Unlike Rosenberg, I suggest: Forget oil, buy gold.
Why?
Oil is an industrial commodity and the global economy is weakening. We may be in late stage inflation similar to the surge that took oil to $140 in 2008.
Globally, if central banks fail to meet hiking expectations, gold rates to be a beneficiary regardless of what the economy does.
Mike “Mish” Shedlock
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CBs target lots of prices. If you look at what happens with gold many times. Someone dumps hundreds of millions if not billions of contracts all at once when there’s light volume. No individual has enough of a position to do this and no one would be dumb enough to do that. Only someone trying to drive the price down, who doesn’t care if they profit, would do that. I’ve seen the same thing happen when stocks tank. In the opposite direction. Some idiot buys a lot of index futures during light trading. Way more than an individual could buy. They’re trying to pay the maximum price. Not the minimum.
Stuki
6 years ago
@Realist
Any “Pay me now, I promise someone else will pay you back long after I’m gone” scheme, is always set up to maximize how much you pay now, while minimizing how much you’ll get paid back later. That is, after all, how you maximize the amount available to those running the scheme in the first place.
Pretending people are in the business of maximizing your utility at some point long past when they themselves are likely dead, over their own utility in the here and now, is pretty unrealistic for a realist……
US or not US has exactly nothing to do with it.
“Requirements” and “projections” are no more than minor bumps in the road. Which need to be lobbied and obfuscated into supporting the scheme runners’ ability to lay claim to as much as possible of the available money for themselves.
Realistically, that’s just how people work. All people. All the time. Not just the people the man on “our” TeeVeee says are somehow baaaad. As opposed to the ones he says are gooood, so we should be happy that they allow us to give them our money in exchange for promises that they really care about little us, and have a degree stating that they are unusually gifted at picking random numbers.
JonSellers
6 years ago
You are always making the assumption that American political leaders desire to have well run pension funds. How would a well-run pension fund maximize shareholder value in the long term?
Stuki
6 years ago
@JohnSellers
The CBs and Govs can’t directly suppress the gold price. Instead, what they have done, and will continue to attempt doing, is pump up the gains (leverage * appreciation) available to those choosing to instead buy other stuff. Indirectly rendering Gold less attractive relative to other assets. Hence reducing demand for it.
Since such asset pumping produces exactly not one single iota of real wealth whatsoever, yet somehow renders asset holders wealthier, it quite obviously relies, 100% full stop, on nothing more than simply stealing every penny of those gains from others. Namely those holding fewer, or less-favored-by-pumping-policies, assets. Hence the racket will inevitably, at some point, collapse from simple lack of anything left to steal from those who increasingly have nothing.
But since that has never stopped a single totalitarian government, at the end of it’s rope, from doubling down on one last Hail Mary attempt at pretending that it itself is still solvent, while the ever shrinking clique of privileged asset holders it exists to enrich are still doing a-ok; there is little reason to believe the particular Junta we’re stuck with, will behave any differently. They’ll double down and double down, until all they’re left doing, is push on a string. It’s at that point, they can no longer continue their indirect suppression of the price of Gold. But up until then, the mechanism that has worked for them so far, is still, even if perhaps less conveniently, available.
RedQueenRace
6 years ago
The idea that the Fed is raising interest rates to save US pension funds makes sense only if the funds invest primarily in T-bills or other short-term paper, where increases in rates do not have much impact on the price of the security and they roll over relatively quickly and benefit from the increased rates.
They do need to keep cash equivalents on hand to meet current obligations but that is not the bulk of their holdings.
Short-term paper is not where pension funds primarily operate as they need to match assets with long-term liabilities. Pension funds buy bonds, stocks, real estate (e.g., MBS and loans), and other assets. Raising short-term rates does not necessarily cause long rates to go up. Even if it did it would hurt the funds’ existing bond investments and, in time, equities, which is much larger than their cash-equivalent holdings.
Dbletroublejim
6 years ago
The CB’s suppress the price of gold thru paper contracts. No real gold is exchanged. T
RedQueenRace
6 years ago
That supply imbalance occurred because once the COMEX realized what was going on they changed the rules and restricted the Hunt brothers ability to buy.
Research “Silver Rule 7.”
JonSellers
6 years ago
I would think the only way you could suppress the price would be to sell a lot of it. But, given a limited supply, in the end it’s a losing proposition. It’s much easier for CBs to push prices up because they can always be the highest bidder. I don’t know how they would get folks to sell to the low bidder.
KidHorn
6 years ago
The problem with gold is it’s painfully obvious CBs will try to suppress the price. You’re basically betting against the world governments. The ones that control everything,
killben
6 years ago
What about silver?
themonosynaptic
6 years ago
Kinuachdrach(d): The locals probably make up different stories about which book Orwell wrote 🙂 I’m also a fan of his. Like you, I went on a quiet day, but could hear the whirlpool a couple of miles away. The whisky at the end of the day made everything even better (I was only 14, but things were a lot more relaxed back then).
Kinuachdrach
6 years ago
themonosynaptic — Yeah! You caught me. Did that same hike up the island of Jura to the whirlpool. Beautiful calm weather, so the whirlpool was not dramatic. The deer ticks, on the other hand, were quite fierce. Story I was told was that Orwell wrote “Animal Farm” in that house, and the farm at Kinuachdrach at the north end of Jura formed part of his mental model of the scene for the book. I am a big admirer of George Orwell.
themonosynaptic
6 years ago
The market can be irrational and then more flexible for longer than most people can afford to keep betting against it without losing major opportunities in the interim.
Sidenote: When I was young I hiked up Jura, past the cottage George Orwell wrote “1984”, up to Kinuachdrachd then over to the Corryvreckan whirlpool. Just wondered if your user name was related.
blacklisted
6 years ago
“I believe rate hikes are priced in that will not happen. Moreover, the US deficit is out of control and worsening.”
Once again, your US-centric forecasts will not end well. The Fed is raising rates to postpone the pension crisis, and the deficits of foreign countries are way worse than the US – 13 countries are already in default, and 100 nations are on the verge of a debt crisis. Wait until rates and the dollar rise, which will happen because collapses always occur from the periphery to the core. link to armstrongeconomics.com
Gold is fine, if you don’t keep it in a safety deposit box, where it can be considered laundered money and ripe for asset confiscation.
2banana
6 years ago
Wars in the middle east are the best of times for LOW oil prices. Look at a graph of oil prices vs the Iran-Iraq War or the Gulf War. A short run up and then a decade of low oil prices.
Roger_Ramjet
6 years ago
If there is war, especially in the middle east, I would own oil!
Kinuachdrach
6 years ago
Could happen … but timing might be very important.
When the Hunt brothers tried to corner the silver market all those years ago, one of the unanticipated consequences was that the supply of silver to the market exploded as people realized they could now sell their grandmother’s silver teapot for a good price.
India (in particular) is full of ladies with their families’ net worth tied up in gold bangles on every limb, ready for market. When the price of gold starts to rise, is it possible we might see a repeat of the supply surge that killed the Hunts’ silver dreams? Especially if the global economy is stalling and people have to sell assets to survive.
Bam_Man
6 years ago
An excellent hypothesis Mish, with logic that identically matches my own. Rosenberg is half right. No need to bother with oil. We are on the verge of a global currency and debt crisis that will unleash a deflationary tsunami. Industrial commodities are the last thing you want to own right now – even if they do enjoy a small “late-cycle” pop higher in the near term – before collapsing.
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CBs target lots of prices. If you look at what happens with gold many times. Someone dumps hundreds of millions if not billions of contracts all at once when there’s light volume. No individual has enough of a position to do this and no one would be dumb enough to do that. Only someone trying to drive the price down, who doesn’t care if they profit, would do that. I’ve seen the same thing happen when stocks tank. In the opposite direction. Some idiot buys a lot of index futures during light trading. Way more than an individual could buy. They’re trying to pay the maximum price. Not the minimum.
@Realist
Any “Pay me now, I promise someone else will pay you back long after I’m gone” scheme, is always set up to maximize how much you pay now, while minimizing how much you’ll get paid back later. That is, after all, how you maximize the amount available to those running the scheme in the first place.
Pretending people are in the business of maximizing your utility at some point long past when they themselves are likely dead, over their own utility in the here and now, is pretty unrealistic for a realist……
US or not US has exactly nothing to do with it.
“Requirements” and “projections” are no more than minor bumps in the road. Which need to be lobbied and obfuscated into supporting the scheme runners’ ability to lay claim to as much as possible of the available money for themselves.
Realistically, that’s just how people work. All people. All the time. Not just the people the man on “our” TeeVeee says are somehow baaaad. As opposed to the ones he says are gooood, so we should be happy that they allow us to give them our money in exchange for promises that they really care about little us, and have a degree stating that they are unusually gifted at picking random numbers.
You are always making the assumption that American political leaders desire to have well run pension funds. How would a well-run pension fund maximize shareholder value in the long term?
@JohnSellers
The CBs and Govs can’t directly suppress the gold price. Instead, what they have done, and will continue to attempt doing, is pump up the gains (leverage * appreciation) available to those choosing to instead buy other stuff. Indirectly rendering Gold less attractive relative to other assets. Hence reducing demand for it.
Since such asset pumping produces exactly not one single iota of real wealth whatsoever, yet somehow renders asset holders wealthier, it quite obviously relies, 100% full stop, on nothing more than simply stealing every penny of those gains from others. Namely those holding fewer, or less-favored-by-pumping-policies, assets. Hence the racket will inevitably, at some point, collapse from simple lack of anything left to steal from those who increasingly have nothing.
But since that has never stopped a single totalitarian government, at the end of it’s rope, from doubling down on one last Hail Mary attempt at pretending that it itself is still solvent, while the ever shrinking clique of privileged asset holders it exists to enrich are still doing a-ok; there is little reason to believe the particular Junta we’re stuck with, will behave any differently. They’ll double down and double down, until all they’re left doing, is push on a string. It’s at that point, they can no longer continue their indirect suppression of the price of Gold. But up until then, the mechanism that has worked for them so far, is still, even if perhaps less conveniently, available.
The idea that the Fed is raising interest rates to save US pension funds makes sense only if the funds invest primarily in T-bills or other short-term paper, where increases in rates do not have much impact on the price of the security and they roll over relatively quickly and benefit from the increased rates.
They do need to keep cash equivalents on hand to meet current obligations but that is not the bulk of their holdings.
Short-term paper is not where pension funds primarily operate as they need to match assets with long-term liabilities. Pension funds buy bonds, stocks, real estate (e.g., MBS and loans), and other assets. Raising short-term rates does not necessarily cause long rates to go up. Even if it did it would hurt the funds’ existing bond investments and, in time, equities, which is much larger than their cash-equivalent holdings.
The CB’s suppress the price of gold thru paper contracts. No real gold is exchanged. T
That supply imbalance occurred because once the COMEX realized what was going on they changed the rules and restricted the Hunt brothers ability to buy.
Research “Silver Rule 7.”
I would think the only way you could suppress the price would be to sell a lot of it. But, given a limited supply, in the end it’s a losing proposition. It’s much easier for CBs to push prices up because they can always be the highest bidder. I don’t know how they would get folks to sell to the low bidder.
The problem with gold is it’s painfully obvious CBs will try to suppress the price. You’re basically betting against the world governments. The ones that control everything,
What about silver?
Kinuachdrach(d): The locals probably make up different stories about which book Orwell wrote 🙂 I’m also a fan of his. Like you, I went on a quiet day, but could hear the whirlpool a couple of miles away. The whisky at the end of the day made everything even better (I was only 14, but things were a lot more relaxed back then).
themonosynaptic — Yeah! You caught me. Did that same hike up the island of Jura to the whirlpool. Beautiful calm weather, so the whirlpool was not dramatic. The deer ticks, on the other hand, were quite fierce. Story I was told was that Orwell wrote “Animal Farm” in that house, and the farm at Kinuachdrach at the north end of Jura formed part of his mental model of the scene for the book. I am a big admirer of George Orwell.
The market can be irrational and then more flexible for longer than most people can afford to keep betting against it without losing major opportunities in the interim.
Sidenote: When I was young I hiked up Jura, past the cottage George Orwell wrote “1984”, up to Kinuachdrachd then over to the Corryvreckan whirlpool. Just wondered if your user name was related.
“I believe rate hikes are priced in that will not happen. Moreover, the US deficit is out of control and worsening.”
Once again, your US-centric forecasts will not end well. The Fed is raising rates to postpone the pension crisis, and the deficits of foreign countries are way worse than the US – 13 countries are already in default, and 100 nations are on the verge of a debt crisis. Wait until rates and the dollar rise, which will happen because collapses always occur from the periphery to the core.
link to armstrongeconomics.com
Gold is fine, if you don’t keep it in a safety deposit box, where it can be considered laundered money and ripe for asset confiscation.
Wars in the middle east are the best of times for LOW oil prices. Look at a graph of oil prices vs the Iran-Iraq War or the Gulf War. A short run up and then a decade of low oil prices.
If there is war, especially in the middle east, I would own oil!
Could happen … but timing might be very important.
When the Hunt brothers tried to corner the silver market all those years ago, one of the unanticipated consequences was that the supply of silver to the market exploded as people realized they could now sell their grandmother’s silver teapot for a good price.
India (in particular) is full of ladies with their families’ net worth tied up in gold bangles on every limb, ready for market. When the price of gold starts to rise, is it possible we might see a repeat of the supply surge that killed the Hunts’ silver dreams? Especially if the global economy is stalling and people have to sell assets to survive.
An excellent hypothesis Mish, with logic that identically matches my own. Rosenberg is half right. No need to bother with oil. We are on the verge of a global currency and debt crisis that will unleash a deflationary tsunami. Industrial commodities are the last thing you want to own right now – even if they do enjoy a small “late-cycle” pop higher in the near term – before collapsing.