THE MARC FABER BLOG: GOLD is a -"Psychotic Placebo"; NOT AN INVESTMENT : Continue to Accumulate PHYSICAL GOLD

THE MARC FABER BLOG: GOLD is a -"Psychotic Placebo"; NOT AN INVESTMENT : Continue to Accumulate PHYSICAL GOLD

In this article we first examine why so-called leading investment experts (Faber, Rogers, Sprott, et al) continue to subscribe the archaic virtues of this metal, despite all the evidence to the contrary, that gold cannot rationally store or provide value, save for its marginal commercial uses. Its alleged value is traced to and conjured by primitive cognitions and beliefs not relevant to current or future societies. And, as other elements; more critical to survival, become physically scarcer, evidence shows that gold's trending perceived, comparative and market values erode further.

Gold also demonstrates the qualities of a medical placebo that triggers some patients to psychologically believe they are being cured of their ailments ingesting a purported but non-existent  remedial drug. Gold investors  act similarly, but they are more fanatical and  psychotic about their placebo, actually believing that the metal stores a mystical intrinsic value permanently and it will ALWAYS be convertible or exchangeable for the real items that provide the basic utilities of survival. Any such transaction requires  a gold investor to find a bigger fool willing to part with key necessities of life; who is sure however to be in scarce supply when survival needs are desperately paramount.

After this and further analysis, the article closes with a lesson and  a hypothetical event of alien explorers some day landing on our planet, only to find gold bars buried underground, everywhere - being the last and sole remains of a species, who once commanded its vastness. These planetary explorers will wonder, as the Europeans did upon their arrival at Easter Island; finding a barren land, a handful of folks, and a paradise littered with thousands of magnificent statues – Why did they never learn?

For the sake of good record and transparency, First Financial Insights Inc. nor any of its affiliates holds, either directly or indirectly, any  economic positions in this asset class, nor is there any intention to do so for any long-term period nor short-term period over the ensuing year. 


Golden Eyes or Psychotic Sociopath?

First. let's try to understand why Dr Doom and others are such a BIG Promoters of Gold, despite the fact that it is nothing more than a "Psychotic-Placebo," with a vast supporting cast of sociopaths, which fails to clinically rectify or satisfy any of the emotional, concrete and abstract conditions promised and promoted. That's a mouthful. Put simply, the ownership of gold, in any form, does not match the irrational thoughts regarding its function to forever store and provide intrinsic value or convert to real usable utilities. 

Gold also conveys the hidden hypothesis that it will always be convertible into utilities that are necessary for survival.  In truth, it is merely a symbol for an ambiguous idea purporting that it somehow stores the last values and utilities of human production. However, there are no guarantees. of any kind, from anyone, that it will always be traded for national currencies or bartered in exchange for physical goods and services needed for daily consumption. So why then does Dr Doom, et al, promote this form of Snake Oil to all whom would listen?

One, he often claims to hold, in some form or other - 25% or more of this placebo in his own portfolio. So there are clear hints of self-interest from perspectives of both personal wealth and reputation Need we say more? Other than, you should probably not expect any forewarnings from Dr. Doom or others, should they one day finally conclude - Gold is only rationally worth “$50 an ounce" based on the supply and inventory requirements of commercial production.

Secondly, Dr Doom is NOT a classic investor - but more of a speculative market trader seeking profitable short and near term opportunities before the collective consensus (markets) appreciates the object’s value. Warren Buffet, on the other hand, is a classic investor, who makes judgments, based on deeply solid and sound fundamental research and analysis of deterministic relationships and probabilities. What better proof is there of the difference between a classic investor and speculative trader than their actual portfolio holdings? - Berkshire Hathaway, for instance, has never had 25% of its portfolio assets in Gold or any similar placebo. Enough said.

Thirdly, Dr Doom, Jim Rogers and others, are likely to be biased, classically-trained economists and traders, who largely ignore the way that physics and mathematics describes the real world we live in. They place way to much confidence in man-made abstracts, theories and symbols, such as; currency, GDP, CPI, GAAP, Invisible Hand and so forth, while ignoring the hard limits that the finite constructs; such as resources, biosphere and population, impose on our activities - what we have defined and coined as Realonomics. Moreover, they fail or ignore the understanding that these man-made ideas are forever diminishing or debasing in value, as the planet’s finite inventory of useful constructs is depleted.  Worse, they may actually believe  that the abstract positive–sum game  they play never ends, despite growing evidence that it is now confronting reality’s non-negotiable negative-sum finite constraints - and possibly in a deadly exponential fashion.

Gold’s comparative real value, moreover, appears to diminish faster than other abstracts and elements; largely because it has much less survival utility than the other more useful elements. Secondly gold, unlike state-issued currencies, has no constitutional or other legal entitlement to possess and own these other elements, through legitimate national governance and all its connected agencies, within its defined and specific geography. So there is no doubt, that when global water, food and energy supplies approach exhaustion; gold’s inutility would grow more comparable to the value of feathers on a fish, in the last analysis.

Market facts also support this view, considering that an ounce of gold, in 1980, would then acquire 24 barrels of oil. Today, gold only buys about 14 barrels, even though both commodities prices are peaking again, as they did in the early 1980s. Do the math - using oil prices as a proxy monetary unit for global purchasing power; this so-called last store of value has lost 41.7% of its purchasing power over the past 33 years. Inferring, therefore, that it is neither a device for creating nor protecting wealth - rather in the real terms described, gold acts in a destructive way; thus looking more synonymous with Snake Oil. (Try this 1980’s calculation with the prices of other items, if you need further proof.)

Moreover, we further observe that gold has also been one of the worst performing assets classes in nominal terms; touching four decades of markets, despite promoters' claims of real or nominal wealth creation or protection. This is also an easy one to comparatively see by using the Dow Jones Average (DJIA). The Dow Index was bouncing near the 1,000 point mark back in 1980; since then the index has appreciated to nearly 15,000, representing a more than 15 fold increase. In nominal terms Gold moved from $850 US to just short of $1,400 today. In real monetary terms, these total Dow points - translated into dollars - now yield 150 barrels of oil or a 400% real increase in purchasing power. That leaves gold's shabby 41.7% comparative decline at the far back of the class. Some investment eh?

With these numbers, one can see why gold is referred to as a "Psychotic-Placebo” with a vast supporting cast of sociopaths. Nor is this the first time this humble observation has been made or recorded. The famous children's classic, “The Wizard of Oz" actually reads as a sophisticated parody that cleverly disguises an economic, social and political discourse, evaluating the virtues of applying the "gold standard"  to the US dollar,- a hot topic of those simpler times. An issue that was finally put to rest, ironically, by an infamous American President, Richard M Nixon in the early 70s - a very tricky Wizard indeed?

Following the golden road of the parody to Oz, and then to the Wizard, we find that they all lead us to invisible qualities of courage, intelligence, compassion  along with other ideas that return us to home (enlightenment? Philosophic insight?) In the end, one may come know that it is neither the visible golden road, nor Oz, nor the Wizard’s gifts (placebos?) that are substantive, but rather there are qualities and objects far outside these symbols and gifts needed to achieve the various desired virtues, goals and wisdoms. Symbols or placebos are, hence, not substantive, but rather act to romance overactive irrational imaginations, thereby clouding the reality of what really provides substance and utility.

Sadly, not much has changed since this wonderful story was written, perhaps because it rightfully belonged in post-graduate economic courses, rather than early literary curriculum's, when economics was solely an adult word used to secure abundant supplies of soda and ice cream. Nowadays, despite the story’s wisdom, this placebo is still promoted and promised to remedy greed and fear; safeguard economic values from the ravages of both inflation and deflation; preserve wealth during depressed or expansionary cycles, and offer a currency alternative and insurance with its magical stored intrinsic value - but doing so, without a claim on or any entitlement whatsoever to the resources and output capacities of any nation. Just name any financial wealth issue and this placebo becomes the one and only economic panacea in creation. Unfortunately, it is actually just a placebo.  On the other hand, markets, as shown by the 1980 comparative value analysis, appear to have appreciated OZ's wisdom, confirming that gold provides little intrinsic value, instead it is a medium that affords believers an outlet to symbolize irrational psychotic values with concrete inutility. 



Here's another way to look at this. Without gold, the global economy would pretty much continue as is - and its value completely unaffected by the non-existence of gold. However, without the global economy - gold's value is localized and dependent upon local relevance. Still, we may fill this void with another object that would satisfy our species apparently deep-rooted psychotic flaw and need. How's about big fumy-looking statues? 

Still, the benefits claimed by gold promoters and their related cast, seems only limited by their disturbed imaginations, regardless of how object analysis reveals its invisible clothing. It is a cloth that evidences little tangible benefits, and whose price is determined by a "collective social psychosis" at any point in time. Consequently, its price can just as easily spike to $5000 or nose-dive to $50 an ounce for no logical and objective reasons.



This is because the irrational emotional basis of the demand side is infinite, while its concrete supply-side is over saturated with a physical inventory that could satisfy production needs for hundreds of years. So pricing extremes are possible, caused by emotions that are not aligned with any deterministic physical considerations. Making its value a highly speculative outcome, without supporting fact-based investment criteria for ANY price, always! (NOTE; not even the marginal cost of production sets a pricing floor because of the large inventory overhang already stored above ground)

For centuries many investors, savers, pensioners and even banks have been duped into the myths surrounding this placebo. Many ordinary working folks parted with hard-earned money to play in a game where stock promoters, professional charlatans, fraudsters and many sordid characters have historically stated their claims (sic) seeking out bigger fools. Bre-Ex and its geologists, founders, promoters and financiers form one recent example of how the sociopathic nature of the industry attracts the wayward and unremorseful. If markets were to fully discount psychotic historic and cognitive origins of gold's so-called intrinsic value; that is celebrated by its bandwagon of sociopathic followers, it would be realized that there would be very little need to again extract  any of this metal from OUR planet for a few hundred years. If EVER!

To summarize, here are some key points:

Individuals and organizations promote gold's imaginary intrinsic value for their own vested economic reasons - not using all the facts or a scientific method, but based more on the barbaric relic’s unsubstantiated psychotic (feel-good) value.

Gold promoters and buyers are considered speculators, who are not governed by classic investors’ criteria and methods as applied by top investors like Warren Buffet. Hints of sociopathic behavior haunt the industry affecting its approach.

Gold investors and other players, subscribe to neo-classical economic theory, thus ignoring how physics and absolute mathematics describes the planet’s finite economic predicament.

Gold’s real purchasing power, using  monetary proxies, diminishes as other resources become scarcer. Do you want to eat or look good? In the end, it should buy very little. And financial and commodity markets show trending evidence of this for the past few decades
.

Among asset classes, over the past 33 years, this placebo’s asset class ranks amoung the worst in nominal terms. In real terms using oil as a monetary proxy, your global purchasing power would be down big time. Include the opportunity costs of being other asset classes in nominal terms and the combined losses are mind-boggling and staggering.

Its market price is subject to wild swings in short time periods, because demand drives from collective, volatile and varied psychotic emotions, while it is arguably the most over supplied commercial element in storage on the planet. Oil prices would fall dramatically if a similar inventory  overhang was stored above ground . The more rational mind-set affecting its demand side explains why.

Gold promises everything, but delivers inutility. When explorers from planet Xenon 24 arrive on our planet, in the far distant future, finding only gold bars buried deeply underground, everywhere, they would surely not be impressed with the last remnants of our society. Who cut down their last tree? What were they possibly thinking?

Sociopaths have been players at the centre of this industry that has little concern or remorse for society. None whatsoever for future generations, whom will have 400 plus years of snake oil on hand, and not much else to live on, as many resources used in its extraction may be exhausted in 50 years or less. Not a good algebra by any means.

In the final analysis, as planetary constraints tighten their grip on the planet’s real physical economy, it would not surprise us to see gold drop below $100 ounce in nominal terms, as more economies struggle to feed, warm, employ and service their growing unrestful masses, around the globe. As mentioned above, markets are hinting and trending towards this wisdom. Leading one to believe, that it is not a just question of if its price will collapse, as resource scarcities take hold, but only a matter of when it will occur as determined by the unfolding end-game of  the planet's physical circumstances. These again are hard non-negotiable constraints

As for Dr Doom and the gang, hopefully, they will be just as forthcoming and transparent about their asset sales, as they have supposedly been about their current ownership positions. 

Oh, just one more thing; perhaps someone could also prepare and leave an explanatory investment note behind for the folks from Planet Xenon 24 to read when they arrive!  For the Record!

First Financial Insights

June 29, 2013

Why don't we trust these people?