Thursday, March 29, 2012

Marginal Utility and Gold

Now that I am back here in my native land and now that I finally got an inspiration to write a gold piece, well, I just feel better about the whole darn thing!  The inspiration for today's piece I got from two new buyers of precious metals, one at Zero Hedge and one at pmbug.com.  I responded to both of them and mentioned something I had learned from FOFOA, being overly general for the moment, that gold is perhaps the very best, the Number One product which has the slowest decline in the economic notion of marginal utility.  Marginal utility roughly translates into how much more you would like to have the next unit of whatever product you are interested in.

I am going to comment from a piece or two by my favorite gold analyst FOFOA, but first look at wikipedia for some stuff too.  You know, do my research while writing the article...  That's why I don't have ads or ask for donations...  FOFOA directed me to the below, from which I will clip excerpts and comment on further below.  If you like this article, then you will almost surely like FOFOA's stuff a lot, and you should read the below article I link to:

http://fofoa.blogspot.com/2010/12/value-of-gold.html

To entice you to go and read his column, I copy two of his photos...



***

Here is some of what wikipedia has to say about "marginal utility" (http://en.wikipedia.org/wiki/Marginal_utility).  All text immediately below in dark green below is from wikipedia.

In economics, the marginal utility of a good or service is the gain (or loss) from an increase (or decrease) in the consumption of that good or service. Economists sometimes speak of alaw of diminishing marginal utility, meaning that the first unit of consumption of a good or service yields more utility than the second and subsequent units.[citation needed]

My memories of college economics classes match the above, I do not really think that wikipedia has to have that citation at the end there, although someone who knows economics very well could score a quick brownie point by giving them the citation they feel they need (junior professors and grad students take note!).


A key concept of this discussion is the notion of "utility".  Loosely defined (by me) utility would be the pleasure or value derived from a good or a service.  How happy you are with a unit of something.  Here is wikipedia's discussion of utility (this green part can be skipped if you feel up to speed enough on the concept as I loosely defined it above):

Different concepts of utility underlie different theories in which marginal utility plays a role. It has been common among economists to describe utility as if it were quantifiable, that is, as if different levels of utility could be compared along a numerical scale.[2][3] This has significantly affected the development and reception of theories of marginal utility. Concepts of utility that entail quantification allow familiar arithmetic operations, and further assumptions of continuity and differentiability greatly increase tractability.
Contemporary mainstream economic theory frequently defers metaphysical questions, and merely notes or assumes that preference structures conforming to certain rules can be usefully proxied by associating goods, services, or uses thereof with quantities, and defines “utility” as such a quantification.[4]
Another conception is Benthamite philosophy, which equated usefulness with the production of pleasure and avoidance of pain,[5] assumed subject to arithmetic operation.[6] British economists, under the influence of this philosophy (especially by way of John Stuart Mill), viewed utility as “the feelings of pleasure and pain”[7] and further as a “quantity of feeling” (emphasis added).[8]
Though generally pursued outside of the mainstream methods, there are conceptions of utility that do not rely on quantification. For example, the Austrian school generally attributes value to the satisfaction of needs,[9][10][11] and sometimes rejects even the possibility of quantification.[12] It has been argued that the Austrian framework makes it possible to consider rational preferences that would otherwise be excluded.[10]
In any standard framework, the same object may have different marginal utilities for different people, reflecting different preferences or individual circumstances.[13]

Wikipedia's article provides the below graph:

From Wikipedia, the free encyclopedia


















Let's do one of my beloved "Thought Experiments" here to explore this graph.  "Let's say" you are the head of a happy household with FIVE CHILDREN (are you reading this Amy?), and let's also say that you just won a decent amount of money from your local lottery (say $1,000,000 free and clear, in cash now, taxes already paid).  Let's also assume that you are middle class, not deep in debt and have your retirement money put aside OK.  So, you are free to spend the money!

You determine that your major purchases are to be to upgrade your transportation, you deserve it, so why not?  So, before you head out the door, you are at the very beginning of the above graph.  You decide to buy a BMW!  Wow, that felt good, didn't it?  You are now at that next point on the graph, shared by the blue square and the red dot.  The Y-axis is your "utility", how good you feel being a BMW owner.  You got a nice chunk of utility from buying the car.  So, you decide to buy your wife as well!  Smart move, she is likely to be very happy too.  Now, take a close look at the graph to see WHAT it is charting.  The red dots are your TOTAL happiness (utility) from buying the two (for now) cars.  The blue squares show your marginal utility, that is how much EXTRA pleasure you got from your most recent purchase.  You will note you got almost as much pleasure from buying that second car as from the first.  That is still pretty good though.

You then decide that your oldest child gets to have a BMW as well, s/he's a good kid, right?  So you buy BMW number three.  But, to be fair, you decide to buy EACH one of your children in turn a new BMW.  At this point, you are probably not getting any extra happiness from that seventh car!  And THAT is where the blue square is there at zero (no extra happiness) and the red dots are as high as they are going to go.  Let's say you buy yet another BMW...  You will likely NOT derive any utility here, in fact, if this Thought Experiment follows this graph, you would LOSE utility (be LESS happy) because where are you going to park that eighth car...?

Most products and services are like this.  If you like Big Macs, that first one is yummy!  The second will likely fill you up, that is likely to be as much as you want (maximum utility).  The third Big Mac would likely make you sick...

***

But, gold is different.  I mentioned near the very top of this article that I responded to two new buyers of precious metals.  I told them both that AT LEAST FOUR TIMES that I had reached a convenient "round number" of ounces of gold that I wanted to hold, and that would be that.  I would not need anymore.  But, soon thereafter, I found that, well yes, that I could buy just a little bit more gold.

In other words, at least four times I thought that I would have enough gold to keep me happy only to find I wanted more...

So, gold would NOT follow the above graph from wikipedia.  My best guess is that gold would follow a path similar to the "y = ln(x)" curve.  Where the Y-axis is total utility and the X-axis increasing gold ownership through time.  The ln(x) curve is the INVERSE of the exponential curve (the e^x, "e to the x power").  There are two graphs below, the first one is ln(x) up to 500 oz of gold owned and showing a "utility" of about 6.1.  The second graph shows ln(x) out to 5000 ounces, with a utility of about 8.2.



Three quick notes about the above two graphs.  The first is that I put in "Y-axis" values below zero because that is the actual way the ln(x) curve is.  Secondly, note each unit of "utility" is worth a LOT (5000 oz of gold is approximately 206 lbs of gold, troy ounces remember)!  Third, take a good look at the SHAPE of the two curves, they are essentially identical!  They scale exactly the same, just like the more well known exponential curve.  If I am interpreting this right, marginal utility of increased gold holdings scales very nicely all the way up the curve!

***

FOFOA is a deep thinker on gold, his work is hard to completely understand (for me anyway), yet he has a fanatical following (myself included, although I do not fully understand all of his points, that requires a lot of reading and  thinking).

I welcome criticism of my interpretations of FOFOA's words below, as he DOES have followers who do understand 100% of what he is trying to show to the world.

Below is FOFOA from his article above, here he discusses the word "value".  FOFOA's words have the colored background.

But value is a vital concept to understand. So here we will explore some misconceptions associated with this most dear and valuable word.

Probably the most common misconception is that price and value are the same thing. They are not. They are related but different. Price can be precisely known, but true value can only be estimated or guessed. And because price changes, price is always wrong while true value is always right, even though it is unknown. So price and value are always different. Value is always either higher or lower than price.

There is a little trick to knowing whether value is higher or lower than price. This trick will reveal the direction of value, but not the magnitude of the disparity. The trick is to look at which direction the government wants to influence any price. If the government is attempting to manage a price upward, then it is a safe bet that the value is lower than the price. And if the government would like to keep a price down, then you can be pretty sure the value is higher than the price.

It is certainly fair play to place your bets on the ability of government to overpower the gravitational pull of value. But when you do, you should be aware that you have just purchased the opposite of real value. And to understand why this may be detrimental to our financial wellbeing, we must first understand the concept of value.

FOFOA then goes on to discuss the Labor Theory of Value (LTV), which Karl Marx latched onto to to form his ideas that things should be valued by the work that was done to make them.  But,

The Labor Theory of Value (LTV) was the mainstream and widely accepted value theory prior to the 1870's, culminating in the controversial economic theories of Karl Marx (1818–1883). Then, in 1867, a young journalist named Carl Menger (1840–1921) noticed a discrepancy between what the classical economics he had been taught in school said about price determination, and what real world market participants were paying for goods.

...

In 1871 Menger published "Principles of Economics" (Grundsätze der Volkswirtschaftslehre), thus becoming the father of the Austrian School of economic thought. It was in this work that Menger challenged the classical cost-based theories of value with his own marginal utility theory of value.

From what I can tell, the basic difference between the approach of Marx versus Menger is that of activist versus observer. The Marxian Labor Theory of Value tells you what something's value should be, while marginal utility observes what it actually is, and then attempts to explain the observation.

The above comments by FOFOA do a nice job of putting much of Marxist (and Socialist) thought onto the trash heap of history...  What "should be" as opposed to what something "is."

I have left out (for brevity) much of his analysis, to go to the punch line (my wife does NOT like long-winded explanations, I do, if the subject is sufficiently interesting...), for now, let's just forget about the $55,000 gold eagle coin business, I will deal with that in a later article.  His point is clear enough, that if the lucky fellow below buys gold rather than extra stuff, he will have more total utility...

There is more to this story, but before we proceed, let's take a quick look at the marginal utility of gold as a store of value. Take the man above with $1.5 million in disposable cash. Say he buys himself one $50,000 BMW and one $55,000 gold eagle coin. He has just obtained the full utility of a fine automobile as well as the value preservation of that same purchasing power, for up to thousands of years if he should so choose.

Now say he buys one more $55,000 gold eagle coin, and then another, and another, and so on until all his cash is gone. In the end he will have 26 gold coins. And here's the question: Will that 26th gold coin purchase provide the same utility or diminished (less) utility than the first? Remember, the only utility of gold coins is that they retain their value for thousands of years. That's all they do. And hoarding them doesn't interfere with any other economic activity, at least not when they are not "official money."

The answer is "the same utility," because unlike ANYTHING else, (yes, even silver), gold has INFINITE marginal utility in this particular role.

***

And just in, FOFOA is answering an email question about marginal utility for I had for him re "Giants", his term for large holders of gold (he had earlier written an article in which he posted some of an online chat he was having with one of his readers who happened to be a "Small Giant" which he defined as someone who had one metric tonne (approx. $55,000,000 worth of gold at today's prices).  I wanted to know:

1)  What a Giant was (how much gold does one have to have to be one)?

2)  Would the marginal utility work the same for a Giant as for us "Shrimps"?

Here's his response (in blue, I bolded the type to make it easier to read):

Hi Robert,

I’ve just got a second, but the marginal utility of gold is unlimited.  Your 10,000th tonne will provide the same use as your first ounce.  Just look at the Eurosystem.

That said, for true Giants, the calculation is a little different than it is for us shrimps.  Also, you’ve got to separate out the transition period (now) from Freegold (after revaluation). 

Right now, your gold is promising to outrun all other hard assets by a 40:1 margin.  After Freegold, it will preserve value almost precisely as well as other hard assets, but it will simply be more liquid and portable than, say, art or antiques. 

To me a true Giant is a multi-billionaire, so maybe 20+ tonnes of gold? 

But let’s look at the “Giant calculation” both now and in Freegold and you’ll see they won’t go “all in” under either.

Right now gold is so underpriced that a true Giant could break the system and draw unwanted attention on himself.  So right now, the smartest thing for a true Giant to do is preserve the wealth he already has and maybe make a small percentage gain through the transition.  Read the beginning of this post for more on that. 

After Freegold, the true Giant will only keep that portion of his wealth in gold that he wants to keep either liquid or discreet.  The rest will be equally preserved in mansions, art, classic cars, jewels and antique furniture which he can enjoy and show off. 

So you see, the calculation is different in both cases, but that doesn’t mean the marginal utility is lower. 

Sincerely,
FOFOA

***


Update:


Some people would argue that something else has infinitely positive marginal utility!



Thumbnail






http://youtu.be/YqWkFF-TbMU

Thursday, March 22, 2012

Some Bearings We Sell In Peru

For reasons I cannot even begin to understand I have yet to write an article showing more about the bearings we sell here.  For newer readers who have not read about Ameru, you might want to look here, my article introducing Ameru Trading del Peru S.A. from last June.

We are having an excellent year so far in 2012, our sales to date are about $260,000 which is more than we have ever sold in a ¨First Quarter¨ , and we still have a few days more in March to go...

***

In various of the pictures below, I have included the rubber gloves I used when handling many of the bearings.    Oil on people´s hands actually will start the corrosion process, so for each bearing I took out of its protective packaging I used gloves to handle them.  The combined total value of all of these bearings is about $500.00.

The below picture shows the two wheel bearings for the Hyundai H-1 (aka Grand Starex, pictures of this vehicle and others mentioned today are in my last article).  I put my ¨souvenir of Miami¨ pen in the pictures to give you a size reference.  The piece on the right (KBC´s DT458448) is a double-row bearing (often called a Generation 1 bearing).  Various car manufacturers (especially in Europe) started using this type of bearing in their wheels decades ago.  This bearing, however, does not have steel balls as its rolling elements, instead it has conical shaped rollers, it is really a type of tapered roller bearing (¨Timken¨ type), I will explain more about tapered roller bearings further below.  The piece on the left (Iljin´s IJ-212001) is a ¨Generation 2¨ type, and is better described as a ¨Hub and Bearing Assembly¨.  Deep in the heart of that Assembly is a bearing similar to the other, but there is also a highly engineered steel housing so that the OEMs (car makers) can assemble the wheels faster (using fewer parts, al the car makers are going in this direction, asking their suppliers to supply more ¨Assemblies¨ rather than a LOT more small pieces to all put together...


That above IJ-212001 Assembly is our 2nd biggest seller (dollar volume) bearing in 2012!  Both KBC and Iljin are Korean manufacturers of rolling bearings, and Ameru represents both companies here in Peru.

The next picture shows most of the bearings used in the Daewoo Tico car, the little car that is in the first picture of my last article.  At the bottom right, there is a box and a bearing just above it (in its plastic cover), this is KBC´s 6205ADHC3, the rear axle  ¨inner¨ (towards the middle of the car) bearing.  The vertical similar looking pair just to the left of those two (flanking my Miami pen) is a pair of KBC´s 6204-DD, the rear axle  ¨outer¨ (towards the outer part of the vehicle) bearing.  The back row of bearings (two in their boxes and two stacked together) are all KBC´s 6007AHL1DYCX (or 6007-RS in ¨generic bearing language¨), all four of these are the front axle bearings (inner and outer, both sides, so total of four of these per Tico front axle).  KBC´s 6007-RS is our biggest selling bearing, we have sold over $1,000,000 worth of this piece since 1999!


The two pieces to the left of my pen above are both oddball bearings.  The larger piece (in plastic) is a ball bearing with a thick inner race, while the other piece is a ¨needle roller bearing¨ (look carefully and you can see the steel needle-like pins in the black plastic housing), both pieces are used in the Tico´s transmission.

KBC makes a reasonably full line of bearings, but especially in the smaller standard pieces.  Not to mention many pieces for Korean cars.

The next picture below are five pieces from our Korean supplier Iljin.  Iljin is the largest manufacturer of wheel bearings in the world!  The two pieces in front on the right are the two wheel bearings for the modern Hyundai Accent, a car that is popular both in the USA and Peru.  The smaller piece (IJ-111001) is for the front axle (and is another example ofa Generation 1 bearing, but this one uses steel balls rather than rollers).  The larger piece is IJ-112001, another Generation 2 bearing, and is used on the rear axle.  The pair to the left of my pen is a similar (but both pieces are slightly larger) used for the Hyundai Sonata, also found in the USA as well as Peru.  The larger piece of this pair happens to be a Generation 3 bearing, the main difference between Generation 2 and Generation 3 is the latter is even bigger and a more complex piece.  Again, the auto manufacturers are all trying to get their suppliers to send them fewer pieces for them to assemble.


The Big Bad Boy in the back is another Generation 3 bearing (IJ-223020, this uses tapered rollers as well)), and is actually our biggest (heaviest anyway, over 25 lbs!) bearing.  It is for the Ford ¨Super Duty¨ pickup truck, it is the original piece for that truck.  Yes, Ford and GM both buy LOTS of their current wheel bearings and assemblies from Iljin!  Iljin also supplies (on an OEM basis, that is the car companies use Iljin pieces as their original parts) Peugeot, BMW and Chrysler, among others.

The next picture below shows some large tapered roller bearings that we buy from China (for the ¨Precio Nada Mas¨ group of customers we have here in Peru), ZWZ brand.  The tapered roller bearing was invented by US company Timken about 100 years ago.  Many in the USA still use the informal term ¨Timken Type¨ when referring to this type of bearing.  This type of bearing comes in two pieces, the ¨Cone¨ and the ¨Cup¨.  The cone has the conical shaped (not clearly seen here) rolling steel elements (rollers) within it, and the cup is the outer raceway for the cone and rollers.  To make this slightly clearer, I separated the two bearings on the right, putting the cone on top of the cup to show you what the two pieces look like on their own.  The two bearings on the left I left them in their plastic to show you how they look when fitted together, the front piece is ¨face up¨, and the back piece is ¨face down¨.


The two pieces on the left (bearing numbers 663/653 in front and the 687/672 in back) are the two bearings used in Volvo trucks found all over the place here in Peru.  I was not able to take a picture of a Volvo truck for the last article, because all those pictures I took on Saturday, when fewer heavy trucks are at work.  The last photo of this article will be one with a Volvo truck.  The piece in front on the right is used for the Volvo´s front outer bearing (537/532X), the bearing for the inner bearing we do not have, not many factories make the 6386/6329 piece.  Instead, I present (at the back on the right), ZWZ´s HM518445/10 used in Fruehauf (an old US company, I do not think they are still around) trailer axles.

The next picture shows bearings from our supplier MBS of Japan.  MBS is fairly small among bearing manufacturers, they do not even try to make the thousands of variations that the biggest companies do.  MBS does make some nice pieces of interest to us here in Peru however.  They make a fair number of unusual bearing types, many of them for older American cars, there are MANY older American cars still surviving in South and Central America!  They also make some Generation 1 pieces, some of which are very popular for us (wheel bearings for Toyota for example).


The piece at the lower right is their M309726BD, a Generation 1 piece used in MANY cars, from Europe, Japan and Korea.  The four unusual separable pieces in the middle are bearings for steering columns of American cars and trucks.  The piece at the lower left is a clutch bearing (aka clutch throwout bearing) for Suzuki Swift (not found in the USA).

The piece at the back on the left (larger) has a number of features of interest (at least to people in the bearing business!).  I enlarged this photo as much as I could to show details.  If you look at about ¨8:00¨ (slightly below the extreme left) you will see a gap in the ¨snap ring¨, a small black-colored steel ring mounted on the outside of the bearing that locks it into place, this is often found in bearings for transmissions (this piece is for the transmission of old Ford large trucks).  Another feature of thyis bearing is that it is relatively thin, it is not as wide as the normal bearing.  The other unusual feature of this bearing is that they were able to squeeze one more steel ball inside there...  How did they do that?  If you look very carefully (hey, I used to be a photo interpreter and know how to look at pictures very carefully!) at about ¨2:30¨you can see two carved out pieces in both the inner ring and the outer ring.  These two, when lined up as here, allow MBS to pop in one more steel ball for extra weight carrying capacity.

***

I promised a picture of a Volvo truck.  Volvo used to have an assembly plant in Peru (the only one assembling ANY trucks) that shut down over 10 years ago.  These Volvos were very popular here in Peru because Volvo made some of the toughest heavy-duty trucks in the world.  The most popular type for decades was the one front axle with dual rear axles  Peruvian truckers would load them (overload them) and send them up REALLY BAD ROADS up into the Andes and back down.  When I was younger, I spent some ¨quality time¨ on some of these roads...

I took this picture yesterday (Wednesday) afternoon.  The expressway here is part of the ¨Panamericana Sur¨, part of the legendary Panamerican Highway (this part is just one block from our company, you can see our company´s sign for about one second going northbound).  The photo shows one of those old Volvo trucks also hauling a trailer.  I would not even want to guess how old that truck is...


***

Buying bearings is the closest thing I have to a ¨day job¨.  Welcome to my world!

Tuesday, March 20, 2012

Vehicles In Peru (That We Don´t Have In The USA)

Your congenial host is happy to report that sales are very good here in Peru, we have already had our best first quarter (and have 10 more days of sales to go).  I came down as usual to plan our future purchases and to meet with our salesmen and major customers.  So far, so good.  Our new plan of selling fewer brands and concentrating more on the growing Korean fleet is bearing fruit.  Just yesterday I was told that Hyundai is now the number one brand (unit car sales) in Peru for the first time ever!

I thought that some of you might enjoy seeing some of the cars and buses (maybe I will update this article later with truck photos too) that Peru has but that the USA does not have.

Gracias Lily, for letting me use your camera!

I start with a picture of the Daewoo Tico, an underengineered (tinny & cheap) that was made in Korea in the 1990s until about 2001 or so.  The bearings of this car (there are LOTS of Ticos in Peru, now mainly moved to the provinces) represent some 15% - 20% of Ameru´s sales, and so are very important pieces for us.  This car became important here because a law was passed that taxis had to have four doors, and the (used) Ticos were the cheapest available car.  Occasionally you will see a VW Beetle side-by-side with the Tico, the Beetle looks like a very tough car (because it is a tough car) next to the Tico.  The Tico (even when it was new there in Korea) would never have passed safety tests in the USA...  We carry every single bearing used in this car:


The next two pictures are of the Hyundai ¨H1¨(Grand Starex), a van typical in size to ones in the USA, but not part of Hyundai´s line in America.  The front wheel bearing (actually a ¨hub and bearing assembly¨) is our second biggest dollar-volume seller in 2012.  Noboby else brings this piece in to Peru...



A car that has taken Peru by storm over the past two years is the Toyota Probox, which looks like the Toyota Corolla station wagon, but more rectangular, more boxy:


A vehicle that has been very important in Lima that handles a rather high percentage os mass transit is the Toyota Coaster.  There thousands of these in Lima...  We carry some of their bearings as well.  The first picture I was a little late in taking, but it gives you an idea of what MOST ¨Limeños¨ have to put with when going to and from workor otherwise getting around the city.  Most Peruvians do not own cars.


The next picture shows a Mitsubishi Rosa (left) and the Toyota Coaster (right).  Mitsubishi shares much of its technology with Hyundai, so we sell various of the bearings for the Mitsubishi Rosa as well as Hyundai´s equivalent (the Hyundai County, not very common in Peru..., yet).


A truck that Hyundai started selling in Peru some four years ago is their H-100 model, which would be roughly the load carrying capacity of Ford´s Super Duty truck.


Recently Chinese brands have invaded Peru!  I have seen two estimates as to the number of Chinese brands in Peru, 70 and 90.  That is more brands from China in Peru than all other bands from the rest of the world put together!  Of course that means there is brutal competition at the low end for cheap Chinese...  The below is a new Chinese bus, I can tell because I do not recognize the logo.  Note that more buses of this size (larger than the Toyota Coaster) are more common in Lima than they used to be.


Another new car (starting some two years ago) is the Chevy Taxi, made in Brazil.  We do not carry the bearings for this car, but we do for two other new Chevys (the Chevy Aveo - made in Korea, I think we DO have that in the USA, and the Chevy Sail - made in China).  GM seems to be having more luck OUTSIDE the USA than within (political comment will not be published...).  Ameru just today sold 90 pcs of the front wheel bearing for the Chevy Aveo / Chevy Sail to one of our big customers (roughly $1500 worth)!


Those of you American readers who are, say, 40 or over years old may remember seeing lots of big Chevrolet delivery trucks.  You still see these in Chevy and Dodge down here in Peru.  Here is a big double-rear-axle Chevy unloading some products for a Wong grocery store (Wong is the largest grocery chain in Peru):


Chevrolet still has a good reputation (for US trucks) in Peru, even though I believe they stopped making this kind back in the 1980s (if I am wrong about, please let me know).

Sunday, March 18, 2012

Book Review: The Fear Index (Robert Harris)

Down here in Peru it has taken me longer to get some of my computer stuff done, for various reasons.  One thing that I have been able to do is read a remarkable and wonderful new book: The Fear Index (by Robert Harris).  Harris is perhaps most well known for one of his first books: Fatherland which takes place in the 1960s after Nazi Germany had one in Europe and the USA still has to deal with Hitler in a cold-war kind of environment.

The Fear Index is brand new.  So far, this is the best book I have read this year (only two and a half months, but still).  The story runs at the nexus of high frequency trading, artificial intelligence, high finance and insanity.  I will not say much else, as there are various surprises that must not be given away.

ANYONE interested in what big money does when run by the robots really ought to read this book.  Some of you know the kind of stuff I like to read.  This is one of the very best.

Five stars!

*****

Tuesday, March 13, 2012

Platinum Is Now Higher Than Gold Again

Platinum usually is priced higher than gold, so it should be no surprise that it today it has re-established itself as more expensive than gold ($1698 / oz for Pt, $1678 / oz for Au as I write).

Some of my friends at pmbug.com (a highly recommended forum for precious metals fans) told me today that a lot of this is due to strikes down at some of the platinum mines in South Africa (the world's largest producer).

Also, gold plunged on the news that the Fed's "Stress Test" of the banks all went OK (except for four banks, one of them being Citi), so they must have sounded the horn that all is well in the world, and that nobody wants gold anymore...  But, it again was pointed out that the gold price is "paper gold"...

Will platinum always be higher than gold?  FOFOA says no:

fofoa.blogspot.com

He writes in great detail, so be prepared to spend a lot of time to understand his logic.

***

As many of you know, we will be going to Peru tomorrow (Wednesday) for about 11 days.  I hope to take pictures and do a blog article from there.

I once again thank all of you, my readers!

Monday, March 12, 2012

PMMFM! (in Spanish: PMPC!)

My wife's father, Eleodoro Pérez made it onto the front page of a Peruvian newspaper!  He is one the "jefes" (bosses) of a grass roots protest movement of retirees who did not get pensions promised to them by the Peruvian government (soon to be seen here as well?).

Eleodoro goes to "FONAVI" protests about once a week.  He leaves in the morning and comes back some hours later.  When he leaves, he is tranquil, when he comes back he is agitated, disgusted by all the lies...

Eleodoro is 91...  And still protesting!  He is also a great-great-grandfather (his wife is a g-g-grandmother).

He left home (in the mountains when he was 12 years old (the language he spoke when he was very young was Quechua, not Spanish), working his way from 14 on as a construction worker, supervisor and architect.  He supervised (closely supervised) the construction of the new house where he and various of my in-laws now live (seven bedrooms), right there adjacent to Ameru Trading del Peru S.A.

Eleodoro is one of the greatest men I know.  Our daughter loves him like crazy!

Viva el Peru!!!

Sunday, March 11, 2012

Review of Barron's, Dated 12 March

This review comes late because of the nature of my weekend.

MISSING is news or commentary on Molycorp's buying of Neo Materials, a rather important piece of news. Perhaps the news came in after deadline...

The Cover Story is about new services and apps (spurred by the runaway success of Apple's iPad) from the online brokers.  I do not buy and sell stocks that way, and so I did not bother reading the story.

Alan Abelson notes that none of the four running for the "R Team" nomination have done anything to influence stocks, or really anything else either.  He then goes on to write that while the markets were apparently relieved over the weird deal with Greece (and the ISDA calling Greece's push-down re their debts a "Credit Event") that a couple of more "names" (or "investment pros" if you will) have come out bearish.  He then writes that others are encouraged by the rather good February jobs report, but others (including Dave Rosenberg, who's views are often highlighted there at Zero Hedge).

***

Michael Santoli writes that teh Feb. jobs report is a plus for Obama.

***

Randall W. Forsyth writes an article ("The Worst of Times to Buy Stocks?").  He refers to John P. Hussman who points out several indicators (including a lot of bullishness among investors) that might mean a nasty tumble.  He also writes of Walter J. Zimmerman, Jr. who also believes (from a technical analysis standpoint) that the market might be about to be in a "perfect storm."  Also discussed are high gas prices (again), problems in Europe (again) and tax hikes looming...

Good article.

***

In three separate articles, Ann Taylor (ticker: ANN), Harman International (HAR) and Motorola Solutions (MSI, the radio related business in the Motorola split up) all get bullish reviews.

***

Gene Epstein ("Economic Beat") writes more about the numbers going up, but at a weak pace.

*****  Sidebar


Your congenial host / editor would like to chime in here.  For WEEKS (months?  years?) I have been hearing positive, but oh so muted news about the recovery.  Yet, much of what I read conflicts with all the happy talk...  My personal hunch is that all of the happy talk is mostly BS (as I also hear negative stuff from people I know), but I really do not KNOW.


Resume regular programming...


*****  End Sidebar


The Cover Story has extensive tables on this online broker vs. that.  Bottom line, it depends on what services you want and what is important to you re choosing an online broker.

***

Canny political observer Jim McTague ("D. C. Current") writes that Mitt Romney has it all wrapped up.  Unless something happens anyway, which appears unlikely.

***

"Technology Week" author Tiernen Ray writes of a new technology ("long term evolution" aka LTE) that will speed up wireless connections.  LTE is built right in to the new iPad (of course).  Verizon is leading the roll-out, LTE will become something like a "4G" service.  But, it may be expensive to start downloading all those movies...

***

Mark Veverka ("Plugged In") writes up the "new iPad" (not the iPad 3).  It apparently is a nioce step un in technology, faster this and that, higher resolution, etc.  But, it also retains its impressive 10 hour battery life.

On the same page is the "Our Gadget of the Week" which is the toaster-sized Drobo FS, a 10 terabyte backup device based on "RAID" technology.  You can pull out one of the hard drives and put some hollow-points  through it and not lose your data...  And it's supposed to be easy to use.  You can increase the storage capacity to 20 terabytes if you need to.

***

Brendan Conway ("ETF Focus") writes that a new ETF on DIAMONDS might soon be coming. The thing that interested ME that Conway did not mention is the HUGE SPREADS in the retail diamond business.  Let's say you buy today a 1 carat diamond (for $10,000 for example), oh, but then tomorrow you need to sell it: you will only get about 1/3 of the retail sales price!  I know this because it was explained to us in our "diamond district" in the city near where we live. This ETF would be a way to invest ("paper diamonds!") that would avoid the outrageous spreads in real diamonds.

***

CEO Spotlight this week is about Peter Loesscher, the head of Germany's industrial giant Siemens.

Siemens was apparently a mess whne he took over in 2007 (bribery scandal among other problems).  The serious minded Loescher has fixed Siemens back up by taking out layers of management and more accountability.  He had an interesting comment about the developing world markets beyond the BRICs mentioning second-tier countries like Vietnam, Mexico, Peru (I'm telling ya guys, Peru is an up and coming place!), Colombia, South AFricxa and Nigeria.

Worth a read!

***

"Other Voices" author this week Alex J. Pollock offers up the idea of taking a 17% haircut in Social Security benefits.  Everyone knows that the math does not add up for Social Security to keep its promises...  Why not offer 83 cents on the dollar (now I presume) rather take your chances on what changes will happen?

***

Editor Thomas Donlan suggests that the Greece fix is not.  Also, that Apple has created jobs HERE in the USA (writers of apps, for example) as well as the more notorious jobs farmed out to make iStuff in China.

***

In the Market Week section Jonathan  Buck ("European Trader") writes that the ISDA ruling Greek debt a "credit event" will not shake the markets, as it was expected.

It sure did not affect them on Friday...  Nothing cratered.  And last I saw (9:00 PM ET or so) Asian stocks were up and gold down.

***

"Current Yield" author Michael Aneiro writes that junk bonds may be at or near their highs, having moved up nicely since investors started piling in in December.

High yield junks bonds for me?  No, thanks.

***

Matt Day at "Commodities Corner" writes that steel prices have been going down, in large part due to lower construction demand.  He thinks that steel prices may bottom and go up soon.

[ed. complaint: when steel prices were going up, our suppliers raised bearing prices, since steel prices have evidently been coming down, how come we did not get better prices on steel bearings?]

***

The Classifieds this week had items of interest.  Two Caribbean properties are up for auction.  An Alaskan gold mine is for sale.  Chabazite (for radioactive cesium adsorption) is on sale, 25,000,000 lbs (info@zeosorb.com).

***

Typically I do not comment on Short Interest (number of shares being short-sold by speculators) nor the 144 Filings (something that insiders should do before selling their companies stock).  In the 144 Filings, the largest $ volume I typically see in any given week would be some $20 million, and a few more from $10 - $20 million range.  This week I see that four American Express (AXP) insiders, including Ken Chenault (written up in CEO Spotlight not long ago) are unloading some $67 million in AXP shares...


***

Is the Fed trying to irk me deliberately?  Somehow the Fed reduced its "Total"  by a bit over $43 billion, taking that Total even further than the psychologically important threshold of $3 trillion...  The Total now stands at $2.925 trillion, so we are $75 bn away.

Today's only other money matter is the continued observation of the Mighty Peruvian Sol, which is UP yet again vs. the US$, up about 0.3%.  That means my haircut in Peru (while there, I always get a haircut, you'll see why in just a sec) which would was about $4.25 last time I was there will now be about $4.50!  Ouch!

Friday, March 9, 2012

Two Scenarios Re TSHTF...

In recent weeks I have put a pair of scenarios out for the denizens of pmbug.com (highly recommended!) to comment upon.  Namely, exploring what kinds of conditions we could expect if things go badly.  Let us stipulate (legalese for "let's just accept this as true") that SOME kind of bad ending is coming to us...  Which is what I believe.  But, do not ask me for trading advice or what company's stock to buy...!

The news on the "Credit Event" on Greek debt (the ISDA declaring that Greece's forcing BIG haircuts on may of their bonds IS reason to say that Greece is in default, so that CDSs will likely have to pay up, MANY details available at zerohedge.com) was the spark to get me to write this piece, as that is news that got little noticed today, but could have great implications.

***

EDIT / Sidebar: The ISDA (International Swaps and Derivatives Association, Inc.) issued the following FAQs re the Greek Credit Event: http://av.r.ftdata.co.uk/files/2012/03/Greek-Sovereign-CDS-Credit-Event-FAQs-03-09.pdf.  See also: http://www.ftense.com/2012/02/greece-bailout-do-not-trigger-bomb.html.  This is a rapidly developing story, which means this weekend will be another of "one of THOSE kinds of weekends again..."

End Sidebar

***


I put out the below two scenarios of how this could all go down, of course there could be an ultimate way this could go down that is somewhere in between.  If we were to limit the scenarios to JUST these two, I would say that the first one is more likely (call it 80%) and of course milder, while the second one less likely (20%) but much more devastating.  I do not put a timeline on these.  It/they could come soon, or much later.

1)  "Great Depression v. 2"

Great Depression v. 2  ("GDv2") is my shorthand way of describing a crisis on the order of magnitude of the Depression in the 1930s.  25% unemployment.  Crime rates up.  No money.  Dust Bowl.  Poverty goes WAY UP.  Bankruptcies and lost capital.  Of course there would be many differences between the 1930s and "GDv2".  I would expect INFLATION to to be a major factor for example in any GDv2.

GDv2 would claim lots of victims, almost everyone to some degree or other.  There would be a small group of very well prepared people (perhaps the evil elites, ready to pounce on cheap values for example) that might absolutely benefit.  But, I believe that most people, even the wealthy, would be hurt to varying degrees.  "The winners would be those hurt the least."

Relative winners would include those who are (probably) not in debt, those who are diversified (including and especially owning physical gold), and those who have saved up a lot.  And anyone not dependent on the "system" for financial aid (no need for a job, or have a job that would be in demand (mechanics, etc.) or otherwise do not need an income stream by working, but have passive but solid income coming in (landlords, etc.).  Even relative winners would suffer from the stress of KNOWING family members or friends who would be in real trouble.  They might know MANY such people in trouble, too many to help them out even if just a bit.

The ones who are the losers would really suffer.  Not only would their income be hurt, but there would be less help available...  Some will lose their jobs, others have pay & benefit cuts.  Real estate is likely to go down (unless there is high inflation).  There will be more desperation visible on the streets as we see homeless FAMILIES...  Crime is likely to go up, as people will be more desperate and the municipalities will have fewer cops on the beat.  More crime means more victims...

In our own case, my family and I would survive this one OK, barring being shot in robbery or other low probability events.

GDv2 would be very ugly, and this is the milder of the two I discuss.

2)  "TEOTWAWKI"

TEOTWAWKI (The End Of The World As We Know It, let's shorten this one to "The End") I will define as being much worse than GDv2.  The key difference between The End and GDv2 is the MASSIVE DIE-OFFS that would take place, whether just in this country (an EMP -- ElectroMagnetic Pulse from a nuclear blast just above the atmosphere above our country which then takes down the electric grid, and so on...) or possibly worldwide (nuclear war, BIG solar flare, peak oil / financial collapse).

This is the one that has people worried.  That not just the easy life goes away, but that maybe each person's OWN life will end.

The End would feature massive starvation, chaos, plagues, extreme violence and other horrors well explored in "survival' novels (eg, One Second After, Forstchen) as well as blogs (survivalblog.com).

The End would be the end of everything as we know it.  No electricity, no heating, no A/C, no flowing water. Criminal gangs and desperate hordes of people ravaging the landscapes like locusts.

Only the well-prepared and those who could put together strong local communities would be likely to just survive!

In our case, we would not survive for long.  We cannot produce water or food.  We do not live on a farm.  I do not know how to repair old machinery.  While we could trade for goods OK for a while, it is difficult to see how we (middle-aged) could possibly learn the skills and bear the burdens of a very hard life...

***

One "intermediate" case of the above would be the world as foreseen by John Kuntsler, the author of The Long Emergency, what life would be like after Peak Oil has come and hit us hard.  Kunstler also conveniently writes a blog (kuntsler.com) in which each week he takes a peak at our plight and points the way down our long dark future.  He foresees a near-end to modern air and automobile travel as the price of oil and gasoline race much, much higher.  The country would return to a kind of Nineteenth Century / Amish existence.  Kuntsler presents a very plausible future...

Other intermediate cases of course are also easy to imagine.  A deflation (as in the 1930s) followed by a hyperinflation, yes, that would be very bad, that would financially destroy all but the very nimble (and perhaps the very rich).

A tyrannical government, whether as a product of a SHTF or a cause of it, is always a possibility.

***

Anyway you look at it, it is imperative that we all prepare as well as take whatever steps we as a people can do, perhaps the biggest SINGLE factor to stop a train-wreck is to STOP SPENDING SO MUCH MONEY!  Whether our own money (leading us into debt) or our government spending...  Alas, I do not see nearly enough political will to stop the spending...

Two Short News Items -- Widgets and Molycorp

I often like to look at the US Debt Widget above.  If you look now, you can see that we have passed $126,000 of national debt per taxpayer.  Just a few weeks ago, we passed $125,000.  When I started this blog (May, 2011) I first wrote when our debt per taxpayer was $119,000.

Any of you taxpayers feeling like you can pay $7000 more?  Not me.

I rarely discuss short term movements in the price of gold and the other precious metals. But, since I have mentioned one widget, I would ask that you all glance at the PM price trackers above.  As of now (11:00 AM ET), the prices are all spiking somewhat.  As of now, I do not know why, but I'll look into it.  I think more about the long-term value of gold rather than the day-to-day movements.  But, it is fun to look at big moves too.  And (so far), that's a $30 bounce off its low around 9:30 AM.


EDIT:


Man those guys at Zero Hedge are very much on the ball re gold's spike (about GREECE, should have guessed, I post the link, and now will go read it):


http://www.zerohedge.com/news/gold-celebrates-formal-greek-cac-activation-40-intraday-move-higher


***


I read last night about rare-earth miner Molycorp's acquisition of Neo Materials, a Canadian manufacturer of alloys and other materials that use rare earth metals.  Neo Materials makes powders of Boron-Iron-Neodymium for example, this is used in permanent magnets.  Neo (and soon Molycorp) sells to Toyota and many other customers.  Molycorp (ticker: MCP) now is closer to its long stated goal of becoming a mine-to-magnet producer (a vertically integrated company).


This is a good thing, they are more in control of their business.  I wrote a short piece about Molycorp's new construction at its mine and processing facilities earlier, with a nice overhead video (with music) over its facilities there at Mountain Pass, California:


http://robertmixblog.blogspot.com/2012/01/aerial-video-of-molycorps-new.html

Thursday, March 8, 2012

Where Y'at Moon?

Members of my "New List" as well as my Joke List received an email the other day about celestial objects in the evening sky.  I send out various sorts of "mass" emails when something interesting comes my way.  Those on my Joke List are likely to be very smart, a good sense of humor is indicative of high intelligence.  Those who read my blog are also likely to be very smart, reading my blog is also indicative of high intelligence...

Anyway, Mother Nature this evening offered a nice spectacle.  The planets Venus and Jupiter are close together in the early evening sky.  Other than the moon, they are the two brightest celestial objects in the night-time sky.  About a week ago, the moon was in their vicinity, but the two planets were further apart, so while interesting, it was not spectacular like a similar event last year.

Tonight, the two planets are closer.  And the full moon came up.  So, that was the news I sent out, that anyone living with a view of the sea to the east might be in a position to watch the full moon rise up out of the sea.  Many of you know that I practice Tai Chi.  I typically will practice my forms at about dusk. Twice (and only twice) I had been practicing a Tai Chi form when I saw the full moon come up from the ocean...  I did not know at those two times that the moon was full...  I saw (both times) an orange dot/spot.  A minute or two later a horizontal piece of light.  BOTH earlier times I thought (at first) that it was a cruise ship heading out at sunset.  But, no, as the moon came up it quite clearly identified itself.  Both times I was in awe.

TODAY I knew the moon would be coming up, so I came home early to practice, hoping to see this again.  I started earlier than I thought the moon would rise (neglecting to Google moonrise time, tsk, tsk), so I started my various forms before it got dark (in the summer, the full moon can come up when it is still light).  There were some clouds to the east, and I did not know where or when the moon would come up.  As I worked my way through the forms, I did not see the moon.  It became dark, Tai Chi is a little harder to do when you can't see the ground well, and the quality of my Tai Chi was suffering because I was looking for the moon from time to time...   This time I had a false alarm..., this time it WAS a cruise ship.

So, I'm there thinking "Where y'at moon?  Where are ya?"

When I ran out of forms, I decided to do one of them again, the one I hope to put up on YouTube before too long (perhaps when I am in Peru, Lily can film me there).  As I was doing that last form again, I saw light in the sky to the east.

Behind clouds...

***

I do not know how much closer (if closer at all) Venus and Jupiter will get in the next 17 days or so.  In about 17 days, the moon, Venus and Jupiter may be close together like two nights about a year ago, when I saw a tiny crescent moon (with "earthshine" light from the Pacific Ocean reflected up to the moon and then back to us on Earth) next to the two of them right after sunset.  It was indescribably beautiful....

So, if you like amateur astronomy, look to the western sky in the evening, say around the 24th - 26th.  Maybe you will behold a wondrous sight!