimate hard asset to your portfolio, while pessimism is still high, and protect the wealth you’ve worked so hard to accumulate.
About: Moor Analytics publishes 2 reports daily for Gold, Crude Oil, and Natural Gas. Each report analyzes market activity that day and in context of the bigger picture. His Energy work is especially important for spread and seasonality traders. We are subscribers, and have Michael on our speed dial for quotes and comments on big moves and points of inflection like we feel the market is entering today. Here is what he shared today with us, as we got stopped into our Gold position of long above $1259. Our comments in italics
(Excerpt)
IF Gold stays above $1261, THEN look for a run to 1270 and THEN 1283
IF Gold goes back below $1261 THEN prepare for a bear leg to start as longs begin to liquidate that could drive Gold down to $1254 which is a buy level. But below $1249 is a level to get short
Note: We are taking #2 above very seriously. Our personal approach is, as you will see below, biased longs who let profits run.
Every number is a level to decide. One could short at $1270 and reverse above it. A long could take some profits at 1270.. and so on. One must decide loss tolerances and slippage according to their own bankroll and execution style. Every number that is support, becomes resistance once pierced. Numbers in Aug futures today
SKG Position: VBS short term trade Right NOW
Bollinger Bands say volatility is expanding. We get long, RSI confirms the move ( so far) If RSI does no settle above yesterday - reverse below $1260 area - SKG
Long above $1259 (filled at $1260) looking for $10.00 in 2 days = $1270 target
Stop-loss at $1257 - making the risk reward 3 to 1 per our VBS system
Do not take the trade home if settles Out of the money. So if settles under our buy level but not stopped out, we exit. This is a device we implemented and improved upon specifically to protect against thinly traded overnight spoofers who would most certainly stop us out
If target reached sell half of position and trail the stop up to $1265 on the rest with the next target as $1283
N.B.- One thing that is apparent in this approach, often times the VBS will call that last frothy run higher and then the violent reversal lower. It worked very well as option longs hedging gamma. But that was because we knew if the rally continued, we'd have more futures to sell.
Using just futures, It just breaks our heart selling for a profit and having the market continue running without that gamma. So we leave a tail on in the form of a partial position.
Reversal on Stop - Out: What we should be doing per the VBS trade is selling longs at $1257 and getting short there. This is consistent with Moor's approach... We just can't do it yet..
Bull and Bear Macro Trends (excerpt)
via Moor Analytics
all numbers approximate - SKG
Ground Zero: Bear Move from $1911 down in 2011
Bull Correction: the rally from $1047 to $1374 in 2015
Bear Correction: sell off from $1374 to $1124 in 2016
Bull/Bear Corrections since then are more recent and thus shorter term.
If you have interest in learning about Moor Analytics Reports and seeing a full sample (older) report
Phone: 646-708-4612 and leave a message for Michael
We have been so right on this market and so wrong on trading it too many times. The adage, "I'd Rather Be Rich Than Right" haunts us constantly as macro analysts and micro risk managers. For us, making money is easy. Keeping it is hard. Such is the nature of "parlayers", and traders that fall in love with their trades.
But we've made many good calls and given very good risk reward scenarios based on our own momentum volatility indicators here. Our VBS system is constantly given us 3 to 1 risk rewards in may markets. But it is not by nature a directional indicator. And that makes it hard for us to reverse when we are wrong directionally.
Biased Bulls
The issue with momentum trades like the one we have on now is, when the market penetrates below them, you must be fearless and get short. That is not our strong suit. We get stopped out, and wait for the next buy level usually due to our macro bias. Meanwhile as we have said here many times, the market itself is biased to be short due to market structure and manipulation. So what is wrong with us?
Here is why we are biased bulls. We have made large profits on big moves in 1994 Silver, 1997 Silver, 1999 Gold, the Silver spread squeeze, and various Gold rallies due to events. And we loved it. The short side manipulators were crushed, the idiotic producers who listened to the banks were crushed, and sometimes our head ot head competitors were crushed. Those were times when we saw a flicker of fear in the eyes of the powers that be. And that is the lesson.
A Hard Learned Lesson
The lesson of this must be learned and relearned every time we put a trade on. At our worst, one time after a 7 figure day in energy one of us turned to a colleague and said "Now I'm bullet-proof".. That was a Gartman Moment.
Four weeks later every dollar made was lost, and then we went negative. And that was graduation for us.
We book profits now. But one bias lingers. The top down approach using macro analysis to create micro trades is prone to leave the "swing trades" or short trades on the table.
Pissing Away Profits Waiting for the Buy Signal
As of right now we are trading long above $1259 based on our previous call of that level being a momentum accelerator. This does not mean it must go up. It does however mean that it will move quickly away form the area in short order. So we are long with a stop below $1259
How much money have we left on the table being married to our macro opinions? How many times did we leave profits on the table only to give them back. How many times did we ignore our own analysis? Example: Be long above $1260 is by its very implication a call to be short BELOW 1260.
This is a lesson for everyone willing to listen. Those successes have created a bias. And that bias makes it hard for us to play short even when the numbers tell us to be. For us trading Gold flat is almost like being short.
What we are saying is, look at Moor's Analysis. It is perfect for people with biases. IF we stay above $1260 that is good. But if we go back below THEN don't be afraid to be short. And the lesson here is, always have agnostic like Michael in your analysis. This type of work is the psychotherapy for our chronic Bull disease.
- Shrinkflation has hit 2,500 products in five years - Not just chocolate bars that are shrinking - Toilet rolls, coffee, fruit juice and many other goods - Effects of shrinkflation been seen for “good number of years” - Consumer Association of Ireland - Shrinkflation is stealth inflation, form of financial fraud - Punishes vulnerable working and middle classes - Gold is hedge against inflation and shrinkflation
Editor: Mark O'Byrne
"…Oompa Loompa doo-pa-dee doo…I’ve got another puzzle for you…"
…so sing the Oompa Loompas in Roald Dahl’s classic Charlie and the Chocolate Factory. They sing this after each revolting child suffers a mishap during their visit to his glorious production plant. One child’s mishap results in him being shrunk down to a tiny miniature version, in perfect proportion to his full-size self.
This might have given confectioners and manufacturers an idea. Over 2,500 products have fallen victim to shrinkflation. A phenomenon whereby a product’s price either increases or remains the same whilst the size and or quality is reduced.
Currencies have been and are being debased in recent years and now goods and products are being reduced in size and debased.
It seems that despite a massive global financial crisis, rising debt levels, increasing inflation, especially in rents and mortgages, and a decline in real household income there is virtually nothing that will make people realise how vulnerable and fraudulent the current financial system is.
But shrinkflation and chocolate bars might be the catalysts required to get people to wake up. Us Irish are a nation of sweet-tooths and chocolate lovers. When they feel short-changed in the confectionary department, hell hath no fury like a sugar-addict scorned.
To make matters worse, the phenomenon has now gone past chocolate bars and includes a whole variety of household items from fruit juice to toilet paper.
As a result, shrinkflation is now official and not just your greedy brain telling you there used to be more chocolate in that Toblerone.
Of course, we knew it was a real thing as we’ve been warning about the pernicious effects of shrinkflation. But the UK’s Office of National Statistics (ONS) has declared it’s real so that means it really is and now people are beginning to become concerned and rightly so.
The Consumer Association of Ireland told the Irish Examiner that it has noticed the effects of shrinkflation for “a good number of years”.
Dermott Jewell, Policy and Council Advisor said
“The suggestions that this is done in this way to help the consumer is unacceptable ... That it is solely down to increased costs of ingredients is misleading…The consumer focuses upon price and ingredients — quantity has been well down their list of ‘need to watch’ factors — and manufacturers know and have taken advantage of this.”
McVitie's packet of dark chocolate digestive biscuits have shrunk from 332g to 300g, a 10% reduction. According to Which? Tesco sold the biscuits for £1.59 before they shrank and even increased to £1.69 afterwards. Now the 300g packet is currently being sold for £1.50 in Tesco's website - a 6% reduction in price for a product that is 10% smaller.
Tropicana reduced the size of its carton of Creations Pure Premium Orange & Raspberry juice from one litre to 850ml. It is now available on Asda's website for a slightly cheaper price of £2.30 - a price reduction of 7%, even as the quantity was reduced by 15%.
A packet of Percol Fairtrade Guatemala Coffee has shrunk in size from 227g to 200g, a reduction of 12%. This coffee was £3.90 in Sainsbury's and Waitrose before the reduction, and £3.65 and £3.75 respectively after, according to Which?
The tube of Sensodyne Total Care Extra Fresh toothpaste decreased in size from 100ml to 75ml, a 25% reduction, Which? found during its research. Tesco had the product on sale for £2.40, reduced from £3.60, before it shrank to its present size. After the reduction it was priced at £3.49.
Which? found that a standard Andrex four-pack toilet roll had been cut down from 240 to 221 sheets, a reduction of 8%. Yet the retail price had remained around £2.
‘Helping customers’
When questioned about the fact that packets of Maltesers have shrunk from 121g to 103g, a reduction of 15%, Mars explained that it was a way of helping consumers to afford the product.
Surely the first way to help consumers would be to lower prices?
When Toblerone’s manufacturers, Mondelez, were forced to explain the change in the shape of the bars they explained raw materials had increased in price. The size of the bars had decreased by 12%. Neither sugar or cocoa have increased that much in price, with both falling in recent months.
Other manufacturers have laid blame at Brexit’s door. Not so fast says the ONS, "Our analysis doesn't show a noticeable change following the referendum that would point to a Brexit effect."
So it’s not Brexit and it’s not raw material inputs. So what is it? Profit seeking, in stealth mode.
Acceptable fraud
Shrinkflation is profit seeking in stealth mode. If a manufacturer put up the price of your 100g chocolate bar you would clearly notice, as you look at the price first. But by maintaining the price and decreasing the size you are less likely to notice.
This plays on your trust in manufacturers and is very akin to fraud.
Shrinking the size of goods is just a stealthier way to increase profits than say raise prices.
During recessionary times consumers are far more sensitive to price, they will seek out alternatives to your product. Perhaps they will choose a supermarket’s own-brand toilet role rather than yours.
So brands compete by reducing size and maintaining price, in order to avoid this scenario.
In their book ‘Phishing for Phools: The Economics of Manipulation and Deception’, the Nobel Prize winning economists George Akerlof and Robert Silver argue that companies exploit human weaknesses because the market makes them do it. If they do not exploit consumers then competitors will and they will be at a significant disadvantage.
This is something that is carefully thought about. Advisors and consultants are brought into help manufacturers consider this very thing.
James Brown, a partner at the firm Simon-Kucher, which advises companies on pricing strategies, told the Guardian that the the downsizing made sense.
“You don’t say: ‘I want to consume 120g of chocolate.’ We say: ‘I want a chocolate bar that costs 75p or less’…“Shrinkflation is actually quite a successful tactic because a lot of shoppers are more sensitive to a price change than to a weight change.”
Avoiding inflation figures and therefore the truth
We have been aware about shrinkflation for many years. I first became aware of it when I was a student and used to study price labels a bit obsessively (were they pricing weight, sheets, number of cans? Was the 3 for 2 really that good a deal?).
I remember noticing over a four year period the changing weight of tinned tomatoes. Yet, we were repeatedly told that inflation wasn’t a problem.
This is because shrinkflation isn’t on the radar of inflation calculators. Inflation is still our favoured friend when it comes to assessing the health of the economy. This has many problems in itself but shrinkflation is on a whole other level as it can avoid impacting inflation figures altogether.
The ONS claims that ‘within the “food and non-alcoholic beverages” category, shrinkflation had no noticeable effect. This could be because the number of shrinking pack sizes is relatively small.’
It did have some impact on the price of “sugar, jam, syrups, chocolate and confectionery” which have increased by 1.22%. But they say that in the overall inflation figures, shrinkflation does not really feature as ‘food and drink was a relatively small part of the basket of goods and services that is tracked to gauge overall changes in the cost of living.’
I don’t know about you, but most people I speak to (especially those with families) do not feel that food and drink are a relatively small part of their cost of living.
Add items such as toilet paper (basic essentials) then you basically have a government body that is no longer interested in recording how much damage is being caused by profit-seeking manufacturers.
This does not bode well for households who are suffering from the effects of inflation (whether blatant or stealth). Earlier this week we outlined how over 41% of full-time workers are unable to survive without some form of credit and that average household debt is now at over 135% of household income.
Those families who are expecting the central bank and government to step in and enact measures that will relieve the daily burden of shrinkflation and other side-effects of inflation will be waiting for some time.
Unfortunately, the authorities do not appear to be taking the data seriously, or have the will to take on powerful multinational corporations.
In the meantime, this is another way that working and middle class families get poorer.
An ironic situation
It could be the case that the shrinkflation fraud is tolerated because the UK and the western world does need to stop eating so much sugar and unhealthy processed foods. Childhood obesity has been called a national emergency by the UK government, whilst a 2014 WHO study found that 28.1% of British adults were clinically obese and 62% overweight. We are at the top of the obesity league of Europe (woo, #winning).
The UK cannot afford for its citizens to be so unhealthy. A 2015 report by the Commons Health Select Committee concluded that treating obesity related medical conditions costs the NHS £5 billion a year with a wider cost of £27 billion to the economy.
So, in short, the government is almost incentivised to keep this rouse going. They know that household incomes are not increasing, so people cannot afford to buy much more food in order to compensate for shrinkflation. Perhaps, they see this as the unforeseen solution to a growing crisis?
The food industry has even been congratulated on this blatant fraud.
Dr Alison Tedstone, chief nutritionist at Public Health England, told the Telegraph, “We know obesity is linked to a range of health and social issues, from diabetes to poor self-esteem, that are harming children and families…We welcome actions by the food and drink industry that help them to have a healthier diet.”
Why not reduce the size of the product and the price? What if these actions help make families poorer by basically misleading them?
Conclusion
Shrinkflation is a symptom of an economy in recession and a compliant media and government. It is exacerbated by low growth rates in income, a rising cost of living and falling values in our increasingly devalued currencies.
Shrinkflation is ultimately all about manipulation. Manufacturers are manipulating the needs and desires of consumers. Whilst the ONS might declare that the phenomenon of shrinkflation has not had an impact on inflation figures, we believe it is likely having a bigger impact than is admitted.
Shrinflation is a hidden form of inflation and is detrimental to the health of UK households.
We see manipulation in every corner of the economy, whether we are talking about the surge in household and corporate debt, the underhand implementation of negative interest rates, inflationary monetary policy and the devaluation of currencies.
This is about manipulation and ultimately the reduction of our living standards and our wealth.
The fact that prices and money can be so easily and legally manipulated suggests that savers need to not be totally reliant on the government to protect their savings and lifestyle.
There are limited ways to protect yourself from this. One of them is by investing in physical gold and silver which is allocated and segregated in your name. Gold has proven itself to be a hedge against inflation and wealth destruction.
We turn to the wisdom of Willy Wonka for our concluding thoughts.
‘There's plenty of money out there. They print more every day. But this ticket, there's only five of them in the whole world, and that's all there's ever going to be. Only a dummy would give this up for something as common as money. Are you a dummy?’
Posts
Let’s start with this fact; fiat (paper) currencies die – often spectacularly. That is why precious metals may someday be needed for barter and trade. Anyone who thinks it is silly to worry about such a thing is putting blind faith in Federal Reserve Notes.
Whether or not the federal government can be trusted to make good on its commitments over time is a serious question.
Venezuelans who entered 2016 with all of their savings in bolivars probably didn’t know it, but they were in serious trouble. Within weeks they would be searching for scarce food with nothing to exchange but devalued banknotes – slips of paper which merchants suddenly loathed.
Grocers can’t keep enough food on the shelves because suppliers don’t want bolivars. Instead, much of the food is bought and sold in black and grey markets where people offer something more compelling in exchange.
Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.
