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Guest Post: What If "What Everyone Knows To Be True" Is Wrong?
Submitted by Charles Hugh Smith from Of Two Minds
What If "What Everyone Knows To Be True" Is Wrong?
When the consensus is confidently weighted on one side of a trade or view, reality has a nasty habit of introducing blowback and/or unintended consequences.
In a followup to yesterday's entry A Contrarian Take on the Dollar's Demise, here are some other contrarian views culled from readers and recent news items. When does a contrarian view or bet become mainstream? Sometimes the answer is ambiguous. When do you look around and realize (usually with some dismay) that "everyone" now agrees with your once-lonely point of view?
Consider gold as an example. I am a fan of gold for the simple reason that it won't go to zero--something that cannot be said of purely financial assets. But as a technical observer, I can't help but notice just how lopsided the trade in gold has become.
According to the CFTC data, there are now 192,838 long contracts on gold and only 3,636 short contracts. That is a remarkably one-sided trade, and one that is technically ripe for a major reversal. When everyone agrees you can't miss on a trade, and punters are betting 50-to-1 that the trade can only go one way, then that's when it reverses and crashes.
As a technical observation, this is completely disconnected from all the fundamental reasoning behind owning gold. In other words, if you are one of the many readers who own gold long-term for peace of mind and insurance, then a 20% decline in gold is merely a "buy the dip" opportunity. For traders, it may offer an opportunity to gain on the downturn and then again on the inevitable upturn.
Correspondent Martyn T. recently made what I consider an important and contrarian point about the financial consequences of Japan's devastating earthaquake and tsunami.
So far you have not noted the way in which the Japanese insurers will affect stock markets. The Japanese government has long insisted that insurers prepare for a major event. This was expected to be an earthquake hitting Tokyo.
Obviously, they would need to have massive reserves, and these should be abroad, so that secure cash can be found.
In their rush to bring in some cash they have sold some and bought yen. This has resulted in other central banks helping to reduce the value of the yen.
But this is only the first tranche of selling. So far they won't know what liquidity they need, but as it rises so will selling, all across the developed world.
In other words, if the rebuilding and insurance claims will end up costing $300 billion, a significant chunk of that will come from insurers and re-insurers who will have to liquidate globally distributed assets such as stocks and bonds to raise the cash.
Let's assume the Japanese government will cover half of the costs of rebuilding and insurers will have to cover the other $150 billion. What will the liquidation of $150 billion in financial assets do to a vulnerable market? I hesitate to offer a prediction, but it is unlikely to be bullish.
Frequent contributor Dr. Ishabaka offered up this menu of other consensus views that "everyone knows to be true":
- the U.S. dollar will continue to decrease in value indefinitely
- U.S. real estate will continue to decrease in value indefinitely
- the standard of living in the U.S. will decrease
- the U.S. stock market is in a bubble
- commodities will continue to rise
- China will overtake the U.S. as the next great power
- U.S. manufacturing is dead
- U.S. debt will increase indefinitely
- emerging markets will provide the economic growth of the future (along with China)
- everyone in poor countries wants to eat more meat, and own a car
- energy will increase in price indefinitely
- wars and revolutions will continue to increase, perhaps leading to another world war
- Social Security and Medicare will go bankrupt
- defined benefit pension plans are dead
- health care costs will continue to increase at a rate that outstrips inflation indefinitely
- unemployment will be serious in the U.S. for the foreseeable future
- Fenders beat Gibsons hands down (pre CBS Fenders, I mean)
- the gap between the wealthy and the rest of us will continue to increase
- government in the U.S. is controlled by lobbyists, unions, and other big money interest groups (banks)
What if all these things "everybody knows" are wrong?
I am not at all sure that "everyone" knows Fenders beat Gibsons, but the list is certainly food for thought. As someone who has played both Stratocasters and my Gibson Les Paul Deluxe, I would say it's more like the difference between a cabernet and a zinfandel wine: sometimes you're in the mood for one or the other, but arguing about which is "best" is pointless, as both are superb but in slightly different ways.
Mark Twain commented on the dangers of consensus thusly: "Whenever you find yourself on the side of the majority, it is time to pause and reflect."
As I concluded yesterday:
When Bears have been eradicated, then the trade has become so lopsided that when it rolls over, it does so suddenly. When everyone agrees, then things become highly unstable. It's ironic, isn't it; on the surface, when everyone shares the same convictions and is on the same side of the same trade, things look rock-solid. Yet that very unanimity guarantees instability.
There is always someone on the other side of a trade, of course: someone originated the option or futures, and someone sold the shares that someone else bought. The problem arises when a "can't lose" trade rolls over, then there are no longer enough buyers to offset the panicky, underwater sellers who are overleveraged via margin or other forms of debt.
This is in effect what still plagues the U.S. housing market: there are still plenty of sellers in the wings, hoping to unload properties, and a dearth of buyers willing to gamble that "the bottom is in." Even worse, there is a dearth of buyers qualified to buy properties at today's prices. That will become even more of an issue as interest rates rise.
As a reminder of how things can play out at real bottoms: in the depths of the 1930s Depression, a Manhattan skyscraper was sold for the original cost of its elevators. In other words, the rest of the building was "free."
People talk about replacement cost as a metric of value in homes and buildings. In other words, this house can't drop much below $200,000 because it would cost that much to buy the lot and construct a replacement house.
That is another thing "everyone knows to be true" that is actually not true at real bottoms. Stocks can end up trading for less than the cash the company is holding.
We might conclude that being contrarian is simply considering very few possibilities as being "impossible," especially when it comes to herd behavior and investments.
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Pretty, like your avatar, or maybe like beer and wine, it's an acquired taste;)
guten Tag
I knew there was a housing bubble more than 2 1/2 years before it popped. They kept proving me wrong by keeping it over valued soooooo friggin long.
I know the gov is going to depreciate with an outcome of default or defacto default. Mathematical certainty.
Social security was a ponzi scheme. Mathematical certainty.
I know leveraged investments that are soley backed by paper are worthless when the SHTF. It's just a matter of time.
It's different this time.... lol
Exactly! This is what gets my goat.
I have always defined the law as the "will of the strongest party at any given time" The financial "laws" or outcomes can be very easily (at this point) orchestrated since all the money and power is so concentrated. I am not even certain I have a problem with that. What really gets me is the song and dance like a CNBC etc. that propogate the false premises.
Over history, our lives have improved dramatically. As long as we continue to move in a similar direction (overall), I am happy.
I did a paper in 1995 in college studying for my finance degree that proved the housing market was in an unsustainable bubble, I based my theory on median income verses median home prices. Like you I was right, just as they say the markets can stay irrational longer than you can stay solvent, it was frustrating and maddening that it went on so much longer than anyone thought it could. So, I think it is also true that markets can stay insolvent longer than we can stay rational. I only got a C on my paper, the prof simply did not agree with the idea that there was a bubble in RE, you know college profs, if they do not agree with you then you did not provide enough proof, and like my econ prof there is not enough proof in the multiverse to convince him of what he just knew to be false. I was pretty sure (if I remember right now) that I had graphic illustrations showing median house prices over 1,000,000 bucks by 2010 at the rate they had been rising. In other words late 09-10 was when I expected they had to go parabolic.
(double post deleted)
Social security was a ponzi scheme. Mathematical certainty.
Yes, one made visible by the declining birth rate that always accompanies advacing societies. This runs counter to the doomer crap posted just above regarding overpopulation. Western societies struggle, and even encourage immigration (legal or otherwise), just to maintain equilibrium. Educated people don't want to have 15 kids.
IMO that less than 1 in a 10,000 own physical PMs in this country; since less than 0.6%, reportedly, own PMs in any form, paper or physical. When one in five own actual physical and everyone at the grocery store, gas station is talking them up, then and only then will I be concerned about my physical holdings.
If less than 1% of humans own PMs, then 'everyone' knows that' fiat toilet tissues are the locus of all desires and the tiny percentage of 'contrarians' on this thread that hold physical will one day RULE THE WORLD!!! I will BUY Natalie Portman as she is transmuting into a Black Swan and proceed to violate her vent with extreme prejudice.
Exactly. 'Everyone is into gold' right now means, 'many of the readers of Zero Hedge and a few specialist contrarian blogs and news aggregators'.
Rather than checking for ownership of gold, I would propose the following test - Ask 5 strangers at random to name their favorite gold stock. When they all have a favorite (and its not Newmont, Barrick or Goldcorp) it will be time to get out. Think about it - the last big gold bubble in '96 it was Bre-X, in the .com bubble everyone had a favorite tech stock they could tell you was the next big thing, so far this isn't even remotely close in the gold sector.
Also, with respect to the open contracts, I see the commercial positions about 2:1 short to long, they usually get to 3:1 in advance of a major correction. And gold gets to around 20% over its 200dma, GDX usually around 40% over its 200dma. Not even close right now.
Someone earlier said it already - don't fight the trend, regardless of whether or not it makes sense to you.
I can't begin to tell you how many people were urging me to buy RAMBUS when it was at $600 and they hadn't yet shipped the first board of memory. Good analogy. I think it was Mark Twain who wrote "A gold mine is a hole in the ground with a liar standing over it." The same could be said of lots of tech-pushers.
"Der ReichsMark ist stark!" Rudolf von Havenstein, 1921
cum hoc ergo propter hoc
one contract may be one vote, but no men are created equal in the pits
post hoc ergo propter hoc
that call position could be a hedge
As for the rest of list, my experience is that any individual person can be smart or dumb, but people tend to be stupid.
Somewhat off topic... I was reading SA today and found nothing about Japans economy. I guess the worlds third largest economy just doesn't matter?
Gold will always be the same amount of gold. If the price of gold in dollars falls, you still don't lose any gold. We shouldn't even bother with the price of gold in dollars. We should view the price of dollars in gold.
bingo.
spot falls? who cares. scale says i have the same thing.
pslv falls? damn, losing. sucks.
look, we live in the age of lies. where we blame effects for causes. consistent with this logic, we value gold in dollars and not dollars in gold.
the truth will catch up to our stupidity (or will our stupidity catch up to the truth?).
whatever.
As a person in the market for a home I offer this: Virtually every home I looked are short sales (and these are not dumps either) where the seller thinks they are sitting on some sort of Goldmine! Sellers are expecting anywhere from 10 to 40% more than what the home is legitimately worth in today's market place even though they underwater or over leveraged in their mortgage. They are simply not being realistic as to what the market will fetch for their home. As someone who has cash, no debt, and great credit, I am not willing to subsidize someone else's poor judgment where their money choices are concerned!
Totally freaking ditto, agree, spot-on, correct.
Yep, there's a TV show here Sunday mornings, called a "Galley of homes" put on by a big RE broker. I live in Rochester, NY, where home values have been very steady and reasonable for decades.
Anyhow, whenever I watch, I just cut 20% off the asking price automatically, but did see some today that I thought might have already taken 10% off by themselves with the listing price.
RE agent I know says things are slow, especially in the average to above average homes, the ones in the decent suburbs where everybody wants to live (school districts are big here).
With the aging population, people are thinking more about value than the school district because they don't have kids and many baby boomers are just wanting to get out, but they can't because prices are not good. They'll be even more unhappy in a couple of years, I believe.
Robert Shiller thinks RE has another 20% downside. I concur, adding, maybe 30-40% in certain markets. Depends on the economy and jobs, which, as well all know, Sucks and Aren't Any, respectively.
Has it occured to you that it may be you who who has unrealistic expectations - after all you are still looking!
I gave up posting on the pollyanna, 'bottom is in', 'we'll talk you happily all the way down' Case-Shiller blogsites, such as CR, after getting no responce to stats showing the bleeding edge of the ongoing RE collapse is revealed in the recent 3 month single family home sales prices at or below 50% of the average listing price for many CA zips.
Low end CA home prices have dropped from $250/sf to $75/sf, and high-end CA beach area listings previously sold at $400 to $600/sf have recently gone for $150/sf.
The ongoing debt and income collapse will reduce low end home prices to below $50/sf, and high-end prices to below $100/sf.
If you have cash, why aren't you bidding at the courtroom steps?
What a dumb piece. So he's scared about which way things are going to go. So why not attempt to outline all factors involved in the dollar world reserve currency status and go from there instead of some dumb musings and sphincture clenching.
Retarded.
What if everyone figures out that that money is a scam once it's too expensive to eat? Right now, only a very small percentage of humans understand that.
The only thing keeping the house of cards propped up is the ignorant people's faith in fiat currency. That's not going to last forever.
The Great British Pound Sterling (a unit of weight). 1lb (16oz) of sterling silver. Now it'll buy you ~1/23 of 1 ounce. It has fallen a little over the years.
The Bank of England created in 1694 (by a Scot).
It can go on for a long, long, long, long, long time.
Slight correction - Pound Sterling is Tower weight, one pound = 12 ounces = 12 shillings. One shilling = 20 pennies = 20 pennyweight.
Once upon a time there were silver shillings and even silver pennies. The last silver pennies were minted in the time of Charles II
On a long enough timeline...
Markets can remain irrational longer than you can remain solvent.
I think this article makes a good point in saying there just isn't a real sure thing.
If it sounds to good to be true it isn't.
There is a small chance Gold corrects to 1320 by june, but this is purely technical because it's the end of the D curve. But if you want to keep it technical, it will also go up after that to 1600 by august.
But there is only a 20% chance it will and that number is dropping.
I keep the long thinking because without any real austerity by the US, it won't happen. BUT I'm not going long on Gold paper because of it.
a) print --> everything is too expensive for everyone
or
b) dont --> nobody has currency and a) is effectively the same
but with a president who works for the united nations and not america, there are more pressing issues illuminating themselves than the shimmer of the shiny.
Barry Naughton
" Macroeconomic Imbalances and a Revised Growth Strategy "
http://www.youtube.com/watch?v=AKpsWiUTEgQ
Victor Shih
" Awash in Debt: State Liabilities and Monetary and Welfare Implications for China "
http://www.youtube.com/watch?v=FJmtlB0nVSA
Deng Yongheng
" Monetary and Fiscal Stimuli Ownership Structure and China's Housing Market "
http://www.youtube.com/watch?v=XZwPF2PHRmY&feature=BF&list=SP92F68ABAB42...
Mortgage payment-to-income ratios in China major cities
Based on price-to-income ratios in 2010Q1, a family of 3 to purchase a 90 sqm ( 900 sq ft )housing unit, using a 30 year residential mortgage with coupon rate @ 5.05% ( after the 8.5% discount ), 20% downpayment, the monthy mortgage payment to household income ratios are: Land sales going for 10 times asking price • State Owned Enterprise buying land with stimulus money. State Owned Enterprises make up 72% of banking industry
Beijing 95.9%
Tianjin 48%
Shanghai 66.3%
Hangzhou 60.3%
Wuhan 40.3%
Shenzhen 111.7%
Chengdu 31.8%
Xian 41.4%
We Fling Poo splatter report.
The Shenzhen has hit the fan and is splattering back on anyone in the way, now.
The Beijing is hitting the blade now.
The Shanghai and Hangzhou will HTF shortly.
The rest are on their way into the blades with the exception of the Chengdu.
A fundamentally flawed analysis. Gold and PM's are not "mainstream" at all. Go out on the street and ask a garden - variety American about 'investing' / 'gold' or, God forbid 'fiat currency'. Get ready for the blank stare.
Nothing herdlike about the crowd here, or the Schiff / Libertarian / RPaul / Bernank / JPMorgue bunch.
Sheeple are content with their Doritos, Kardashians, Jersey Shores and Facebooks.
Nothing to see here, these are not the droids you are looking for......
Depression = 20%-50% of normal FMV
homes: 50K avg
spx 300-500
Due to Gresham's law, on a long term basis a bet against gold is akin to a bet against gravity. On earth there's no respite.
There's just no other safe harbor unless you can generate cash as fast as the printer, and you get "first use", then you'd still want to put that in gold because the writing's on the wall.
Maybe they're hoping for an alien civilization to bail out the dollar, or fusion. There's as much chance of that as sasquatch strolling into vatican and relieving the pope of his hat.
Gold will never be mainstream.
Never.
Most sheep are clueless about investing or wealth preservation.
All they care about right now are:
- March Madness
- Spring Break and "Girls Gone Wild"
- NBA playoffs
- NASCAR "Chase for the Cup" coming up
- When will Lindsay Lohan and Charlie Sheen be on Celebrity Rehab together?
- When is Kim Kardashian going to finally gain 40 lbs. and disappear from Hollywood?
- When will Facebook and Groupon go public with IPO's?
Right back to "Riskless Risk" and junk being rated AAA by some greater fool somewhere in your adequately enumerated wonderland.
Sophisticated ?! LOOOOOOL
Prior results are no guarantee of future returns ... With the exception that this kind of junk is NEVER high yield, except in generating yet more junk.
The big boy (and pro gal) letter says: "Glove up first before venturing into the bored room"
http://www.youtube.com/watch?v=-9-R9S1m4dA
Collect & disburse those coins
http://www.youtube.com/watch?v=_gekaEzqj5g
Pardon me while I bite down on that, and pray for lock jaw.
Oh Shit... Reading all this doom and gloom I forgot it's Spring Break... Later!
BOE MPC member Adam Posen calls for more QE & not to raise rates.
http://www.guardian.co.uk/business/2011/mar/27/inflation-cuts-consumer-spending-mpc
One huge problem with this article is perspective.
I agree that many of the opinions listed are commonplace or even dominant in the realist-liberty community the author probably exposes himself to regularly.
However, those opinions are far from dominant in the financial markets as a whole, and positively fringe views in the population as a whole.
For example, just go see how many of your neighbors own physical gold. Ask them whether the dollar is worth 1.4 cents compared to 1933 (when the $20 gold piece was 1 ounce). Ask them about virtually any of those supposedly dominant opinions listed above... and they will not have what is claimed as the dominant view.
And ask them whether they know the current market in gold is about 1% of the financial markets, compared to 25% and higher at many precious times in history. So 1% is not supposed to be an obvious bubble?
Gotta be careful to get truly randomized samples before drawing conclusions about "what everyone believes".
ARE WE TALKING "PAPER" GOLD OR THE PHYSICAL YOU CAN HOLD, FEEL AND SHINE?
GENESIS 47:15 - "AND WHEN MONEY FAILED IN THE LAND OF EGYPT, AND IN THE LAND OF CANAAN, THE EGYPTIANS (THE MOST POWERFUL NATION ON EARTH AT THIE TIME) CAME UNTO JOSEPH, AND SAID, GIVE US BREAD; FOR WHY SHOULD WE DIE IN THY PRESENCE? FOR THE MONEY FAILETH. AND JOSEPH SAID, GIVE YOUR CATTLE; AND I WILL GIVE YOU FOR YOUR CATTLE IF MONEY FAIL. AND THEY BROUGHT THEIR CATTLE UNTO JOSEPH; AND JOSEPH GAVE THEM BREAD IN EXCHANGE FOR HORSES AND FOR THE FLOCKS, AND FOR THE CATTLE OF THE HERDS, AND FOR THE ASSES; AND HE FED THEM WITH BREAD FOR ALL THEIR CATTLE FOR THAT YEAR."
Did you get that? they traded everything for food for 1 year.
Make no mistake, when money faileth, it will be brutal. The mighty will fall. God also says in the book of Joshua, that "He counts the nations as nothing". The best investment you can make would be to own farm land and real estate. Especially in the next few years. Buy silver and gold on the dips, wait, buy land.
excellent advice
Always interesting to find practical experience driven knowledge behind many religions. Usury was not so much seen as evil but as the key component which destroyed many civilizations. Frick the goody goody baddy baddy, they knew it was incendiary to sustained progress... Much of that history was burned at the Library of Alexandria -- twice... There is a Right way and wrong way to do "civiliaztion..." Unless of course one just likes to destroy $hit...
Remember the Jubilee Year? Every 50 years, all debts got wiped clean and all land reverted back to its original owners or their heirs. This didn't mean there was mass default, because credit would slowly evaporate as Jubilee neared. The slate was wiped clean with minimal pain. Jubilee shut down the credit binge on a timescale which was a bit shorter than the Kondratiev long wave. Hence, no reliable cycle of chaos and war for oligarchs and rival states to exploit.
So... Joseph was a banker, they've been at it since biblical times. Took all their wealth and gave them bread in exchange.
Why is gold valuable?
http://www.youtube.com/watch?v=EQyqvFVe4Y4
All you need to know is everything you know is wrong:
http://www.youtube.com/watch?v=05av9iJvgiQ
If everyone "knows" what we have known for ages, how come no-one except us is talking about it? I see a little bit on gold every now and then, but it is still mostly bubble talk. Hardly anyone actually owns it.
But then, maybe, when you are talking about gold, everyone "knows" that paper gold will go up in value. The reversal will destroy those holding paper gold, and reward those with physical.
Or maybe we should all just strip naked and run around the streets shouting the chorus from the above link?
On health care:
Health insurance will implode within. As people drop their health insurance, cracks already appear where doctors advertise their rates.
http://blog.riskmanagers.us/?p=1565
"What if all these things 'everybody knows' are wrong"
Yes, but unfortunately in today's manipulated world it's a never-ending process of learning "Where the truth lies".
actually everything we know to be 'true' today, at least in terms of what the institutions tell us to be true, is a lie. The particular problem of Govt is making the exception the rule or allowing minority groups make extreme examples to then apply to the whole population ('needing' Passports is one example)
Govt which from start to finish is the biggest lie ever told but everything from schooling, insurance, pensions, safety rules, accountancy, regulation the Law and Judiciary etc is all 99% crap (baggage)
it doesn't take much thought in fact and just a modicum of common sense to begin seeing through all the modern worlds charades of this now keeling over into bankrupt Western society. The West, like Rome and Venice before it, has developed some once good useful ideas and over years and decades added so many layers of crap that our society now carries like some Diva popstar 28 suitcases when you only really need 1 to do the job
i've seen the future stripped down to 1 suitcase and frankly i cannot wait for all these flabby farting dinosaur institutions to go to their grave, the sham that is Govt in particular
+1. Like your posts zero.
One thing everybody knows to be true is that interest rates can't go below zero.
But for a very small incremental decline now, the discount rate remains in the positive. In year 2000, this rate was ~6%.
Negative interest rates can come into vogue as a matter of policy once this occurs, but the market has to get there first. I would be looking into how interest rate repos are doing. There's a counterintuitive rise in the price of longer term bonds and at the very short end of the curve, the grey smoke is rising out of the smashed reactor.
The irony is that in Japan, they managed to avoid negative interest rates so far.(with the exception of being charged negative Libor in the 90's) So it must be that the Fed is implementing the same strategy to fend off any move below zero.
Mr. Smith. I don't think your numbers accurately reflect the long and short contracts on gold.
The numbers in the most recent COMEX commitment of traders report (courtesy of Harvey Organ's site) actually show almost 50,000 more short contracts. And what's interesting is that, as is the case with silver, it's the banks who are short while the "speculators" are long. There are many possible explanations of this but it seems that investors strongly believe gold (and silver) are worth more than the "official" price while banks are struggling to keep that official price down.
Large Speculators
Long 231,512 Short 56,674 Spreading 43,600
Commercial
Long 162,616 Short 387,415
Total
Long 437,728 Short 487,690
I wonder if there is ANY other investment where banks have their money so diammetrically opposed to that of everyone else. If, as I suspect, not, what does that say about what the banks are doing in the gold and silver markets?
I love reading CHS stuff because I have a huge confirmation bias ... and agreeing with CHS is easy for me.
For me, the proof that the markets are rigged has been exactly what is stated. "Whatever the vast majority of people believe to be true is the exact opposite of what makes money". However, in my mind that does not not necessarily mean that people are wrong, they just do not understand what makes money.
For example: In business school we are taught about how to value companies by discounted cash flows and commodities based on supply and demand. Today, these "so called" sound economic principles tend to be completely useless when compared to the price of a stock or commodities (yet the MSM tries to make you think they still apply). Today, since infinite money is free to the large banks and their friends, the guiding principles of price should be more along the lines of: "Whatever they decide to do is the way it is" and maybe that is the way it has always been.
I've been pricing McMansions well below the cost to build them several years ago, but a lot of that is the prices of the lots which have dropped by 1/2.
Its the prime question. So many lies define our reality now. You cant make this shit up we live in. And you cant get through it all even with an army at your disposal.
Agreed.
Everyone is so sure “they” are going to continue to support asset prices so the retirement scams sold to the public over last 40 years (public and private) don’t go up inflames. “They” will not.
The vast majority of people in the USA would benefit from a strong dollar and dramatically lower real estate prices. Only a tiny fraction of Americans – “investors” – benefit from asset price support. Unless you truly believe that the US Gov’t is a diabolical crime syndicate, you’ve got to understand that the needs of the many eventually overwhelm the needs of the very few.
So the baby boomers retirement assets get wiped out. So what ?? They’ve had their day in the sun. An asset re-set to pre-1980 nominal prices would allow for a future to exist. Future generations could participate meaningfully in their economy. Continued “bailouts” benefit the baby boomers but result in the shut-out of future generations and – eventually - in hyperinflation. Hyperinflation puts the Fed out of business. They will torpedo Wall Street before they allow that to happen.
Look what they are doing with the TBTF banks – and how they’re emphatically separating those entities from “Wall Street.” When asset prices fall back to pre-1980 levels, anyone that bought those assets with leverage gets wiped out – but think about what happens to the assets. The banks will be able to foreclose upon and essentially capture – at no cost – the vast majority of private assets (homes, businesses, family farms, commercial real estate, city monuments, state parks …) which they will then be able to sell to new generations at much lower prices. It’s a win (gov’t) win (young people) lose (levered baby boomers).
My parents bought a very nice home near Dallas TX in the early 1960s for $35,000. They paid cash. The present owner bought it in 2005 for $850,000 – probably with a huge mortgage. Well, it sucks to be him. I am certain the price will fall back below $100K. The “leverage generation” gets taken to the wood-shed. But that’s the only way people will learn. The “asset miracle economy” was like a giant game of hot-potato - and the buzzer went off in 2008.
I believe the US Government is not a diabolical crime syndicate. And they will be sympathetic to the millions of people who “bought in” during the twilight of the “expansion.” To deal with the shock, they could set up some kind of national bankruptcy automation (to prevent the courts from being tied up for decades) or could grant some kind of permanent tax relief to people with a large negative net worth.
Government knows that it has grown unwieldy and unsustainable. With the dramatic write-downs to come, there will be shocking declines in tax revenue. Without this shocking decline, there could be no other way to begin the meaningful dialogue that is just beginning to take place. Government needs to shrink to pre-1980 levels – probably more.
Just ask yourself which is the easiest course of action – a brutal pullback that destroys a relatively small (and hated) population? Or a decades-long period of escalating food and energy prices punctuated by rising public anger and accusations of fraud and corruption within the banking system and throughout the highest levels of government?
Wow.
you've got to be kidding
Since when has the US Government been sympathetic to it's own people? They don't care about the little people. They care about their own power and greed, that's what got them there.
What you are referring to is inherently inconsistent. That sort of drop in asset prices would collapse all of the banks. How can you have a strong dollar and cheap house prices? Government recognizing it's too big? The government not a crime syndicate? See the complicity in the creation of the Fed, the MIC, and how about WTC7?
I agree with most of what you say, but I have a hard time seeing this happening. Obama, for example, can't even pass a Healthcare bill. I just don't see the peaceful will for this type of shift.
What will the liquidation of $150 billion in financial assets do to a vulnerable market?
One hundred fifty billion represents about 100 points on the NYSE. At it's peak of 14,000 the NYSE had a market cap of 21 trillion dollars, that comes to about 1.5 billion per point and it is still about the same today, though it is no longer as easy to find reliable data on the markets, at least that one can trust, for a retired guy anyway, you with active Bloomberg terminals might be able to get better real time info.
The equity market is dwarfed by the debt market so lets say the Japanese need to liquidate 100 billion in debt and 50 in equity, now it comes to 33 points on the stock market and less than a month worth of QE to the Treasury. In the fraudulent markets we have these days 150 billion is nothing more than a rounding error. As far as we know they already liquidated all they assume they will need and the Fed has already covered it via illegal stock manipulations.
Hmmm... real estate can trade well below replacement cost, as the house I bought last year in the Midwest cost 25% of its replacement value. Pretty much my whole neighborhood trades vastly below replacement value, and its one of the nicest around. I bet you could even do better in Detroit. It's hard to move a house.
Generally if a stock is trading below its cash on hand, something is pretty wrong with management. I wouldn't expect to see a lot of those sort of situations because "everybody knows" that $1.50 is worth more than $1.00, and I'm pretty sure they are right about that.
I agree with Robot that what he posted is what most of the sheeples are interested in. I disagree that gold will not go "mainstream" but that is down the road.
Housing still has another 15 to 20% to fall. And I see it a lot, until homeowners understand and accept that there house is worth less, each month, and price accordingly, and until this idiotic govt. gets out of the way....The bottom is not in. And even then, there is no turnaround. It is over. A home is your cave. Period.
And of course nothing goes straight up. Gold may correct, but it has been correcting for 9 years and, oh, it is higher. You really think the dollar can have a lasting rally. Well, that is what markets are all about, we shall see.
Could not sleep well at night if I did not have physical as part of my portfolio.
It's very good to see Charles Hugh Smith get more exposure. He blogs frequently and very thoughtfully, and his blog is one of my favorites. The only issue I have with this article is the gold part. Gold is truly a unique asset class for numerous reasons, all widely known, but appreciated by very few. One should hardly worry about the number of currency units an ounce of gold will fetch. That's irrelevant. Like Richard Russell says, count your wealth in ounces, not digital currency units. I would add, count your wealth in your good family and friends, your health and your peace of mind.
Telegraph hit piece on silver...
"After such a bull run, any correction in silver prices could come hard and fast, so it may be wise to wait and see if it appears, especially since silver equities now appear to be very richly rated." - http://www.telegraph.co.uk/finance/newsbysector/industry/mining/8409743/Commodities-column-Is-the-silver-price-heading-for-a-fall.html
Back up the truck.
For every LONG there is somebody who has sold SHORT- commodities are a Zero-Sum Gain, so to spin your article the other way, all the gold hopefuls are about to get crushed, since there are very few of you who haven't gone full-in yet. We'll revisit this article in a month. I Futures-Land, its not possible to sit out a correction because the leverage gets you sold out before you even wake up in the morning. Good luck though.
Owning gold can obviously be a trade that looks way overdone, but as stated before it is a currency that will ultimately define value of fiat currencies. It represents a very small percentage of investment portfolios and has miles to go. It will get even more volatile as talking heads declare it's demise.
What is being stated as things "everybody knows" are not known by everyone. I do not believe that it is the mainstream view. It is the consensus opinion here at ZH, I believe. So what is the point of this article, really?
I understand the author's point, but just because a point of view is more or less ubiquitous on Zerohedge doesn't make the view mainstream, let alone universal and, thus, overweight. "Everyone" here "knows" the stock market is in a bubble, but the last time I turned on CNBC, nobody seemed to know it at all. By the time the bear view is truly mainstream, skyscrapers will be selling for the cost of their elevators again, even as, for the first time in the process, talking heads tell people it would be crazy to deploy their capital into such a down market.
this entire subject is wearing incredibly thin. one can gain only so much intellectual traction in what is admittedly a subject which has very deep historical, economic and yes, even metaphysical implications when the recurring and incessant argument is over the relative value of a piece of metal in one's possession.
we've all been hearing about exponential rises and parabolic blow offs for so long that the very long term and methodical consolidations required for a bull market are often lost sight of. on the other hand a very simple equation has emerged out of the barrage of verbiage launched on the merits of owning Au/Ag.
don't chase price. get a feel for the inevitable pullbacks and add to your position when they occur. and yes, stockpile food and water and other basic necessities (just as important if not more) and ensure measures for personal protection and security. so get off the fucking internet and take care of business.
Yardfarmer is walking the walk, though he comes to the ZH table during planting breaks. Sir, I prepped two raised beds today and planted these items:
(2) Merlitons (climbing curcurbit we eat down here in New Orleans area), (3) artichokes, (3) winter squash, (1) rosemary, (1) sweet basil, (2) aloe vera, (3) oak saplings transplanted to big pots; I cleaned out around the stand of comfrey and weeded around vegetables. My boy helped me prep the chicken domain for a new laying box that was built last week. We barbecued and now the younger family is watching TV before work and school starts tomorrow again.
I bathed and came back to non-fiction or at least not knowing what it is I don't know on ZeroHedge.
Have a question for the proponents of only holding physical PM's. Tell me what is wrong with leveraging PM's on the spot market. Are you not capturing the price move of PM's the same way as a physical holder, albeit with more volatility and risk given the leverage. Seems to me if leverage 500 ounces of silver on the spot market at $35 and the price rises to $175 fiat I make a profit of 70 K in fiat. Which if at that time we still have a market I buy 400 ounces of silver. If I can't buy 400 ounces of silver at that time we don't have a market and everybody is fucked. 400 ounces of physical would cost me 14K at $35 fiat and at $175 fiat it would be worth 70K fiat which is the same value as buying a leveraged spot contract when silver was $35 fiat. Please someone tell me that I'm wrong.
I'm waiting for an answer from the Let's be Physical singers!
Go long on a comex contract. The contract expires worthless, by 50 cents, you lose your invesment, unless you can buy the entire contract, which is 5000 ounces.
Mini contracts are 1000 ounces.
Go purchase a mini contract, have it expire in the money, you get cash, you can't get physical settlements at all in mini contracts.
Buy physical silver, comex defaults, cats and dogs end up sleeping with one another, the banking system fails, your stock broker leaves the country with all your funds, and you still have your silver.
See the difference?
Oh, and plus, if silver goes to $700 an ounce, and you got into a paper market at $2.00 - you're goig to be paying a hefty tax bill to sell that paper contract, and buy physical.
We we are just talking about a currency pair are we not just like EUR/USD you have XAG/USD. I can buy open a long XAG/USD position in my FX account not COMEX with each 0.01 fiat move in silver equivalent to $5 fiat. The margin requirement is spot X $10 or $350 with spot at $35. So essentially I'm holding 500 ounces of silver by putting up a margin of $350 and if you all are right and silver continues to rise I make $500 fiat for every $1 fiat rise in silver. So to me it seems the same as holding the physical as long as I can cash-in the position when I want to and exchange it for physical. The math proves that it is the same as holding the physical. And as Jim Mora said playoffs, playoffs, same thing goes for taxes. If cats are sleeping with dogs and my broker left the country who is going to be worrying about paying taxes.
I am not at all sure that "everyone" knows Fenders beat Gibsons, but the list is certainly food for thought.
That's why Miles like Taylor .. Quality that is currently out of mainstream favor
I own Taylor for building my finger strength and the beautiful sound. I own Fender Nashville Telecaster a sweet guitar that combines a Tele and a Strat and Jazz bass. Next purchase will be a Les Paul.
:)
double post--sorry
Amazing coincidence. I have a Taylor (410ce?) which I love, and a Nashville Telecaster to help get that Strat sound too. But I'm a keyboard player. I have a Wurlitzer electric piano, thought I've owned Rhodes in the past. And I have my Hammond C3, which is my buddy.
I'm a bass player - my Taylor is a 210 ce. Love the Hammond one of my favorite sounnds :)
I've never really been impressed with this guy, less with his "contributor":
- the U.S. dollar will continue to decrease in value indefinitely [YES]
- U.S. real estate will continue to decrease in value indefinitely [YES]
- the standard of living in the U.S. will decrease [YES]
- the U.S. stock market is in a bubble [DUH]
- commodities will continue to rise [YES]
- China will overtake the U.S. as the next great power [NOT REALLY]
- U.S. manufacturing is dead [FOR NOW]
- U.S. debt will increase indefinitely [YES]
- emerging markets will provide the economic growth of the future (along with China) [PROBABLY]
- everyone in poor countries wants to eat more meat, and own a car [EVEN THE VEGETARIANS?]
- energy will increase in price indefinitely [FOR A LONG WHILE]
- wars and revolutions will continue to increase, perhaps leading to another world war [DUH]
- Social Security and Medicare will go bankrupt [DUH]
- defined benefit pension plans are dead [YES]
- health care costs will continue to increase at a rate that outstrips inflation indefinitely [YES]
- unemployment will be serious in the U.S. for the foreseeable future [YES]
- Fenders beat Gibsons hands down (pre CBS Fenders, I mean) [VAGINA]
- the gap between the wealthy and the rest of us will continue to increase [NO]
- government in the U.S. is controlled by lobbyists, unions, and other big money interest groups (banks) [REALLY?]
According to the CFTC data, there are now 192,838 long contracts on gold and only 3,636 short contracts. That is a remarkably one-sided trade, and one that is technically ripe for a major reversal. When everyone agrees you can't miss on a trade, and punters are betting 50-to-1 that the trade can only go one way, then that's when it reverses and crashes.
Yes, because gold is in a bubble and everyone should sell it now. Because we all know that you can't eat gold.
I am Chumbawamba.
Fender players are pussies?
and how will the gap between wealthy and the rest not continue to increase?
s+p Futures up 0.1% on open. Lack of common sense is at the point of madness.
http://www.youtube.com/watch?v=rGIY5Vyj4YM
the economy has nowhere to go, the money has nowhere to go, buy paper
According to the CFTC data, there are now 192,838 long contracts on gold and only 3,636 short contracts. That is a remarkably one-sided trade, and one that is technically ripe for a major reversal. When everyone agrees you can't miss on a trade, and punters are betting 50-to-1 that the trade can only go one way, then that's when it reverses and crashes.
As a technical observation, this is completely disconnected from all the fundamental reasoning behind owning gold.
This is the weakness of technical (chart) analysis. It ignores real-world fundamentals, which often are nothing more that widely-held perceptions, but perceptions are what drive markets.
For example seeing gold on the trailing end of a head & shoulders pattern and concluding gold is headed down because h&s always signals down ignores a widely-held perception the dollar is losing value, what keeps pushing gold higher in spite of a h&s pattern.
There are times to be contrarian, and threre are times to follow the herd but at the end of the day its about making decision based on common sense.
Has the political failure that drove us into this mess suddenly been reformed? Will anyone hungry for power willingly commit political suicide by forcing austerity on an unwilling populace for the good of the nation? Or is it more probable the insantity of debt monetization will continue til eventual endpoint of currency crisis when the bond vigilantes assert themselves and force austerity. There is no other choice for Keyneisans - its a philosophy of print or die and the process will continue until we reach its eventual conclusion. Taking a contrarian bet against common sense would be akin to holding onto lit dynamite because everyone else says its a bad idea. Sometimes the herd gets it right.
HIS CFTC DATA IS COMPLETELY WRONG
http://www.cftc.gov/dea/options/deacmxsof.htm
There can't be any more contracts long than there are short.
DOH!
PS: I've never actually met another human being that owned ANY gold other than jewlery. That doesn't sound like a bubble to me.
Duplicate post - site problems.
Really? Do these figures look suspicious to anyone else?
Not suspicious, plain old wrong.
If ths site is full of crap like every other site is, what's the point of reading it?
Several people have pointed out that it's impossible to have a different number of shorts than longs, but the article hasn't been corrrected. It reflects badly on the quailty of the site, as well as the writer. The writer is full of crap.
Don't worry about this "reflecting badly on the quality of the site". You simply do not understand. The writer (CHS) assumes a certain level of knowledge amongst readers, which many clearly lack.
The manner in which the CFTC or the exchanges classify positions is done so as to convey as much information as possible (though it may never be exact). For example, a major gold miner who hedges his expected production by "shorting" futures contracts is not classified as a short, but rather as a commercial (hedger). On the other hand, if you or Blythe think gold has topped and sell contracts hoping to benefit from a fall, you and she would be classified as "shorts". In other words, in the reports "short" refers to speculative shorts, which is to say people who might be excpected to cover if the trade ran against them. A commercial who shorts as a hedge need not cover even if gold goes to $100K (provided they truly have the production). Thus, it is theoretically possible to have 200,000 "longs" and zero shorts (if all short positions were commercial hedgers).
Unlike a commodity such as corn, gold does not have many natural "long" hedgers other than those who use it in manufacturing. The majority of gold longs would be classified as "speculators" (even for those who never intend to sell it). Corn, on the other hand, has farmers and General Mills, two entities whose needs mirror each other. Theoretically, one could have 100K open interest in corn with both zero "longs" and zero "shorts", at least by the manner in which positions are classified.
OT:
Utah governor signed bill HB0317s1 March 25th.
I guess he doesn't mind being labelled a " terrorist ".
http://le.utah.gov/~2011/bills/hbillint/hb0317s01.htm
The main thing that everybody knows, which is actually wrong, is that we can always agree on the score.
Right now we agree on the score through electronic communication and electronic data storage. that is not just our global monetary and financial system, but the complete score of who owns what property, equity, liquidity, liability.
It is all subject to instant annihilation if the internet goes down.
I live in Austin, Texas. When the Quake and tsunami hit Japan, it knocked out 14% of global cloud computing. My internet went out for 8 hours. Everybody's service got slower. Vast numbers of transactions at one Japanese bank ceased to exist centrally, leaving all the parties to those transactions in limbo as to how to act.
On September 1st 1859 a massive solar flare was observed by Richard Carrington. There had been a series he was watching. this one traveled an ionic channel to earth, opened by a preceding one, and knocked out every telegraph Noth of Little Rock Arkansas, fused the wires, burned stuff up. these come every 500 years on average. 1921 and 1960 saw smaller ones, which come 4-5 times per century.
Military attack would/will do the same thing, erase all records of ownership in an instant.
What's Plan B?
excellent point. I'm prone to think about loss in communication, but you're right...there ain't gonna be any records of anything - well, concede a small % of hard copies
Can you say HAARP!
erase all records of ownership...
AD 70 and the fall of Jerusalem and the sacking of the temple. Nobody thought it possible. History shows diaspora occurs when this event takes place.
A further mixing of the human gene pool is the likely result, or plan B.
I am a stock broker and I have not received one unsolicited phone call to buy gold, silver, or mining stocks. In my experience, we are nowhere near the "public awareness" point yet.
This is not true.
There are always an equal number of shorts and logs
You can ignore the rest of the article if the author can't get this right.
Hogs to slaughter. Lemmings.
Dude, you voted for Obama, and you're bitter. I understand (sort of). But don't let that ruin your life. Jesus loves you. :))
(d)
If everybody is buying food to eat is that a bubble? or water to drink? or shelter to live in? Gold isn't a stock. It's money so how could it be bubbled? People need money to survive, do business, and just plain live. Without real money we'd be friggin cave men. So either we let Ben Bernanke force us into starvation and homelessness or we bid up the price of real money with our illegitimate money that they force us to use. Right now there are too few dictators with too many Petrol dollars. We need to kill or kick out each one so we can freeze their dollar accounts, steal their gold, and install a different puppet and do it all over again.
As Peter Schiff says, Japan needs a strong yen because Japan will need to import.
And he's been exactly right on that.
What price would gold have to get to before it becomes economically feasable to make the stuff in a superconductor supercollider? There's a price. That's the limit.
Not really if you can only make a troy ounce per year of the stuff.
Supposedly, you can make gold in a breeder reactor with mercury. All of the isotopes of gold have a short half life so this actually can be done.
According to the CFTC data, there are now 192,838 long contracts on gold and only 3,636 short contracts. That is a remarkably one-sided trade, and one that is technically ripe for a major reversal. When everyone agrees you can't miss on a trade, and punters are betting 50-to-1 that the trade can only go one way, then that's when it reverses and crashes.
I stopped reading the article as soon as I read this. In futures, there is a short for every long and a long for every short....scientific fact.
What If "What Everyone Knows To Be True" Is Wrong?
if this is true then, we must be talking about american history as taught in the U.S. public schools since 1901.
I would love nothing more than for everything I believe to be true to be wrong.
I would love to wake up tomorrow morning with 4% percent "real" unemployment, robust "real" GDP growth, zero "real" inflation, a sound "real" currency, a "real" balanced federal budget, and "really" no wars.
And if I could have all that I would gladly see all my PM fall to 1% of it's current value.
But I'm pretty sure none of that is reality!
Then I guess everyone is qualified to be the Chairman of the Fed.
Wow. TFHP. According to the CFTC data, there are now 192,838 long contracts on gold and only 3,636 short contracts.
Explain for me, Einstein, how that can be in a zero-sum "game".