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​​​​​​​* Gold, Dollars, Stocks…and Bitcoin.*

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  • ​​​​​​​* Gold, Dollars, Stocks…and Bitcoin.*

    Good commentary, I recommend all members read this one.

    Gold, Dollars, Stocks…and Bitcoin.

    By Professor Doom

    I was a professional stockbroker and investment banker1 before I went into academia, and it is my blog, and so I feel entitled to talk a bit about the insanity in our monetary system…there’s much to say, so much that I’ll be rambling a bit trying to just hit the highlights.

    I’ve mentioned before that the current Fed experiment of reducing interest rates to nothing and simply handing over huge sums of money to the banks has been wreaking havoc on our financial system, and not just by eventually destroying every pension fund in existence.

    The “zero interest rate” experiment has also done considerable harm to the average investor with only basic skills and (if he’s sane) minimal tolerance for risk…how can he make money, or even preserve what he has? Reducing interest rates to nothing means that the classic investment for a low-risk investor, bonds, is stupid. Most bonds are paying far below the actual rate of inflation human beings endure right now (and now there are negative interest rate bonds, obviously paying less than the Official Government rate of inflation). Buying bonds is a definite losing proposition.

    Most people have responded to the lower bond interest rates by pouring money into risky stocks…but it’s a sucker’s game. Although the mainstream media screams how great the stock market is doing, there are thousands of stocks out there…and most all the gains can be attributed to a very few stocks. Amazon is pretty much it, most every other stock is a loser.

    Besides, stocks are ridiculously manipulated by our government; it’s impossible to tell just how much of the stock market is being propped up by the government’s “plunge protection team” and outright buying of stocks by the Fed (yes, it’s illegal for it to do so, but it’s a simple matter for the Fed to lend to foreign bank friends, with the understanding that the money will be spent on stocks…we should ask questions about whether this is a good idea, at some point). Nothing stops foreign governments from just printing their own money to buy stocks, either.

    Seriously, a hurricane devastated Houston…and the Dow Jones didn’t budge. The US just took 200 billion dollars’ worth of damage to a hub of major economic activity, and that’s not reflected in stocks? Obviously, something is very wrong here. If you’re not an insider, you’ve no business in a market this artificial.

    A conservative investor has little option but to stay on the sidelines…and thus keep his cash as what we call “money,” which I’m going to crudely refer to as anything that can be quickly enough converted to dollars.

    Plato defined money thousands of years ago, but great as he was, he used a weasel word in his definition of money, when he said money was a “store of value.” What’s value? It’s an important detail, but let’s pretend we value money in whatever form. I’m only going to mention stocks, bonds, cash, gold, and Bitcoin here because there are all pretty much money—you can quickly assign a dollar value to them and within at least a week, get that value. Real estate, for example, doesn’t really count because you might get an appraisal, but it’ll still take weeks or months to find a buyer, with no guarantee he’ll offer the supposed value.

    So, staying out of stocks and bonds, what kind of money should you have?

    An investor could keep his money as dollars, but there’s a problem here beyond simply losing value to inflation. Our government steals money from its citizens now, and steals more than actual (non-Government) thieves. A cop finds you with a wad of cash, he can just take it. This sort of “legal system” is probably a bad idea and is a big factor in why government is taking more than thieves (and I’m not even considering taxation here)…we should probably ask questions about that at some point, too.

    So actual physical cash is a bad idea. Put it in the bank? Well, that has risks as well, as investors who read the world news know. Either way, fiat dollars as a store of value is a problem; we all know that government’s “1.5% inflation” is bull$#@t, there’s not a single expense of mine that isn’t up over 60% in the last decade (if not more), and my friends in other parts of the country say it’s about the same. Cash is better than negative interest rate bonds but still an obviously bad investment.

    So, what other money is there?

    Gold seems like a good idea but has some serious problems right now. Again, “value” is a problem since ultimately gold’s value is a matter of opinion (an opinion humans have held for thousands of years, to be sure, but still just an opinion), as opposed to value our dollars have due to the many guns our government has. The situation for gold is worse than just opinion, however.

    Much like our markets, gold is heavily manipulated by our government. Gold is traded as a commodity, but with one weird quirk. See, with most commodities, you can go to the market and buy “paper” versions of the commodity via a contract. For example, you can buy 20 tons of potatoes, on paper, to be delivered 3 months from now. You put some money down, and pay the rest at the end of the contract, if you want the physical commodity.

    These types of transactions are called options contracts (I’m simplifying greatly here, bear with me). After a specified period of time, you can trade in the contract for the actual commodity (in which case you have to write a huge check, and better have a place to store what you just bought), or just take a check for the difference between the current price of the commodity and whatever you agreed to pay months earlier (and, if the current price is lower than it was before, you might get nothing, so these types of contracts can be very risky).

    Now, these contracts make sense for big business. If you’re, say, McDonalds, you might want 20 tons of potatoes, and you might want to know what you’ll be paying for them, when the crops come in. So, for the privilege of knowing what price you’ll pay at worst, you buy a contract, and use it if the price of potatoes is higher than you thought it might be. Speculators can buy them, too, making (or far more likely losing) fortunes in a matter of days, or even seconds. Unless you’re Hillary Clinton, of course.

    Anyway, at the end of the contract, McDonald’s can write a big check and quite literally get a trainload of potatoes.

    Gold is different. Although you can buy it as a commodity, there’s a special quirk. For some reason, you legally cannot get the gold you’re paying for. At the end of the contract, you can write a huge check and you’ll get….a huge check. You trade paper for paper. It’s all paper, and the end result is, if you have the ability to print an infinite amount of dollars, you can sell an infinite amount of paper gold, completely controlling the price. No amount of buying will cause the “value” to rise relative to dollars, and if McDonald’s ran the risk of only getting a check instead of actual potatoes, McDonald’s would ask for a contract where it can get the potatoes; there’s no similar option for gold, all you can get is paper.

    Investment firms go nuts trying to guess what gold is going to do, because the gold market is fake, and gold does not at this time qualify as an investment.

    So, it doesn’t matter that China/Russia/India is buying massive amounts of physical gold, the price only moves if the government allows it, because it can just sell paper gold all day long. China’s opened a physical gold commodities exchange, so, someday, this ‘paper gold’ issue will collapse and there’ll be a whole bunch of people holding slips of paper but not actual gold. The current ratio of imaginary paper gold to actual physical gold being traded is around 200 to 1, every ounce of physical gold could have 200 people with a piece a paper saying they own it, to give an idea what a mess it will be when that day comes. Whether that day is next week, or in 500 years, my crystal ball is unclear.

    Gold, stocks, bonds, dollars are all forms of money, and all are under the absolute control of the government, making them all pretty risky investments at this point in time, with no way to know the “real value” (whatever that means) of these investments.

    Now comes the new kid on the block: Bitcoin.

    Bitcoin used to be the primary money of the free black free black market, you could use it to buy a hit of drugs…and it wasn’t worth much more than that for years (say, $10 or so, just to give it a number). Then, the guy who was running the biggest free black market, “Dread Pirate Roberts,” was arrested, four years ago.

    Government naturally moved to steal his money, but to do so, Roberts would have to give them the passwords to his Bitcoin wallet. “The Fifth Amendment,” said Roberts, who rightly noted that giving the passwords might incriminate himself. He got to keep his money.

    Across the world there was an important revelation:

    Bitcoin is money not controlled by government.

    This is what began the big run on Bitcoin, to $100, to $300, to $1000, to now over $4,000 and even breaking $5,000 recently. I don’t want to go into detail as to what, exactly, Bitcoin is, but it’s amazing that these non-physical items are now (as of this writing, the dollar values may change dramatically up or down at any time) are now worth over three times the price of an ounce of gold. That’s a pretty good indication how fake the gold market is: imaginary coins are worth more.

    Incidentally, for the crime of running a website selling things the government doesn't like and using Bitcoin as money, where no customer felt defrauded or injured, the guy got a sentence of Life Without Parole. Considering rapists, pedophiles, murderers and billion-dollar heisters like Madoff didn't get such a sentence, we probably should ask some questions about the real "crime" here.

    Now, people are buying Bitcoin, much like countries are buying gold. There’s an important difference:

    There is no paper Bitcoin market.

    The above means that government cannot interfere with the Bitcoin price; every purchase of a Bitcoin is an actual purchase of a Bitcoin, so normal economic rules apply regarding supply and demand. It’s a huge, huge, difference.

    The issue isn’t (physical) gold is worth less than Bitcoin…the issue is Bitcoin isn’t controlled by any government. You can buy things with it, not just drugs. The IRS considers Bitcoin a capital investment (much like, say, stocks), but at some point there will be major transactions completely outside of the dollar system (“Trade me your house for 100 Bitcoins”) and we’ll get to see the courts decide if the government can set dollar values on everything even more directly than they do now.

    Of course, the government could pass a law saying Bitcoin cannot be used for transactions, but some countries, crushed by the Fiat System (hi Japan!) have actually legitimized Bitcoin as a currency. Considering Bitcoin’s roots in the free black market, government attempts to ban its use probably won’t be particularly successful, although many attempts are in the works, potentially destroying Bitcoin overnight. I doubt it’ll happen, but it’s a legitimate risk. Similarly, I doubt a solar storm will fry all the electronics on the planet, also annihilating Bitcoin overnight…but it could also happen.

    So, sure, Bitcoin is risky in today’s incredibly manipulated financial environment. Everything’s risky. But if you want to know why Bitcoin is skyrocketing, why everyone knowledgeable about what’s going on in the world today is interested in Bitcoin, I’ll put the important detail down again:

    Bitcoin is money not controlled by government.

  • #2
    This is a great article except for some HUGE fallacies.

    1) It is easy to get gold. And you can get real gold. No problem. If you are buying commodities contracts and have the wherewithal to complete a gold contract, then you will also have the resources to get the actual commodity if you want it. Just go to a coin dealer you can trust (not many of them will be able to handle it, but there are a few) to negotiate the conversion and delivery of the commodity. You wouldn't want a commodities bar anyway. If you want gold for the obvious reason to take care of the usual necessities if the fit hits the shan and there's an end-of-the-world-as-we-know-it (eotwawki) situation happening, then you need gold and silver in small coins for exchange. So you're back to the gold dealer in any case.

    2) Gold has an intrinsic value. It will always have an intrinsic value. Bitcoins depend on a sophisticated internet infrastructure. That may or may not be available in the eotwawki situation, in fact it is highly likely that it will be worse than useless. The amount of negotiation it would take to get someone else to take this thing would get impossible in a hurry. As in, after the first couple of hours, they'll be worthless. Gold doesn't have that problem. They see it, they know what it is, they'll take it in exchange. It has always been that way, it will always be that way. Even the idiots that turned down a 5oz silver bar in favor of a 1oz Hershey bar wouldn't be that foolish if it was gold.*

    3) The article sounds like a Bitcoin advertisement. I wonder if anyone did any vetting on the author to see if (s)he is somehow selling Bitcoins? Call me cynical if you like - I freely admit that. But if it looks like a duck, walks like a duck, and quacks like a duck, it is probably a duck.



    * - Well, maybe. It is true that there is no limit to stupidity. It is also true that a fool and his money never should have gotten together in the first place.


    • #3
      This is cool to check out. I'm with you as far as a end of the world scenario, but in the meantime there is money to be made if someone has capital they are willing to risk. I used bitcoin for business and never thought of it as an investment, until I noticed that the bitcoin that I had stored kept increasing in value.

      It is no doubt a risk, but if I would have loaded up earlier this year it would have been like hitting the jackpot. If the P.T.B. switch to a crypto as a currency, silver and gold will continue to be kept down. Unless it's something like nuclear war, I don't see the P.T.B. giving up the surveillance state that so much time and energy has been put into in the last several years.

      Cryptocurrency Market Capitalizations


      • #4

        It is no doubt a risk, but if I would have loaded up earlier this year it would have been like hitting the jackpot. If the P.T.B. switch to a crypto as a currency, silver and gold will continue to be kept down. Unless it's something like nuclear war, I don't see the P.T.B. giving up the surveillance state that so much time and energy has been put into in the last several years.

        Silver is used in so many different every day items along with more and more electronics that sooner or later they will lose control of their metals suppression game just like how they tried to control this last election. There are more people out there than ever before that want real privacy and are stocking up on metals of various sizes because they don't trust the dollar anymore, so what is left, gold and silver because you have it in your hand.

        The ability to operate under the radar has always appealed to many folks out there and a big winner will be barter items that you must have like food and other items. You might laugh at this one but 2 of the items that I had stocked up on are instant coffee and toilet paper, ok you can laugh but try and do without them for a while.


        • #5
          I hear you on storing useful commodities. The only thing I don't like is the fact that I'm trying to get ready to move, so a mass quantity of TP is probably not something I'm going to store for a while... ;)


          • #6
            There's a few people who are claiming that the stock market is a huge bubble and that gold and gold exchange traded funds (ETFs) are going to be the big gainers when the stock market goes through a huge correction starting this year (2018). There are some interesting views on this, usually penned by people who work for or sell gold ETFs, of course*. Maybe they're right. Stock market euphoria on amazing gains can't last forever; sooner or later they run out of new fools that buy into the bubble. Same as gold or any other commodity or investment vehicle.

            Anyway, now might be a great time to switch the holdings around to take advantage of the change in the tides.



            * - The main claims I've heard are that the Fed has decided to start deflating the huge money creation scheme by letting bonds roll of the balance sheet. That translates into having banks call in loans in order to pay them back - ergo the massive cash infusion that fueled the last 8 years of sort of "normal" economy is about to be disappeared systematically. Yikes, isn't that going to be interesting. Central banks all over the EU have decided to start buying massive quantities of gold. That really changes things as well. As soon as the first wave of overextended holders of equities start having to dump stocks in order to pay back the banks, it will be come a scary wave of stock market selling. I think they have a point. So, I'm going to see if I can roll over my 401k from my old job into a good gold ETF. Maybe I won't end up living under a bridge. Time will tell, won't it?


            • #7
              THA - member #51

              I am a FREE MAN!
              Always was....
              Always will be!


              • #8
                Has anyone been in contact with Brian?
                THA - member #51

                I am a FREE MAN!
                Always was....
                Always will be!


                • #9
                  No I have not. Is he ok?
                  "Diversity is the Agent of Contamination!"

                  "Tolerance is a Virtue for a Man without Convictions!"

                  Retired Army and Loving Every Minute of It!


                  • #10
                    That is what I am trying to find out!
                    THA - member #51

                    I am a FREE MAN!
                    Always was....
                    Always will be!


                    • #11
                      I texted Brian about a month ago - no response. Doesn't sound good...
                      "There are only two things we should fight for. One is the defense of our homes and the other is the Bill of Rights." - Maj. Gen. Smedley Butler, USMC

                      "The Constitution of most of our states (and of the United States) assert that all power is inherent in the people; that they may exercise it by themselves; that it is their right and duty to be at all times armed." - Thomas Jefferson