Thursday, May 6, 2010

Don't Be Played For a Fool.

Today the beating wings of a gaggle of black swans were heard directly overhead. Their copious, air cooled, liquid excrement was felt very shortly thereafter. Do not be taken in by reports that someone's errant fat finger was what caused the stock market to crater as badly as it did. That is absolute horse *&%! It's far more likely that Goldman Sachs pushed Ms. Market right over the edge so that The Vampire Squid could make a killing, thereby allowing them to more easily pay the SEC a fine for the sort of nefarious scam they committed today. Alternatively, today's roller coaster/ house of horrors ride was, ala the "No banker left behind" bailout, just another sickening example of financial extortion. "Leave us alone to rape and pillage or else!"

I am only half joking. After all, who do you think these bastards are?

Now, I am about to divulge something of a personal nature to you, which is that the little guy, that would be me, was screwed out of some substantial profits today. Suffice it to say that the bid and ask in the option pits were very out of whack in ways they should not have been. But, as The Vampire Squid and their ilk probably stood to lose enormous sums of money if my (and other's) correct bets were honored, they simply chose not to. Word has it that the SEC is looking into today's most "unusual trading." I'm sure their search will last half as long as the proverbial New York minute, and be as fruitful as trying to introduce rice paddies in the Mojave desert. Such is life in the charnel house U.S. capital markets, an arena more depraved than a Bangkok whorehouse, and more in need of being condemned than a cockroach ridden, termite compromised, crack house.

In the meantime, please do your level best to not be taken in by the likes of one Barron Segar, who gushed that today's selloff was the "ultimate buying opportunity" He and his ilk have no clue. Today was the beginning of the end, and therefore, constituted something far closer to the ultimate selling opportunity. Expect more wild gyrations with a decidedly downward tilt as our entire financial system goes supernovae.

One big, fat indication that today was indeed a watershed event was the action in precious metals. Almost without exception, precious metals, and here I mean spot gold and silver, get taken down hard when shares encounter major selling episodes. Silver is especially prone to experiencing nasty body slams as it is viewed, unlike gold, as an industrial metal rather than a monetary store of value. Well, today's behavior in physical was anything but true to form.

A word to the wise: The race to the bottom amongst the world's fiat currencies will see every fiat lose value, and lots of it, against precious metals. Those of you with a Keyneisan "Gold is a barbarous relic" bent, may not like it, but that, in my humble opinion, is what's in store. As Voltaire, or was it Thomas Jefferson, observed, all abstract paper claims to wealth, aka fiat, ultimately revert to their intrinsic value. The speed with which that ineluctable process proceeds is accelerating.

As the Boy Scouts are wont to say, Be Prepared.


Johnny D. said...

Great post, Edwardo. I'm not buying as much physical gold as I'd like right now. I do havea large pile of antique silver dollars (Morgans). I also hold a large position in lead - if you know what I mean.

I don't exactly know what the future holds. There's some strong bets out there on what it holds, and I agree, but I have spread my wealth around. I'd rather have a good supply of food, a knowledge of edible plants in my area, and plenty of lead. As part of diversification, I do hold some physical gold and want to buy some more.

I agree with you here that this is the beginning. I was actually hoping for some more time of fakery - even though I want the pain and adjustment that is coming to just get on so that I can get used to it. But more time is prep time, and I've been using my time wisely. If I was extremely wealthy, I'd be set up by now, but I am not - so - like most folks, I have to pace myself.

Edwardo said...

Lead in the shape of small cylindrical projectiles is what I take you to mean. Let's face it, they could be worth their weight in gold. As for gold itself, it may be worth its weight in silver which is about as outlandish a scenario as I can conjure up.

Having said that, there is a strange forecasting outfit that I am aware of- they called the events of May 6th months in advance- that sees the gold silver ratio narrowing to unheard of levels. So, hold your gold, secure your silver, and wait.

Johnny D. said...

Hey Edwardo. Thanks. You just made me feel a little better!

Yeah, lots of lead. I have a lot of Morgans too - much more so than gold eagles.

It's a real struggle - at least for me it was - on deciding in which direction to hedge my bets. So, I went for the diversification thing.

One thought that keeps me coming back for Morgan's has been my "Silver Denarius Theory." Yeah, I made up my own theory! Anyhow, SDT is just me noticing how that ancient Roman coin, which is far from an ounce of silver, (I think it is roughly one-sixth of an ounce) sells around the world, and I'm talking a poor example - for something like $70 fake U.S. dollars. 2000 years later!

Now, let us take the absolute worse-case scenario where the U.S. totally goes under and ceases to exist. Wouldn't that make her old coinage - especially precious metal coinage - that much more valuable? I think so. I certainly do not wish us to go under, but I plan for the worse-case and go backward from there. I'm hoping that after collapse we can reform into a true Republic, one led by honest men and women with truth as their guiding principle. I can dream, right?

Edwardo said...

Well, that's it, Johnny. Silver coins from thousands of years ago, from long dead civilizations, still have considerable monetary value. Part of that phenomena is due to numismatics, but not all of it by any means.

I envision old coinage along with other tangible items of value, food, tools, weapons, etc. being the medium of exchange, and the settler of debts, in the not too distant future. What people simply do not understand, or refuse to acknowledge regarding gold and silver-these are the folks who incessantly offer that "you can't eat gold" is that (one can't eat paper currency either) at all times there must be a store of value.

It's like religion. There will always be religion, broadly defined. We simply don't know how, are not set up as a species, to exist without it. And there are times when certain dogmas are revealed to not only have zero utility-our present financial system-the result of a dogma if not a dogma itself) comes to mind- but are, in fact, counterproductive and toxic.

It's not that gold and silver as money don't have their vulnerabilities and shortcomings. They do, but as someone once observed, "Everything's relative." And right now, it is simply nolo contendre with respect to the relative merits of sovereign gold or silver coins versus FRNs.

Johnny D. said...

Thanks for the interesting and infomative answer, Edwardo. I agree with everything you said regarding silver coins, gold and religion. I liked the way you worked that religion deal into your point. There are some things I'll never understand, and religion is one of them. I think Russ was talking about our spiritual side recently in one of his blogs, and I agree with that (sorry, Russ if I'm confusing you with someone else). We do seem have a certain mystical or spiritual side to us. But, I'm digressing here. I'll save the rest for any future blog you may happen to write regarding the subject.

Again, thanks for your thoughts - I do highly value your opinion.

Johnny D. said...

Hey, Edwardo, one other thought. Can you just imagine what a Morgan Silver Dollar will go for in 2000 years? I mean, assuming we haven't disappeared from the planet as a species, and granting that some things, like silver's value as a precious metal remains relatively stable. I can just see coin-hawkers of the future - "Silver coins from the greatest constitutional republic ever in the history of humankind!" Or something like that. Who knows, in two thousand years, three greater republics may appear and disappear. A lot of assumptions, but fun to think about anyway.

Thai said...

So what I want to know is the following: where does this trillion dollars come from?

I know it says the following:

"the European Union agreed on a deal that would provide $560 billion in new loans and $76 billion under an existing lending program. Elena Salgado, the Spanish finance minister, who announced the deal, also said the International Monetary Fund was prepared to give up to $321 billion separately."

But where does the EU get the $560? Does this come from the taxpayer or from the ECB?

Do they print this?

And I assume IMF money means the US is again on the hook for around $50 billion.

A trillion here and a trillion there and pretty soon you are talking about real money

Edwardo said...

Somebody on another site said exactly the same thing regarding a trillion here a trillion there. The money is printed up, Thai, and even though the ECB seems to be the key player, the taxpayer is, ultimately, on the hook.

I think the piece below is enlightening.

Here is a key quote from economist Yves Smith,

"All the rescue operation has done is buy breathing room while making the eventual outcome worse."

Thai said...

But it is still not clear where the money is coming from today. I'm simply trying to follow the accounting ledgers

Krasting said yesterday he thought exactly this would happen and that it will only last till Summer.

Edwardo said...

It's coming from the countries with all the debt. Spain, Portugal, etc. are all supposed to pony up. After a brief period of euphoria it's going to get ugly again.