Lies leave traces behind

A quote from the latest Mike Krieger article: "For the grossly impudent lie always leaves traces behind it, even after it has been nailed down, a fact which is known to all expert liars in this world and to all who conspire together in the art of lying."

This quote appeals to me because I see this happening often in the internet precious metals community. I see many untruths starting out and propagating and even if they are "nailed down" they still leave a feeling of distrust. I am of course speaking of the Perth Mint here, but there are many other beliefs about the precious metal markets that behave like this. These untruths also resurface again and again, thanks to precious metal newbies who fall upon old webpages, which gives them life all over again.

These untruths fall into two categories: a) Lies, which I classify as those put out by people knowing them to be false; and b) Misunderstandings or Misinterpretations, which are put out by well-meaning people unknowledgeable in the subtleties of the precious metals markets. Why these untruths appeal and resist refutation is best explained by the following text, which prefaced the quote above:

"... in the big lie there is always a certain force of credibility ... and thus in the primitive simplicity of their minds they more readily fall victims to the big lie than the small lie ... It would never come into their heads to fabricate colossal untruths, and they would not believe that others could have the impudence to distort the truth so infamously. Even though the facts which prove this to be so may be brought clearly to their minds, they will still doubt and waver and will continue to think that there may be some other explanation."

I should point out that the quotes are not Mike Krieger's. Mike was merely quoting from Adolf Hitler's Mein Kampf.

(Trying) to buy gold in Chile

A lot of stuff SovereignMan writes is good, but this latest piece on buying gold in Chile is a spin job. Simon Black says that Chile is "where the government just leaves you alone", with "a fairly well-developed gold market". See if that is justified with these key points from the article:

"major banks or the Central Bank, with the great disadvantage of having to pay value added tax" - most countries do not charge VAT on investment bullion

money exchange houses ... the way they sell is informal, which means that they are not required to charge the value added tax ... premiums on gold coins in these shops from as little as 1% over spot" - doesn't say what quality coins you get for 1% and I question whether the 1% really is 1% once the buy/sell spread on the spot is taken into consideration (money changers aren't known for tight spreads)

"some private bullion coin dealers which deal in foreign issuances like the Canadian Maple leaf coin for around 3% to 6% over spot. These dealers do not necessarily have a place of business with fixed office hours – they’re private traders who will often meet at your home or office" - sounds a bit dodgy and I'd certainly not be interested in having a dealer know where I live or work

"storage, the best of option in Chile is at the banks. This can be difficult for foreigners as it is typically required to have some sort of residency visa to have a safety deposit box or checking account" - bank safety deposit boxes are no good in a bank holiday

"no private secure storage facilities in Chile other than the secure vaults around the country’s many casinos" - that isn't a sign of a well developed market

"possible to bring in larger quantities of gold, tax-free, but there is a slightly more complicated process. One must first convert all gold holdings to coins issued by a country with which Chile has a free trade agreement ... a lawyer must obtain a ruling letter that the coins were made in that country (Canada, in this example) and are thus not subject to import duties" - what a silly requirement and process

That doesn't sound like a country that wants people to own gold.

Corporate fascist economic system

A Fistful Of Dollars:

Without Federal Reserve intervention in the financial markets since September 2008, the biggest banks in the world would have entered bankruptcy liquidation. The U.S. economy would have experienced a 10% to 20% fall in GDP. The unemployment rate would have soared above 15%. The stock market would have fallen 70%. Wealthy bondholders and stockholders would have seen their wealth cut in half. Incumbent politicians would have all been thrown out of office. The richest Americans, constituting the ruling class, would have borne the brunt of the pain.

In a true capitalist system, organizations and people who assumed too much risk and made poor decisions would have failed. But the United States does not have a capitalist system. We have a corporate fascist economic system where a small cartel of bankers, military weapons suppliers, and mega-corporations set the agenda for the country through their complete capture of politicians and the mainstream corporate media.

The Global Economy’s Corporate Crime Wave:

Corporate corruption is out of control for two main reasons. First, big companies are now multinational, while governments remain national. Big companies are so financially powerful that governments are afraid to take them on.

Second, companies are the major funders of political campaigns in places like the US, while politicians themselves are often part owners, or at least the silent beneficiaries of corporate profits. Roughly one-half of US Congressmen are millionaires, and many have close ties to companies even before they arrive in Congress.

As a result, politicians often look the other way when corporate behavior crosses the line. Even if governments try to enforce the law, companies have armies of lawyers to run circles around them. The result is a culture of impunity, based on the well-proven expectation that corporate crime pays.

Tungsten Bar Scam

I'm suspicious of tungsten gold bar stories. This story on fake bars in Vietnam confirms my suspicion.

It say that reports of fake bars caused a 50% drop in gold turnover, which reduced fiat inflation as it reduced the use of, and holding of, gold as money. As the story notes, previously "government agencies had to apply a lot of measures to stabilize the market. The State Bank of Vietnam had strenuously resisted with the criticism from the public when it was compiling the government decree [ie restrictions] on bullion gold trade."

Convenient. Remember this play book when you start to see stories about fake bars coinciding with high inflation/mass interest in precious metals.

SPAM comments

It seems blogger have been automatically classifying some comments as Spam and not publishing them. Apologies, I haven't been checking the spam comments folder for legit comments.

We are flies in a bullion bank web

I left this comment on the FOFOA blog:

Your point about bullion banks having the best intel is important. Bullion banks are like spiders in the center of a web. They can feel the twitching of the flies in the web and determine the mood of the market better than anyone else and often in advance of others.

For example, if Mints are starting to see an increase in demand and begin running down stocks, they will start to take delivery ex-bullion banks, who as a result now have intel that retail demand is picking up before anyone else sees it in reported coin sales.

London Banker has expressed this idea much better than me in this post:

Over the past 25 years the financial markets of the world have become highly concentrated in the intermediation of a handful of firms, and regulation has been harmonised in the interests of these few firms. ...

Sadly, these few global firms have been for some time in "a conspiracy against the public", and have subverted the organs of public governance and the infrastructure of the financial markets to their purposes. ...

Four global banks are intermediaries in 85 percent of OTC derivatives transactions. The same banks dominate prime brokerage. The same banks own large equity interests in the now demutualised exchanges, clearinghouses and even warehouses of the global markets. Naturally, the same banks dominated underwriting of securitised assets. The implications have scarcely been grasped of what this portends in terms of the information asymmetries and the opportunity to manipulate markets without risk.

Each of these roles gives these few banks a view into the positions of market investors. They know who owns what, using what leverage, under what terms, and trading in which markets. Knowing that, the manipulation of prices to impoverish investors and enrich the ruling banks is child's play with a bit of ill-transparent HFT through proprietary dealing desks and connected hedge funds aligned with the firms. ...

The only resilient solution is local, transparent markets with disintermediation of the controlling banks. Eliminating the information asymetries which allow them to see everyone's positions, leverage and trading activity - and trade and ration liquidity accordingly - would go a long way to preventing further concentration.

Valcambi CombiBar

I know this is a competitor of the Perth Mint, but I really like the idea of the Valcambi CombiBar.

The CombiBar is a 50 gram gold bar with 50 detachable 1g bars, like a chocolate bar. You can break off a strip of 5 or 10 1g bars, and then further break down into individual 1g bars. Very handy for barter situations.

Rational Discussion

Is this too much to ask for in the internet precious metal world?

Australian Housing to Bust, Eventually

This post by Terry McFadgen on Australian housing prices is a good summary of the question of if/when prices will tank. One thing overseas readers should keep in mind is that Australian borrowers can't walk away from their debt - the bank can foreclose on you and then go after you or bankrupt you for any remaining debt not paid by the sale of the house.

As you would expect this dampens the negative price spiral that can occur in countries where walk away is an option. However, consequence of this is that in the face of financial difficulties people will tend to restrict other spending and divert money to paying off the mortgage to avoid the stigma of bankruptcy (although this doesn't seem to have bothered "former tennis ace" Mark Philippoussi) This contraction in discretionary spending acts like the “Paradox of Thrift” Terry mentions in his article.

I think Terry makes a good case that "house prices could simply slide down gently over a long period, with inflation doing most of the work of price adjustment" but he does identify four risks/shocks which could bust prices.

He notes that the RBA is between a rock and a very hard place in trying to de-bubble housing but having to increase interest rates too much to control inflation, or having to cut interests rates too much if housing tanks which will weaken the Aussie dollar and stocks as foreign investors pull out.

My view is that push come to shove RBA will cut rates and damn the exchange rate as an imploding housing market is not good for banks and the political pressure will be too intense. This will be an extend and pretend that will work for a few years as there is plenty of room to move with interest rates at the 6% level. A weak exchange rate is good for AUD precious metals prices, by the way, a sort of hedge against house price drop in a way.

I would also not discount politicians doing something stupid to "help" housing. With debt to GDP of 20% a populist call to "do something" could be made when other countries are at 100% ratios ("we have the capacity"). It will all be wasted of course but could drag the game on a bit longer.

However, as the US shows us, once you get to zero interest rates you've got nowhere to go and QE doesn't help housing. Once we reach that point then we will really see a housing price crash as the boomer demographics, China slowdown and "income levels [don't] hold up relative to interest rates" factors all kick in together.

To sum up my view on house prices, "It Won't Happen Overnight … But It Will Happen" (explanatory link for non-Aussies)

Depository Fear Index

Did a post on the corporate blog about changes in the percentage of metal held by Depository in allocated form. I see it as a sort of a “fear index” as it can indicate a change in clients’ perception of economic uncertainty and risk. It has declined from 25% in 1999 to 5% in 2007 but has risen since then to 15% - risk aversion is back baby and I can only see it increasing. This will make our coin guys happy.