Posted on 01/02/2014 7:00:11 AM PST by SeekAndFind
If anything that means a more robust economy and more buying of everything including gold.
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sounds like you’re a gold bug. if history is any guide you’ll have to live in a house of pain for a couple decades before again you are right on the money.
For old guys this period of falling gold prices we’re in now—looks very much like the early 1980’s. Look at this historical chart of the price of Gold.
http://www.macrotrends.net/1333/gold-and-silver-prices-100-year-historical-chart
Well if you come to that conclusion after some of the basic market fundamentals that where listed in my post, then you are not paying attention or just don’t care. Gold is still flowing in great quantity from the west to the east its undeniable. The West continuous to engage in economic suicide with debt upon debt (the east does as well and it seems the buyers there are smarter than most of us in the west otherwise we would not be selling it).
Second, that Chart does not in anyway show that aspect of what I have talked about, unless you consider the spikes as people voting on what they consider a safe haven or real money given the realities of the day. If you do so, then you should be honest with yourself and realize the conditions of the 60’s through the early 80’s is entirely different place. Certainly some events rhyme, but what does rhyme is far more severe than anything then and second the economic, political, and moral stability underneath (not on the surface) has been completely eroded away. It only takes a convergence of events to stop the momentum from past ages, and then the real fun begins.
So if you think I am a gold bug for pointing out the facts, the manipulation, so be it. As a side note, while gold is a store of value, should things get as bad as I believe they will, then gold really won’t have any value for quite some time, perhaps several generations(30 years is far to short). Gold only works in a moral environment. It is stability. The only consolation here is that whatever you buy you can have your decedents use that representation of your hard work to create something or help create stability or reinforce it; assuming they are moral at the core of their being. Our civilization is far too gone to save as it currently is. Gold, silver, cheaper oil for some brief time, or whatever else simply isn’t going to change that fact. The market is so heavily manipulate because we are beyond the point of no return, to allow it assume its roll would only hasten the demise of the existing system and usher in generations of turmoil and chaos. We have been very foolish, and your response to me in that manner is a reflection of that foolishness.
The West continuous to engage in economic suicide with debt upon debt (the east does as well and it seems the buyers there are smarter than most of us in the west otherwise we would not be selling it).
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Gold is not the only store of value. Oil is too.
The fed has created in recent years about 10 trillion fiat dollars ex nihilo from nothing. That’s very inflationary. It pushes the value of the dollar down and raises the value of oil and gold.
Every body gets that. And if that were the only thing happening, the USA would be in deep do do. Gold would be the place to be.
But its not. Its not the only thing happening.
There is now a far greater countervailing force. That’s the fracking revolution. You mentioned it but you have no idea the depth and reach of the revolution underway.
The fracking revolution is creating shock and awe and in the money class.
You would think that Soros knows something about currencies because he is the biggest currency manipulator in the world.
He says China is the problem. He says further the USA has an energy boom—which gives him an upbeat view of the USA.
http://blogs.marketwatch.com/thetell/2014/01/03/china-is-no-1-risk-for-world-economy-soros/
He also dumped his gold position early in 2013.
http://money.cnn.com/2013/02/15/investing/soros-gold/
Another big billionaire, Warren Buffet took a huge position in Exxon. http://www.reuters.com/article/2013/11/14/us-berkshire-buffett-holdings-idUSBRE9AD1BO20131114
Buffett hates gold.
These old guys are smart money.
.
What do they see?
The first thing the fracking revolution did was create another 50 trillion dollars worth of oil and gas backing the dollar from nothing ex nihilo. The reserves were always there. But they were inaccessible. So they might as well not have been there. The technology has changed that. Now 50 trillion more dollars worth of oil and gas are backing the dollar because the technology is there to extract them..
Now you can pee on that all you like. But the value of a currency is pegged pretty much to the future strength of the economy it represents. Just like the value of a stock is pegged to future earnings. The fracking revolution means that for at least the next five years the USA grows at least 2%. That is there is 2% growth built into the regular increase in production of oil.
The fracking revolution is so powerful that it will reverse the US from being in a position of capital dissipation to capital formation.
The USA has been adding roughly 1 million barrels @ day to production for the last year. The IEA projects that the oil production will increase roughly another 1 million barrels @ day for the at least the next two years 2014-2015. (I think that oil production will rise another million barrels a day for each of 2016-18 because the oil field in the Permian basin is the second largest in the world after Saudi Arabia’s Gwandar field. The oil is easy to get at and convenient to get to market. The result will be the USA becomes oil independent. 500 billion dollars a year will no longer be going overseas to pay for oil.
Increased oil production has added roughly 400 billion dollars to the USA economy annually. In three years from now that number will be about 1 trillion dollars a year every year for the next 50 years.
The trade deficit is shrinking. (Its still high.)
Not only do you have a shrinking trade deficit but you also have a shrinking federal deficit. Oil added roughly 150 billion to federal coffers last year. In 2012 the federal deficit was 1 trillion dollars. in 2013 the federal deficit was 650 billion dollars. The federal deficit will likely shrink by another 250 billion dollars in 2014.
All these deficit numbers are way high but they are returning to levels last seen under the Bush administration. And if the federal deficit continues to shrink at its current rate—it will balance by 2016.
This is the trend. (Yes I know the federal debt is 16 trillion but if the budget deficit goes flat for a decade or so that 16 trillion will be a smaller part of a much larger economy. Is this speculation? Yes. But the change in trend makes it possible to speculate this way.
Now lest look at a 25 year chart of the value of the dollar.
Look at the terrible collapse of the dollar that you are talking about that fed the rise of the gold from 2002 to 2008. Notice that world ended in 2008. What we have seen since then ..... — is the value of the dollar track roughly sideways. Gold peaked about 2011 and has been declining since.
This graph shows oil dollar and gold. Notice how since 2011—the dollar and the gold have been moving toward each other. If they continue in their direction, they will cross paths in roughly a year and half.
http://www.macrotrends.net/1335/dollar-gold-and-oil-chart-last-ten-years
Now as a gold bug, I understand none of this matters to you. The price of gold matters less than actually having gold. Its good to have gold in your hands. And this is fine.
Oil is the life blood of our modern day economy. Period. It is not a store of value in any lasting terms unless you are willing to park into a underground tank as a reserve. It is a store of value only in the aspect that it can perform work (think physics). And that work we are willig to pay for becuase it is cheap as opposed to human labor where it is possible. Once consumed (if it is being burned) it cannot be taken back to its original state. Gold on the other hand is not widely consumed other than certain applications where some of that can be recycled. This gives it more appeal as a store of value and currency (though the Romans showed they can by pass this for while), hence its long standing history.
Second, creating money out of nothing is not the only component to inflation. Inflation is controlled by 3 things:
1. the amount of money in the system (printing)
2. Relation of supply (size which is always changing due to various factors) of any goods and raw material, labor, etc. to that changing money supply.
3. The velocity of money in the system , i.e. how quickly it changes hands and this is more a psychological component but it is the most important at least when you have spikes in inflation since that is when people loose confidence in the currency and government.
Because inflation is based on these three main factors, this is why inflation has been relatively low compared to other countries. That said it is high enough that it has squeezed many lower income earners over the last 15 to 20 years.
Its true that Gold is not the only place to be. However it is a very small market and is in high demand in most places in the world, more so than it has ever been. So much so it has outstripped mining supply year after year only to be made up by above ground supply. This is the law of supply and demand fundamentals not just a store of value fundamental.
Now as far as the fracking revolution that you and many others have mentioned. First, I have full understanding of what it means should it keep growing at the rates it needs to in order to make the revolution that you and others speak of possible. It means everything gets cheaper and thus more affordable for everyone. This then allows for more money to be allocated and used to invest or spend as people see fit. Think of when oil was around $20 a barrel of oil.
However, I don’t believe that this will be possible. There is a limit to the growth in the shale oil extraction.
1. The geology itself is spread out over a wide area which will allow extraction to continue for many decades maybe even centuries, but will also limit how much you extract at any given point for several reasons.
2. The drop off rates are huge after the first couple of years. Now this seams to be mitigated somewhat by a new fracking technique where larger fracture gaps are created. Whether this can be used in all areas remains to be seen. Either way your profit margins are subject to getting squeezed which can make investors nervous. To be sure innovations and just being more efficient has made it more profitable for some companies but not all.
3. The investment needed is huge. It is a type of mining operation so to speak. If you know the problems that the mining companies have to deal with then you should appreciate the cost, time, and yes government(includes the public at large and the propaganda they are feed) when it comes to this business.(which is why most of this is occurring on private land) Investors from overseas are already starting to pull out from founding further projects or expanding the current ones. It simply is proving to be to costly. Some of this is from inefficiency, some from what I mentioned above, and good chunk of it from the rising cost to buy and maintain the equipment. Skilled personnel also play a factor since you have to pay them.
This will limit how much you extract every year. Are we there yet? No, I don’t think so. But will it be 5 million barrels a day or greater? Not likely. Where somewhere just over a million barrels a day from the shale play which is not that bad.
As far as the effect on the economy here at home it will be regional and not nation wide. The reason why is just because of state governments and the state of mind of the people in those states. Second factor is going to be the declining curve of the existing oil fields around the world and the relation to growing demand around the world so the positive effect on price will be limited right there. If the oil stays here at home then it will have a more positive impact but I doubt for long since the associated cost with fracking is high and the fracking will then curtail since the relationship of price to the law of supply and demand between the US and the world will kick in.
Well Soros is entitled to his opinion. He has certainly mad a lot of money on it, but also has zero ethics. He dawns the socialism, communism, state capitalism, corruption (i.e crony capitalism by many others) hats when it suites him or those he supports or support him. He is an opportunist at best. Now its interesting that he is waring about China as I have alluded to in the previous 2 posts. This has been a known quantity for 3 years or more. It is just finally coming to a head. He is late to the party. The US government, the FED, China’s central bank, the EU are bigger manipulators than he is, Soros just takes advantage of that and profits(all the more power to him). Soros would have a much harder time making money if they did not engage in that, but they do so I cannot cry over it. I will point out that Soros has also sold most of his position in gold before and then the price went up from there, the man is human and he can be wrong at times. He is not immune from the heard mentality (non of us are) even though people like him should know the most about it. And when they are wrong(rarely), boy are they wrong.
Now for Buffet, Mr. corruption (i.e. Crony Capitalist) himself. A man who favors the inheritance tax since he and his company are great beneficiary of it, much to the chagrin of business owners and particularly there families when they happen to pass on from this world. After all they are the ones who have to cough up a large some of money, sorry tax, in order to keep the business or sell it on the open market at a bargain basement discount since the law gives you no grace period to work with. Buffet and others are all to eager to help you out for dimes on the dollar of course. He is a value investor like Ben Graham but with a corrupt twist.
Also that article where Buffet buys EXXON stock is more about value investing in relationship of the stock price to their profits and longer term play no doubt. While it is oil driven (not shale), it is also base on the stock price and where he thinks it should be. Nothing wrong with that, its the hallmark of a good investor, buy low; sell high.
On the surface he sure seems to hate gold so does his right hand man from a article he had sent out a couple years ago. Makes sense when you consider who embedded he is with paper assets that could be affected by any kind of revaluation in gold or countries using it as a currency not because of the price, but because what the price change will represent which in turns will be reflected in the psychology of the people and thus the market at large. It is the same reason why governments who have been irresponsible tend to attack gold ownership. By extension, it would not be good for profits given his business model. So it is understandable that he would try and defend it. At the same time he is investing at least indirectly in some temporary hard asset oil. The includes profiting off the oil transportation from Canadian tar sands, and his behind the scene opposition to a pipe line since his company is invested into the railroads. So these guys are not the smart money you make them out to be. Maybe at one time in their lives they where which I believe was the case for Buffet, but somewhere along the line he strayed from the just path. I don’t place much stock in men especially men who have soiled themselves with evil.
That all said Buffet did invest into physical ownership of silver back in the late 90’s until a complaint was logged that the silver market was being manipulated to the upside. It eventually came to light that Berkshire was the reason. They where to accumulate roughly 130 million ounces of silver and at the time had about 90 million ounces. It is not known if they bought the remaining ounces or left it at that. Later on at one of the yearly shareholders meeting the question was asked and he said they had sold it off. Buying silver at the time was a no brainier, yet he sold it off way before the real price increase and missed out. Perhaps the investigation into General Re (sp?) had something to do with that. A man who said derivatives where weapons of financial destruction owning a insurance business who delved heavily into derivatives.
50 Trillion, maybe that is the overall value in the ground, remains to be seen. That is not a fair nor is it an accurate way to measure value here.
1. you are not going to extract it all at once so the value is relative to the pricing and purchasing power of the day. Since this can go on for decades if not a century or two.
2. Better way to value is what you extract in a given year and its ability to generate profits, while they are growing the rate of the rise is declining hence why we see overseas investors starting to pull out. What will this value be 2 years, 5, 10, 20 years from now? It will depend on other factors outside of the shale “revolution”. It is not clear cut as it is mad out to be. Certainly is beneficial, but to what extent will depend on other factors.
The IEA, well I will wait to see what the actual results are. As I said there are a number of factors here that will influence what will happen here. We will most likely see a continued increase for a few more years, but at these rates? I am skeptical just on the logistics side of things.
Second of all, if the oil is relatively easy to get compared to Ghawar at the one field you mentioned then it would have been done long before. Difficulty is measured in dollars here. And it is no surprise that it is only now that fracking has taken off with higher oil profits. The low hanging fruit for the most part has been found and been pumped for decades. How many more remains to be seen.
Please note, all this happy talk has some stark paradoxes built into them. This type of oil is profitable to get because of the higher oil prices. If the price drops too much from the new production then you can figure what is going to happen to the growth in this field. But as I said this too will be based on these factors so we cannot be sure if this will be of no harm , will be a wash, or still a benefit. That is why I don’t place much stock in these projections, they end up not be realistic the further out on the time curve you go. To much wishful thinking, and not enough reality because reality isn’t looking all that nice at this stage in the game. But that is human nature. People would rather hear a pretty lie, rather than hearing the ugly truth.
We see shrinking our trade deficit to be sure. But shrinking it and reversing the flow of it are two different things. Then there is that 16 trillion dollar debt number which is not correct. Using GAPP accounting the debt is something like 230 TRILLION DOLLARS. This is never going to get paid whether it is a debt payment or a welfare check. The shrinking of the debt increase this years is partly do to oil but mostly do to the rise in taxes. Obama Care kicks in this year and the strangle hold over the economy gets worse with each passing year with regulations, taxes, and penalties and not to mention what the state of the healthcare system and its effect on other areas of the economy are going to look like in the aftermath. Then there are the 10 of millions of people still unemployed though not official since they are no longer counted. Eating up their retirement funds, going on disability, or welfare (not faulting them here just pointing out hte huge problem that will be)Perhaps if we had a responsible public and politicians who see the dangers of handouts, corruption, and welfare, then you know I really think things could be turned around financially. However we no longer have a moral center based on God and his laws. So what ever little positives I see, you see, or what some else sees, I simply have to discount until the foundation is rebuilt. I would love to see it happen because that means a whole lot LESS pain to come.
You don’t seem to understand. The dollar is not the only component here. Your view is US centric and not world centric. It is normalcy bias, that is dangerous and inflicts to many people in this country and that is one of the reason for the lack of true, meaningful, and healthy change for the better. Not this Hope and Change con-man we have in the Whitehouse. Not this corrupt Congress that shows no interest in reform other than lashing out at those who are labeled the Tea Party. The rest of the world is quietly creating regional currency trades with each other in order to avoid the dollar as much as possible even if it is painful. The reasons vary, but they are doing and will continue to do so. Some want to knock us down, others just cannot trust us anymore given how far to left we have lurched (ironic when you think about it since so many of these countries wanted us to become like them and thinking it was going to be beneficial for them, unless your the conniver in Russia or China)
As said before, these markets are heavily manipulated and not just by the US government and financial institutions. This manipulation has held off the needed reform. Charts come with that caveat. So the gold and the dollar are converging. But why? Is it because there is no danger ahead? No mounting problems and not just here at home? I mentioned the manipulation that has been pointed out in my previous posts. To add to this, in the last 2 years much of the drop in price has been attributed in selling order that are multiple times higher than the previous normal trading hour. these trades happen in just one minute or less and happen for succession of 2 or 3 minute periods followed by the same patter 10 minutes to several hours latter. You don’t see this kind of activity in the buying to push the price up to often unless it it short covering or the market has been to over heated. My point in this is the data is not trustworthy. Governments and the those in the existing system they have corrupted to its foundation have no interest in reforming it.
Gold ideally is a currency. Always buying the same amount of goods or at least value. But that has not been the case for a long while now. Now we have it moving up and down to the price of paper dollars and assets which can be printed with no effort or work and drive the markets. If human nature was honest then there would be no need for gold or other hard assets as money and this way would work. Something has to keep people honest. Now there is nothing. Gold cannot assume any roll in this, and quite frankly neither will any other asset at this point. People who profit from the system as it is, cannot allow it. Hence why we see so much manipulation of the numbers and few held accountable for it.
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