Thursday, January 22, 2015

Volatility and the "Fire of Change"

As volatility in our paper markets increases, many surprises await. Many expectations are reset, and many perceptions begin to change.

Many things written in the past, which people have had difficulty trying to grasp, will become clearer. The volatility we see today, including the rising overall price trend in paper gold, is part of this. It confuses some who have predicted that paper gold will merely crash to zero as delivery fails.

We have not come to this time yet. In fact, paper gold is doing exactly what it should be doing in our markets today, as these markets are still largely driven by sentiment, expectations and the perception of future performance (and paper claims upon those changing perceptions, sentiments and expectations).

Gold is still a part of this paper world. And all the silly "plunges" and "surges" reported in its paper price as it goes through the emotional throes of change will all be seen as bumps on a blue whale's ass when the real move comes (in retrospect).

Yes, it is true that to "think like a Giant" in terms of marginal utility and store of value are instructive. And yes, it is useful to understand that gold does denominate the currencies as they "move through" all assets instead of "into them". But as volatility is now the norm, and will be until the turn, there is another thought which helps to explain what is coming.

Said FOFOA to Aquilus:
If you bought $100K worth of gold your currency flowed through to the seller of that gold and now you only hold an asset, right? The gold. And how do we know the value (price) of that gold? Do we know it as a currency price? Is that correct? 
If the USG goes ballistic defending its inflow of real goods and services with the QE printing press, who is going to dishoard some gold for dollars? No one, you say? So if there’s no dollars and gold being exchanged, how do we know the value (price) of that gold? Is it valueless now that there is no dollar price for it? Or is it priceless? 
Yes, we do confuse ourselves when trying to explain the way things are TODAY, when it is TOMORROW that changes the explanation, by definition. Because we have not yet seen the unthinkable today, we struggle to predict it, and yet the surprises that lie ahead will make the SNB's move to de-floor the Franc from the Euro just another bump on the same whale's ass.

To truly "think like a Giant" is to think like "generational wealth". Time is the key.

Wealth that has survived the fires of change which burned "new money" through the ages understands that gold stores value through the fires of change.

I'm sorry, but to divert many millions into "balloon dog" is a risky proposition for the coming times (marginal utility notwithstanding). Yet to accrue gold proves its timeless merit, as your most valuable trading partners, and your new consumer economies continue to do the same.

This volatility (and unpredictability) shows us that paper wealth once thought to be "the safest play of all" is not exempt from the coming fires and the "changing thoughts" that still price our world through derivatives.

Our paper world of "prices" and "commerce" is purely a construct of "thoughts about values today ... and tomorrow". As the volatility which lies ahead continues to destroy the venerable institutions who "thought wrong" we will come to better understand this - to better understand how fragile this construct of derivatives has become.

ALL VALUES OF ALL THINGS TODAY - INCLUDING GOLD, hinge upon the emotional state of the human condition - a very precarious thing to bet ALL of one's wealth upon in these volatile times. And yet today, we still price gold according to the (increasingly volatile, and yes, increasingly fearful) emotional state of expectations, sentiments and perceptions of the present, in the context of the future.

When ALL hedge in the SAME direction, this will change, as in the coming "FIRE OF CHANGE" because when that tomorrow comes, the emotional state of thoughts (about the future performance of debt for example) will no longer price underlying assets.

It will take a good few more paper wealth destroying surprises to make the turn. But the flight from paper will be unlike any expectation, perception or sentiment that the vast majority of thoughts comprising the markets holds today.

Gold will survive this fire of change (as generational wealth has learned so well). This new paper money, as it burns, will price nothing.

And in that day, to say "gold prices currencies" will make much better sense. So much more so than to ask the markets to realize (as so few do today) that it is merely "thoughts about values" which give currencies the power to price anything at all, including gold.

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