Saturday, February 6, 2016

"The War on Cash" in View of Mises

Short article on Mises Institute blog concerning the "war on cash" which is a real phenomenon in certain western countries, supposedly to clamp down on tax evasion and drug trafficking.

The real nugget from the article though is Mises' view that the literal physical gold coins of a gold standard currency were important for more than mere symbolism or tradition.  This is a distinction from some gold standard proponents who might say that so long as there is proper reserves/backing, banknotes or digital gold are just as good for circulation medium. 

"The weakness of a gold standard without effectual circulation of gold coins consists precisely in the fact that it makes it extremely difficult for the average citizen to discern inflation in its early stages. An effectual gold coin circulation makes the voter the guardian of the gold standard. This is its main function."

Thus the elimination of cash benefits the central banks and politicians in the sense that it makes inflation much harder for the general public to perceive, giving the "powers that be" more flexibility in creation of currency units (in the short term at least).  In Weimar Germany and Zimbabwe - two classic examples of extreme inflation - the inflation was obvious because of the abundance of high-denomination physical banknotes.  In a world without cash, the average citizen has no way to detect the amount of digits flowing in and out of major financial institutions and governments until it shows up in cost increases of their staple consumer goods.

Is Smart Money Bracing for a Recession?

Its no secret than many emerging market economies are currently in disarray due to the collapse in oil and other commodities they export.  The Chinese stock market is in chaos, Argentina Peso crumbling, Venezuelan experiencing shortages of basic goods, Russian Ruble being chopped in half, Brazil iShares MSCI index is at a mere $20 compared to $100 in '08, Baltic Dry index is hitting lows, Middle-East on fire, and any informed person could list additional examples.  Sorry if I belabored the point, but its an important one because - here in the US - the media and politicians tell us everything is OK: "don't worry, citizen, just keep investing in US market index funds because unemployment is only 5% and low oil means more discretionary spending by consumers - happiness and joy!" 

The tale of the tape tells a different story.  Where is Wall Street putting money in reality?  What I have noticed in US stock prices is that non-cyclical "safety" stocks like JNJ, PG, Kellogs, AT&T, Altria, Clorox, Phillip-Morris, General Mills, Waste Management, Coke, and Pepsi are more or less near 52 weeks highs despite an overall decline in the US markets and virtual meltdowns overseas.  Gold is up 7.29% in the last 30 days despite the ongoing slump in commodity prices generally, indicating to me that the buying is to protect capital rather than as a speculative bet or generic hedge against inflation.  Stocks that are down are the big industrial and commodity companies (Alcoa, US Steel, Ford, GM, Deere, Caterpillar, ADM, Freeport-McMoran, etc), discretionary retail stocks such as clothing (several big earning disappointments in that category - The Gap and Nike among others currently getting hammered) and personal electronics including Best Buy & Apple, and of course financial/bank stocks down significantly over the last year as well (BAC, MS, WFC, NY Mellon, etc).  Twitter, Outerwall, and GoPro are getting annihilated. Yes there are many other stocks you could point to that are merely wriggling sideways or inching upward, but the overall picture demonstrates to me - nonprofessional that I am - that smart money is bracing for a recession, possibly even deflationary recession. 

You don't buy Clorox, gold, short-term Treasuries, and cigarette companies because you are expecting record profits in corporate America.  You buy that stuff to make it through to the other side of a depression with hopefully most of your principal intact.   The Silver Squirrel says keep burying shiny acorns for winter!!!!!!

Thursday, February 4, 2016

Feb. 2 Interview with Commodity Trader Jim Comiskey

Great interview with Chicago based commodity trader Jim Comiskey.  The important points here in my opinion are some of the interesting metrics he uses to gauge the global markets, such as scrap metal prices, Baltic Dry Index, brent crude, crude stockpiles, Caterpillar, Boeing, Union Pacific & CSX, and marine tanker locations in general.  Looking at these metrics and others, the global economy is clearly in recession. Interview put out by "Crush the Street" 

Sunday, January 31, 2016

Will the Argentina Peso be a Failed Currency Yet Again?

(Perhaps it with some irony that Eva Peron graces the new 100 Peso banknote.  Perhaps it is an ominous foreboding of renewed populist anger if the neoliberal center-right government fails to deliver.)

Argentina has had about five failed currency regimes in the past, all of them ending in inflation and replacement with a new currency (you can finds names and dates of these currencies in the Wikipedia 'Argentina Peso' article).  It seems to be a country that keeps repeating the same mistake, lured by the quick fix of money printing.  Back in 2012 I said that their then central bank president, Mercedes Marco del Pont, was saying crazy things that only an Ivy League professor or a moonbat socialist could possibly believe.  Predictably, the Argentine Peso cratered from near USD parity all the way down to now 13.88 pesos to the Dollar.  Its truly an abuse of power and a disservice to all workers and savers in that country, not to mention the foreign bondholders (who have no one to blame but themselves for not selling the minute del Pont starting talking).  With the capital controls that prevented people from buying dollars at the official exchange rate, gold and silver were - as in most crisis situations - probably the only good asset to save money in.
2012 del Pont post is here:
2013 Follow-up post:

del Pont's replacement resigned after less than a year on the job and Argentina has defaulted on its foreign debt obligations:

To stop the flight of money, they even made it illegal for Argentinians to have more than one Paypal account (people would send Pesos using Paypals currency exchange, automatically converting them when sent into a second Dollar-denominated account, going around the traditional banking system):

After almost a century of failed Peronist/populist/socialist policy, the voters finally cried uncle and have elected a center-right government by a slim 51/49 margin with 80% turnout:

The new president, Mauricio Macri, is a graduate of the Columbia Business School in New York and son of an Italian businessman.  He is a former 1980s Citibank employee and almost certainly not a hard-money advocate but rather I assume subscribes to some form of neoliberalism (I am not an expert on Argentinian politics).  As someone with a business degree and business background, rather than a background in "academic economics" (ie, like Krugman and del Pont), he is hopefully less devoted to the more foolish and theoretical aspects of Keynesianism. 

What Argentina needs now is controlled spending, appropriate level of interest rates, increased reserves (with possibly the addition of some gold), and the gradual re-building confidence that it will not default again (perhaps even re-visiting the issue of the prior default and making some restitution, like the US did with its defunct Revolutionary War debt issued in Continentals).  The new bank president, Federico Sturzenegger, ended the capital controls that prevented Argentinians from buying dollars.  His past performance turning around a failing state-owned Banco Ciudad and making it very profitable gives hope that he is a competent financial manager.  It is hard, however, to stop a currency from plunging into the abyss once it has already slide so far, like trying to reverse a long heavy train which has already built up momentum.  While it has little effect on me in the US, I will be watching the Peso with interest (no pun intended). 

Thursday, January 28, 2016

Asahi Holdings Acquires Johnson-Matthey

Legendary refiner Johnson Matthey has sold its gold & silver refining business to a Japanese company for $186 million.  It is the end of 162 years of tradition for JM and their vintage bars are sure to increase in collector value over time due to their reputation and quality.  JM will continue the other aspect of its business unchanged, with continued focus on chemistry and high technology.  Asahi will keep the Salt Lake City and Toronto refiners open and continue to produce 100oz bars bearing the Asahi hallmark.

Read the story here in Coinweek:

Official statement from JM: