Robert Kientz

Robert Kientz
Contributor since: 2010
That depends on your investment horizon and whether you believe the manipulation is intended to last indefinately. All manipulations end eventually, whether intentionally or by force.
"It's still very, very early in the adoption stage. The comments here clearly demonstrate that. "
Agree with this last statement. The wise man doesn't invest in unproven models, unless he doesn't mind parting with his cash more often than not.
Technology is always hackable, see my comments above. See credit cards and the various forms of protections that routinely fail in its implemenation.
Paco,
Thanks for the comment. I was a bit harsh in my original reply, apologies for that.
I agree that technology does tend to get better over time. However, bitcoin has some severe issues that have already begun to be exploited. Exchanges have already been attacked successfully, etc..
What you realize when you study security weaknesses of encryption is that the attackers don't usually try to brute force the keys. They attack the software implementations, the key exchange (man in the middle attack), the money exchanges (or peers), and any storage of data. The weakness is not in the mathematical model, it is in the software and hardware that supports it's implementation.
The major flaw in the bitcoin model is that someone will figure out how to generate coins faster, like the banks figured out how to print pure fiat beyond gold stores and reap the benefits of free cash before inflation took hold.
In my experience, no software is immune from cyber attacks. Having attended the Blackat security conference in Vegas recently as an information security professional, I can attest that anythng is hack-able given enough time. Bitcoin will be no exception eventually. Then we are back to square 1.
I would rather base my currency on physical limitations that gold has that are not easily manipulated by man rather than the ability to print cash (fiat) or simulate cash generation (software, hardware). One cannot be manipulated easily, the other two can and have many times over in history.
cmnsnse,
We are using savings to remodel (and proceeds from previous house sale), so I have no interest costs. So it made sense to pay for the lease on what I expect will be the same interest rate on a smaller loan on the panels than what I spent on the remodel.
The rates on panels shouldn't be much higher than other interest terms if you have good credit (above 660 FICO). Most buyers will probably calculate their monthly payment and figure out what system they can afford from there, using the expected savings as an offset.
Depending on the budget, the average person could probably save 20-25% on their monthly energy costs and maybe more by using the panels. Given the short payoff period on the lease due to incentives, the free energy should be calculated into total ROI to justify the the go/no go decision on the deal.
cmnsnse,
I paid about $7k for a 5.1kw (could have been 4.1kw, need to check) system due to all of the incentives I received. In addition to government rebates, there was a flat $1000 rebate off the bottom line from SC due to some special financing they had received that year. It was a sweetheart deal.
I used a spreadsheet to focus on how long it would take me to pay back the lease based upon my continuing real world savings on electricity. After a year of data, my assumption that I would pay back the lease in 7 years was beaten as I was actually going to pay it back in 5.5 years. That meant 14.5 years of free 5kw of electricity on the lease, 5 hours per day on average as I live in a sunny state. Given that I had zero maintenance cost expectancy, it was a steal in my opinion. The buyers saw it the same way when we sold our house.
According to Solar City, I can get a similar, but not quite as good, deal on my second home (so no limit). I haven't done it yet because our money has gone into whole-house rehab, but I am considering doing another lease next year using similar terms depending on discounts/rebates available. SC was a fantastic company to do business with, and I hope there business model works out for them (and their customers).
I have no doubt the author's strategy works and kudos to him for it for as long as it holds. At the end of the day, we are all just trying to make some money with our strategies and none of them will be right forever. At some point, all markets change.
That being said, I am long physical and don't touch the paper stuff. I get the paper markets, but long term the various forms of gold paper are worthless. So if you want trading strategies, try this author's approach. If you want long term savings that shouldn't be affected by fiat currency failures and bubble busts, buy the shiny physical stuff and just hold it.
Depends upon your strategy.
I used to lease from Solar City, but sold my house with the leased panels. In my case, I paid the whole lease up front with no interest costs, and used that as a selling point on the home (with slightly increased price). It worked out for both buyer and seller as I sold my house in 10 days after listing. Who could beat the attractiveness of solar panels at a discounted price? The buyers couldn't, and I recouped most of my costs while benefiting from the solar energy while I was there.
That being said, there are a lot of assumptions made on either side of the debate. First, most customers know nothing about solar leases or panels. If the house is a good deal and the net gain on solar energy outweighs the leasing costs, many consumers would not complain. The only ones who would are those that don't want the extra cost and prefer to pay full price on their electricity. With these customers, simply showing them their rate of return on the solar energy should diffuse some of the confusion over their expected costs. In my case, I posted the Solar City savings chart (available on their software) on the front door so customers could see before they walked in how much solar saved them on a monthly basis, which is an undeniable selling point.
The area I think gives most house shoppers pause is not the future lower price of solar panels, which most people probably aren't up to date on. I think it is whether they will sell the home again within the lease period and have to deal with lease costs to the next buyer. Average 7 year ownership means that is likely to happen even with 2nd owners. In that case, they would swallow the lease costs from the sale proceeds, or convince the next buyer of the long term benefits.
Most likely it will be a compromise as with my case where both the buyer and seller absorb some of the costs (buyer absorbs most) and the buyer gets to look forward to lower electricity bills.
With solar being rare in the market, it is a huge selling point for those wanting to be green and for those who are owning long term. If you have a bunch of first time home buyers on the market incentivized by the government to buy a house, you might have more trouble selling your home with solar panels because they may not be living there long term.
Because with current payments the customer still makes out. See my post above. From a customer perspective, the lease model is a steal. From an investor standpoint, I am not so sure ...
I was a leasing customer of Solar City within the last few years. After a year of owning the system, my wife decided to move. Broke my heart because of the sweet deal we had on the panels.
The lease is very profitable for the owner as it takes the risk of owning the panels out of the equation. And after 6 years, I projected to have the lease paid off and have made 14 years of free energy from the panels. It helped to have the big government incentives to reduce the overall lease price.
There is no reason why most customers shouldn't opt to lease the panels and SolarCity's business will continue to grow. As for profitability, I'll wait and see how the company does.
If you look at countries with no socialized medicine, they tend to have lower overall medical costs per procedure and less out of pocket by spenders while having equivalent quality and higher levels of end user service. Chile is a prime example.
The problem with Canada, France, et. all is lack of advanced procedures, falling rates of doctors per 100 residents, lower quality equipment, longer lines, and higher overall costs. This has led to a booming medical tourism industry.
I did an extensive study of socialized versus non-socialized medicine and found this to be true in all the countries I studied. I don't have an article written (it was for my own purposes) but am content with the richness of the data I studied to back my assertions.
So, I tend to disagree with statements that socialized medical systems are on par with free-market systems in general.
Hardog,
I agree as I expect continued slow rising inflation until certain elements of the economy come under control. So my planning assumes high inflation rates and I try to use strategies that mitigate this trend.
G3 has a good point about the relationship between technology and people. I don't care what technology you have, if you don't have good people, your security sucks. Seen this too many times in the real world and it happens at most major companies.
Hire good people first, setup a good process, and then buy/adopt technology solutions as needed.
FireEye will do well because of their name but they are by no means any sort of silver bullet. As CIOs and CISOs figure that out, there will be a cap on FireEye's market cap.
Mandiant's research is the best thing to happen to the company, not the appliances they sell.
Most people, when referring to the historical gold standard, really refer to gold as money. The gold standard of Bretton Woods was a paper ponzi on top of a fixed gold price, which predictably broke apart causing the US to go pure fiat in 1971.
I know of very few who want paper backed by gold using the same conditions such as government fiat inflation to a fixed gold price or even a manipulated gold market price based largely upon speculative paper investments.
To solve the argument, just put gold and silver in the market as money alternatives with pure market pricing, and see which wins. That is the only way.
The short term fear factor is gone in the minds of the public. However the fundamental factors contributing to that fear have only grown worse. Blame it on the 24 hours news cycle for people to lose interest and move from current story to current story. For those looking at long term investing, the reasons to own gold have continued to strengthen.
Natural gas is hard to export with existing infrastructure. I agree with the article, having previously written on the subject. But I also think this is somewhat of a long play as infrastructure build-out continues. There will be a convergence between gas supplies (and prices) in the East and the cost of exporting from the west. I don't think anyone knows that that convergence price is at the moment, given the uncertainty in the oil markets where nat gas is a partial substitute.
To answer your question, you have to understand the difference between paper and physical markets. Take this form a former Series 3 license holder who worked briefly at an FX firm.
Originally the physical market and paper markets were tied together. However, now paper markets dominate the pricing and the physical markets slide under the radar using the paper market prices.
When the paper markets were first introduced, their primary function was to allow producers to hedge prices using offsets on futures. However, the paper markets are now 1000's of times larger than the physical. So, you can have people, companies, retirement funds, and countries all hoarding physical while the paper market swoons.
Translation: physical is sorely undervalued. Because precious metals are typically a money alternative and also hedge against global FX market failures, the physical market price won't come to the forefront until the paper markets crash/lose confidence of the public.
If you are really patient, you can invest in precious metals now and capitalize at some point in the future. This is exactly what China/Russia are doing, mainly to bolster their currencies in the FX markets when the currency wars reach full tilt and public confidence in fiat money swoons.
Thanks for the comments. It's an interesting strategy I will keep my eye on.
George,
I am about to turn 40 and the prospect of paying for long term healthcare is becoming a much larger blip on my radar of things to plan and save for in retirement.
Your article outlines a very interesting strategy on paying for healthcare costs. Having companies that take our money fund our own healthcare expenditures from their gains is an interesting idea.
Do you see risks in expanded government interventions in the healthcare sector, as a primary driver of healthcare administrative costs, as a threat to the profitability of the companies and potentially to this strategy long term?
The company's ability to fund higher costs through fees while maintaining adequate profits (and subsequent distributions to shareholders) will be key to the strategy working, I would think.
Finding alternative solutions to expensive care that you touched on (such as self-care at home) are a good idea, as well as finding alternative community-based solutions for healthcare such as cooperatives and using social networks to acquire expensive types of care at a discount or 'for trade'.
As an example, my older brother did some sign work for his eye doctor and received free care in return in a barter.
Thoughts?
He is right on the vulnerability of a software driven currency. To me, the idea is a complete farce. I have been in technology for 17 years, and there is no way I trust bitcoin to be a stable currency.
Your narrative does nothing to dispel the notion that the markets are manipulated, which anyone that follows the metals markets for some time know is true.
Comparing two assets to the entire CPI? Sounds like selective data picking to me.
Investors cry conspiracy when the overwhelming magnitude of the 'paper' speculative short position in precious metals outweighs any sensibility provided by current and future economic or physical metal hedging conditions.
Another one to watch. Thanks Jeb.
I am finishing up a Masters in InfoSec at the moment. I also believe in the value of precious metals versus fiat currencies. That said, I have several major concerns with Bitcoin.
First, bitcoin is nearly as much a fiat as paper currencies are. They are created out of thin air, without hard work. There is a cost: the energy required to computationally generate them, but this is scant compared to the cost to mine an ounce of a precious metal (see more below).
Second, Bitcoin can be hacked. First, user's computers can be hacked and their accounts stolen. Second, exchanges can also be hacked (MtGox, BitFloor, Flexcoin, Poloniex, & Bitcoincia). Third, Bitcoin keys can be hacked from online wallet services that allow users to store their keys enabling Bitcoin spending (Inputs.io & BIPS).
Third, Bitcoin is subject to speculation (Cointerra). For those with access to more expensive computers, mining Bitcoins happens more quickly. Using Moore's law, every 18 months computational power doubles. Will the Bitcoin algorithm keep up or will it eventually collapse? If it collapses, Bitcoin loses intrinsic value which violates Aristotle's criteria for sound currency.
Fourth, all software is eventually found to be outmoded. The open source nature of Bitcoin means that many developers can contribute, but that is absolutely no guarantee that the development work will keep the Bitcoin currency stable over time.
I would rather place my faith in Mother Nature to regulate precious metals outside of human failings than to have humans try to keep the game going despite all previous failed attempts to create successful man-made currencies.
Gold phyiscal market does not = gold paper market. You are analyzing the paper market which has no relevance to the historical physical market in gold. Therefore, your pronouncements have little value for those that invest in physical metals.
"That might sound reasonable, but deflation tends to be catastrophic if prolonged. If you see what's going on in Spain and Greece today you get the gist. They're locked in a single currency, trade doesn't rebalance through FX because they all use the same currency, the governments can't print money and so they're suffering through a depressionary deflation. It's a disaster. So I dislike the gold standard because I think it's like putting ourselves in a straight jacket."
When gold was straight up money (and not backing paper fiat during the gold standard in which governments printed too much and broke their own peg to gold, thereby breaking the 'gold standard' with excess fiat printing without changing the peg), deflation was never an issue for gold holders. In fact, it supported users getting more for their money over time as deflation increased the value of their savings. This was a slow, steady and orderly decline in prices along the lines of a few percent per year. I have provided tables proving this in my book (amazon or free digital copy if you email me).
I think your fears of deflation when using gold as money is unfounded based upon historical precedent. However, fears of deflation of fiat-induced money printing bubbles during times of paper currency regimes are indeed a serious consideration.
The flaw in your argument using the Euro is there is once central bank creating monetary policy for multiple countries with different trade characteristics. When gold is used as money (and in no way pegged or attached to fiat which can be destablized by excess printing), gold prices simply reflect trade market conditions and in no way will destablize a country unless the country made bad choices to begin with. Gold acts as a measure of account, but is not the cause of financial instabilities.
The article fails to understand the whole point of gold and silver as tender. It would replace fiat money which is constantly debased by the state. The price in fiat dollars wouldn't matter.
Even if fiat was allowed to compete with gold and silver, the price of gold and silver would continue to rise regardless of actions by the Federal Reserve. Once gold and silver are free market money, the price of ETFs and COMEX speculative trading would decouple from precious metals as money. Most people wouldn't care what the speculators value gold and silver at.. the people using it to trade would be focused on PHYSICAL gold holding it's value over time, when compared to all of the fiat currencies worldwide have crashed to zero.
No honest analyst who understands the relationship of gold and dollars believed the recent gold crash had anything to do with the real world. The crash caused gold and silver physical demand to skyrocket to the point they are very hard to find in any quantity, and current premiums are up substantially from normal precious metals market conditions. This would only be amplified in the event more states chose to support gold and silver as money (or just gold).
Fundamentals of the US dollar are extremely weak, so any fluctuations in the price of gold and silver in fiat money are irrelevantto those who would use gold and silver as money, to trade for their services and goods and to hold as a store of value.
As I have said 100 times on this site, the price you see for gold and silver has NOTHING to do with real demand, IE: money demand. It has only to do with speculative positions in paper (worthless by themselves) gold and silver positions. The only market that shows gold and silver's true worth as money (store of value and fungible currency) is the PHYSICAL MARKET, which is raging right now.
Every price drop in the ponzi paper gold and silver markets only serves to increase demand for the precious metals. Gold is in permanent backwardation right now, and this will continue until the US dollar loses its reserve currency status and goes up in flames like 100% of fiat currencies in the history of the ball of dirt we live on called Earth.
John,
Yes.The paper market now has very little bearing on the actual physical commodities (anymore). The current physical market demand is very high, shortages are occuring, and premiums over physical spot (determined by paper trades) are rising, leading to a severe divergence in the price of fiat gold (gold paper such as futures) and real physical gold.
In addition:
You used periods of data in which 1) the price of gold was mandated static, not free market and 2) gold and dollar were fixed in ratio by government decree during a time in which many more dollars were printed than gold was mined, leading to a breakdown of the ratio, liquidation of US physical stocks by the French and Russians, and subsequent failure of the gold exchange standard in 1971.
In short, your charting analysis lacks historical understanding of the relationship between gold and dollars.
Take out all trading in the futures market not related to legitimate producer hedges. Then re-run your analysis, and I will read it again. Most of the price history you use in gold is for the speculative market, especially the last two decades.
People hold PHYSICAL gold for a reason. They don't much care what price the speculators assign to it in their fantasy trading of massive amounts of futures that have no basis on the real production markets, or physical demand for that production.
Chart analysis is fun, I do it myself. But the assumptions made in charting often lead to incorrect analysis.
If the physical market followed the recent gold correction, you'd see people dumping physical gold all over the market. Not just current production, but centuries of past production. Instead, you see physical hoarding every time the price drops. That should tell you something about the physical versus the fantasy paper markets in gold.
Nice article, as usual.
As filipo illustrated, gold would have value beacuse you need to trade even after a market crash. In the short term, food inventories and supplies would be bartered. But after that sorts itself out, when you need to resupply, what do you use?
Are you going to be able to trade your skills for the food or gas you need? What if the other guy doesn't need your skills but something else? At a point in time, gold will not be tradeable, but then it will be again. It is a safe store of value. After a big crash, nobody will trust paper money.
If we go Mad Max and never have society again, then gold won't have value. But as soon as a big crash happens, history shows people go about rebuilding pretty quickly.
"If you want gold/commodities delivered all you have to do is buy futures and they will deliver gold, corn, pork bellies, soy beans............ "
For any given contract, yes. But try to redeem all the contracts at once and see what happens. COMEX inventories of physical, for example, at are at very low positions compared to the trades placed. If a few large longs stood for delivery, the exchange would be bankrupted. The easy way to confirm this is compare the physical inventories versus the daily trade volumes.
By the way, on April 17th, the US mint sold a record amount of US gold eagles. Like I said, physical demand is exceptionally strong.
http://bit.ly/11gjqRn