Gold Commentary

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I read this recently in a gold newsletter:

“More importantly, if I own gold, a peasant buying gold in China can directly affect the value of my holdings through the increase in demand when he buys it in his local village since we are both holding the same thing!”

Well, these are sweet thought to gold bugs, but the vast majority of peasants and rural workers in China can’t afford anything beyond subsistence. Gold may benefit from middle and upper class savings. But I am not sure Indian demand can keep up with the prices.

Tips for Buying Property In a Foreign Country

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Having now lived in about a dozen countries (counting living as spending more time than a couple of weeks), and having window-shopped for property in all of them, here are a few things that I’ve learned.

1. Property websites differ widely. In some, the offerings are updated regularly and reflect current prices. Others are dated. Some carry photos for years after the property has been sold. So, if you write and don’t get an answer fairly promptly, move on.

2. Make a phone call whenever you can. Many sellers don’t take emails seriously. Or they’re tired of long explanations to scores of strangers who aren’t really interested. After the first few emails, get on the phone and talk to the owner or the broker.

3. Ask questions. But don’t ask just about what you’re interested in. Ask macro questions about the area, the market, other cities, demographics, employment.

4. Don’t ask so many questions that you don’t have time to listen to what the broker is telling you. Good brokers have a wide knowledge of the market and even a casual phrase can save you hours of research on your own.  Tap into professional knowledge whenever you can.

5. Don’t reveal too much of your own plans. It’s premature and can sabotage your ability to negotiate (this is often hard for me, being a rather open person). On the other hand, being too cagey provokes caginess in others too.

6. Don’t assume anything. Sometimes working directly with the owner does save you money. Sometimes, it can end up being costlier. Brokered properties are not necessarily more expensive. Brokers often have a better idea of a good sale price than owners. Many an owner has put his house on the market at an inflated price only to have it sit there for months. Then he has to reduce the price, and by then, the market has moved on.

7. Don’t be pressured into buying. If the broker has other offers coming in, don’t rush to beat them. Offer what you think you’re willing to pay, and if someone else offers more, then that’s the way the game went. There’ll be another chance some where else.

8. When you have done your research long enough, make your move. Endlessly nitpicking something is a dead-end. There’s likely to be some draw-back to buying any piece of property. You get the architecture you want, but along with it comes plumbing problems; the location with good rental returns might not have as good capital appreciation as the location with the good rentals; the glorious facade might open into a boxy lay-out; you love the terrace, but the bathrooms are pokey. That’s life.

9. Read up on real estate procedure and verify with locals exactly what needs to be done at each step. It would be a shame to lose a property because you didn’t get a piece of paper right.

10. Be very clear about your goals. Are you buying it for rent or for profit or because you always wanted to own a piece of beautiful architecture?

11. Be very clear about your feelings. Some people might be willing to lose money fixing an old building. Would you? On the other hand, would you enjoy owning something cheaper and plainer in a frumpy area? Only you know your tolerance level for different things.

Obama Wins Nobel for Bankster Bail-Outs and Af-Pak Bombing

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In the news:

“President Barack Obama won the 2009 Nobel Peace Prize on Friday for “his extraordinary efforts to strengthen international diplomacy and cooperation between peoples,” the Norwegian Nobel Committee said, citing his outreach to the Muslim world and attempts to curb nuclear proliferation.

The stunning choice made Obama the third sitting U.S. president to win the Nobel Peace Prize and shocked Nobel observers because Obama took office less than two weeks before the Feb. 1 nomination deadline. Obama’s name had been mentioned in speculation before the award but many Nobel watchers believed it was too early to award the president.”

My Comment:

Considering that Henry Kissinger has a Nobel prize, this is quite in tradition for the misnamed Nobel prize – a highly political award. Maybe some of the Swedish banks that got into trouble in Latvia are greatful for the Obama team’s globalization of QE (Quantitative Easing), after their lending spree in Latvia.

And nuclear disarmament? After two weeks in office?

Even the report displays skepticism:

“Rather than recognizing concrete achievement, the 2009 prize appeared intended to support initiatives that have yet to bear fruit: reducing the world stock of nuclear arms, easing American conflicts with Muslim nations and strengthening the U.S. role in combating climate change.”

In short, it’s an astute, if blatant, piece of public relations.

Some questions for the Nobel Laureate:

Question: Is the US Govt. going to lay down most of its nuclear weapons? Or is it going to make nominal reductions, while using that to prevent any other country gaining even a single weapon?

Question: Is the US Govt. going to reduce surveillance, quit bombing in South Asia, and threatening Iran?

Question: Is the US Govt. going to modulate its own life-style of excessive consumption (subsidized by US tax-payers and artificially cheap interest rates that effectively rob savers all over the globe) or is it going to be lecturing other countries on how to live frugally after a half century of reckless living?

(more later)

No Check Points in Heaven

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Palestinian activist Ramzy Baroud writes about his father’s struggles, and eventual death, in Gaza:

“My father’s reputation as an intellectual, his obsession with Russian literature, and his endless support of fellow refugees brought him untold trouble with the Israeli authorities, who retaliated by denying him the right to leave Gaza.

His severe asthma, which he developed as a teenager was compounded by lack of adequate medical facilities. Yet, despite daily coughing streaks and constantly gasping for breath, he relentlessly negotiated his way through life for the sake of his family. On one hand, he refused to work as a cheap labourer in Israel. “Life itself is not worth a shred of one’s dignity,” he insisted. On the other, with all borders sealed except that with Israel, he still needed a way to bring in an income. He would buy cheap clothes, shoes, used TVs, and other miscellaneous goods, and find a way to transport and sell them in the camp. He invested everything he made to ensure that his sons and daughter could receive a good education, an arduous mission in a place like Gaza.

But when the Palestinian uprising of 1987 exploded, and our camp became a battleground between stone-throwers and the Israeli army, mere survival became Dad’s new obsession. Our house was the closest to the Red Square, arbitrarily named for the blood spilled there, and also bordered the ‘Martyrs’ Graveyard’. How can a father adequately protect his family in such surroundings? Israeli soldiers stormed our house hundreds of times; it was always him who somehow held them back, begging for his children’s safety, as we huddled in a dark room awaiting our fate. “You will understand when you have your own children,” he told my older brothers as they protested his allowing the soldiers to slap his face. Our ‘freedom-fighting’ dad struggled to explain how love for his children could surpass his own pride. He grew in my eyes that day.

It’s been fourteen years since I last saw my father. As none of his children had access to isolated Gaza, he was left alone to fend for himself. We tried to help as much as we could, but what use is money without access to medicine? In our last talk he said he feared he would die before seeing my children, but I promised that I would find a way. I failed.”

Berlusconi Immunity Thrown Out by Constitutional Court

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Italy’s top court, the Constitutional Court, has thrown out a law granting immunity from prosecution to the president, Silvio Berlusconi:

“The law overturned Wednesday was pushed through by Berlusconi’s conservative coalition in 2008 when he faced separate trials in Milan for corruption and tax fraud tied to his Mediaset broadcasting empire. It granted immunity from prosecution while in office to the country’s four top office holders — the premier, the president of the republic and the two parliament speakers.

The proceedings against Berlusconi were suspended as a result of the law, drawing accusations that it was tailor-made for the premier.

The corruption trial is particularly threatening because, in the meantime, the premier’s co-defendant has been convicted of accepting a bribe to lie in court to protect Berlusconi in another case.

Still, even if convicted, the premier would not be obliged to resign and could simply appeal, as sentences in Italy are usually not served until all avenues of appeal are exhausted.”

Bank Chief Admits He Didn’t Know…

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John Thain now admits no one at Merrill had any idea what their CDOs (collateralized debt obligations) were worth. They created them on computer programs. Not only was the global economy rear-ended by a bunch of greedy corporate hacks, it turns out they were too dumb to know what they were doing and too reckless and arrogant to ask. It’s bad enough being scammed by psychopaths. It really hurts to be scammed by morons.

“We think it’s good news that Thain is now emphasizing the knowledge problem when it came to banking–highly paid, well-educated people at the top of their field just didn’t understand the credit derivative products they were buying and selling. This is important as much of our financial reform seems to ignore this problem, focusing instead on fixing incentives in compensation.

It also undermines the idea that the Fed–or any other regulator–will be able to properly assess the risk of these kinds of derivatives.”

My Comment:

I’ve always suspected this, because in graduate school one of my close friends was working on a PhD in finance (where he’d ended up after starting out in mathematics). He was very smart and believed that you could quantify decision- making at all levels. He wanted to turn the social sciences into the hard sciences. We had passionate arguments about this, since I thought the hard sciences were a very faulty (if useful) model for the arts and humanities.  I was flabbergasted to find out one day that he didn’t understand what a mortgage was – he lived in such a rarefied world of theory and had been a student for so long. It wasn’t that he lacked empathy or emotions. He didn’t. What he lacked was any experience of the practical world. [He ended up becoming a trader for JP Morgan and had an office at the World Trade Center. Fortunately he wasn’t in on 9-11].

GOLD: IMPORTANT: Watch the Prices Not the Theories…

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My position is that the dollar bear is being over-hyped (despite the bad fundamentals) and manipulated, and as a consequence, I’ve been a dollar contrarian. I still kick myself for selling my initial gold long position way back in 2006 (I bought some in 2004) and then never regaining it because I was still convinced it would go lower. It did, but I wasn’t paying attention when it did. In trading, you can’t go long stretches doing other things and not watching the prices. The bullion banks both short and go long gold, in ways calculated to pick the pockets of the naive. Here’s a good analysis by Stewart Thomson at 321gold:

“The key point is that the US dollar bear market is now entering the stage of a publicly recognized and PROMOTED bear market. As of right NOW, you will start to hear from business owner investor acquaintances about the US dollar bear market. These idiots will parrot the Bloomberg stories, nodding their heads up and down, completely ignoring the fact that the dollar is down about 35% from the highs set about 7 yrs ago. NOW they show up and notice there’s a problem with the US dollar? We are in the later, most horrific stage of the US dollar bear market. The stage where the banksters begin buying USD with their infinitely deep pockets, while the institutions and public bail in terror and accelerate their doomed-to-fail leveraged carry trade scheme. Soon the banksters will be selling OTC derivatives on the US buck shorts, collecting, fees and interest before finally burning the thing into the ground via a new gold standard that will end the US dollar short party like a tomato hitting a cement wall.

15. It’s very important to stay focused on what the charts are indicating and buying gold weakness and selling gold strength only. This is the largest bankster play ever, as they load up on the US dollars sold by the bustout dollar bag holders worldwide who follow the bankster propaganda that the USD is “finished for the long term.”

16. We even have the head of the World Bank calling the USD a sell now, 7 years after the top. Then he says, “by the way, I’ve bankrupted the entire world bank, but I know the US Dollar is now in a bear market, 7 years after the top.” Gee, I wonder why his bank is worthless. He says what he’s paid to say to create WORLDWIDE panic and hysteria concerning the USD. The banksters are ready for the next stage of profit booking on their giant gold long positions as part of their plan to take over the major holdings of the US dollar.

17. They are looking to create fear in the US dollar market, and succeeding tremendously in terms of time and in terms of volume of fear. All it takes is for a tiny portion of the US dollars to make their way towards the gold market, a tiny portion of allocation by the institutions, and you have immediate mindblowing volatility in the gold market. There are hundreds of institutional traders handling vastly more money than that held by all the GCMs. If you are shorting gold, you must be prepared to handle price moves of $100, even $200 during a single day’s trading.

18. My strongest suggestion if you ARE short gold, is that you move towards trades drastically smaller than you are trading now. Few investors alive today understand what is coming in the gold market. The gold community has called almost every single top and bottom wrong. There’s one thing not a single person in the gold community has called wrong: The Big Picture. That makes you smarter in many ways that 99% of the world’s largest money managers. Take your credit. It is due.

19. Once the banksters have pointed terrified institutions towards gold, they will then seek to alternate bullish and bearish news to create massive whipsaw action. The banksters’ “grand slam” will be announcing that the “recovery” was in fact a warm-up act for their Trillion Dollar OTCD Main Act. “OTCD” being Over-The-Counter Derivatives. Once the economy is announced to be imploding via a truckload of new multi trillion dollar OTCD failures, the US Dollar bear market will not reverse. It will accelerate at hyperspeed. Gold’s rise will create terror amongst institutional investors that financial Armageddon is upon them. They understand full well what happens to gold if they all charge in at the same time. Many will turn to gold stocks to appear less panicked than they are.

20. There will be no “gold rush” for the public. They will be too busy screaming for President Obama to print more money to save them from the financial black hole they are in. In the meantime, it is more important that you continue to watch the charts for REAL overbought and oversold conditions. Don’t tell yourself excuses to buy or sell gold when the clear picture on the charts is not what you are pretending it is, what you want it to be.

21. I’ve heard a million reasons from many investors WHY gold will go up or down for the next leg. Who cares. Place your buys and sells in response to whether it IS up or down. All else will fail you….”

Ron Paul: Fractional Banking Finances War…

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John Rubino on Ron Paul:

*”Paul makes it clear that the Fed isn’t the whole problem. It’s just one part of a system that first went wrong with the introduction of fractional reserve banking centuries ago (banks used to be warehouses, storing depositors’ money for a fee), followed by the spread of European central banks (really just scams to allow a few elite bankers and politicians to expand their own power at the expense of everyone else) and then, finally, the introduction of fiat currency, which freed governments to expand spending and borrowing without regard to, well, anything. The problem, in short, is the whole of modern banking and finance.

*The middle part of the book features transcripts of Congressman Paul grilling Fed chairmen Greenspan and Bernanke. Some of these transcripts date back to the early Reagan era, which means that for going on three decades Paul has been fighting this fight, and slamming into the same brick wall. The Chairmen feel no need to explain themselves to a lowly congressman, and respond with a mixture of lies and obfuscation that apparently fooled most of Washington. The generally-respectful Paul even refers to Greenspan as “pathetic” after one especially dishonest piece of testimony. Less charitable readers will, by the end of this section, want to take a congressional microphone and beat Greenspan and Bernanke senseless.

*Fractional reserve banking and fiat currency make war easier. Back when a ruler needed actual gold to field an army, invading a neighbor required some serious forethought. But once a dictator (or the world’s policeman) could just print a few billion pieces of paper and order some new tanks, “defending the national interest” got a whole lot easier. Hence the bloodbath of the 20th century, and perhaps the mess of the coming decade.

*Paul knows all the major sound money/Austrian economics classics, and he cites them liberally. The “recommended reading” list contains a year’s worth of serious research.

*Though he continues to fight, he’s not optimistic about averting the coming train wreck, which he refers to as the “BIG ONE”.

Libertarian Living: Neuroeconomics and Cooperation

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“The Science and Ethics of Cooperation,” by Michael Townsey, Prout Institute:

“The cooperative system is fundamental to the organization and structure of a Prout (the Progressive Utilization Theory) economy. It is an expression of economic democracy in action – cooperative enterprises give workers the right of capital ownership, collective management and all the associated benefits, such as profit sharing.[i] Prabhat Ranjan Sarkar, the propounder of Prout, goes further and argues that an egalitarian society is actually not possible without a commitment to the cooperative system.[ii] The commitment is not just to an economic order but also to a cooperative ethic and culture. This essay explores some of the scientific evidence that humans have a predisposition to cooperation and in particular to economic cooperation. The evidence comes from a new and exciting field of research known as neuro-economics. We then turn to those insights provided by sociological studies.

Neuro-economics

Neuro-economics is the study of the neuro-physiological underpinnings of economic decision making. The field is new and providing unexpected insights into human economic behavior. Classical economic theory requires individuals to make complex calculations to maximize their personal advantage or utility. Utility, however, is a strangely ambiguous concept. On the one hand it is given a numerical value which implies the counting of something but on the other it is entirely abstract and not anchored to anything in the real world that can be counted. The advent of neurophysiology led to the idea that utility was really a surrogate for some chemical currency inside the brain, with most interest focused on serotonin molecules because these are known to be responsible for the experience of pleasure.

It turns out that a wide range of molecules of emotion[iii] impinge on the mental cost-benefit calculations that are supposed to take place inside the brain and they have unexpected effects. For example, in a ‘sharing experiment’, person A was asked to share a sum of money with person B. These experiments demonstrated behavior inconsistent with neoclassical theory. People appear to put a high value on fairness. In a follow up experiment, persons A and B were placed in the same experimental scenario as before, but they were (unknowingly) given an intranasal administration of oxytocin. Oxytocin is a neuropeptide that plays a key role in social attachment and affiliation in animals and causes a substantial increase in trust in humans. In these experiments the effect of oxytocin was to increase the amount of money that A gives B. The experimenters concluded that “oxytocin may be part of the human physiology that motivates cooperation.”[iv] It is worth adding that such hormone-mediated interactions are not confined to human relationships but are also likely to be involved in human-animal relationships.[v]

Oxytocin is not the only neuro-chemical to promote cooperation. Recent observations of bonobo monkeys in the jungles of the Congo reveal fascinating contrasts with chimpanzees.[vi] Bonobos are matriarchal and show little aggression compared to the patriarchal chimps. Chimps respond to strangers with aggression, while bonobos demonstrate curiosity. When under stress, chimp tribes degenerate into fighting while bonobos respond to stress by engaging in collective sexual activity. Scientists have concluded that bonobos demonstrate higher levels of trust both with each other and with strangers. Of most interest, however, from a neuro-economics point of view, is the ability of the monkeys to perform a simple task requiring cooperation in retrieving some bananas that are out of reach. Although both species are intelligent enough to work out a solution (for example, by one climbing on the shoulders of the other or by one holding a ladder for the other), the chimps fail because they cannot trust one another. On the other hand, bonobos have no trouble cooperating to retrieve the bananas.[vii]”

Gulf Arabs to Move Out of Petro-Dollar (Updated)

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Update:

I’m adding my comment at the top here after watching this puzzling day. Gold shot up to new highs over $1040 (and not just in the US but elsewhere). Is this the bull break-out the bugs have been waiting for? Maybe. Central bankers and officials from the Gulf states came out to pooh-pooh the story, but it couldn’t be put back in the box.

My puzzlement is this: If gold is soaring because of this “revelation” of the dollar’s death – then why did the dollar itself sink only modestly (at least, as I write).

I note also that the stock market recovered some of its ground. That might have something to do with the Australian Reserve Bank announcing a tighter policy, quite unexpectedly, and in apparent belief that the recovery is real, never mind Joseph Stiglitz, George Soros, Marc Faber, Jim Rogers, and other no-longer-strange bedfellows who think the opposite.

V-shaped, U-shaped, Square-root shaped, or corkscrewed, the recovery isn’t your grandfather’s recovery, that’s for sure. And someone is trying to make a silk purse out of this sow’s ear. That skepticism leads me to wonder whether this very convenient rumor, which coincides with the IMF meeting in Istanbul, might be a certain kind of saber rattling in anticipation of negotiations – except that these very public meetings are never where anything substantial takes place any way. (So says Simon Johnson in a recent blog post). But the IMF is selling gold, we know, and we know also that it wants to make sure it doesn’t hit the markets too hard when it does. Could this little upswing be helpful toward that end? Probably. Could this rumor – widely denounced as insubstantial – have something to do with that? Perhaps.

 

In the news, the Independent’s Robert Fisk reports on the coming fall of the petro-dollar:

“In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.”