Engineer

What Does the Recent Saudi Gold Rush Mean?

The mind reels at what would have happened to the silver market had the Saudis deployed all (or even part of) the $3.5B into physical silver.

At $10/oz, they would have been able to pick up 350M oz., more than twice the amount in the COMEX warehouse (in theory).

A question I'm wondering about (and I don't know the answer), is why - knowing that the silver market is so tiny compared to the gold market - someone doesn't take a stab at being Hunt 2.0?

Time to Fill Up on the Strategic Petroleum Reserve

Great post Michael! Our energy problems are not going away.

The other long term side benefit in developing 'local and diffuse' sources of energy is that this will reduce geopolitical tensions.

Wind power, solar power and biofuels can be produced virtually anywhere. The technologies are simple and proven. Every nation can do this. There is more than enough renewable energy to supply ALL of the world's energy needs.

If you remove the tensions due to the procurement of energy, there will be fewer reasons to station large armies in the desert.

From being in this industry, I know the economics are currently marginal for these projects. But society needs to grow up and make sacrifices if necessary to do the right thing.

The Stock Market Is Not the U.S. Economy

“A third of all U.S. stock trades in 2006 were driven by automatic pro grams, or algorithms, according to Boston-based consulting firm Aite Group LLC. By 2010, that figure will reach 50 per cent, according to Aite.”

www.bloomberg.com/news...

If you’re getting into trading seriously, I think it’s important to understand this. Ironically, these rational proprietary programs (basically more sophisticated investools), helped cause the very irrational crash of ’08, by going into self-reinforcing routines that kept triggering lower and lower stop-loss sell orders, overriding all fundamentals.

It’s fascinating to observe that when the future is supposedly predicted, the very knowledge of the prediction en mass ends up changing the future outcome.

IMO trading is a huge waste of time and effort directed toward something that provides little to no value to society. However, there is opportunity now to pick up bargains while the “masters of the universe” try to figure out what went wrong and reset their code for the next irrational move to the upside.

Trump to Lenders: You're Sued!

Now that you are resorting to suing them, good luck finding lenders for your next project.

Talk about killing the golden goose.

The Most Misunderstood Chart of All Time

Great observation Tim.

I think the other interesting thing this graph shows, is that in effect, the productive capability of the nation is more and more flowing to debt since money became fiat.

It is also interesting to see in this graph that post-fiat recessions (early 1980s, 1990s and 2000s) are mere blips compared to the 1930s.

I think this trend ends up in one of two places: you hit a theoretical max and oscillate about this max, or have hyperinflation and all debts are cleared.

The Bleak Christie's Sale

What we need - see - is a COMEX style market for art.

That way a painting could be bought and sold multiple times simultaneously (on paper), and many people would be able to enjoy owning works of art and speculating on their values without actually owning them.

(I'm joking of course - we really don't need this)

Why Jim Rogers Is Still Bullish on Grains and Gold

Rogers is a very smart man with a track record to back him up. I suggest we pay attention to what he says.

I remember during the tech boom everyone was calling Buffet a man of the past and out of touch because of his archaic habit of focusing on fundamentals. He was eventually vindicated.

The Home Ownership Bubble

Good comment Lars,

Home ownership might be a bit of a misnomer - the other trend that is going on behind this graph is that increasingly, new "owners" are basically renting from the bank.

Is the Financial Industry Salary Boom Over?

Go Engineers!

It will be nice to see useful people finally getting paid what they are worth (and vice versa).

Sluggard Silver

You should look at both sides of the recession equation: demand destruction AND supply destruction.

With respect to silver production, approximately 60% comes from other metal mines as a byproduct.

When commodity values drop below the cost of production, these mines will simply shut down.

In a normaly recessionary environment, the existing surplus warehouse stockpiles will be drawn down unitl the price rises above the cost of production and the mines then reopen.

However, In our bizzare recessionary environment, the existing stockpiles of silver (and all metals by the way) are by all historical standards...LOW. It is estimated that there are now approximately only 1 billion oz available to investors compared to 20 billion oz in the 1970s. This is the result of decades of skewed trading to the short side making silver almost not worth the effort to mine and produce.

Watch this market closely to see if Adam Smith eventually triumphs.

Gold in a Credit Crisis

That there is no commentary on the recent unusual & overwhelming short positions taken by the largest 2-3 traders in gold and especially silver, leaves one wondering who is speaking the truth anymore.

A speculative short position is NOT A FUND LIQUIDATION, it is capital at risk. A speculative short position in a silver secular bull market - equal to the entire COMEX warehouse stockpile - is an INSANE level of risk...

...unless one knows it is a sure thing.

For an alternative view on these matters, check out www.investmentrarities...

What If Warren Buffett Is Wrong About the Markets?

A subtle distinction here is that Buffet is primarily an investor, not a trader. His money will "return" based on the strength of the cashflow of the business, not from buying low and selling high.

This is the way investing used to be before Wall Street somehow convinced everyone that trading is investing.

Pay Attention to Indian Silver Buying Spree

Closer to home, sales for silver eagles are the highest they've been in 20 years - over 14MM eagles sold year to date. Probably would be higher still, except the US mint is having trouble sourcing blanks. And there's still two months to go.

See for yourself: www.usmint.gov/mint_pr...

Interestingly, the dollar value of silver eagles sold this year is only slightly less than the dollar value of gold products sold by the mint - and both are up sharply this year.

The investment demand is there. Now where is the supply?

Is Gold Ready to Fly?

Great article Bill. I would add a similar big picture "fix" for capitalism that will never happen but I think needs to be said:

THERE ARE TOO MANY PEOPLE MAKING A LIVING OFF TRADING right now. There is very little value add to society in the process of trading.

The stock market is a secondary market driven by fear and greed. It absorbs too much of our attention, and too much of our capital all in excess of its only value add of price discovery. Aside from investing at the pre-IPO or IPO stage, when you make a trade in the stock market, you are merely circulating currency.

Real capitalism is when you deploy capital to add value to society (i.e. building a power plant). You are rewarded according to the risk you take and the value you bring to society.

I don't know how to fix this problem, or if it even possible. Personally, I am investing my surplus cashflow into my own businesses going forward, at modest returns based on the value they provide.

Gold's Relationship with Real Estate

Here's another way of looking at it.

In the early 1970s, shortly after the US defaulted on its gold standard, you could buy an average home in the US for 200 to 300 oz of gold. However, during the subsequent crisis of confidence of 1979/80, the ratio dropped to around 100 oz per home, simply because the value of gold skyrocketed.

In 2001, the average US home in gold peaked at a valuation of around 700 to 800 oz. Since then it has declined steadily to around the 300 oz level. If we are to see a re-test of the 100 oz mark, either homes would have to decrease in value another 2/3 (!!), or gold would have to increase in value by three times, or some intermediate combination of the two.

I'm not sure if this 100 oz valuation will be retested anytime soon, but I do get the sense that Gresham's Law (good money goes into hiding when bad money appears, en.wikipedia.org/wiki/...) will act even stronger in the years to come until we can figure out some way of putting ridges on "paper money".