By Keith Weiner
For about ten bucks a month, Netflix will give you all the movies you can watch, plus tons of TV show series and other programs, such as one-off science documentaries. They don’t offer all movies, merely more than you can watch. Oh, and there are no commercials.
They don’t just give you old BBC reruns, which you know they can get for a pittance. Netflix is spending money (well Federal Reserve Notes) producing its own original content.
Did we mention that there are no commercials? How is this even possible? According to CNBC, Netflix is spending $8 billion to produce 700 shows. Assuming all of its reported 118 million subscribers pay $10, their production budget eats up more than half a year of their total subscription fee revenue.
CNBC reports that Netflix is exploring the idea of putting ads in its shows. Unfortunately, a quarter of its subscribers say they would leave if that happens. The economics of free vs the economics of losing 25% of your customers in one wrong move. It’s the tiger or the tiger.
Continue reading Never Mind the Bollocks, Here’s the Avocado Toast
By Steve Saville
A few years ago I wrote a couple of pieces explaining why gold mining is a crappy business. The main reason is the malinvestment that periodically afflicts the industry due to the boom-bust cycle caused by monetary inflation.
To recap, when the financial/banking system appears to be in trouble and/or economic confidence is on the decline, the perceived value of equities and corporate bonds decreases and the perceived value of gold-related investments increases. However, gold to the stock and bond markets is like an ant to an elephant, so the aforementioned shift in investment demand results in far more money making its way towards the gold-mining industry than can be used efficiently. Geology exacerbates the difficulty of putting the money to work efficiently, in that gold mines typically aren’t as scalable as, for example, base-metal mines or oil-sands operations.
In the same way that the malinvestment fostered by the creation of money out of nothing causes entire economies to progress more slowly than they should or go backwards if the inflation is rapid enough, the bad investment decisions fostered by the periodic floods of money towards gold mining have made the industry inefficient. That is, just as the busts that follow the central-bank-sponsored economic booms tend to wipe out all or most of the gains made during the booms, the gold-mining industry experiences a boom-bust cycle of its own with even worse results. The difference is that the booms in gold mining roughly coincide with the busts in the broad economy.
Continue reading The Myth of Gold Stock Leverage
You may know me as the guy using weird planetary alignments while assigning proper fundamentals to the gold sector, and recently even doing the same with a somewhat subjective and philosophical view of gold as an important counterweight or insurance component to a sensible portfolio. Or you may know me as the guy who confuses you with too many market indicators or annoys you with too many exposés of the more promotional and/or manipulative entities out there.
Or you may not know me at all.
If that is the case, let me introduce myself. My name is Gary and today I have a very simple post for your consideration. We will look at the now compelling views of the Commitments of Traders (CoT) data for gold and silver. While the prices of the metals are and have been technically bearish and the fundamentals are and have been poor, sentiment (CoT is ultimately a sentiment thing, after all) setups like those shown below should not be ignored. We are talking historic in silver and merely compelling in gold.
Continue reading The Bullish CoT Setups in Gold and Silver
By Tom McClellan
Every chart of price data is a depiction of a ratio. If you look at a chart of your favorite stock, what you are really looking at is the ratio of the value of your stock to the value of the dollar, since stock prices are quoted in dollars. AAPL recently was at 226 dollars per share. Gold recently is at 1200 dollars per ounce. Every price is a ratio.
But you don’t have to have currency in a ratio. The value of the DJIA is an approximation of dollars per something; I won’t discuss the merits of that index’s construction here. But if you take the DJIA’s “dollars per something” and compare it to gold’s “dollars per ounce”, you can factor out the currency and get a ratio of “something per ounce”. Again, don’t get me started on what the DJIA’s value means.
Continue reading DJIA/Gold Ratio
By Anthony B. Sanders
Non-commercial shorts for gold and silver have hit the highest levels … ever!
Actually, Silver shorts hit an all-time high and gold shorts are down slightly since yesterday.
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By Keith Weiner
This week, we are back to our ongoing series on capital destruction. Let’s consider the simple transaction of issuing a bond. Party X sells a bond to Party Y. We will first offer something entirely uncontroversial. If the interest rate rises after Y buys the bond, then Y takes a loss. Or if the interest rate falls, then Y makes a capital gain. This is simply saying that the bond price moves inverse to the interest rate.
However, it is highly controversial for some reason, to note that X is on the other side of the trade. If Y takes a loss then it is X’s gain. If Y makes a gain, then it is X’s loss. Party X is short the bond, and Party Y is long. When the price of an asset moves up, shorts lose and longs win. When it moves down, shorts win and longs lose.
Continue reading Illicit Arbitrage Cut by Tax Cuts and Jobs Act, Report 3 Sep 2018
The ‘Gold as Inflation Hedge’ Canard
On the one hand you have the sons of Harvey & Erb, who called gold to $800/oz. and caused a stir in the gold “community”. Per Campbell Harvey in this video with Kitco’s Daniella (dig the flowing golden locks of hair)…
“Gold is just too volatile” to be an effective inflation hedge.
Well yes sir, you are right. Gold does not track inflation in any kind of a convenient time frame. Gold’s volatility is a reflection of the volatility of the assets orbiting around it in the constellation of risk.
This cool NASA illustration makes the point. Those planets – like equities, commodities and the various FrankenVestments concocted by Wall Street – are in motion. All is often fine, but when a meteor of risk discovery hits one of them well, it is suddenly marked down vs. gold. See?
Continue reading Gold is the Sun, and an Anchor
By Otto Rock
Here’s the intro to last Sunday’s edition of The IKN Weekly, IKN483:
Friday may have been the day (but don’t count on it)
If there is one thing you can count upon in the wild and whacky world of gold stocks and all who sail with her, it’s that sentiment among its investors and speculators will turn on a sixpence. By way of example, we’ve just come out of an eight week period when gold was repeatedly hammered by the strong dollar, by Trade Wars!, by disdain for the whole precious metals complex and talk of dying demand. Most recently, gold spent two weeks under the U$1,200/oz line and spiked as low as $1,152/oz at one point and the whole process has been boring, painful or just plain horrible in turns.
And then, suddenly, Friday wakes up and gold pops over U$20/oz, going back above the U$1,200/oz and bringing a welcome relief rally to the sector. That’s why I decided to run this small poll on Twitter that day and here are the results of the 169 people who took a click of their time to answer:
Continue reading Friday May Have Been the Day (but don’t count on it), From IKN 483
By Keith Weiner
Last week, we said that the consensus is that gold must go down (as measured in terms of the unstable dollar) and then will rocket higher. We suggested that if everyone expects an outcome in the market, the outcome is likely not to turn out that way. We also said that this time, there is likely less leverage employed to buy gold and that gold is less leveraged as well. And this, combined with a contrarian perspective on the consensus view, means that this time gold won’t go down before going up.
Dan Oliver of Myrmikan Capital emailed Keith to say that people in the third world use gold as collateral on their loans. When they can’t repay, the gold collateral is sold by the creditors. This time around, there is likely to be a larger crisis in the so-called emerging markets and their currencies, and hence this selling of gold will be a bigger factor. With greater selling pressure on gold, we’re back to the bearish case.
Million Ton Rock, Meet Million Ton Force
The bottom line is that we have several forces pushing gold up, and several pushing it down. On the up side (not upside, sorry we couldn’t resist) these include creditors rightly fearing dreadful losses when debtors default, speculators wrongly thinking that an increase in the quantity of dollars causes gold to go up, and even the possible path to remonetizing gold if we are successful in help Nevada to issue a gold bond. On the downside, we have speculators who front-run the consensus that gold must go down first in a crisis, and we have forced selling by leveraged gold holders in the first and third worlds.
Continue reading Another Gold Bearish Factor, Report
By Steve Saville
[This post is a modified excerpt from a TSI commentary published last month]
Although I’m not in total agreement with it, I can highly recommend Erik Norland’s article titled “Gold: At the Crossroads of Fiscal and Monetary Policies.” The article is informative and, unlike the bulk of gold-related commentary, actually deals with fundamental developments that could be important influences on gold’s price trend.
The article was published in early-May and states that the U.S. is in a mid-to-late stage recovery. While that statement was probably correct at the time, evidence has since emerged that the economy has entered the “Late-Expansion” stage.
Note that the “Late-Expansion” stage could extend well into 2019 or perhaps even into 2020 and that the best leading indicators of recession should issue timely warnings when this stage is about to end. By the way, the extension of the Late-Expansion stage is why the industrial metals markets probably will commence new intermediate-term rallies later this year.
My only substantial disagreement with the above-linked article is associated with the relationship between gold and fiscal policy. Parts of the article are based on the premise that expansionary fiscal policy and its ‘ballooning’ effect on federal debt are bullish for gold. This premise is false; expansionary fiscal policy is not, in and of itself, either bullish or bearish for gold.
The effects that fiscal policy and the associated change in government debt have on the gold price will be determined by their effects on economic confidence. Of particular relevance, there’s no good reason to assume that an increase in government debt will bring about a decline in economic confidence, which is what it would have to do to be bullish for gold. In fact, if an increase in government indebtedness is largely the result of reduced taxes then it could lead to increased economic confidence for a considerable time and thus put DOWNWARD pressure on the gold price.
That there should not be a consistent positive correlation between the gold price and the extent of US government indebtedness is borne out by the empirical evidence. In particular, the following chart shows that there was a NEGATIVE correlation between the US$ gold price and the US government-debt/GDP ratio between 1970 and 1995, with debt/GDP drifting lower during the long-term gold bull market of the 1970s and then trending upward during the first 15 years of gold’s long-term bear market.
Continue reading Gold at the Crossroads
A general review of the current status across different asset markets. This is not comprehensive, forward-looking analysis as per NFTRH, but it is an up to the minute summary (as of Friday afternoon).
Gold, silver and Gold Stock indexes/ETFs made what I had thought were bear flags yesterday, but today painted them as short-term ‘W’ bottom patterns, in silver and the miners anyway.
This chart of gold (courtesy of Barchart.com) shows a flag breakdown, whipsaw and new closing high for the short-term move. As we’ve noted for weeks now, the Commitments of Traders (CoT) is in a contrary bullish alignment with large Specs all but wrung out of the market (they were fleeced again; don’t believe hype about their increased shorting being some sort of conspiracy). All in all, not bad for the relic. The bounce lives on.
Continue reading Multi-Market Status: Precious Metals, Commodities, US & Global Stocks