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April 20, 2004

Platinum tryout

this is entry in precious metals

Posted by dymaxion at 01:34 PM


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January 28, 2004

Buy and Hold?

In an economic world that appears more precarious than at any time in the last 65 years, there's no shortage of risk. And so, for the sake of --should we say-- fun, we decided to move a jaundiced eye towards where we fear the greatest risks may be hiding, while knowing full well that the gods, like the audience at the local Cineplex, always seem to prefer a surprise ending, or a disaster flick, over what's reasonable and predictable.


We also know from hard experience that risk should be avoided when possible even in the best of times and, when accepted, should pay high premiums.


So, with safe returns --from both long and short-term interest rates-- hovering at historical lows and every indication that the Fed will hold them that way until at least until they can have no effect on the November elections and a dollar that has lost nearly 25% of its value in the last 12 months, there is somehow increasing pressure to take on the risk of either highly valued stock, REITs, commodities, bonds or even the currency markets.


There are plenty of analysts (hypesters and pumpers) out there who are ready to tell you that we have reached a virtuous moment in which booming asset prices; stocks, gold, housing, you name it, a depreciating dollar, rising corporate profits and easy credit for the indefatigable American consumer against a backdrop of very low inflation rates have somehow laid the groundwork for a real recovery.


For these guys, it's not too late (for you) to get into the market, which in some cases is up 50% from the bottom it hit back in 2002.  Jobs, they argue, are sure to follow and an improving job market will trigger further spending, savings, taxes and profits.  According to this analysis, we have rounded the corner and, having dodged the bullet through a heavy dose of government goosing are now heading for the next real boom. For these experts, the siphoning of jobs and manufacturing know-how to China and India, is the counterbalance that keeps prices in the stores low and thus dampens the usual inflationary pressures caused by distorted government and trade deficits and a depreciating currency.


The skeptics, of course, see a quite different picture: stagnant or sinking wages, reduced benefits, sinking dollar, government debt growing without any real prospect of moderation, widening trade deficits only marginally mitigated by the dollar devaluation, consumer debt now reaching 90% of GDP, job creation happening abroad in Eastern Europe, and mainly Asia. They also see a very deceptive inflation rate that undervalues things like the quickly rising costs of education, housing, healthcare and state and local taxes. By our reckoning --we of course count ourselves among these worrywarts-- it is only a matter of time before either some chain of events sets off the process or the ball of yarn starts to fall apart on its own no-shortage of internal tensions.


So --while always genuflecting to the aforementioned cinemaphiles, mind you-- let's conjure up the kinds of events that might cause the center to spin apart? Then, in an act of further hubris, we'll try to gauge what the possibilities might be.


We think that most people would agree that another terrorist attack of the magnitude of 911 would, depending on its strategic targeting, set off a wave of devastating economic setbacks as fear and physical destruction take their toll. Think, say, a dirty bomb attack on one or several city centers --we know al Khaida likes to stack its hits-- or, say, a bioweapon that hits humans or even the food supply. 


And the risk?  Again, we don't claim to know, but according to our neighbor Tom Ridge, something like this may be nearly inevitable.  We do know that the Soviets and others have had sophisticated germ and chemical programs and that both the know-how and the materials are out there and possibly, along with nuclear waste, for sale. Can we depend upon our intelligence organizations or border police to keep them out?  Again, knowing what we do about the number of people that infiltrate the borders every day and the lack of control in ports and even certain airports, we have to guess that someone with money, an undercover network and knowledge --sound familiar?-- could smuggle in the wherewithal to pull off a major attack.


Could that same gang have sleeper cells in this country ready to act?  Again, knowing what we do, it would seem to be a given; having had a 10 year head start, that there are likely guys already deeply embedded into this society who are only waiting to get the substances and the plans to go.


Another possibility is the outbreak of a worldwide epidemic like SARS.  How likely is that? Well, we know that SARS came close to getting out of the bottle just last year and we can  see today, with the Bird Flu, another example of a disease that just might totally overwhelm the system.  A worldwide epidemic could easily bring the economic system to a grinding halt.


To us, that alone would argue against any scenario in which an investor sinks a large percentage of  her capital into stocks or even bonds. In other words, there seems to be little room left on the upside and a whole bunch in the other direction.  Bonds, of course, have no where to go but down. Unless you believe interest rates will go negative.


So, let's say that everybody with a choice ought to be thinking about limiting exposure to risk even more today than usual.  If you believe that buying and holding stocks was the way to go last century --the American Century-- (it still wasn't) then you have probably long ago stopped reading this.


There's a strong contrarian argument out there that commodities are the way to go forward, at least, long term. According to this line of thinking, goods like oil, copper, titanium, gold are in limited supply and that as China and India grow their economies and 3/4 of the world's population gradually become consumers of electronic goods, scooters and automobiles, commodity prices as a class will rise even as demand in the industrialized countries stays flat.


Gold, of course, is that special commodity that will remain in relatively short supply while holding its historic role of ultimate storage of value.


But there are downsides on commodities.  A stagnant world economy on the brink of a deflationary spiral as more and more factories in Asia go on line, could drag commodity prices down and ultimately slow growth in Asia once again.  Economies, as we know, tend to move in fits and starts, booms and busts....and China, with all its upside, will be no exception.


Bear in mind also that petroleum and gold prices can be manipulated by political wills in ways that other markets won't be. In the case of gold, there is always the chance that behind the scenes the central bankers find it necessary to dump gold as a feint to slow the slide of the dollar.  As for the price of oil and the dependency that all players in the global economy have on it, countries will see oil prices as too strategic to be held to the whims of Mr. market.


On the other side, the major upside that is, should there be a serious crisis both gold and oil will inevitably shoot upward no matter what stop gaps are put in place.


So, all things considered, there is a little downside in a basket of commodities.  The central banks will try to hold the dollar from going to much further down and some will try --as if there weren't enough market pressures-- to "influence" China to move the RMB up to take some pressure off the dollar.


That brings us to currencies.  The real question out there is not whether the dollar will strengthen but whether it will stay pretty much where it is and only move slowly further down. The Fed made it more than clear today that they were going to hold down rates here --with a little juke move where they dropped the not really significant words "considerable period" from their outlook-- as long as it takes.  Once again, this week, Fed Gov. Bernanke raised the specter of a deflation crisis: <http://www.forbes.com/markets/newswire/2004/01/27/rtr1229477.html>.  So we have the possible losing battle scenario of the Japanese and perhaps next the Europeans busily throwing away their money buying up dollars as fast as we can print them.


But what the Europeans, the British and the Aussies won't do is lower their interest rates for fear of losing control of their economies.  And so the dollar has no where to go but further down despite the jawboning and head-fakes of the last couple of weeks.  The big question is whether there will be some kind of currency war if the US pushes too hard and further whether the Chinese will continue to throw good money at US Treasury and Agency bills as vendor financing to keep the status quo.  Should they decide they no longer have to worry about loss leaders and to keep more of their money for investment at home or stow it more safely in euros, then the seams could come apart.



Bottom line:  very little downside risk in deposits in strong currencies paying higher interest rates. In other words, there is an opportunity to store money in high interest paying denominations.



We also think that despite the high valuations, the general flimsiness of the asset bubble in general and the heavy state of consumer debt, that with much less upside potential the stock markets are unlikely to fall precipitously on their own weight this year.  That is, without some tsunami-like chain of events.  We say that because low savings account interest rates (and, shall we say, greed) are driving salivating unwashed investors back into markets that they may have had more appendages than their fingers burned in just a few years ago. Also, the money supply --M3-- which had started to slow on its own accord in November and December, will be boosted further by the Fed that will continue to keep the pedal to the metal at nearly all costs leading up to September.


As Warren Buffett is reported to have said: "throw a trillion dollars at any problem and you're sure to get some results."  The government will continue to spend on homeland security, on Iraq and further military and country-building efforts, while fazing in further tax cuts.  All of that borrowed money will filter into the economy where further borrowing fueled by low interest rates, will multiply the impact.  A cheaper dollar should also have short-term stimulating benefits: foreign goods (did anyone say Airbus?) will get more expensive while US made goods will cost less on the world market. Fewer Americans will take their vacation money to Europe and more Europeans will see bargains in visiting this country, etc.


So, we could easily be wrong about the above scenario, but let's look at what might cause the wing beat in the forest that leads to the tsunami.  For us, of all the great tightrope walking situations out there, from the above terrorist scenario to the possibility of serious setbacks in Iraq to cheap-dollar-instigated general slowdowns in Europe and Japan, to a jobless muddle-through recovery at home, the great currency imbalance seems to offer the greatest risk. 


The Fed thinks they have this under control since cooperating Group of Seven governments and the IMF have their hands on most of the levers.  But there is that little sticking point of the upcoming election: judging by the interest of voters in Iowa and New Hampshire, the continuing bad news out of Iraq, Bush just may seem beatable on the twin issues of jobs/economy and rebuilding Iraq.


The President, with the helping hand of the Fed, will pull out all the stops.  But where to go?, surely interest rates can't go any lower and it's questionable whether anyone would notice if they did.  The Congress can't vote an emergency tax giveaway that would take place a couple of weeks before the election. So??????  That leaves further currency manipulation.... and that might just set off a crash course that ends in driving the Chinese out of the US bond markets.    


 


rmb



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Copyright 2003 Richard Mendel-Black All Rights Reserved


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Posted by dymaxion at 04:40 PM


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December 11, 2003

Nothing Like the Good Ol’ Bank of Japan

Gold, and particularly gold mining stocks have fallen back over the last few days, and in the case of the mines, the reaction has been fairly drastic. Even as the price of yellow stuff climbed to a record $411 an ounce, there was a sell off in the mining stocks, which, after all, have increased in price much faster than the metal itself (there’s a logic to this, since the price of extraction remains flat, the mines’ profits begin to rise with each bump up in the price of the end product). 

 

According to Reuters, the fall off in price reflects an anticipation of end-of-year maneuvering as traders lock in profits.  The dollar has also stopped its crazy skid and actually moved back up a penny or so from its low with the Euro.  It seems the Bank of Japan has been soaking up dollars from the world market in order to keep the Yen at a price that allows them to not loose market share to countries whose currencies are locked to the dollar, namely, of course, China.  Not so, for the Brits’ Pound, which continues to climb.

 

The Brits, it seems have been borrowing and spending nearly as fast as their Yank cousins according to a report out from the Bank of England today, which puts household debt at historic highs.  The difference, it seems, is that Blair is not up for re-election this year and the adults there have decided to do something to slow things down by raising interest rates on government bonds which are now in the 10-years some 60 basis points higher than US T-Bills.  Risk-adverse money –it seems there are a few of us still around—has been flowing there like the melting of the glaciers at the North Pole.

 

Of course, in the US, we have invented a new kind of recovery, one in which fewer people do more business.  At the height of the greatest government cash push in history (all, BTW, borrowed from the future), jobless rates once again were up this week.  What will Alan Greenspan do next?  Who knows what Carl Rove will cook up!

 

In Japan they went so far as to have negative interest rates –which in real terms is what we have in the US—in which they paid people to borrow.  Unfortunately, the strategy backfired as it served to drive down prices, thereby encouraging the thrifty Japanese to put off purchases in anticipation of even lower prices the following year.

 

Not to worry about the Americans, though.  It seems we bought even more SUV’s this November than last.

 

Bush, of course, caved first to the Europeans on steel when they had him by the balls:  they had targeted retaliatory steps against products coming from key electoral states.  The dirty secret there, anyway, was that the tariffs were keeping steel prices artificially high thus raising costs for American manufacturers and actually costing more manufacturing jobs than they were saving steel jobs that have no future in any case.  I hope you followed that!

 

Then he caved to the Chinese on Taiwan on a little issue like democracy.  Maybe even he has finally realized that if the Chinese ever wise up and start spreading their reserve assets around, the whole pyramid scheme on which he has bet his re-election will come tumbling down.  And that’s the rosy outlook on DW today.  So, I wouldn’t make any medium or long-term bets long on the dollar.  Meantime, I think I will run to the cash machine and pull out Euros today while the getting is, well not exactly good, but better than, say, $1.25, which is likely to soon be the situation.  Thanks BOJ!

 

Bucky Balls

 

Now, a word for our godfather, Buckminster Fuller:  Bucky’s legacy, as incorporated in his invented word, Dymaxion, emphasizes the non-static nature of reality and secondly the power to be derived from the infinite simplicity that is the essence of Nature’s grand design.  Standing in the Pantheon, as impressive a testament to the enormous advances the ancient Romans made in architecture –the brick and mortar dome is actually larger than the cast iron one on the Capitol in Washington—you can lean your hand against the massive stone pillars weighing thousands of tons that hold up the structure.  Compare that to Bucky’s best known structures, the geodesic domes that can be fitted together, even for large structures with fewer people and in less time than it would have taken to move just one of the Pantheon’s granite pillars from the quarry to the city.  It’s hard to imagine the size of the crews that worked on these ancient monuments but the dynamic is the force of a great institution –in this case, the most powerful state ever known on earth.

 

Bits and bytes have for all practical purposes no friction as they pass through copper and fiberglass conduits at nearly the speed of light.  As the number of users and uses increases, the costs diminish.  The great machines of the corporate media, like the columns in the Pantheon, adsorb massive infrastructure and personnel resources.  For such, they need to behave like the great empires of the past.

 

In the Dymaxion world, change is inevitable, information is crunched into something useful, spin turns static, talking heads become so many trophies on the screen, like marble heads in a mausoleum.

 

The real infrastructure of the web is as light and malleable as the lines of code that support the communication and distribution system.  We look forward to seeing what these dynamics are going to bring together but I am confident that the need to cut through the bullshit is so enormous that given the kind of persistence and optimism that characterized the original Dymaxion man, this will become a valuable and cherished resource.

 

 

 

 

rmb

 

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Copyright 2003 Richard Mendel-Black All Rights Reserved

 

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Posted by dymaxion at 04:02 PM


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December 03, 2003

Larry Kudlow Sets the Record Straight


 


Wondering why they seem to pull all of the stops out of the dollar value?


 


I sit here in Europe watching the “early’ market in the dollar and see it freefalling to nearly $1.22 per Euro on Bloomberg’s European satellite channel and can’t help but wonder what the problem is.  But to sooth my battered instincts, I was helped to the real scoop by a quote from Lawrence Kudlow, thanks to the help of J. Christoph Amberger of the 247profits-e-dispatch.  Kudlow, surprise of surprises, has stuck his finger in the wind and felt nothing but warm, tropical breezes from here on in:


 


"The cheapest currency in the world right now is the US dollar.


Watch the greenback strengthen significantly in the years ahead.


High after-tax investment returns, breathtaking productivity


gains, totally awesome profitability, virtually no inflation and


historically low interest rates tell this tale. So do falling


unemployment claims and rebounding manufacturing indexes. A


University of Michigan think tank just predicted a 5.4 percent


unemployment rate for 2004, a 4.8 percent rate for 2005 and 5.2


million new jobs over the next two years.


 


"Of course, inflation worriers point to today's high gold price


(gold is a proven inflation metric). But gold, now near US$400


an ounce, is US$50 too high. Money is not all that loose: The


Federal Reserve is in a mild excess-reserve position, exactly


where it should be as we turn from deflationary recession to


reflationary recovery."


 


I am grateful to dear old Larry for these pearls, first for his confidence in a quick dollar turnaround and second, for having set me straight on what the real price of gold is –or better, should be, since the last I looked it was trading at $3 over the magic $400 mark.  Of course, I don’t know what a mild excess-reserve position is but I trust it has something to do with the money supply.


 


Being the paranoid gold investor that I am and being fully aware that there is always a chance we will see Greenspan wave his magic pinky thereby setting off a major seller of the yellow stuff (it wouldn’t be the first time, according to some very knowledgeable players).  And maybe Kudlow is in on the info.  After all, he is a loyal soldier who has profited mightily in the past from his connections inside the Beltway.


 


As I’ve said before, investing in gold is a little like pissing into a virtual wind.  Most economists will tell you it is just another commodity and an anachronistic one at that since the amount of demand for industrial gold is quite small and even much of that gets recycled when the gadget its non-corrosive characteristics protect, gets thrown into the ashcan.


 


But somehow Ludlow worries about the price of gold, and even goes so far as to say it is a proven inflation metric.  If it was, BTW, it would not have gone into its 20 year swoon in the 89’s and 90’s unless, and you can correct me, that was an inflation free period.  No, gold is something else.  It’s money!  Bring any gold gee-gaw into a jewelry shop that buys old gold and the jeweler will weigh it and base his price on the purity and weight of the object.  Gold stores value, as they used to say.


 


So when the dollar goes down gold goes up.  Even Kudlow contradicts himself by noting that we are experiencing “virtually no inflation” (his words, not mine).  Yep, maybe gold demand will rise in the coming years as China and India step up their economies and new consumers are born.  India is by far the highest gold consuming country in the world and with all those back-office IT jobs moving there some of that wealth is bound to turn into gold bangles and bauds. 


 


My guess is that we are still in the early stages of a secular gold bull market but I do believe that the powers that be in Washington are whispering more than sweet nothings in Kudlow’s well-scrubbed ears.  We might have to get ready for an attack on the price of gold as it approaches its last historical high point of $416.  That was the high water mark back then and it may turn out to be where the line in the sand has been drawn by the invisible hand of the Fed.


 


You can be sure we will be watching closely and looking for signs of manipulation.  On the bullish side, the chairman of one of the largest gold mine holding companies in the world, Peter Munk of Barrick Gold, has announced that henceforth he will stop forward hedging –something that has protected his holdings over the long dips.  In the past the large hedge books, as they are called, of the major gold miners like Barrick, have been seen as a damper on the market.


 


Watch out for fun and games ahead.


 


Still reporting from Rome, where the US markets don’t open until 3:30 PM my time and bemoaning the falling dollar every time I look at my Amex statement,


 


Regards,


 


rmb


 


dymaxionweb@verizon.net


 


Copyright 2003 Richard Mendel-Black All Rights Reserved


 


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Posted by dymaxion at 04:51 PM


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November 27, 2003

Gold’s Glass Ceiling


 


 


Gold’s Glass Ceiling


 


There is widespread paranoia among goldbugs that some entity close to the US government quietly intervenes in the gold market when it reaches some invisible price target only known by those who foster the conspiracy.  Several years ago, the glass ceiling number was $300 per ounce.  Now that we are close to $400 the same kind of resistance seems to have been built into the markets.  Several times in the last two weeks the price of the yellow shiny stuff started to cross $400 only to fall back.  Once again, yesterday, it looked for a while like the momentum was building for a strong move across the goal line only to see late afternoon faltering.


 


Gold, as you know, has no monetary value outside of a few coins that are minted in South Africa and Canada but it has traditionally been an anchor on which all but a few monetary systems remained tied to.  Those paper or “fiat” currencies in the past that broke all links with gold or silver have consistently ended up on history’s abundant monetary trash heap. 


 


Politicians without the restraints of something real, will turn on the printing presses to save their skins.  This is nothing new.


 


Commodity traders will tell you that gold is a weak commodity trade since even when sold it is little consumed by industry (jewelry is sold by weight and value add, so the gold stock remains even after it is “used”) and has little other demand.  Production, though relatively small, they will tell you, is sufficient to meet that demand.  Even when it is hoarded as a safe island for investors, it remains intact, and can enter back into the market any time the price rises high enough for investors to make a profit.  Furthermore, it is a lousy investment compared to stocks and bonds, they will say.


 


So why would any government intervene by selling gold, since after all, all of the main holders of gold (the central banks) have pledged to stop selling in the open market?  Is it psychological?  After all, nobody, in the US, that is, seems to even notice how far down the dollar has fallen in the last 12 months –it now takes $1.19 to buy 1 Euro—so why would the price of gold have any psychological impact on American financial markets?  I can’t say that I know and I am betting that gold goes over $400 and climbs above its last high of many years ago, of $416.  The question then is, will it keep on going or is it merely following the Euro, Pound, etc. up as the dollar goes down?


 


One thing is for sure, the dollar will continue to fall and gold will probably move in the opposite direction.  So, does gold have some mysterious tie to the value of the dollar that someone in power may feel needs to be manipulated?  We’ll see, soon enough.


 


rmb


 


dymaxionweb@verizon.net


 


Copyright 2003 Richard Mendel-Black All Rights Reserved


 


If you would like to reproduce any of RMB’s postings you


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Posted by dymaxion at 05:40 PM


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October 22, 2003

Linux is to Gold as

Linux is to Gold as ............................


From an investing perspective, the problem with gold is a little like betting all your marbles on Linux.  For the simple reason that no matter how good the arguments might be, you are somehow going straight into the wind.


First, a little light on the yellow metal, that, by the way, I know a lot more about than I do about the stuff they call open source.  If you've never hung out with anybody who's been to graduate school to study the dismal science (not the jumpingest bunch in anybody's book), you wouldn't know what funny looks you can get when you mention what, after all, has been treated like money for as far back as recorded records go, the shiny, yellow stuff.  To these enlightened ones, gold is truly a relic, in the religious sense, left over from the altar of pagan rituals.  Money, they will tell you, is anything that people believe is money.  So if everybody believes that seashells are money, then buy what you will with seashells.  After all, no one dared laugh at Caligula when he returned victorious from a campaign against the sea god Neptune and opened before the senate his spoils from the campaign, trunks full of seashells.  Of course, that was the same Senate in which he made a horse one of its stellar members.


Thus, hardly anybody in that august community batted an eye when Richard Nixon cut the final link between the greenback and gold back in the early 1970's.  At which time, he was quoted as saying, “We are all Keynesians now.”  The dollar, as we all know, is backed by the full faith and credit of the US government.  And dollars to doughnuts, if things started collapsing all around us, the place investors from all over the world would rush to stow their hard-earned pesetas, would be in US T-Bonds.  That kind of behavior in the face of massive deficits –that’s when the government spends more than it takes in and makes up the difference by simply printing more bills-- is a compelling argument that tends to overwhelm all but the most obtuse.


Further, our dismal practitioners argue, where would the modern global economy get the liquidity (money) it needs to sustain the growth that's required?  Must countries wait until somebody strikes it rich in nuggets before they can issue more money?  Better, they imply --because that's the way it is-- to let one country print as much money as anybody needs as long as it continues to be the engine that propels the very world economy we all want to see expand.  And so, the US gets a special kind of pass.  We print them and the rest of the world takes them (reminds me of the sign on the bridge in New Jersey: “Trenton Makes and the World Takes”. 


Okay, that deal –not the Trenton one which we all know is an anachronism— might seem a little unfair to the rest of the world, who have to live off of what they save but that's the way it goes. After all, who's got Wal-Marts every 10 miles and a bunch of worthy citizens who are willing to get up and out and fight their way into the aisles to buy whatever tchotckes catch their fancies?


By this time, if you've stuck with me, you're probably wondering what this has to do with gold or even more, if you're a techie, what the hell this has to do with Linux.  Allow me a deep breath, a little more patience, and on I go: But first let's put the economists aside by appeasing them; when, by the way, since LTCM (Long Term Capital Management, a scientifically run hedge fund that almost brought down the world economy in 1998) did any of them make any money?


Gold, after all, is just a nice shiny metal with some very endearing and enduring properties. It used to be money but outside of a few coins that don't really circulate, it isn't really money any more.  Judged by its track record over the last couple of decades, it's certainly not a good store of value.  At one point in the 70's it was up over $700 an ounce (that's the way it's priced), which, if it had stored value properly, would make it worth approximately $3,500 an ounce in today's dollars (if you don't remember yourself, ask somebody what house's like yours cost back then).


Instead, gold has been in the doldrums trading last year in the $200's and most recently still pushing to get up to $400 an ounce.  What's that all about?  Has somebody found a way to synthesize it, like they have diamonds?  Are there mines cranking it out of the ground all over the world at rates that exceed the industrial, medical and decorative demands for it?  Answer to all three questions, a resounding nope!


Zohhh?  What's wrong with the yellow stuff?  First off, I have to admit that too many of us have gotten college educations and had to take economics 101.  We know it's just a pagan holdover.  But what about all those people who haven't been to college wearing all those weighty gold chains?  Is Wal-Mart able to get its gold in China mined by guys willing to work for wooden nickels? Nope, try again! 


By this time, if you are at all like me, you have probably started to wonder what's wrong with this picture.  Either the spider in the dymaxion web is just shoving us a line of bull....., or there has to be another explanation.  Conspiracy....? Did I whisper conspiracy? Nope, not this spider.  Not that there aren't a bunch of guys out there who aren't, but I'm not convinced by them, at least not yet.  But then again I haven't been in the trenches taking the salvos the way these guys have for the last couple of decades.


And this finally gets me a little closer to Linux.  You see I am assuming that there are a lot of techies who read these submissions.  And they know Linux and its plight a lot better than I do. 


Here's the equation.  Yes, gold is not money any more, at least technically!  Most of us can agree on that.  But it is a kind of special commodity, I mean when you compare it with something like flax seeds or pork bellies.  It's not just any commodity.  I hope we can all agree on that, too.  It's shiny, it’s rare, it’s malleable, it can be easily melted down, it can’t be synthesized, it doesn't corrode, and everybody treats it as something valuable that can be hocked no matter how old it is or where its been (I'm thinking about false teeth but take your choice). 


But there are some interesting facts that have to be treated:  First, yes, world demand is consistently higher than supply.  There aren't a lot of mines out there sitting on the great mother loads and that have already committed to deliver based on options they wrote at last year's prices –though, there were times during the long price drought when the latter was the case..  The stuff is hard and costly to extract and few are the mines in the world that can just step up production at will, even if they were foolish enough to want to dampen prices. Now, add to this the upsurge in the production of ever cheaper and thus more affordable electronic gear in places all around the far east where gold is a component.  On top of that, think about all those newly minted disposable incomes in places like China and India where they still like gold jewelry a lot and where, some people at least, are still primitive enough to believe that gold, even as jewelry, stores value.  Add to that, the Chicken Littles, who think the twin deficits are going to pull us all down with the dollar.  You might surmise that demand for gold is rising pretty quickly; at least it certainly ought to be even further outstripping supply.  So how come gold is still being priced in what look like early 1970's (before the bubble) prices?


And oh by the way, I forgot to mention, the biggest holders of gold in the world are the central banks of the most developed countries, including the good old US of A.  We all know about Fort Knox, where they have tons of the stuff stored.  Not to back the dollar, mind you, but they still store it.  Maybe, after all,  they are the flies in the ointment?  Maybe, having concluded that gold isn't money they have also concluded that they should probably sell it while it’s cheap and keep the price down, since they hold so much of it.  Or maybe some of those other countries would rather sell their stashes rather than tax their citizens.  That's pretty reasonable, given the need for politicians to get re-elected and gold teeth and all that.


But wait a minute, there is something called the Washington Accord --it was signed here in 1999-- that has all the major central banks, except the US Fed, agreeing to not sell more than a small amount of the stuff.  So it can't be them being the party poopers, can it?  In case, of course, you are thinking, Linux, Microsoft, gold, the Fed, voila', I get where he's going with this.


Let me clear my throat.  According the Greenspan, I'm not sure when the last time he made this pronouncement, the Fed isn't selling off its gold either.  Whew!  Big sigh of relief! The Fed ain't selling either.  Not them, not those pesky folks in Euroland, nobody is dumping to dampen.... so, why isn’t everybody jumping in to buy the bloody stuff?


Before I get off this, I have to talk a little about currency devaluation.  A lot of people say they don't care if their money buys less wine in France or sushi in Japan.  If a cheaper dollar keeps jobs here and makes it easier to sell US goods abroad, then it's practically painless.  Next vacation, why I'll head for someplace in the dollar zone, say Venezuela.  And so what used to be worth 1.20 Euros a year or so ago is now worth around .80.  I’m talking about the dollar, of course, and the same goes for the dollars value in Japanese Yen. And yet our leaders are out there trying to push the Japanese and Chinese to raise their prices by cheapening our dollar even further (store of value, anyone?).  Who cares if prices go up 20% in Wall-Mart?, they ask.  That will get us all excited and we'll just spend more, heating up the economy by inflating, they say!  And, in case you haven’t heard, inflation is good.  It stimulates us to act now before our money buys even less.


If all this manipulation begins to sound somewhat diabolical.  Believe me, I’m not making it up!


Okay, had to get that off my chest.


Linux:  here goes, sorta.  The dollar is the standard.  Everybody takes it, even if it has a few bugs, especially on the security side.  Half a trillion internal debt, half a trillion trade deficit:  Don't worry we will just keep issuing fixes, we’ll make the other guy pay more.  For starters we will just let our biggest customers know that even if they think about switching to some other system (is Finland in the Eurozone?) they will pay a pretty price.  We won't let them know exactly what upgrades (read, devaluations) are in store down the pike.  Further, we'll create some secret code (derivatives, in this case) that nobody understands and make sure they are so deeply embedded in the source they can’t be extracted.  You want to travel anywhere to do business, your passport better confirm to the standard we set, otherwise you can't even pass through our domain.  You want to sell your oil, you'd better price it in dollars or who knows, you might see a cruise missile or two before you get a chance to duck.


All to say, folks, the dollar is the standard, gold isn’t.  And having the dollar as a standard benefits all those who would spend now and pay later and those who sell to them.  At least, for now, in the latter case.  So the next time you think about putting your hard-earned tintbacks into the yellow shiny stuff, remember, there's more to this equation than meets the eye.


 


 RMB


 


 


 


 


 


 


 

Posted by dymaxion at 06:31 PM


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