What’s happening?

Markets are genuinely crazy at the moment.  Do you go where the government and bankers want you to go or do you fight the trend and get hit?

I don’t know the answer but I know the choices.

Gold and silver – smashed.  But premiums are rising on physical and the market is completely dislocated.   Will central banks lose control?  Don’t know.  But they will have to, if the prices are going to reach their natural levels.

House prices – crazy.  But governments keep pushing us to buy.  Do you?  In the US, probably YES.  In Australia – probably NO.  Look at yields and relative prices and that will give you the answer.

Stocks – insanely crazy.  Do you buy banks and go with the flow?  In my view probably yes.  The government will support them until they completely die.  When that happens it won’t be worth living.  So buy the banks, by all means.

Just don’t tell me this is a free market.

Are you alive? Then you have to gamble.

Interesting article from one of Australia’s most successful businessman, Gerry Harvey here and here.

First, he doesn’t donate to charity because there’s no point helping “no hopers”.  Fair enough.  I interpret that to mean he doesn’t want to waste resources and subsidizing people’s bad habits that got them into trouble in the first place will just delay them confronting their real problems and adjusting to reality and getting out of the rut they are in.

Second, he has been through huge trials and tribulations.  He lost $2 billion in a year in the GFC.  He’s made mistakes opening in Ireland and Slovakia.

BUT – he’s alive, he’s worth over a billion and he enjoys life.  He’s has grown from his mistakes and kept on going.  He’s has taken a punt on life and, basically, won.

That is admirable.  He’s found enjoyment in breeding racehorses to keep him going.

I admire his outlook and his success.

Even in this insane monetary world, some people still should be admired for what they do.  Gerry Harvey is one of them.

He is apparently not the most generous person in the world.  A born salesman.  But basically a good, hard-working, decent person.

At least he’s not a banker.

If you’re alive, find something you believe in and go for it.  Don’t die wondering.  Or you’re already dead.

Like that homeless guy you walked over the other day.  He stopped trying.  Which guarantees losing.

Housing is taking off again. All aboard this train?

US housing is spiking again.  Some places are up 50% in six months.  Non-recourse loans allow for fast action on the up side and the down side.  The price movements indicate “bubble” – but who I am to stop a bubble in progress.

What would I do right now?

Aussie bank shares.

Gold and silver.

US housing in Hawaii and San Fran and LA.

You’ve got to follow bubbles to make money.  The only asset not in a bubble is gold.  But it will be, eventually.

 

 

What the market does

People often have a negative view of the “market”.   But it is just an information gathering exercise.  Should we produce more X?  Well, look at the price.  If the price is high, it means more supply will be encouraged.  If the price is low, people don’t want it.  Stop producing it.

Governments hate prices because they think it’s their job to second-guess where resources should go.  So they meddle.  Endlessly.  And create disasters whenever they meddle.  And NEVER reduce their own number.  They expand like rats or cockroaches, paying themselves and their friends enormous salaries to fiddle endlessly with prices – with prices people determine voluntarily in a free market.

Take housing.  You may think the solution to the housing problem is to subsidize buyers into housing with first home buyers grants.  What happens?  Prices soar out of reach anyway.

OK, let’s put in place limits of rents.  What happens?  Housing shortages, of course.

Now the government is quietly manipulating so many markets all at the same time, the price mechanism no longer works.

Take gold and silver.  Governments hate (HATE) the idea that they are sending the message that fiat money is depreciating and getting worthless.  So they try to hammer the price down.  What happens?  There are gold and silver shortages all around the world.

See here for evidence.

I have an idea for all meddling bureaucrats and central banks.  Resign.  Everyone would be better off.

12 Rules of Socialist Money

Krugmanite Ritholz has published “12 Rules of Goldbuggery”, trying to laugh at anyone believing gold and silver could perform better than central banks in supplying money.  Ironic, just as the price recovers and demand soars on the back of a lower price (as any product with intrinsic value should).

The Rules of Goldbuggery

1. Gold is a Currency: This is rule number 1. It is not a decorative or industrial metal, it is a permanent store of value, as dictated by Greeks in Lydia around 700 B.C. And, it shall be ever thus.

2. The price of gold cannot fall, it can only be manipulated lower: When gold’s price falls, it is an unnatural act. It can only occur as the result of an international cabal of Central Bankers and politicians. Its a conspiracy, and we know who the guilty parties are.

3. If the price of gold is rising, it is doing so despite enormous and desperate efforts by manipulators to prevent the rise: This is the corollary to the prior Rule of Gold manipulation. Gold runs up despite the overwhelming opposition to it.

4. The world MUST return to the Gold Standard one day:  It is inevitable that we will return to a Gold Standard. We all know this to be true. When we compare the size of the money supply to past amounts when there was a Gold Standard, we can derive prices of Gold in the $7,000, $10,000 even $15,000. Hence, we know its cheap even at $2,000.

5. Central Bankers are printing money relentlessly, and this can only drive Gold prices higher: NOTE: You must ignore, for the moment, that Gold has not gone higher for the past 2 years as Central Banks around the world have ramped up QE. This only means that ultimately, Gold will go much much higher.

6. Gold works whether the economy is good or bad: When we have a red hot economy, Gold is your hedge against inflation. When we have a bad economy, Gold is a safe harbor against collapse. It is a one way trade that never fails!

7. Gold will survive after the world economy crumbles: Gold is the ultimate currency, as it has a value that will survive even after the whole world tumbles around you. Get yourself some gold coins and a Glock and you will be just fine when the whole world goes to shit. We welcome the era envisioned in the movie Mad Max.

8. Never admit that Gold is essentially a sucker’s bet: Never discuss how in the last century, gold has run up only be to trounced in repeated massive sell offs (always blame rule #2 for this). Do not discuss how this has happened in 1915-20, 1941, 1947, 1951-66, 1974-76, 1981, 1983-85, 1987-2000 and 2008.

9. Gold is a rejection of government, and their control of fiat money and finance: There are no printing presses that produce gold, it is finite, natural and God created. How much we scrape out of the ground each year is limited, and the only variable to the old equation. (Just ignore Man’s natural tendency to organize into to City-States over the past 12,000 years).

10. All Gold discussions must contain ominous macro forecasts: Your description of why Gold is going higher must consist of spurious correlations, unprovable predictions, and a guarded expectation of bad things in the future. Avoid empirical data at all costs.

11. Gold is always rallying in one currency or another: Sure, it may be down 30% in Dollars, the reserve currency it is priced in, but you can always find a currency falling faster than it does and claim you own it in that denomination. Last week, it was up in Japanese Yen. This week, it is up in Zimbabwe dollars.

12. China & India know the value of Gold; the Western world does not: The massive buying of gold by consumers in Chindia reflects the culture, intelligence and investing savvy of the people in these countries. The West doesn’t get it, and it is their loss.

Bonus rule: Never admit Gold might be falling because it trades on human emotions and psychology and has no intrinsic value whatsoever.

I have 12 Rules of Socialist Money, in response:

1. Gold is rubbish.  It has no use.  It cannot be used as money.  You can’t eat it.

2. Fiat money is money.  Therefore never mention the word “fiat”.

3. Never mention history.  Never mention coin debasement and the consequences of coin debasement.

4. Never mention the Assingat.  Never.  It’s too close to our current form of money and ended in disaster.  No one can think of a reason why this one will work and that one didn’t, so best to COMPLETELY IGNORE IT.

5. Use maths.  All the time.  From models with no history.  Based on prices we manipulate.  We can then get the answers we want.  If you want GDP to increase, just buy more stuff from money the central bank creates.  It always works.  At least for a while.

6. Government spending works in a depression.  It works whenever you need to solve a problem.

7. Government is just like a private company delivering services, only more responsible and socially-minded.

8. Never analyze the average history of a fiat currency.  Never say it averages around 40 years.

9. Always talk about the current crisis but never put the crisis in context and explain why it happened.  Always push government as the solution to any economic problem.

10. Never mention how or why gold and silver were removed as money.  It’s not a nice story to tell children.

11. Gold is always in a bubble.

12. Government always “works”.

Bonus rule: Never admit we’re socialist zealots willing to push any BS argument to see our socialist utopia come to fruition.  Like in Europe right now, where bureaucrats are KINGS like all intellectuals and academics should be treated.

When the sh*t hits the fan the government steals (rinse and repeat)

On retirement Australian ex-ministers get around $200k total package per year in pension/super tax free, risk free, guaranteed, come hell or high water, for life. The pouting, preening, spiteful Kevin Rudd will get $600k per year.

This makes them “fabulously wealthy” according to the Labor government’s own rhetoric.   If you had the same fixed $200k retirement income in the private sector you would have had to accumulate $5 million – $5 MILLION – to earn that income (generously assuming a 4% long term government bond yield).

But public serpents and ex-ministers get that guaranteed income because…well just because.  I note that for some ungodly reason a “private sector” Kevin Rudd would have needed to accumulate around $15 million to get his package for life.  $15 million.  What did Kevin have to do?  Sit and pout for 3 years.

Now, instead of slashing government pensions from these idiots who couldn’t make it in the private sector to save $$$s, the Labor government has decided to change the rules on “private” individuals who have saved and scrimped for their retirement.  They are now slugged 15% on earnings above $100,000.  In RETIREMENT.  Whilst saving the government having to pay a PENSION.

Outrageous?

Only if you’re one of the 0.15 percent who are affected. Then it’s stealing.  A breach of faith.

If you’re the other 99.85 percent you don’t care.

If you’re the other 99.85 percent who happen to be the 0.50 percent who are ex-ministers, ex-senior public serpents or ex-prime ministers, you call this “earnings”.

When the sh*t hits the fan, the government steals

Cypriot capital controls, coming soon to a city near you…

Cyprus reopens its banks on Thursday while limiting withdrawals, banning cheques and curbing the use of Cypriot credit cards abroad, among measures imposed to avert a bank run after it agreed a tough rescue deal with international lenders.

The Central Bank said banks would open their doors at midday (1000 GMT) on Thursday after nearly two weeks when Cypriots could only get cash through limited ATM withdrawals.

A central bank official said Cypriots would be allowed to withdraw no more than 300 euros ($367) a day.

Yiangos Demetriou, head of internal audit at the Central Bank, said on state television that the controls would allow unlimited use of credit cards within Cyprus, but set a limit of 5,000 euros per month abroad. He said the measures would last four days but could be reviewed.

Other details of the controls had yet to be officially announced by late Wednesday. According to a draft of a government decree leaked to Greek newspaper Kathimerini, Cypriots would not be permitted to send money overseas without documentation showing they are paying for imports.

Those travelling abroad could take a maximum of 3,000 euros on each trip, according to the draft. Early withdrawals of funds deposited with banks for a fixed term would be banned. Cypriot officials said the draft published by the newspaper was genuine but not necessarily.