By: Bill Holter10-23-2013 18:00:55 PM
I had lunch today with a couple of Swiss money managers. We spoke of several different subjects but what was most interesting were their views and their perceptions of how other foreigners view the U.S. financial conditions and the growing regulations. They mentioned that while more and more demand has been coming from U.S. clients to do business overseas, fewer and fewer options are available as financial institutions turn Americans away because of FATCA. One of these managers was U.S. born (now a Swiss citizen) and told me that he is almost embarrassed to answer some of the questions like "what in the world has happened to the U.S.?"
The conversation turned to the storage of precious metals and the various vaults that we've seen. Of course, I had to mention Warren Buffett's famous saying about how "barbaric" gold is, he has said that "men dig gold up out of the ground only to put it back in a dark vault. It sits there and doesn't do anything productive." I got to thinking (in reverse of Buffett), how naive are our banks? They hire a bunch of guards to stand in bank lobbies to make sure there are no robberies. But what's the point? It's not as if any of these bank branches even have any big sums of cash on hand, my guess is that the average rural bank maybe has $25,000 and urban banks no more than a couple hundred thousand dollars. That is not my point however, my point is that the banks hire guards to guard "pieces of paper"...that have the intrinsic value of absolutely zero! The guards are of course paid with these pieces of paper so I guess it's a wash but we did have a chuckle talking about Buffett's "non logic" logic.
I did ask them a few questions regarding storage. They are firm believers in storage and believe that more than one storage location is prudent. They also told me something that I did not know regarding Switzerland. They are a democracy and they have votes on various questions every 3 months. However the population votes...the government by law must follow and cannot resist as opposed to other countries where it seems that the government "votes" and the citizens cannot "resist." In any case, I believe Switzerland to be a logical choice for at least some of your storage needs while it is still legal and still allowed to get metal out of your local jurisdiction.
On another subject, "it was only a matter of time." Deutsche Bank asked the question"why even bother to taper." We have seen several others (including Marc Faber) say that not only will there be no taper of QE, the calls for more and further QE will get louder over time. I think this view is correct. I do not believe that the (especially derivatives) markets could withstand another round of "taper talk." I am sure that the markets could not withstand ACTUAL taper as a nuclear daisy chain of debt and derivatives collapse would begin within hours (minutes?) of actual taper. I would go even further and say that there is no jurisdiction on the planet that can actually taper. Can Japan, Britain or Europe taper? China thinks that they can...can they really with a real estate market in a bubble that makes the previous (and now again current) U.S. real estate bubble look like "steal" prices?
Stock markets around the world are currently VERY expensive. They have gotten to these levels based solely on excess liquidity sloshing around and it can even be argued that money has flowed into these markets out of fear. "Fear" that hyperinflation will take away purchasing power from previously "safe" interest bearing situations. I think that the reality is that a "taper" anywhere will break the daisy chain everywhere. I believe that all central bankers understand this even though the Chinese "try" from time to time. The current "tightening" by China will probably not last more than a week or so, you'll remember back in April where their overnight interest rates spiked up to something like 15% during a taper effort...this time will be no different in my opinion.
As the calls for more QE get louder and are spoken of more often and more freely, finally, gold and silver should move higher. As mentioned yesterday, the fact that there is effectively no longer ANY debt ceiling which means the Fed must (will) print to infinity will not be lost on the marketplace. Paper markets or no, physical demand will increase even further at a time that physical ammunition (supply and inventory) has already been spent. I know that it is still early to talk about December COMEX futures and their deliveries but I don't see how we pass that timeframe if October (a small delivery month) takes half or more of dealer inventories into the darkness of private vaults. I don't think there are more than handfuls who understand how fast this could unfold when it does. If we do get into December (or even late November) and it looks like the amount standing for delivery dwarfs dealer supply by even 3 to 1, we very well may see the situation where gold goes "no offer." In other words, no one willing to sell any. "Price" will be meaningless; "amount" of weight will mean everything!