This is an important point: margin hikes can not alter the market's underlying supply-demand fundamentals. When palladium was in shortage back in 2001, the exchange raised margins to 100% of the contract's value. And yet, on the spot market palladium traded even higher, until the market was convinced the supply problem was no longer a threat.
Buffett simply fails to acknowledge gold's important role as a monetary asset. Gold is the money of the free market - but Buffett, in spite of being a successful capitalist and investor - personally does not believe in free market ideology. For reasons I fail to fully understand (I am guessing it has to do with his father as it were), Buffett supports a socialist political ideology - just as George Soros does, by the way. Gold is the enemy of welfare/warfare statism, as Alan Greenspan sagely remarked in a 1967 essay entitled 'Gold and Economic Freedom'. Hence, supporters of statism will always disparage gold. Buffett is no exception.
Buffett doesn't understand gold - it's as simple as that. He doesn't even want to. It's a late rebellion against his gold standard-supporting conservative father.
Volatility is not only relevant for the exchanges when it is to the downside. When a commodity achieves huge percentage gains in a very short time period, margins are always raised. This must also take the relation of margin requirements to the value of the underlying into account. When silver was trading at $20/oz. - not too long ago, as it were - the 5,000 oz. contract's cash value was $100,000. At $40 oz., it is twice as much - obviously, margins must be set at a higher level when the underlying contract value has doubled, otherwise traders, brokers and even the clearing house could get into trouble fairly quickly on relatively small price movements. It is of course true that a hike in margins often precipitates more volatility - that is in the nature of the game, as less well capitalized players tend to get taken out. However, silver is well known for having both very strong rallies and very violent corrections. This is perfectly normal in such a fairly small market with intense speculative participation. Also, as I pointed out in a previous precious metals article, the final two to three weeks of the silver rally were driven be commercial short covering - the big speculators were selling down their positions in the weeks prior to the correction. Often when the final leg up in a rally is driven by short covering, the end of the rally is close. As a futures trader one must watch out for such signals when a market rises parabolically and gets very overbought. Silver's RSI was well over 90 in both daily and weekly time frames - that is about as overbought as it gets. In fact, it has never been more overbought in the bull market to date than at the recent high. I would suggest silver bulls should be glad that the shakeout came when it did. If the rally had continued without such an interruption, it would likely have signaled a final blow-off stage for the entire secular bull market. By correcting before that happened, silver's longer term bullish potential remains intact. Moreover, it makes no sense to cry 'manipulation' every time there is a margin hike or every time the price falls. Silver is an extremely volatile market, not only just since this week, but since the bull market began. Anyone trading silver must be prepared to face such moves. Even after the sell-off, silver is one of the best performing commodities of the past decade. If there was a nefarious price suppression scheme going on, then it has obviously failed utterly for ten years running.
Economic Struggles Are Prolonged With Central Banks In a Box [View article]
Indeed, I agree the 'inflation targeting' policy is at fault. If you are interested in a more in-depth discussion of this topic, I have written a more extensive piece on the misguided 'stablilization policy' here: www.acting-man.com/?p=... ('The Errors and Dangers of The Price Stability Policy')
Thank you all for your interesting comments. I have just posted an update on the silver situation on the blog ( www.acting-man.com/?p=... ) that will presumably be published at seeking alpha as well. Anyway, big sell-offs after a near parabolic advance are quite normal, and silver is well known for experiencing hefty corrections. It seems to me that not much has changed with regards to the fundamental backdrop, but it will probably take some time for silver to find its footing again.
U.S. Banks Pile Into Government Bonds [View article]
They are in fact doing both - some of the debt gets right away monetized again by the Fed, and some the banks hold as assets, 'riding the yield curve', which is highly profitable for them at present.
U.S. Banks Pile Into Government Bonds [View article]
I call this circular shifting around of debts and bank reserves 'the Three Card Monte'. It mainly serves to obfuscate what they are really doing, by making it difficult for people who don't have the time or inclination to study all the intricacies of the system to understand the implications. see e.g. www.acting-man.com/?p=... or www.acting-man.com/?p=...
Greek Debt Restructuring: As Unavoidable Today as It Was Last Week (Or the Week Before) [View article]
I agree, 'restructuring' is really a euphemism. Greece has lied about its true financial condition from day one of entering the common currency. Today, the government and the banking system both are de facto insolvent. Note though that the ECB's monetary policy during the boom must share some of the blame. kind regards, PT
Greek Debt Restructuring: As Unavoidable Today as It Was Last Week (Or the Week Before) [View article]
Hi, actually on my blog it was part of a bigger article that Seeking Alpha apparently cut into three parts as it dealt with different topics. The reason why it is only such a brief remark is that I have previously written extensively on the topic, so this is merely an update of 'latest developments'. If you visit my blog you can find some more in-depth analysis on the euro area there. Kind regards, PT
More on Money and the Fed's Predicament: Part II [View article]
Indeed, the Fed is 'in a box' as they say. Plosser's proposal to sell about $125 billion of securities with every future quarter point rate hike is a complete non-starter for the very reasons you cite.
FOMC to Speculators: The Music Is Still Playing [View article]
I certainly agree in principle. It is only when the Fed stops - even temporarily - with its monetary pumping that asset prices fall. In theory however it could simply continue its inflationary policy at full blast, in which case asset prices would continue to rise. To name an extreme example, Zimbabwe's stock market eventually increased by several trillion percent measured in the local currency. In US dollar terms one was however able to buy all the listed companies of the country for less than $4 billion at the height of the inflation.
The Ultimate Contrary Indicator - Mainstream Economists [View article]
Bernanke is certainly blaming someone else - he holds that it is the fault of emerging markets and their growth. The SF Fed even published a paper arguing that 'QE' LOWERS commodity prices. One really couldn't make this up. Bernanke, to say it politely, is an economically illiterate dunderhead.
Thoughts on the Silver Crash [View article]
Thoughts on the Silver Crash [View article]
Thoughts on the Silver Crash [View article]
Thoughts on the Silver Crash [View article]
It is of course true that a hike in margins often precipitates more volatility - that is in the nature of the game, as less well capitalized players tend to get taken out. However, silver is well known for having both very strong rallies and very violent corrections. This is perfectly normal in such a fairly small market with intense speculative participation. Also, as I pointed out in a previous precious metals article, the final two to three weeks of the silver rally were driven be commercial short covering - the big speculators were selling down their positions in the weeks prior to the correction. Often when the final leg up in a rally is driven by short covering, the end of the rally is close. As a futures trader one must watch out for such signals when a market rises parabolically and gets very overbought. Silver's RSI was well over 90 in both daily and weekly time frames - that is about as overbought as it gets. In fact, it has never been more overbought in the bull market to date than at the recent high. I would suggest silver bulls should be glad that the shakeout came when it did. If the rally had continued without such an interruption, it would likely have signaled a final blow-off stage for the entire secular bull market. By correcting before that happened, silver's longer term bullish potential remains intact.
Moreover, it makes no sense to cry 'manipulation' every time there is a margin hike or every time the price falls. Silver is an extremely volatile market, not only just since this week, but since the bull market began. Anyone trading silver must be prepared to face such moves. Even after the sell-off, silver is one of the best performing commodities of the past decade. If there was a nefarious price suppression scheme going on, then it has obviously failed utterly for ten years running.
Economic Struggles Are Prolonged With Central Banks In a Box [View article]
('The Errors and Dangers of The Price Stability Policy')
Silver Swoons [View article]
U.S. Banks Pile Into Government Bonds [View article]
U.S. Banks Pile Into Government Bonds [View article]
see e.g. www.acting-man.com/?p=...
or www.acting-man.com/?p=...
Greek Debt Restructuring: As Unavoidable Today as It Was Last Week (Or the Week Before) [View article]
kind regards, PT
Greek Debt Restructuring: As Unavoidable Today as It Was Last Week (Or the Week Before) [View article]
Kind regards, PT
More on Money and the Fed's Predicament: Part II [View article]
FOMC to Speculators: The Music Is Still Playing [View article]
FOMC to Speculators: The Music Is Still Playing [View article]
The Ultimate Contrary Indicator - Mainstream Economists [View article]
The Ultimate Contrary Indicator - Mainstream Economists [View article]