The Exter Inverted Pyramid - A Refresher

Tyler Durden's picture

This morning, a vastly expansive essay by Lew Spellman of the University of Texas in Austin titled "Warren Buffett and the New Calculus of Gold" is making the rounds, and while the narrative is largely defensive of gold, and its role as the only true safe collateral in a world rapidly depleted of the latter (as we have been arguing for the past 2 years) as proven over and over by the fact that the entire modern system now relies more on re-re-re-rehypothection of existing collateral than on spending money for CapEx purposes and to replace an aging asset base, we wonder: is this realization really just now being grasped by the world? Are the forward thinkers of the world only now understanding that in a world with hundreds of trillions of imaginary collateral whose ultimate owner will never be tracked down, and a daisy-chained bankrupt domino collapse will come before anyone finds out who owns what (much in the same was as MF Global is a symptom of the entire modern financial system), only that which is tangible, undilutible and real will have value? Finally, is the avant-garde of Keynesian thought only now (re)discovering the Exter inverted pyramid? Because one can spend 30 minutes reading the Spellman essay, or... cast a quick glance at the picture below to understand the true value of everything in a world in which the monetary fabulation of the past 99 years is finally unwinding.

One picture in this case is absolutely worth well over a thousand words.

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GetZeeGold's picture

 

 

On sale!!!!

 

Blue light Monday morning surprise special.

 

SilverTree's picture

Let us Vajazzle that graphic, and all will be well.

bigdumbnugly's picture

"Are the forward thinkers of the world only now understanding that in a world with hundreds of trillions of imaginary collateral whose ultimate owner will never be tracked down, and a daisy-chained bankrupt domino collapse will come before anyone finds out who owns what (much in the same was as MF Global is a symptom of the entire modern financial system), only that which is tangible, undilutible and real will have value?"

apparently not quite yet.  gold and silver getting reamed again this morning.

A_MacLaren's picture

AND the fiatistas are still in love with their credit default swaps.

edwardscpa's picture

I find it curious that Real Estate and Commodities are up in the red zone.  They are hard assets after all.  Gold is a commodity too, only it serves as money, so I agree it should top the other hard assets.  ...but it's good to have hard assets that are less portable - harder to steal - like real estate.

I am more equal than others's picture

Wiemar republic would suggest the opposite.  Values dropped more than 80%.  Think real return that is the interest rate less inflation.  If you sell real estate in a hyper situation you'd lose between contract date and close date.  Also, who os going to lend under that situation?  Its called an illiquid investment for good reason. 

mess nonster's picture

There are two kinds of real estate. One the one hand, there are tract homes, apartments, condos, and commercial buildings. Essentially, this is all urban real estate. This kind of "property" rightfully belongs exactly where it is on the pyramid. It's value is highly determinate, based on all sorts of human "laws" and constructs that can collapse at any moment and render this property worthless.

On the other hand is land capable of producing food or other raw materials. This is rural real estate. To someone who lives on the land, and has the skills to realize economic value (ie, food) from the land, this property elevates the owner to a realm entirely separate from the flucutations of money valuation. So what if the "price" of the land drops to zero? The owner is independent- he/she gains sustenance from the land itself, and the economy, so called, can go f**k itself.

Land with water will make a man truly free- hence Jefferson's desire to base a true free republic around small agricultural freeholders who on the most essential basis were independent.

DosZap's picture

On the other hand is land capable of producing food or other raw materials. This is rural real estate. To someone who lives on the land, and has the skills to realize economic value (ie, food) from the land, this property elevates the owner to a realm entirely separate from the flucutations of money valuation. So what if the "price" of the land drops to zero? The owner is independent- he/she gains sustenance from the land itself, and the economy, so called, can go f**k itself.

Your are 100% SPOT on, for the past 5000yrs.........but no longer.

The PTB have passed already  laws stopping you from doing exactly what you want to do................

LowProfile's picture

Catching comes before hanging.

Force projection can be an issue when you can't pay to project your force forcefully.

All politics are local.

You don't live in the country.

BidnessMan's picture

The flaw is that the PTB rely upon the mid and lower level employees for implementation.  If / when things really go in the dumper, and the implementers are not getting paid or get overwhelmed, it all breaks down.  I was in New Orleans after Hurricane Katrina, and nothing was getting implemented until outside resources came in.  The police and municipal workers all melted away.  There were no foreclosures or evictions for weeks after Hurricane Katrina.  The legal system and the police will be overwhelmed.  Out of sight and out of mind will a good place to be until the inevitable Jubilee.

LowProfile's picture

DING DING DING DING DING

We have a winnahhhh...!

tocointhephrase's picture

Property is worth some its weight in metal as long you follow the cliche rules (location location location) so for you guys over there its like around Central Park, for this side of the pond its Central London, so yes Tyler we do indeed have a winner! Can't wait for the physical average in Gold. If i'm not mistaken thats around 50 oz's, but please quote me if i'm wrong!

WillyGroper's picture

Been living that way since 1984. Not an easy life, but a rewarding healthy one, at least until they monitize or pollute the water well. Hope all these whiney Boomer Blamers can comprehend ur post, but then again some people fish while others cut bait. 

MachoMan's picture

It's called if you haven't moved into a permanent residence already, then you're probably renting...  rent changes month to month in that scenario... 

There are certainly risks...  but there are also ways to mitigate risk...

LowProfile's picture

@edwardscpa

I find it curious that Real Estate and Commodities are up in the red zone.

The issue is liquidity, and RE is very illiquid (even with clear title).

I would make a few changes however:

Commodities I agree should be further down depending on utility (food lower, rare earth elements higher). 

Right before gold we should see fine art, gemstones, copper, nickle and silver, in that order

Right after gold we should see lead & brass.

LowProfile's picture

I am?

Point out where.  RE is a LIQUID asset?  ORLY?

(crickets)

You're an idiot.

DoChenRollingBearing's picture

@ edwards CPA and LowProfile

Correct.  Exter's Pyramid shows LIQUIDITY!  Not all hard assets are liquid (easy to sell at near their worth).  Yes, I might tinker a little bit to with relative liquidity of various things.  Lead and brass surely would be liquid as of course silver.  Fine art will hold its value over longer periods of time, but might not be liquid (only way to get rid of it, in extremis, would be to sell it a a fire sale price).

edwardscpa's picture

Ah - yes, then, a liquidity pyramid makes sense.  As a store of value, I'd put RE up higher.  And I use value loosely.  I pay cash, and am not concerned about selling at unfavorable times.  I'm talking about rental property, where rents would eventually scale with the value of the currency (or a new currency...).  Something that offers some level of protection, vs a bond say.  In short-term "societal breakdown", a squatter may be hard to evict as noted above, but provided we don't revert to being cave men, law and title will eventually kick in.  I wouldn't suggest buying RE with your milk money, but with excess cash, why not?

DosZap's picture

gold and silver getting reamed again this morning.

To be expected.....................as the EU crashes and burns, we will ultimately lose 40% of our export business.

Whoooops dere it tis!!!..................then , there goes our market, make sure you keep lots of dry powder,because the deal of the century is coming our way. Great shot at gold at under 1k, and silver in the teens, lower twenty region..........

Just hope you are fast on the trigger.

GrinandBearit's picture

Fast on the trigger is one thing, but the availability of phyzz at those prices is quite another.

DoChenRollingBearing's picture

+ 1 to Dos and Grin.

Get your pysical while you can.Wheter it is two years from now, or two weeks from now, real gold will be hard to get., especially at the low prices we see now.

tocointhephrase's picture

¬So Whoooop der it iz whoooop der it iz

 

And as per previous post, thank you Blythe, you little minx. 1 oz Silver Maples at £25-26 from a London Dealer! (Not from previous post) I could suck your c£iT (and rub my tounge on it at the same time)

Wooop der it iz

Freegolder's picture

I genuinely have sympathy for silver bugs. It's nothing but an industrial metal these days. Look to the future: do you see central banks and Kyle Bass and other wealthy giants buying silver? No, just gold.

At the very least hold 50/50 by value, but silver is going to really suffer when the economies of the world retrench to their post-bubble levels. The futures/physical mismatch will not help you.

Also, be wary of China's huge silver supply, and the market they're just launching, it's bound to drive down prices. Silver could easily be the new Nat Gas.

Bullionaire's picture

HAHAHAHAHAHAHAHAHAHAHA!

 

Thanks for the funny.

 

 

LowProfile's picture

 

do you see central banks and Kyle Bass and other wealthy giants buying silver? No, just gold.

He's right.

You're not.

DoChenRollingBearing's picture

+ 1

 

Freegolder, while perhaps a bit uncharitable with his words, is probably right.  The central banks store only gold.

Gold is for preserving wealth.  Silver is for speculating and for spending in a SHTF.  Look, I own silver too.  But, the great $-value of my PMs are in GOLD!

DosZap's picture

Also, be wary of China's huge silver supply, and the market they're just launching, it's bound to drive down prices.

Agree to apoint, but the poor Eastern peoples cannot afford any gold, so their next choice is Silver.And there are a hell of a lot of them.Then you have supply and demand,to which silver is in very short supply right now,and as the numbers increse in the eastern bloc, demand for it will also, the only reason its at 31.00 is because the PTB slam it when it starts EVERY run.

Silver has always been the go to for money, used  far more as such than gold over thousands of years.

LowProfile's picture

I wonder if China's game is to monetize silver.

They have (I believe) the longest stretch of history where it was used as sovereign money.

I am a FOFOA follower, but that would throw a huuuuuuge monkey wrench into his thesis.

DoChenRollingBearing's picture

FOFOA is my Trail Guide too.  We would have to see if China (and maybe Mexico) did use silver as money.

I kinda doubt that it will happen, but my track record at predicting the future is well-documented to not be very good...

Arnold Ziffel's picture

excellent read, paperwillburn. thnx.

machineh's picture

Thanks for the reference, paperwillburn.

If "down" = "more secure," there's a basic problem with the pyramid.

Since stockholders rank lower than bondholders in bankruptcy, "listed stocks" belong ABOVE "corporate bonds," not below.

Stocks also belong above muni bonds, since municipalities have the power to tax and corporations don't.

Good concept on the inverted pyramid, but the asset hierarchy is muddled.

DoChenRollingBearing's picture

The pyramid measures LIQUIDITY.  Real estate is a hard asset, but not liquid (defined as being easy to sell at a normal (non-firesale) price).

LowProfile's picture

Mayer adapted it from Exter.

Kind of a chore to find the original.

http://www.gold-eagle.com/editorials_08/morgan050809.html

PaperWillBurn's picture

So change "pyramid" to image as I was talking about the exact image which was posted not "exter's pyramid"

DosZap's picture

The Pyramid is screwed,the last one is correct the three above it are as bad as the the top three tiers of the pyramid.

bigdumbnugly's picture

this is true.  but i think the pyramid suggests the order in which wealth flees from one "investment op" or perceived "safe haven" to another.

Arthor Bearing's picture

I agree. Real estate is certainly too high up, it may be overpriced but it is a real asset with ineradicable value unlike many others up there. And somewhere there should be something to indicate that the pyramid expands according to a log scale, and that the top layers should really be wide enough to fill ten or so widescreen computer monitors.

LowProfile's picture

It is a LIQUIDITY pyramid.

RE is ILLIQUID.

It is also dependent on rule of law to establish ownership, and it's price (own or rent) is PURELY A FUNCTION OF THE LOCAL PREVAILING WAGE.

You guys sound like you need to buy some precious metals.

Arthor Bearing's picture

You could have pointed that out without the caps or bold print, though admittedly the condescension may have been warrented since I did not read the linked article but just looked at the picture.

Ag Tex's picture

The last three millimeters at the tip of the pyramid under "GOLD" will soon read "SILVER".

Squishi's picture

Bernanke will own all the Gold after this...

GetZeeGold's picture

 

 

Of course he will.....that's been the plan all the time.

 

Hope the Muppets don't figure it out.

 

Popo's picture

Bernanke doesn't need to own the gold.  Confiscation was a messy business afterall.

Today, they'll likely pass a Gold Sales and Export Act which puts a 35% tax on all transactions involving gold,  and a 50% tax on gold exports -- with confiscatory penalties for evasion.   

Simple as that, the Gubmint will confiscate the value of gold without having to go through the messiness of seizure.

Don't think it isn't coming.   The good news is that we'll likely hit $5k per ounce right around the time that happens.   The trick to any good trade is knowing when to get out.   And I promise you that most people who were smart enough to buy will not be smart enough to call a top.

 

spartan117's picture

Will there be a tax when I spend my gold?