The Brothers Austrian

The move in silver yesterday blew my mind. There was nothing in the (official) data that would suggest the CPI numbers were above market expectations. The currency markets were relatively sanquine….gold was quietly up 0.85%….but silver, silver was ripping. Closing the the day up over 3%. If anyone has any idea why, I am all ears.

With that said there was an entertaining silver tail posted on Zero Hedge this moring posted by pen name Bruce Krasting. Here is the jist of the story:

For about a year or so back around 84 I ran Citybank’s (now C) bullion vault at 399 Park Avenue. This was just a corporate screw-up. The guy who had management responsibility for the vault got transferred to Hong Kong and so there was a hole in the Org Chart. I was running other profit centers and that was working out so they gave me another. Fortunately for me there were two guys who ran the vault and did a fine job at it. There was a lot of money to be made receiving/storing/shipping bullion.

One of the things I did was take people down to give a tour.  It was a pretty good show. In my mind’s eye it was as big as a basketball court. There were sections that had gold and palladium. Tons of it. But the staggering thing was the silver. It was piled in 200lb bars up to ceiling. They moved it with big forklifts. Hard to describe the scope of it.

This was Bunker Hunt’s silver. It was a good chunk of the 100mm ounces he bought.

The Hunt story blew up in late 79. Keep in mind that numbers then are like today except add another zero. Citi was a very big lender to the Hunts ($115mm). First Chicago was out $70mm. National Bank of Dallas had syndicated a loan for $450mm. All the banks had a chunk of that swill. The worst part was the broker loans. Pru Bache had margin loans of $200mm, Hutton another $100mm and the idiots at Merrill had a $500mm out on margin.

So this was a systemic problem. (Again, a rounding number today)

Paul Volker had taken over the Fed just a few months before all this happened. Inflation was raging at the time. It was his intention to shut that down and he ultimately did. And along the way he killed the Hunts. He also killed the banks that financed the Hunts. He told the banks to eat the losses and store the silver until it could be sold without consequence. Volker played hardball with the likes of Walter Wriston, and they all backed down. Paul made his “rep” at the expense of the Hunts.

The run up in silver (and gold) made Volker look bad. The PMs were the daily signs of his inability to rein in inflation. So he crushed them. Volker set the stage with this one. It was understood that he was not to be messed with. Later he crushed the bond market. All that because inflation got a bit out of hand. Funny how history keeps coming back at you.

So that’s my Bunky story. I’m sure that there are still mountains of silver under Park Avenue. But all that Hunt silver is long since gone by now.

One Saturday morning at 4 am back then I get a call.

Are you BK?  
Yes.

Do you work for Citybank?  
Yes.

Are you the guy responsible for the bullion vault?  
Yes.

There has been an accident. The Number 6 southbound local train has derailed at 53 and Lex. The lead train crashed into the wall. The crash has set off every alarm in your vault. The noise is deafening. What should we do?  
Call the police!  

This is the police!

It took hours for me to figure out how to turn off an alarm system on a Sunday morning. The cops were pissed. Just old stuff…

MisesBeliever Uncategorized

Last night I picked up We Who Dare to Say No to War and turned to a random speech. I ended up being awe struck at the foresight of Vice President Henry A. Wallace. Wallace knew that post WWII America would be turning point. He saw dangers of a growing military industrial complex at about the same time Congressman Ron Paul was born (ironic). The full speech can be found here but I want highlight a few paragraphs and add in what I see as the parrallel’s to where we stand today. The thought experiment sent shivers down my spine.

March 12, 1947 (September 11th), marked a turning point in American history. It is not a Greek (Egyptian) crisis that we face, it is an American crisis. It is a crisis in the American spirit. Only the American people fully aroused and promptly acting can prevent disaster.President Truman (Obama/Bush/Clinton/Bush/Reagan/Carter/Ford/Nixon/LBJ), in the name of democracy and humanitarianism, proposed a military lend-lease program. He proposed a loan of $400,000,000 to Greece and Turkey as a down payment on an unlimited expenditure aimed at opposing Communist (terrorist) expansion. He proposed, in effect, that America police Russia’s (Al Queda) every border. There is no regime too reactionary for us provided it stands in Russia’s (Al Queda) expansionist path. There is no country too remote to serve as the scene of a contest which may widen until it becomes a world war.President Truman calls for action to combat a crisis. What is this crisis that necessitates Truman going to Capitol Hill as though a Pearl Harbor (September 11th) has suddenly hit us? How many more of these Pearl Harbors (September 11th) will there be? How can they be foreseen? What will they cost?

Now I highlighted, underlined and reread this paragraph three times:

I say that this policy is utterly futile. No people can be bought. America cannot afford to spend billions and billions of dollars for unproductive purposes. The world is hungry and insecure, and the peoples of all lands demand change. President Truman (Bush/Obama) cannot prevent change in the world any more than he can prevent the tide from coming in or the sun from setting. But once America stands for opposition to change, we are lost. America will become the most-hated nation in the world.

Two road diverged…And so it goes.

MisesBeliever Government Spending, History, Interventionism, Liberty, Uncategorized, mises.org

If spending is the new conservatism, please label me a liberal. I consider myself a liberal in the classical sense of the word. Below is excerpt from Amity Shales “The Forgotten Man”, an absolute must read.

On August 3rd 1938 George Gallup, the pollster reported that Willkie would have the edge over Roosevelt if the election was held that day…Back home in Elwood, before a crowd of 200,000 and with weather 102 degrees in the shade, Willkie asked the public to think about what it meant to be liberal . Was being liberal merely a left progressive? OR was a liberal someone that believed in liberalism in the classic sense, in the primacy of the individual and his freedom? Willkie railed against Roosevelt’s “philosophy of distributed scarcity.” …and he argued, speaking of both the United States and Europe, it a was a weakness ”that people reached for dictators and concentrated government power…”

Currently it seems to me that both Democrats and Republicans have both headed down the path of concentrated government power and away from liberialism and ultimately liberty. Classical liberalism is making a comeback and has been an undertone to the recent tea parties. The libertarian movement, which is ultiminately one in the same with Austrian economic policy , is not a conservative undertaking in my eyes (as most pundits seem to think), rather the movement embodies what it truly means to be “liberal”.

MisesBeliever Uncategorized

Peter Schiff’s campaign headquarters was packed to the point where you literally could not move, mind you it was on a blustery 19 degree Thursday night!

Here is some video footage of the event.

MisesBeliever Uncategorized

Admittedly I am a little soft when it comes to econometrics (what essentially is seen as modern economics), OK EXTREMELY SOFT… but as a history major I am extremely drawn to the data. Data is statistical history and nothing more as Von Mises illustrated (Human Action: Prices XVI). Traders, economists, and the Fed unlike seem to have skipped this chapter in Human Action.

What is most important is what is driving forces behind the data. Modern day economists are drawn to the data without taking into account the human factors that provided them with the numbers, without evaluating the history properly. As a history major I am trained to look at human intentions; the why and how’s that can help us understand where the data came from. Data is nothing more then statistical history and nothing more. What is most important is what is driving forces behind the data, aka the HUMAN ACTION.

Let me get right to the point.

I think it would behoove money managers to look back at the history of , prices and focus on the praxeological reasons as to how and why the prices were driven to given level. When discussing the recent 3.5% so called recession ending GDP number Peter Schiff pointed out:

During the decade that corresponds to the Great Depression, annual GNP expanded for six years and contracted for four. After nose-diving in the early years of the decade, GNP turned positive in 1934 and then logged three more years of solid growth (the four year average annual growth rate was 8.5%). But does anyone really believe the Great Depression ended in 1934, when the economy first stopped contracting? Unemployment reached 19% in 1938, nearly the peak of the entire Depression, almost a full decade after the stock market crashed! Why will we be so much luckier this time around?

Currently U3 unemployment is at 9.7% and U6 is at 17%. Now some say that U6 measure is most like the Great Depression 1938 as unemployment was calculated much differently at the time and suggest that is functional equivalent of the methodology that was used in the 1930′s.   According to N. Andrews such suggestions may be factually incorrect. Current U3 measures are actually most like 1930  (a year after the 1929 collapse in which the estimated U3 spike from 5 to 10%…sound familiar?).

Unemployment is at 9.7% or 17% to depending on how you look at it. Helicopter Ben says that he won’t REPEAT the mistakes that Japan made and send this country into a deflationary spiral. Obama is not going to take his foot off the money producing accelerator like the Japanese did briefly in 1998 sending the Nikkei into a tailspin (the proverbial Dump Japan Era). But let me leave you with this, where did the money printing philosophy get Japan? Hint

I keep hearing about a V-Shape recovery, perhaps this nothing more then government induced drunken zig zag.

The Street seems to believe that the Fed can control the situation and will pull the liquidity from the system. But how can we let interest rates rise politically? Rising interest equals more defaults and more homeless Americans. Eventually we will forced take our medicine and you will get deflation, but it won’t in terms of dollars.

Actually come to think of it, some day I will wall paper my man den using dollar’s, that way all that expensive paper doesn’t go to waste.

Oh yeah, so what has history shown is the cards for this money manager: rise in gold prices, increasing hostility finger pointing, and dare a say warfare? God, I hope not.

MisesBeliever History, Uncategorized history majors, money managers, Peter Schiff, The Great Depression

Gold goes up because people don’t trust governments to not spend money and we certainly don’t them with our capital (money supply). End of story. That’s the answer plain and simple. We are going to getting massive deflation, but not deflation in US $ terms, deflation in the price of assets in onces of GOOOLLLDDDDD!

Take a look at the rate of gold appreciation to the MZM (money at zero maturity).

Remember money is only a refection of our human capital. Money is medium of exchange, I exchange my hours on a trading desk for Joe the plumbers labor to fix my toilet.

Spend your dollar or use them the to wipe your ass, its your choice.

MisesBeliever Gold, Uncategorized Peter Schiff

The Zero Hedge posting community continues to impress Wendall Wilkie.

MisesBeliever Uncategorized

RJ Tweeted this earlier today. The end of the video lists some little known politicians running campaigns with libertarian tint.

MisesBeliever Politics, Uncategorized RJ Harris, RJ Harris 2010

Jon Brodeux of Cafe Hayek has a nice critique to Amar Bhide’s, Let’s Break Up the Fed that appeared in the WSJ on July 29th. on Cafe Hayek.

Click here to read.

Cheers

MisesBeliever Uncategorized

In response to a few postings by my brother, I am going to aggregate the four liberty loving candidates looking to come (back) to Washington after the 2010 elections.

Senate:
Dr. Rand Paul – Kentucky, still undecided, big announcement soon. May challenge Trey Grayson who will likely have establishment support in the GOP primary.
Website – Twitter

Peter Schiff – Connecticut, famous investor who predicted the economic meltdown from an Austrian lens in the face of ridiculing talking heads.
Website – Twitter

House:
Dr. Ron Paul – Texas’s 14th District, you all know him

Adam Kokesh – New Mexico’s 3rd District, no real GOP primary opponent yet.  Faces freshman incumbent Ben Ray Lujan.
Website – Twitter

RJ Harris – Oklahoma’s 4th District, taking on heavyweight Tom Cole in GOP primary.
Website – Twitter

Jake Towne – Pennsylvania’s 15th District, going it as an independent, “Simply put, I am for liberty. I hate war. I love life. And I have no fear.”
Website – Twitter

Dr. Mike Vasovski – South Carolina’s 3rd District, In a wide open GOP primary battle.  Seat currently held by GOP’s Gresham Barrett.
Website

Teacherman Politics, Uncategorized candidates, harris, kokesh, Liberty, paul, schiff, towne, vasovski