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THE "Y2K problem" - the need to reprogram
computers to correctly recognize and store dates
after the turn of the century - is generating a lot of
overtime for the consultants whose predecessors
created the problem in the first place.
Now it seems that Y2K is helping to reignite
speculative demand for gold.
Sorry, goldbugs, I mean "investment demand."
Some of this has been reflected in sales of gold
coins. People out there in the country across the
Hudson are buying them at an all time record rate.
In the third quarter alone, sales of coins in the
United States were up to 772,000 ounces, a 170
percent increase over the third quarter of 1997.
Presumably they get stored next to the assault rifles
and canned goods that will see their owners
through the financial market turmoil and general
social disruption. Who knows? Maybe they'll be
laughing at us, just before they pull the triggers.
But the prospect of millenarian mayhem may be
causing a bizarre imbalance in the gold pit of the
Comex exchange downtown.
The gold option contract with the largest open
interest on the exchange is the December 1999 call,
specifically the 390 call. A call contract gives the
owner, in return for a premium, the right, but not the
obligation, to take delivery of a commodity, in this
case 100 ounces of gold.
The 390 call lets those owners acquire gold at a
price of $390 an ounce, whatever the spot price is
at that time. This promise is backed up by the AAA
rating of the Commodity Exchange, Inc., which the
millenarians might not believe will survive the New
Year.
The December 1999 call will expire on the second
Friday in November of the year. As of Nov. 18, the
total amount of gold call options for that 390
contract was over 3,200,000 ounces, which is over
90 tonnes of gold. The total gold calls for the whole
month is over 180 tonnes. That's a lot of gold.
To put that position in context, the January 1999
call options total a little over 660,000 ounces, or
about 20 tonnes.
Said one gold trader on the Comex floor, "If gold
comes in $30 an ounce better ( it closed Friday at
$296.05 spot ) it's going to be a T-Rex. Then it
would be unhedgeable. The whole thing is weird.
The date is all wrong. The size is all wrong. It looks
random, erroneous."
By "unhedgeable," our trader means that it would
not be practical to lay off the risk on other gold
market participants. When market makers on the
floor of the exchange sell calls, they don't plan to go
into their private vault and take out 100 ounce gold
bars and hand them over to you if the price moves
in your favor.
They buy some call options or futures on their own
from other dealers or exchanges who can get the
gold from mines or central banks who have the
physical gold to sell.
But the Dec 1999 calls are such a big, odd position
that it would be difficult to lay off the risk. Our trader
has heard the talk that this position has been built
up by individuals who are betting on Y2K problems.
But he's skeptical.
"Maybe 10 percent of the volume on this exchange
represents retail, on average. This is a professional
market, not a retail market. This just doesn't make
sense."
Because the Y2K position doesn't "make sense,"
right now it's created a lot of inefficiencies in the
pricing of gold options before and after the Dec
99s.
And those inefficiencies are the source of profit for
the floor traders.
By the way, for their own account, many if not most
of them are dubious about gold as an investment.
"It's been the worst investment in the universe,"
says our trader. "The cash costs of mining keep
dropping, and the supply goes up."
So where's the possibility of $390 gold? Do the Y2K
paranoids know something? Or is it just a small ring
of buyers. There is some talk that this is a very
small group doing this.
"This isn't going away," says the trader. "It's going
to get bigger and it could become a magnetic
I really don't believe,now, that the metals will accelerate in price until the current administration is either deposed and reshuffled or until we elect government officials who change the perceptions of wealth and responsibility: It's ok to invest in the stock market at these levels because you need to be a buy and holder.Don't be confused by buy,sell,hold,accumulate recommendations because over the long haul,stocks outperform.These recommendations may seem to be market timing devices,but they are not.The problem is semantics, here.It is perception.What you should understand from this message is that a mutual fund investment is the best choice for an investor.This is how to rationalize this " negative capability",this dichotomy.You can hold and the fund will make the painful decision whether to buy ,hold,or charge more fees.Remember,when all else fails or it is perceived to be failing,the government will engineer a rescue and a bailout.All is well.All will be well.Don't worry.That's why you pay us.We do it all for you.
Now,if you happen to be one of those people who believe that all is not well and that it cannot be fixed so easily or quickly; you are dumbfounded.You , like me,have shorted this administration and this country.You believe in fiscal responsibility and fairness.You might even believe in the rule of law,that relic of yesteryear when an ace was an ace and heros were admired and lawlessness was punished.We could all agree that lawlessness must be punished.We expected and demanded that it must be accountable.I believe that I am growing angrier and angrier as this country becomes more and more complacent.I am angry that my government meddles in the public financial markets.Either the market is irrationally exuberant and needs to correct or the administration needs an approval rating one more time.Tweak,tweak: control.I believe that Clinton should be severely censured,if not impeached.
Oh well,IMHO,the longer this maddness goes on,the firmer my resolve becomes ,as well as my conviction that precious metals and real assets are a SCREAMING BUY. Someday,soon,they will run out of smoke and many will not like what they see in the mirrors.
What is interesting is what is not said. Someone has stimulated AG to talk about going back to fixed ( or semi-fixed ) exchange rates. That someone is probably European. Which country or countries could go to a fixed or semi-fixed exchange rate, and thumb their noses at the US?
What confuses me is that according to 'The Economist' Guide to Global Economic Indicators, the European nations have more debt and entitlements than the US -- at least in the official releases that 'The Economist' reviews. How can the Europeans, who apparently are in worse shape than we are, even consider returning to semi-fixed exchange rates?
On the other hand, if Europe is in such trouble, why is Deutsche Bank buying out of the large US banks? It will be interesting to see who keeps buying out who -- that may be a more realistic assessment of who actually owns the gold.
AG's reluctance to go to semi-fixed or fixed exchange rates means that he does not think it is a good idea right now. This is extremely telling, given that he certainly would love to go to a gold standard, if he could.
Guess he wasn't secretly buying gold after all.
Just imagine what AG might be thinking if Germany has offered to move back to the gold standard -- beginning with exchange rate channels -- and AG knows that the US cannot follow suit.
With all the smoke and mirrors surrounding the EURO launch, it sure is hard to determine whether the ECU can actually move back to exchange rate channels, and eventually back to the gold standard, or whether this is just talk to threaten the US dollar.
You know,I want to believe that history is relevant.I don't buy this new paradigm magic .But I am; I really am amazed how that which is fake is real anymore.I don't care what the home team win streak is----and it is amazing----but,it will end.And to top it off,I've done ok.
So...........on to ten thousand.Don't you wonder how Abbey C. feels right now.
YeeeHaaaaaa!!!!!!
If it can only last.
The formers of this act were correct about one thing -- that loopholes in the tax code caused distortions in real estate -- as well as being a way of avoiding payment of income taxes.
Problem was -- the solution was devastating to US real estate, which still has not fully recovered.
Well -- the 'well-meaning' BIS has imposed new banking rules on insolvent Japanese banks -- and much of the debt hidden all of these years is coming out into the open. If the 'wakeup call' is loud enough, which it probably will be, the BIS will have popped the Japanese bubble that has been in stasis for nearly 10 years.
I think we can conclude that the Japanese leaders have tapped most of their people's savings already, during the last 10 years. Perhaps the Japanese are now net debtors, but won't admit it.
I wonder -- where is the threat to the US dollar going to come from? Where is the foreign economic powerhouse? Germany? It sure is hard to figure out why the US dollar will continue to go down when there are no clear major competitors.
I think you will do far better waiting for the next correction, and buying something near the bottom, rather than biotech stocks right now. A nimble investor could have made 70% or more in gold stocks had he/she bought the bottom a few months ago. Wouldn't you consider this type of bottom buying is a more sure thing than whether some biotech stock is so strong it can weather a Mexico or Brazil collapse? If you are so sure about your Biotech stock, why not buy it at the bottom of the next correction instead?
What I find amusing is that gold equities get pulled down in the suction with other equities -- by those who apparently don't know any better. Then the shrewd long term investors buy gold stocks at rock bottom bargain prices. People like George Soros or Warren Buffett buy the whole gold mine. It will happen again, and again, until there is much less interest in equities than there is now. And -- until those who are forced to sell their gold have all done so.
I will wait on the sidelines. Much safer that way. The real buy and hold gold bull will be after the debt deflation has ended -- you are right about that.
So -- I will just continue to watch the US dollar, and the price of gold, among other things. Right now the pendulum seems to be shifting toward deflation. It will be interesting to see whether AG can inflate the dollar fast enough -- but not too fast ( whatever that is ) .
I get the shivers just thinking about the day when foreign investors realize that the US is no longer the best place for their money. So far, it seems economic uncertainty in other countries is still giving the US dollar a boost, despite its sudden recent drop and partial recovery. When the day of reckoning comes for the US dollar because there are greener pastures in other currencies, AG had better be wearing his superman suit. Could be like 1987 all over again, dollar-wise. Don't think the equity markets will recover as quickly though.
But -- I for one will not be riding the DOW wave up, because the wave may break abruptly. I will keep most of my powder dry.
Perhaps the BIS was trying to encourage Japan to finally put their ship in order, so that all of those Yen carry trades would flood the other way, and force the world to go on a non-US dollar belt-tightening diet. The idea being that a new ( gold-based ) world currency is most likely to come from Asia.
I suspect the BIS is best thought of being in favor of strong, gold-backed currencies, rather than being against the US dollar per se.
P.S.: I'm looking to buy that piece of land in the country I've always wanted----even more so now------or maybe that condo in Dallas I've always wanted.Yeeeeeeh...........that's the ticket.
@JTF: You and I are thinking along the same lines. AG does have his work cut out for him. Deflation or inflation, or stasis right in the middle if the balls are juggled correctly. Agree that when the ball drops and foreign folks head for the exits in a big way, it'll be all over. That's when I want to be holding anything but USA.
Please -- if you can do so, get a little R and R and go to where the skies are clear.
The sheer immenseness of the night sky will convince you that we cannot be alone. There must be intelligent life in the Universe, even if there is little to be found on Earth.
Would be nice if we could get a little guidance -- from time to time.
Hard to travel to the stars if your pockets are empty.
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