Stocks and Precious Metals Charts - Whipping Fear and Greed - A School of Probabilities

 

"Life is a school of probabilities."

Walter Bagehot

"It is a far, far better thing to have a firm anchor in nonsense than to put out on the troubled seas of thought."

 John Kenneth Galbraith, The Affluent Society 

"Democracy is held captive, not just by money, but by ideas — the ideas that money buys." 

William Greider 

"As in all periods of speculation, men sought not to be persuaded by the reality of things but to find excuses for escaping into the new world of fantasy."

John Kenneth Galbraith, The Great Crash of 1929

"When the modern corporation acquires power over markets, power in the community, power over the state and power over belief, it is a political instrument, different in degree but not in kind from the state itself.   To hold otherwise — to deny the political character of the modern corporation — is not merely to avoid the reality.   It is to disguise the reality." 

John Kenneth Galbraith, Power and the Useful Economist, 1973

"Dimon told Bloomberg TV it's possible the central bank will continue hiking rates by another 1.5 percentage points, to 7%...When members of his board ask him whether interest rates could really go that high, his answer is always 'yes,' he told Bloomberg."

Nicole Goodkind, CNN Reporter, Be prepared for 7% interest rates, warns Jamie Dimon, October 2, 2023

I watched the Bloomberg interview, several times in the course of that day.  And also the subsequent interview with CNN.   Dimon cautions about the potential for a recession, but is merely suggesting that rates *could* go to 7% given some improbable set of circumstances.

And he is quite correct in his estimation of the things that might cause a recession, and that is hardly an outlier opinion at all. Many have been expecting some sort of recession, including this guy here, and for many of the same reasons.  It is not at all unusual for a recession to follow a period of Fed tightening the money supply.  That, after all, is their purpose.  They merely like to quibble about the degree.  After all, rate policy is a blunt instrument, too often used to unjustly correct a financial asset bubble grown to outrageous proportion due to (self-serving from a class perspective) policy error.

But one might ask, if they have a financial mind, how likely is the Fed to increase its benchmark rate to 7% if the real economy falls into an actual recession?  Even given their enduring propensity for awful forecasting and myopic nincompoopism?  Have we so far retreated into our own realities, or the doublespeak of Wall Street speculation?

Many, many things are 'possible.' But much less are probable. Preparedness is good, especially flexible preparedness based on some reasonable calculation of the probability of various outcomes with flexible models for adjustment.

In fairness to CNN, the spokesmodels on financial TV has also been outright saying that 'Jamie Dimon (thinks/says/sees) rates are going to 7%.'

Rather than asking Mr. Dimon if rates *could* go to 7% would it not be more appropriate to ask him how likely such an event might be.  Jamie hedged his statements very carefully, allowing that his bank is capable of hedging against such an outcome. And I should like to think that they could, since that is the business that they are in.

But how easily we lose all concept of the nature of tail risks, in a very bipolar manner. We seem to either obsess about the merely possible, or disregard a careening approach to the abyss completely.   

Has the good work of Nassim Taleb and other thinkers, as well as our own personal experience, gone completely for naught?  Have we been so completely mesmerized by that duplicitous rationale that 'no one could have seen it coming', even though many people made themselves willfully blind to it, for professional purposes and convenience?  That all outcomes are equally probable if we can but imagine them, or hear them on television from some clueless politician or spokesmodel?

It's easy to become too cynical these days, in the empire of lies and lawlessness.

So today we had the rally off the dire selling of yesterday, with most equity markets higher.

VIX fell quite sharply.

Gold and silver were under pressure, even as The Dollar declined.

Gold snapped back to about unchanged in the last fifteen minutes.  What a surprise.

Traders are doing their usual market reaping boogie woogie ahead of the Non-Farm Payrolls report on Friday morning.  

Whipping the public between fear and greed is all part of the endless wealth transfer of the wash and rinse.

People, even nominally good people in positions of nominal righteousness, can make Faustian bargains for the sake of a 'higher good.'   It's one of the devil's favorite snares.

How many in the 20th century made a deal with the devil to spite Bolshevism, or even a despised liberal tolerance?   How many today make similarly corrupt deals for some other higher good that they espouse in their exceptional righteousness, especially in judging others?

It's never between you and them.  It's always between you and God.   And he has made his will clear, for all but the hardest of hearts.

Have a pleasant evening.

Nomi Prins: Central Banks' Policy Errors and the Bubbles and Busts That Follow - Currency Resets

"Central banks and institutions like the IMF and the World Bank are overstepping the boundaries of their mandates by using the flow of money to control global markets and dictate economic policy both at the domestic and global level. These public institutions have become so dependent on funding from private banking and the revolving door between the two worlds is so smooth that public and private banks are effectively working toward the same goals.

A crash could prove to be President Trump’s worst legacy. Not only is he— and the Fed he’s helping to create— not paying attention to the alarm bells (ignored by the last iteration of the Fed as well), but he’s ensured that none of his appointees will either.

After campaigning hard against the ills of global finance in the 2016 election campaign and promising a modern era Glass-Steagall Act to separate bank deposits from the more speculative activities on Wall Street, Trump's policy reversals and appointees leave our economy more exposed than ever. When politicians and regulators are asleep at the wheel, it’s the rest of us who will suffer sooner or later. Because of the collusion that’s gone on and continues to go on among the world’s main central banks, that problem is now an international one."

Nomi Prins

Although it is a little dated, this talk by Nomi Prins waa brought to mind by the current situation in the US financial markets.

I was also struck by Grant Williams' recent interview with William White about the descending spiral in which the central banks seem to be caught in continuing to prop up financial asset prices out of fear of perturbing the Frankenstein banking system that they created over the past twenty years.

And it is almost astonishing that the hedge fund and managed money crowd are now holding short positions against the risk safe havens of 10Yr Treasuries, VIX and Gold are at near term or record highs.

I am not going to be forecasting a crash, at least not yet.  And even when the time comes, all one can do is sound an alarm when the conditions seem to indicate that low probability event may be at a greater chance than normal,

But what I am saying now is that risk seems to be currently mispriced, at an extreme even compared to recent history, and  that the speculators appear to be reliant, once again, on a confidence in the Fed to bail the moneyed interests out when something awful happens.  At the expense of the unknowing public, it should be added, as has been their custom.

There is a glimmer of organic recovery in the recent signs of life in the velocity of M2, which has halted its breath-taking descent since the crisis. 

But it remains that so much money has been squandered on a fortunate few of the central bank's constituency, and in relatively unproductive ventures  This has accomplished little except increasing wealth inequality and distorting the real economy, leaving it in a weakened state for the next financial crisis.

So it does seem proper to put forward a leveraged risk warning.   Now may be an opportunity to take some shelter from the excesses of ideological folly and the unrestrained greed that feeds it.

The Warning Part II: Financial Armageddon, Again - Blood Moon - Trump Trade Policy the Patsy?

"Ultimately, the same financial architecture that surrounded the housing mortgage crisis (almost certainly including 'naked' credit default swaps) has been replicated in the three key areas where debt is growing at a troubling rate: defaults in student loans, auto loans, and credit card debt...

Thus, as the tenth anniversary of the Lehman failure approaches, there is an understanding among many market regulators and swaps trading experts that large portions of the swaps market have moved from U.S. bank holding company swaps dealers to their newly deguaranteed foreign affiliates.  ['off balance sheet' part deux]

But, what has not moved abroad is the very real obligation of the lender of last resort to rescue these U.S. swaps dealer bank holding companies if they fail because of poorly regulated swaps in their deguaranteed foreign subsidiaries, i.e., the U.S. taxpayer.

While relief is unlikely to be forthcoming from either the Trump Administration or a Republican-controlled Congress, some other means will have to be found to avert another multitrillion dollar bank bailout and/or financial calamity caused by poorly regulated swaps on the books of big U.S. banks...

By their own design, large U.S. bank holding company swaps [derivatives] dealers and their representatives have crafted their own massive loopholes from Dodd-Frank swaps regulations, which they can exercise at their own will.

By arranging, negotiating and executing swaps in the U.S. with U.S. personnel and then ‘assigning’ them to their ‘foreign’ newly ‘deguaranteed’ subsidiaries, these swaps dealers have the best of both worlds: swaps execution in the U.S. under the parent bank holding companies’ direct control, but the ability to move the swaps abroad out from under Dodd-Frank.

As history has demonstrated all too well, unregulated swaps dealing almost always ultimately leads to extreme economic suffering and then too often to systemic breaks in the world economy, thereby putting U.S. taxpayers, who suffer all the economic distress that recessions bring, in the position of once again being the lender of last resort to these huge U.S. institutions.

The Obama CFTC tried to put an end to these loopholes through a proposed rule and interpretations in October 2016.  However, those efforts were never finalized
before Donald Trump assumed the Presidency.  There will almost certainly be no relief from these dysfunctions from the Trump Administration or Congress.

However, state attorneys general and various state financial regulators have the statutory legal tools to enjoin these loopholes and save the world’s economy and U.S. taxpayers from once again suffering a massive bailout burden and an economic Armageddon."

Michael Greenberger, Too Big to Fail U.S. Banks’ Regulatory Alchemy


"'We didn't truly know the dangers of the market, because it was a dark market,' says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission [CFTC] -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. 'They were totally opposed to it,' Born says. 'That puzzled me. What was it that was in this market that had to be hidden?'...

'It'll happen again if we don't take the appropriate steps,' Born warns. 'There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.'"

PBS Frontline, The Warning

While the mainstream media says 'Russia, Russia, Russia' and the Administration says 'Immigrants, Trade, and Deregulate' the Banks may be setting up the US taxpayer for another taste of Financial Armageddon and a multi-trillion dollar bailout under duress.

As Trumpolini says, the US Taxpayer is 'the piggy bank' that is going to be robbed.  But it may not be at the hands of foreign mercantilists, but by domestic predators, wrapping themselves in the Constitution and the flag.

Or perhaps Michael Greenberger and Brooksley Born are just alarmists that don't really understand modern finance.

But maybe, just maybe, the Fed and the regulators are conveniently asleep at the switch, again.  And we are going to be forced to go through that whole, horrible episode of hidden leverage and multi-tiered frauds for the great benefit of a very few and their enablers in the professions and the government again.

Do they really know?  Are the people charged with protecting the public sure?  Will we even care until its too late?  Is all this fear-mongering hoopla about external threats just another misdirection, a distraction from the real crisis unfolding?  Is Trump, and his trade policy, being set up as a patsy for the next crash?

I would say that the probabilities are unacceptably high that another black swan may be coming home to roost.  And that the beneficiaries of this rotten system will do nothing to stop it, again.


Related and h/t for link to this paper:  Wall Street’s Derivatives Nightmare: New York Times Does a Shallow [CYA] Dive

Stocks and Precious Metals Charts - The Bubble Has Awakened - Come and Get It

It looks like the pigmen in Congress and their corporate overlords are going to get their 'tax reform' for Christmas.

Winning...

The various stock and serveral bond markets are in a financial asset bubble, and certain stocks are surging higher in some fairly impressive daily moves based on utter nonsense.

Bitcoin and the various related crypto-currency plays are now a bona fide mania.

I think this tops the valuations of the worst of the gerbil tossing tech stocks in the internet bubble at the turn of the century.

Who wold have thought they could do it again two more times, albeit with the generous assistance of the Fed and the acquiescence of the regulators.

Ski these black diamond slopes at your own risk.

If you are an expert, you don't need any advice from me.

I am just the old guy in the kitchen, baking cookies.  lol.

It is interesting to wonder what will break the bubbles, and if they will start falling in unison, or if one breaks and others get some legs before they too roll over.

We'll never learn.  We should not have bailed them out.  Perhaps we ought to have driven a stake in their collective heart of darkness.

Have a pleasant evening.

Stock Share Risk Measure Rises To Highest Ever: What Time Is the Next Black Swan?

"Narcissus so himself, himself forsook,
And died to kiss his shadow in the brook."

William Shakespeare, Venus and Adonis

Tony Sanders has a very interesting column today pointing out a remarkable spike higher in 'skew risk' for the SP 500.

Here is the definition of skew risk from the the Chicago Board of Options Exchange:

The crash of October 1987 sensitized investors to the potential for stock market crashes and forever changed their view of S&P 500® returns. Investors now realize that S&P 500 tail risk - the risk of outlier returns two or more standard deviations below the mean - is significantly greater than under a lognormal distribution. The CBOE SKEW Index ("SKEW") is an index derived from the price of S&P 500 tail risk.

Similar to VIX®, the price of S&P 500 tail risk is calculated from the prices of S&P 500 out-of-the-money options. SKEW typically ranges from 100 to 150. A SKEW value of 100 means that the perceived distribution of S&P 500 log-returns is normal, and the probability of outlier returns is therefore negligible.

As SKEW rises above 100, the left tail of the S&P 500 distribution acquires more weight, and the probabilities of outlier returns become more significant. One can estimate these probabilities from the value of SKEW. Since an increase in perceived tail risk increases the relative demand for low strike puts, increases in SKEW also correspond to an overall steepening of the curve of implied volatilities, familiar to option traders as the "skew".

The original posting in complete is below.  I did want to take a moment to try and put this skew reading in a better context for the average reader.

As you can see from the chart below the spikes in skew are more of an 'early warning' indicator with several steps in the two prior instances of crashes, associated with the tech bubble in orange and the housing bubble in red.  I imagine history will find a similarly snappy name for our current bubble which is encompassed in light green.

I wish to stress that there is no simple linear relationship, ie a spike in skew is followed by a crash within six months, with any certainty.  In other words, seeing this spike in skew and then selling all your stocks and going short the market with triple leveraged ETFs is probably not a good idea and is not likely to be fruitful, timing and market decays being what they are.

The spike in skew is more of an indication of trouble, of a stress and fear in the system perceived by some of the more sophisticated in the market who presumably also have superior access to information.

I do believe that in the two prior cases here the continuing rally of SP 500 index after a spike in skew was at least partially a result of the 'Greenspan put' and the 'Bernanke put'.

That is, in reaction to fear and instability in the equity markets, the Fed modified its policy actions that had the effect of supporting the extension of what were at heart a mispricing of risk attributable to credit bubbles.   The Fed is not the only actor in this.  The regulators and the custodians of the public trust are very much involved in these sorts of macro mistakes.

What made this even more damaging was that, particularly in the latter case, these bubbles were wrapped around a core of extensive control frauds and intentionally mismanaged perceptions of risk, with quite a few enablers both on the Street and within the media and the regulatory bodies, either passively or actively.

I am not saying that all the motives of all the actors were malevolent.  But some were.

The notion that the market is infallible is rank romantic nonsense because it will always be within the domain of human action, and is therefore a product of human nature and subject to monopoly and manipulation without the conscious efforts of 'referees.'

N’en déplaise à ces fous nommés sages de Grèce,
En ce monde il n’est point de parfaite sagesse;
Tous les hommes sont fous, et malgré tous leurs soîns
Ne diffèrent entre eux que du plus ou du moins.

In spite of every sage whom Greece can show,
Unerring wisdom never dwelt below;
Folly in all of every age we see,
The only difference lies in the degree.

Nicolas Boileau-Despréaux, from Mackay's Madness of Crowds

And I fear that as so often in the past, though 'this may be madness, there may also be a method in it.'

I would take this spike in skew as more of an indicator of a probability. Notice that the skew spiked earlier in this latest phase, and then dropped as the market continued to rally higher.

There is nothing to say that this will not happen again.  Why?  Because there are a number of exogenous variables at play in any major market movement to say the least, as noted above in the policy actions of the Fed for example.  As Walter Bagehot observed, 'life is a school of probabilities.'

I can easily feature a plaintive response from the economists, 'well what are we supposed to do?'

Reform the market.  Get it back to a more stable and less fragile and conductive construction as we had in the 60 or so years following the reforms of the New Deal, which were overturned with the active involvement of so many economists, politicians, and Fed members in the 1990s.

But until that happens I am afraid we will see a series of bubbles and crashes, what I and others have called 'bubble-nomics.'

It is not the 'new normal.'  It is an aberration that seeks to sustain itself as the status quo.  It is a miscarriage of justice, as old as Babylon and as evil as sin.

It does seem to be a reasonable bet that the ruling classes, existing as they do in an echo chamber of their own illusions, will do nothing to change this without exterior motivation, or compulsion.

It will be an interesting race to see which market blows up first, the stock market or the precious metals markets.  Today Denver Dave asks if there is a scandal brewing in the paper gold and silver market.  I would say again, and as I am sure that Dave and others have said and would agree, that there is a high probability, based on some easily observed factual data, of a serious scandal, so much so that it is merely a question of when that particular pot boils over if nothing changes.

And it may be diverting to observe the increasingly obtuse actions that the plutocrats and their bureaucracy may take to 'save the system.'   Or perhaps, at long last, one small crash will serve as the catalyst for many in a grand bonfire of the vanities.  But if not, there will be more.

"Make no mistake about it, just as Lehman Brothers was set up to take the fall for triggering the 2008 collapse, China is being groomed as the new scapegoat for the coming crisis. But China’s economic slump is only a symptom, not the disease...

The reality is that the repeal of Glass-Steagall ushered in the greatest wealth transfer scheme in the history of America, allowing six mega banks in America to control the vast majority of insured deposits, use those taxpayer-backed deposits to gamble for the house, loot the bank from the inside by paying billions of dollars to select employees and customers and then hand the gambling tab to the taxpayer when the casino burns down. This model is a staggering headwind on both U.S. and global growth because it has created the greatest wealth and income inequality since the Great Depression.

Pam and Russ Martens, The Real Reason Global Stocks Are Flashing Red this Morning

So in sum, as I seem to have to say so often lately, 'timely caution is advised.'

Here is the original article from Confounded Interest.

SKEW (S&P 500 CRASH RISK) RISES TO HIGHEST LEVEL EVER!

The CBOE Skew index, a measure of tail risk for the S&P 500 index, just exploded.

It is now at the highest level on record.

It looks like an S&P 500 index downturn follows the SKEW breaching the 140 level.

This is not surprising given how much air has been pumped into asset markets like the S&P 500 index.

Investment and Insurance: Prospective Risk and Return in Various Precious Metal Investments

To buy, or not to buy? Allocated, unallocated, or exchange-traded, derivative, or nothing? That is the question.

"Simply, antifragility is defined as a convex response to a stressor or source of harm (for some range of variation), leading to a positive sensitivity to increase in volatility (or variability, stress, dispersion of outcomes, or uncertainty, what is grouped under the designation "disorder cluster").

Likewise fragility is defined as a concave sensitivity to stressors, leading a negative sensitivity to increase in volatility. The relation between fragility, convexity, and sensitivity to disorder is mathematical, obtained by theorem, not derived from empirical data mining or some historical narrative. It is a priori".

Nassim Taleb, Mathematical Definition, Mapping, and Detection of (Anti)Fragility

Yes, there is a certain fiendish humour as Taleb introduces this quotation with 'simply' and then goes on to use enough jargon to make the layperson's eye glaze over.

But what Taleb is describing here is a fundamental that many have forgotten. It is the corollary to his more famous observation about 'black swans' and 'tail risks.'

What Taleb is basically saying is that a system or investment that is designed to accommodate infrequent but outsized and somewhat unpredictable risks performs one way he calls anti-fragile. And other systems and investments are designed so that they perform well under 'normal conditions' but tend to underperform, and often badly, during the unexpected.

Here is my own picture of Taleb's concept of how investments react.  It might not be exactly what Taleb himself has in mind, but it something that fits certain other types of information systems in a prior occupation, and how I remember it for my own purposes:

If you want to grossly oversimplify this principle, and remember it as a saying, pick the right tool for the right job, and remember that nothing comes for free. I used this in describing tradeoffs in very complex products and networks, and while it may sound tritely obvious, it worked with a lot of upper level executives.

But what is the job itself? Well, the application defines it of course. But one must also take performance criteria into account, and with performance there are environmental conditions and variabilities. Would you like to have a network that can function for your casual use in your home, or a high performance network that can survive arctic cold and desert heat?

Don't laugh. we used to drop networks into some of the more out of the way and volatile places around the world, put electronic equipment in explosive environments, and met application criteria that had many other product groups running out of the room screaming for momma. It was our particular competitive edge. It only comes with experience, confidence, and a fanatical understanding of the odds and how they can mount against you.

But you don't want to waste money and over engineer something either. That is a good way to go broke. One needs to understand expected performance, and the risk profiles for just about anything that is not merely incidental.

And if there is anything that I wish you to remember from this blog, after all these years, it is the deadly trap of undisclosed risks and the tendency of some to understate those risks for their own short term advantages. And how other people will go along with them for the sake of position, power, and prestige. In a nutshell, this is the story of our recent financial crises.

It is far too complicated to get into this afternoon, but lets just say that a number of mathematicians and industry analysts, among them Taleb, Mandelbrot, Tavakoli, William Black, Yves Smith et al., saw that there was significant undisclosed risk in the system because models (Black-Scholes for example) greatly simplified the risks, and assumed distributions of variability that were not real world realistic.And even worse, in many cases the risks were actively hidden, and even more despicable in the worst of them, purposeful.

There was a movement in finance to force normal distributions onto data that did not really justify it. In order to achieve this, the risk models made certain assumptions, and thereby 'flattened' reality in order to fit the model. What one ended up with was a mis-estimation of the risk probabilities. And so we saw 'once in a hundred year events' happening with alarming frequency, despite the best efforts of the financial planners to smooth them over with piles of bailout money.

Here is a picture of what such a discrepancy might look like:

So the financial system designer likes the normal distribution and makes their operational plans based on that. But why is this? Are they diabolical fiends? Do they enjoy screwing up?

No, they are ordinary people for the most part, but following orders. And the orders are sometimes to take the faux normal approach because it costs less to implement, allows for greater leverage, and fattens profits, at least in the short term. Watering the cattle, cutting a corner,  putting lipstick on a pig. 

Careerism's second law is if you are wrong with everyone else, no one can blame you. And so many financial myths have thereby obtained extended lives, because they provided a fig leaf for someone's self serving ends and moral trembling.  This is in some ways the story behind the failure of our regulatory systems, often staffed by good people but who are underpaid, overworked, and subject to extraordinary political pressure to turn a blind eye to which otherwise might provoke their action.  Especially where there is a lack of complete certainty, which is all too often the case in real life.  The rationalizations are venerable, with their roots in the Garden of Eden.

So what is the punch line?   If you are buying an investment as a safe haven, something that will perform well in a difficult and somewhat unpredictable circumstance, you may wish to take your money into something that is highly transparent, robust made to endure the unexpected, given to few assumptions, and perhaps even strongly guaranteed.

And if you are not, if you wish to invest in something with a decent return, but in your own estimation performs adequately for your time horizons and expectations, then pick the product in which you have confidence, provided it meets your needs and possesses some advantages in features and price.

These principles can be applied to the pros and cons of certain types of gold and silver investments.   And those pros and cons are ALWAYS going to be affected by how you perceive the risks, and how that investment fits into your plans.  This is a given.  And this is why I would never give anyone specific advice, because I am not a financial advisor and do not have the knowledge of their own particular situation, their goals and time horizons.

I will use myself as an example.   I tend to gravitate a portion of my portfolio into very transparent and 'safe' gold and silver investments, where I have a very high confidence in them based on audits, ownerships, and so forth.  There is not much about them I do not know and have to assume.  Yes there are the high improbable outliers like a meteor hitting the earth and bringing on Mad Max and cyclist cannibals, and so one might drop a dime or two on arms and infrastructure just for grins, but by and large I think we can ignore them for now.

But for the most part a failure in the financial system that could be adverse to one's wealth seems a little more likely.  And so a part of my portfolio is in reasonably secure investments that will benefit somewhat from disorder and provide a small premium on return or at least weather the situation well.

And other parts of my portfolio are in investments that are more fragile as Taleb would say.  But they provide a nicer short term return with less expense.  And there is nothing wrong with this.  Not at all.

By the way, and I hate to even bring it up, but gold and silver themselves suit slightly different purposes. Silver is less 'anti-fragile' than gold in dire circumstances, generally.  But it offers some juicy upside in certain circumstances in compensation. And there are always special situations to consider, and for this one might read Richard Russell or Ted Butler among others, who track imbalances and trends that could provide opportunities or risks.

I do not consider gold better than silver; they are different.   And I own both, and invest speculatively in both, at varying intensities depending on the changing context of the markets.  What is better, a hammer or a screwdriver?  It depends on what you wish to do with them.

I would certainly buy some other financial instrument or stock I consider less robust for a quick flip or outsized return.  The miners would fall into this sort of category.  I am sure some of my bank accounts would as well, depending on how high the risks,  And physical property is notoriously non-portable if you decide to take up roots and go to another place.

So, as far as unallocated gold goes, there is nothing inherently wrong with it.   It is a very nice way to own gold with a reduction in expenses.  I am sure not all providers of such a service are equally reliable, and their representatives would do well to discuss their own advantages, guarantees and superior performance as would any provider of products when faced with less reliable competitors.

I will say that deriding critics as loons and charlatans, and referring to a portion of your prospective clients and client influencer base in a generally derogatory manner with a pejorative nickname promulgated by economists who hate precious metals on principle, is probably not a high profile technique in the salesperson's handbook for success.  Answer with facts.  Once you descend to name calling you have lost.  Just a word to the wise, and enough said about that.

Know why you are buying what you are buying, and how it fits into your overall scheme, and what assumptions you are using.  And do not be afraid to have contingency plans and change them if new data comes your way. 

I know it is hard, especially in times of currency wars, because the first victim in all war is the truth.   But don't go off the deep end either, and waste your money on over complex plans or put all your eggs in an improbable basket.  It's your call, and perhaps you need a professional to help sort out exactly what your priorities are. 

I keep a spreadsheet, and on it there is a summary of all my assets, and it fits them into a simple risk portfolio so I can see how they are distributed by risk and by total value.  Since the prices of things change, you have to be aware of how that affects your overall portfolio. I have to say that physical bullion has taken a much larger place in my overall profile since 2000.  But that is fine, I just need to be aware of not letting it become a risk, and to balance it as required.

Would I personally buy GLD as 'insurance' against a systemic failure?  Hell no.  Maybe as a flip investment on a technical trade.  Would I buy some physical trust with strong outside auditing and redemption features that were practically available?  Probably, because it covers a bit of both insurance and investment.  But it lacks the leverage of a small cap miner just for example. But it does not nearly have the risk.

Yes it is 'that simple.'  Which is to say, it can be simple to understand but hard to implement. But you have to start somewhere, and if you start all wrong, it gets worse as you go.  Some parts of my portfolio are for insurance, and other parts are for investment.  They serve different purposes.  I had the damnedest time trying to convince a broker at a white shoe firm who was managing my stock options portfolio of this.  He thought I was schizoid.  He only thought in terms of good stocks and great stocks.  So I got rid of him, as he was too focused on his own goals, even when he feigned altruistic concern for my money.

And sad to say, for most people, their major task is just getting by day to day.  And so the pros and cons of various investment techniques is so much hoohah because their most ambitious aspiration is to stay out of debt, especially usurious and fee laden debts, while putting a little bit aside.  And this is why I spend quite a bit of time writing about these abuses, because I am not only a caterer to the elite, but to our little community which has a range of wonderful souls in it.

As always, the devil is in the details, but it helps if you know the lay of the land, and where you think you are heading, and why.  And of course, you adjust for changing circumstances as they occur.

Taleb: US Treasuries a 'No-Brainer' Short

"Investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office..."

Directionally correct we would say, but it is certainly a contrarian view today, with Treasuries and the dollar acting again as the safe havens of choice as fears of US jobs losses and Eurozone sovereign defaults frighten the markets.

Keep in mind that his time frame is '2 to 3 years.' Most punters do not realize that funds and specs hold record long positions in the dollar according to the latest Commitments of Traders Reports. Treasuries were a strong performer last year, and may be overbought relative to underlying fundamentals. But one repeatedly hears the meme "Everyone is short the dollar." And dollar debt is not a short, if one has the option of default.

But it will take the appearance of the effects of the ongoing monetization of debt by the Fed and the government agencies and Treasury programs that Taleb cites to trigger the declines in the bond and the dollar. And the euro and the pound may go first, to cushion the blow. Everything is relative, and the US banks will throw their relatives, their European cousins, under the bus if it is required to save their bonuses. The saying "he would sell his mother for an eighth" is a Wall Street proverb.

With a fiat currency regime, one always has to say, "it depends..."

And China is looking a bit bubbly as well, although the Chinese bank is acting to try and stem the speculation. It may not be enough.

Bloomberg
Taleb Says ‘Every Human’ Should Short U.S. Treasuries
February 04, 2010, 11:01 AM EST
By Michael Patterson and Cordell Eddings

Feb. 4 (Bloomberg) -- Nassim Nicholas Taleb, author of “The Black Swan,” said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration.

It’s “a no brainer” to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. “Every single human being should have that trade.”

Taleb said investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office, without being more specific. Nouriel Roubini, the New York University professor who predicted the credit crisis, also said at the conference that the U.S. dollar will weaken against Asian and “commodity” currencies such as the Brazilian real over the next two or three years.

The Fed and U.S. agencies have lent, spent or guaranteed $9.66 trillion to lift the economy from the worst recession since the Great Depression, according to data compiled by Bloomberg. Bernanke, who in December 2008 slashed the central bank’s target rate for overnight loans between banks to virtually zero, flooded the economy with more than $1 trillion in the largest monetary expansion in U.S. history.

In a short sale, an investor borrows a security and sells it, expecting to profit from a decline by repurchasing it later at a lower price.

“Dynamite in the Hands of Children”

President Barack Obama has increased the U.S. marketable debt to a record $7.27 trillion as he tries to sustain the recovery from last year’s recession. The Obama administration projects the U.S. budget deficit will rise to a record $1.6 trillion in the 2011 fiscal year.

“Deficits are like putting dynamite in the hands of children,” Taleb said in an interview with Bloomberg Television. “They can get out of control very quickly.”

Taleb argued in “The Black Swan: The Impact of the Highly Improbable” that history is littered with rare events that can’t be predicted by trends. The best-selling book came out in 2007 before the global credit crisis sparked an economic slump and $1.7 trillion of losses at banks and financial institutions.

“The problem we have in the United States, the level of debt is still very high and being converted to government debt,” Taleb said in an interview with Bloomberg Television. “We are worse-off today than we were last year. In the United States and in Europe, you have fewer people employed and a larger amount of debt.”

Credit Outlook

Moody’s Investors Service Inc. said on Feb. 2 that the U.S. government’s Aaa bond rating will come under pressure in the future unless additional measures are taken to reduce budget deficits projected for the next decade.

Treasuries soared during the financial crisis, gaining 14 percent in 2008, as investors sought the relative safety of U.S. government debt. They fell 3.7 percent last year, according to Bank of America Corp.’s Merrill Lynch Unit, as risk aversion eased and the Standard & Poor’s 500 Index rallied 23 percent. So far this year U.S. government debt has gained 1.17 percent.

Yields fell today on concern European countries including Greece, Portugal and Spain face difficulty financing budget deficits. The yield on the benchmark 10-year note fell 6 basis points, or 0.06 percentage point, to 3.64 percent at 10:54 a.m. in New York, according to BGCantor Market Data.

“Democracies can’t handle austerity measures very well,” Taleb added. “We’re going to have a severe problem.”