Homestead mailing list

[Leslie <cayadopi AT yahoo.com>]

James, lots of  busy holiday things going on here too.  Hope yours was merry.
 
First regarding your comment: "If the gold retailer really thought 
that gold was about to increase greatly  in value compared to 
the fiat currency (or the currency tank in relation to 
gold, little odds), this above ploy would be the last thing he’d 
want to do...." etc.
 
I was referring to the a retail gold dealer selling his gold up until the 
point that he realizes a shift is going on.  Up until that point, the gold 
dealer doesn't have problem selling at spot plus 8% to a customer who walks 
in the door.  As the customer walks out the door, he calls his mint supplier 
and locks in spot plus (guestimate at 2%) and pockets the 6% profit.  His 
supplier ships him replacement inventory and he hasn't lost a thing as far as 
inventory, only made a profit.  The dealer makes a profit on the difference 
between the spreads on mark-ups over spot between his supplier and his retail 
purchaser.  As long as he can replenish his supply from his supplier, he 
makes money by turning over inventory.  (Of course, if the dealer can get 
caught on the downside also and lose money - but that is the risk nature of 
his particular business --- just as a farmer takes a risk on planting a crop 
that the weather will cooperate.)
 
We DO agree that once that retail dealer figures that gold price will move 
higher than his spread, he will withhold selling to retail customers.  And to 
answer your question, hell no! If I was a dealer, there is no way I'd sell my 
inventory if I thought price was going to move up substantially, before I 
could replenish my supply if I can make a better spread by holding.  
 
I suspect retail dealer hoarding is exactly why you are seeing the current 
infomercials scamming to buy people's gold jewelry.  And it isn't only at the 
retail level. Kitco.com not today, but up until recently has been trying to 
convince "retail owners" to sell them silver - at a substantial markup over 
over spot.  This tells me that Kitco was either a) having some kind of 
trouble with supply (which I question because a friend of mine is a CFO at a 
copper mine (silver is a by-product) or b) demand is higher than supply, or 
c) they suspect prices are going to bubble, or d) Kitco had a customer who 
placed a very large order they were trying to fill - and the customer was 
willing to pay way over spot. 
 
Also note, a lot of traders do not have a problem at all with buy high and 
sell higher.
 
 
 
And we AGREE that gold hoarding occurs at all levels, when the sentiment 
changes to a belief that prices are going to move higher.
 
 
You wrote:  ":Take for example the reason why gold has 
not currently gone up in price in relation to declining 
currencies. "  
 
Check your premises on the word "currencies".  It is my understanding that in 
OTHER currencies (not the US Dollar), gold has been increasing and has not 
fallen as it did in the US Dollars this year (up until recently that is).  
Regardless of what the cause in the US was (PPT/Fed manipulated, or hedge 
funds or banks unwinding positions to get liquid due to other losses - ALL of 
which I believe were happening - the same percentage of decline wasn't 
happening in other currencies : gold.
 
You wrote:  "Banks were holding gold as a hedge."  
 
There is a lot of information that US banks figured out long ago the Fed 
punished them for being long gold.  I wish I could quickly find some of these 
articles to link you.  One of the rumored reasons Lehman was not bailed out 
was because they were very long gold... a loud and clear message from Uncle 
Fed to the other banks.
 
You wrote:  "When the  toxic mortgage backed paper 
came due and could not be collected upon, the banks 
dumped their gold to meet obligations.  With all that 
gold on the market, the price remained modest."
 
I agree, this is one of the reasons gold price in US Dollar terms contracted, 
although I would add hedge funds into that mix.    And it was likely 
"futures" contracts, not phyiscal metal being held - a very important 
difference.
 
You might also note that the price movement down to the $720 from $1000 was 
also projected (technical target points to the downside) when gold was just 
off it's highs in the $1k area, and represented a normal price retracement.  
Price did move down just under that area, to then to just under $700 before 
finding some traction, as gold has since moved up from the $680 area back to 
almost $900 currently.  
 
There were a number of technical oriented types waiting patiently for gold to 
drop into the low $700 area in order to buy more.... I'm sure they were very 
happy the banks were selling... ;-)
 
The question here is WHY are buyers still buying?  What is the motivation?  A 
quick trade, or a fundamental belief that a bubble is underway...  Time will 
tell.

 
You wrote:  "Recall that during the real estate run up while 
you had people standing in line for the opportunity to buy 
condos at 18%, you also had unlimited adds, spots, and 
even roadside signs offering to buy all and sundry real 
estate.  Look into the fine print of those infomercials begging 
to buy your gold.  They are perfectly willing to buy your gold.." 
 
Again, the infomercials I see on TV are not trying to convince people to buy 
gold - they are trying to convince people to SELL their gold.     A splitting 
hairs type difference.  Infomercials typically want to SELL you something, 
not BUY something from you.
 
For comparison, at the top of the housing bubble, how many infomercials were 
there that were trying to convince people to come on down and BUY this or 
that condo and join the flipping club to prosperity.
 
This is a HUGE difference.  At bubble tops - the pitch line is for the 
sheeples to buy.  That isn't what is going on in gold... quite the opposite. 
- they are trying to convince the sheeples to sell.
 
 
And yet here, you make my argument when you write, "If people have gold for 
sale, it is because, and ONLY because they are betting that the price of gold 
will NOT go up significantly."  
 
I believe you have to qualify the buyers and sellers into two groups, 
"sharks" and "sheeples".    I find it difficult - no incredible -  to believe 
that the smartest group selling precious metals today are the people selling 
their jewelry. I find that group of sellers - sheeples.   I believe they are 
being conned into selling.  That's because I see gold/silver as a hedge 
against loss of purchasing power under certain circumstances, and that those 
circumstances are lining up fundamentally.  I may be wrong, but that's the 
way I see it.
 
 
 
I'm not sure why you think gold is falling against collapsing currencies.  
Let's just use the US Dollar for one moment (which is one of the weaker 
movements in gold price against a currency).
 
Gold was in the $200 range just 7 years ago (2001), and rose slowly but 
steadily thru 2005 to $450, when it broke up and over a technically important 
area.  It has continued to climb since then including normal back and fill 
type action, although the trendline to date has not been broken.  And gold 
has moved up nearly $200/ounce in just the past 2 months (from the high $600 
area back to high $800 this week).  Gold IS in fact rising against the 
collapsing dollar.  
 
(And IMO the Fed will take out as many bazookas as possible to stop that 
action - but if the COMEX banks are emptied and the Fed won't be able to 
manipulate effectively.)
 
If you want to go back further to the prior bubble price in gold (gold $800 
back in the late 70s or early 80s) --- that bubble was popped because the Fed 
under Volcker got serious about fighting inflation by taking interest rates 
to 20%.............. a far far far cry from the philosophy of the current Fed 
- who is doing their best to fuel the flames of a coming "Great Inflation" 
JMO.
 
 
>From my point of view ANYTHING can be used to "store wealth".  What is 
>wealth?  IMO - the efforts of our labor that exceed our current use to 
>survive.    Wealth in that definition is either saved to be consumed later 
>(i.e. enough stored dried beans that can last 2 years) or to be TRADED off 
>for something else.  There have been so many things that have been used to 
>store wealth during history.  Rice, sugar, oil and who knows what all, 
>although I'm not learned enough to know if history has returned to those 
>items over and over and over and over again - unlike gold.  
 
Gold besides being an insurance policy against a collapsing value, is just 
another thing that can be used to store wealth in one form before being 
TRADED for another form. 
 
If you buy high, and sell low - of course you aren't either storing wealth or 
having the wealth increase in value passively.
 
If you spend a whole year of effort growing dried beans, and then don't 
protect against a weevil - the wealth of efforts will also be lost.
 
 
You write:  "Gold is not the stable storehouse 
of wealth the infomercials claim, it is and 
always has been a gamble. " 
 
I agree - it is imperative to buy low and not sell lower, but either at the 
same price or higher.  A lot of sheeple do not know how to tell when is low 
to low, or when it high too high.  And because they do not know, and I might 
add the sheeple come to the party just as it is ending and "gamble" by buying 
high.    Gold prices, just like other commodity prices, rise and fall - and 
often in cycles.  But then storing any excess production to store wealth 
(rice, sugar, tulips) has been a gamble (weevils for rice, ants for sugar, 
idiots for tulips...   Actually doing most things involves a gamble...when 
you plant your crops you are taking a gamble on your skills against mother 
nature.
 
 
Looks like we agree that gold will likely experience a bubble, and of course 
all bubbles pop.  And for those that understand this and that bubbles must be 
sold as they pop - there is always time to get out.  Why?  Because the 
sheeples are "trained" going into bubble tops to "buy every pullback", and to 
see pullbacks as buying opportunities.  This provides a lot of buyers for the 
sellers selling out of the bubble top.
 
 
The problem for many sheeples in the dot.com bubble is the media did not 
impress upon them that there is a time to sell.  Same for real estate.  It is 
the same with all bubbles.  There comes a time when it is time to sell - and 
nobody on scam street rings that bell to let the sheeple know. They only ring 
the bell to buy buy buy going into the top so (scam street) has someone to 
sell to.  The rules of the investment game are not what sheeple are trained 
to think.
 
Another thing, the up phase of bubbles goes on a lot longer than people 
realize.  And end rather quickly.  And the collapse in price phase is usually 
overdone to the downside (that herd behavior thing....)
 
 
 
You wrote:  "There are signs, agreed.  But there are no guarantees,...."  
(reference to bubble in works.)
 
But of course there are no guarantees..... that is where using charts to read 
herd behavior is so important, and stops, in case one figure out they were 
one of the sheeples..... (Although sheeples don't usually figure that out 
quick....)
 
 
Actuallly we probably agree on a few more things, x-ref your comment about 30 
months versus 30 years....................  As you can see by the above, I 
think there is a time to buy and a time to sell,,,, and it is that there is a 
time to sell part that most people miss.  Otherwise - they wind up having to 
give it to their heirs (and maybe to their heirs and so on - in extreme 
conditions).
 
 
The most important thing is to know WHY one is purchasing anything as a store 
of value, and what circumstances would have to materialize to divest of the 
investment.   
 
In the case of fertile land, that sell might not be ever - it might be passed 
from one generation to the next.   In the case of rice - you have to sell 
before it goes bad.
 
 
Oh, and you don't have to sell at the zenith to benefit from a bubble.  There 
is absolutely no way to know where the zenith is in real time. None.  There 
is no way to predict in advance how ridiculously high prices can get during 
periods of irrational exhuberance.  Only in hindsight can one see where the 
zenith occurred.  There are other rules that come into play to know when to 
sell, as opposed to just guessing where a zenith is.  You just have also have 
rules to avoid buying at or near the zenith....
 
 
 
 
 You wrote:  "....so many people think this is a temporary 
down turn in the economy.  If they only have a few gold 
coins to jingle in their pocket, times will turn around 
again in a year, two or three at the most, and they can 
once again resume day trading, house flipping, and 
all all such activities.  What we are facing is not a 
downturn but rather a permanent change in the way of things."
 
I agree there are permanent changes going on -hence the reasoning behind some 
of my "investments" - like socks and knives and seeds, and hopefully solar 
water pumps and solar refrigeration.  It is just a matter of timing of some 
things.  
As with price of anything, it isn't possible to see the zenith in live time, 
only in hindsight.  Will 2008 turn out to be THE zenith of the way of living 
that we have been accustomed to?  Personally, I don't think so.... but I do 
believe we are much closer to that zenith.  
 
This is based in part on some things I've read.  How currencies collapse, and 
what happens in an economy.  Also some herd behavior things, and some things 
on super cycles.  Part of me thinks that there has to be one more really 
spectacular moments of greed (defined as the acquisition of the kind of 
wealth that I feel is foolish, through means of deception, etc.)  I think the 
zenith will be the equivalent of a "blow off top" type move as the dollar 
finally collapses.  And I'm not really actually only talking in dollar terms 
- it is just the dollar reflects what is going on in society as a whole.
 
That Zenith may have happened, but Uncle Fed with Bernanke at the helm makes 
me think there is one more card up the sleeve to be played.  At least I sure 
hope so ---- because personally I need more time to prepare for those 
permanent way of life type changes.
 
 
I do understand your line of thinking of homesteading from a philosophical 
point of view.  
 
I'm still must not be asking my question correctly since I'm not getting an 
answer that connects with what I'm trying to get at. Maybe the question would 
be - do you think we have we reached the zenith in the current way of 
lifestyle discussed directly above or do you have a time frame in mind for 
future expectations of a zenith?  (Think of what I'm driving at in terms of 
closing the gates on the way most of the rest of the people in the US are 
living.... and if a zenith has occurred that more and more will have to 
attempt some version of self-sufficiency.)
 
I seems in your reply that you believe it will be a somewhat slower 
transition from the current life-style of run to the grocery store twice a 
day for (allegedly) fresh food if needed mentality that some people have, 
towards more and more self reliance.  As opposed to a sudden transition 
(sudden meaning a short number of years.)  
 
 
I can't say I've really noticed shortages of supplies of anything - although 
I do expect phsyical shortages down the road.  I have noticed higher prices, 
for poorer quality products.  I noticed fewer and fewer shoppers and 
cashiers. And I've noticed more businesses closing.
 
 
 
 
 
 


--- On Fri, 12/26/08, Clansgian AT wmconnect.com <Clansgian AT wmconnect.com> wrote:









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Check your premises on the word "currencies".  It is my understanding that in
OTHER currencies (not the US Dollar), gold has been increasing and has not
fallen as it did in the US Dollars this year (up until recently that is).

Yes, gold has been increasing against most world currencies. But the point is
that it is not increasing proportional to the decrease in the currencies.
The often proffered notion that if you buy gold, you are locking in the value 
of
your assets at some stable point as currencies fall is just not true, has not
been true these last few years.

>
> >>You wrote:  "Recall that during the real estate run up while
> >>you had people standing in line for the opportunity to buy
> >>condos at 18%, you also had unlimited adds, spots, and
> >>even roadside signs offering to buy all and sundry real
> >>estate.  Look into the fine print of those infomercials begging
> >>to buy your gold.  They are perfectly willing to buy your gold.."
>
> >Again, the infomercials I see on TV are not trying to convince people to
> buy gold - >they are trying to convince people to SELL their gold.


Read my above again in case we are talking at cross purposes.  I *am*
addressing those commerical interests who want people to sell them their 
gold.  I am
comparing it to the real estate bubble where at the same time you had people
who wanted to convince you to buy a house ("never a better time to buy!") and
those who wanted you to sell them your house and every piece of real estate 
you
owned.  During the real estate madness, I got phone calls and letter from
people who did nothing more than look up real estate records in the county
courthouse and call everyone wanting to make an offer on their house and 
land.  At
the very same time you had ravaging hordes of Realtors(R) who were trying to
get everyone, solvent or not, breathing or not, to buy a house and the bigger
the better.  You point out that there is a hue and cry on the part of some
operators to buy up all and sundry gold they can get their hands on and you 
see
this is a sign of an impending bubble.  Maybe.  But there are just as many 
people
out there trying to SELL gold to the masses.   I take it more as a sign that
people can be suckered coming and going.

>
> >This is a HUGE difference.  At bubble tops - the pitch line is for the
> sheeples to >buy.  That isn't what is going on in gold... quite the 
> opposite. -
> they are trying to >convince the sheeples to sell.


Leslie, those internet, television, and radio ads offering to buy your gold
have been around forever.  They are notorious rip offs offering the owner far
less than the value of their gold.   None the less, I run across far more
pitches to sell gold than to buy it.

>
> >I'm not sure why you think gold is falling against collapsing currencies.

I didn't say that.  I said it is not rising in porportion to the fall of the
currencies.  It is not a stable store of wealth as the gold vendors and coin
jinglers claim.

> > Rice, sugar, oil and who knows what all, although I'm not learned enough
> to know if history has returned to those items over and over and over and
> over again - unlike gold.  .....
>


Here is where our views diverge and so it makes for an interesting point of
discussion.  You see gold as just another in a long list of things that can be
used to store wealth including rice and beans.

If I intended to trade the beans for something else that might be a loose
comparison.  But I am not.  I store breans in order to eat them.  Good times, 
bad
times, money up, gold down, etc. no matter what,. I intend on eating those
beans.  They are neither for sale or for trade.  I want them for their direct
use and intrinsic value (in the real meaning of 'intrinsic').

Gold only has value as a 'store of wealth' if everyone else involved agrees
that it does.  The beans have value whether anyone agrees to it or not.
Grasping the significance of this puts the "investor" in a whole different 
universe.
 It is like the two Harry Potter worlds, they just operate on a different
reality.

As you probably know, dried beans properly stored retain their value
(nutritional value) for many, many years.  Now, we have been discussing the 
potential
gold bubble.  If a bubble occurs and you are to retain or increase your assets
by means of holding onto gold until the proper time, you must discern when to
buy and when to sell the gold.  At some time you have to convert the gold
back into cash or else see its "value" decrease.

A sack of beans will have the same value (nutritional value, remember that
they are NOT for sale) now, next week, next year, five years from now.  I 
don't
have to wait and second guess when the rest of the world deems they have value
and then gobble them all up before that "value" falls.

> Actually doing most things involves a gamble...when you plant your crops
you are taking a gamble on your skills against mother nature.

Again, we are inhabiting two different worlds.  I'm not gambling and I am
certainly not operating "against" Nature.  Even in these past two years of
droughts of Biblical proportions, there was no 'gamble'.  Our options were 
limited
and our potential modest, but we managed to raise enough both years that had 
we
had that and nothing else, we would have been fine.  The sort of "gamble" we
take in subsistence farming is growing enough to have five times as much as we
could eat and so feed four fifths of it to the animals for surplus meat,
eggs, and milk, or else only having two times as much as we could eat and so
feeding only half of it to the stock.  Heads we win, tails we don't lose.

This is a whole other universe away from the notion of taking cash,
converting it into gold, and hoping that the gold will retain or increase its
purchasing power while the cash does not.  That sort of gamble is entirely 
out of your
hands and at the whim of things not under your control.
>
> >The problem for many sheeples in the dot.com bubble is the media did not
> impress upon them that there is a time to sell.  Same for real estate.  It 
> is
> the same with all bubbles.  There comes a time when it is time to sell

So the time comes to sell.  You have to sell to avoid losing value.  When you
sell, you have cash.  Essentially you are right back where you started from
hoping that the things you need and want will be available for that cash.

>
> >In the case of fertile land, that sell might not be ever - it might be
> passed from one generation to the next.   In the case of rice - you have to 
> sell
> before it goes bad.

Anyone who holds food for resale and depends on those profits for their
living is God's own fool.

Just the act of holding something hoping that the kaleidoscope of
circumstances tumbles in just the right combination to give a profit is the 
realm of
knaves and fools.  While it's satisfying to talk about, in real life I want
nothing to do with any such goings on.  I want to be a material participant 
and in
control of everything I do.

So I "invest" in wood and metal and wire and such which feeds my chosen trade
I do for sake of Caesar's coin.  I can take $30 (current value) of materials
and turn it into a artifact worth $900.   Do you think the return on $30 worth
of gold is ever going to yeild that much?  Yet that's the difference between
putting ones effort into assets rather than ass-sits.  What if my wares don't
sell?  That's the wrinkle, the worse the times it seems the better my sales.
But even if not, the things will keep and like gold, someone will want them
someday.  In the mean time my investment in beans and rice make the sales all
but moot anyway.

>
> >I seems in your reply that you believe it will be a somewhat slower
> transition from the current life-style of run to the grocery store twice a 
> day for
> (allegedly) fresh food if needed mentality that some people have, towards 
> more
> and more self reliance.  As opposed to a sudden transition (sudden meaning a
> short number of years.)

Yes, I believe it will be a long transistion, but we are probably not
thinking about the same thing because 'long' in my thinking still means that 
in three
years you'll hardly recognize the place!   The frog is already being boiled.

When I asked my grandparents about the Great Depression (my parents were four
years old in 1931, the year I will be referencing), I asked if people then
knew really hard times were afoot.  They said 'no'.  By 1931 everyone was
convinced that the worst was past and only good times lay ahead.  In 1931, 
the worst
year of the depression as far as the sort of finances we are talking about,
the stock market lost 40% of its value.  This year, 2008, it has lost 36% of
its value - assuming it loses no more in the last couple of days of trading.
Two years later, in 1933, all privately held gold was confiscated.  I don't
think that is going to happen again, but I think just as aggressive steps 
will be
taken to make sure that those hoarding gold cannot profit much from it.

It was 1933 that my grandmother liked to recall with some of her favorite
stories about here father, Papa-Joe.  She idolized him much as the Baldwin
Sisters on the old Walton's series.  I might add that looking at a picture of 
my
great grandfather for me is like looking into a mirror, we look exactly alike.
Anyway, she tells how in 1933 Papa-Joe planted a field of wheat and arranged
with some neighbors to have the thrasher come around at harvest and thrash and
winnow the wheat.  That year the pear trees had a bounty and she recalled he
father putting the pears down in the bins of wheat so they would ripen slowly
and be available until well into the winter.

She remembered 1933 as a very happy year.  By the bye, Papa-Joe also gave her
a gold Double Eagle as a keepsake for the year gold was confiscated.  I've
got it now.  It's still just a keepsake, but it illustrates the difference, 
says
I, in expecting the difference in the price of gold to sustain one and
putting up a bin of wheat and pears.


James