Automatic Earth: DOOOOM... for gold?!?

If I comprehend Gary Tanashian's newsletter correctly, it seems to me that those of you who comprehend Gary Tanashian's newsletter correctly will know that he's got a grand narrative that serves as the fundamental basis for all his rather original macro charting.

I do follow GT's newsletter and consider it an important source of data for my own grand narrative... but I don't believe any one person can ever be right. So I synthesize. I find Ritholtz very important in this, and have now pretty much gotten into Automatic Earth's grand narrative as well.

Here's a really good post of theirs from Friday:

August 19 2011: One Step Up and Two Steps Back

It is really convincing to me, dealing as it does with the banks. The banks' share prices have collapsed; there have been major outflows out of the Euro banking system into safe havens like gold, USTs and US bank accounts; their credit default swaps are getting hammered; and now there's a minor liquidity crisis showing up in the Euro money market system. Not as bad as Lehman for the time being, but even Cramer makes a good point when he defends his "Lehman moment" assertion against some pompous English twat named Simon who's obviously part of CNBC's "Don't Worry Be Happy" crowd (watch the video at that link - and, seriously, do watch it).

Frankly, to me, anarchist and sociologist that I am, this illustrates not so much a "crisis of credit" as it does something more basic: a "crisis of trust".

You can't have a banking system without trust. Trust begets credit, trust informs counterparty risk, trust even informs due diligence (as those of you involved in the TSXV, the Moss Isley Spaceport of investing, already know). Unfortunately, with the stories coming out of the banking industry of endemic corruption, unmitigated incompetence, and proof of lackadaisical attitudes to risk, which have continued past 2007-8 (as you can see by the pathetic "stress tests" which failed to even simulate the possibility of Greek default, much less Euro dissolution), there's no more trust in the banks.

Even the Canadian banks have started diving. Now, they got through 2008 very well; they do have exposure to the Canadian real estate bubble, but I don't see that bubble popping unless we get simultaneous China and oil crashes. (The Canadian banks might just be getting shorted as proxy for Euro banks, since Euro banks can no longer be directly shorted.)

And SocGen, the subject of a bankruptcy rumour, is still circling the drain even after it's been made perfectly clear that the rumour resulted from a Daily Mail misreading of a fictional piece in the French press.

Trust in banking has collapsed. Probably because of extreme financial deregulation making it impossible to know what's really on their balance sheets, as well as the understanding that banks have now effectively become nationalized, with their losses now covered by increasingly indebted nations. And I bet the big boys in the investment world know this.

And I bet they know that "socialized losses" is an extreme moral hazard, that puts the stake in the heart of the proper pricing of risk - which is THE essential and only function of ALL markets.

And I bet they know how precarious the "socialized losses" paradigm has become, now that governments no longer have the money to absorb another disaster.

And I bet they know that the political support for "socialized losses" has collapsed. And I bet they know that this means when the next crisis happens, the American solution of handing out free candy to the Plutocrats will be abandoned, and the only politically acceptable path will be the Icelandic solution of raping and looting the rich, fucking the rich depositors, fucking the shareholders, fucking the bondholders, burning down whole villages... essentially, the free market solution of letting the losers lose and the winners win. With, hopefully, the kind of vigour and ruthlessness that you can only get from Vikings.

Which would be Karl Denninger's dream, so it's good to keep checking in on him once in a while.

Anyway....

The real reason I put you on to Automatic Earth's most recent post is because they do have a grand narrative - like GT - but they come up with a scary conclusion:

Gold goes down from here.

Agree or disagree with them if you want. But do just watch out that you pay attention to the possibility, and look for signs that it might come true.

Personally, my own market narrative right now is assuming that a crisis of trust in the entire financial system will actually result in gold returning to... oh my god I can't believe I'm going to say this... please help me... make me stop... in gold returning to its traditional position as an alternative currency.

Note I am not saying "gold standard" so all you Rondroids can go fuck yourselves.

But I am saying that, as physical gold used to make up 1-2% of the assets of the ultra-rich, they may now decide to make it a more traditional, Grandich-friendly 5-10%. That's enough to give us $2000 gold by Xmas and $5000 gold before the sun rises again on the West.

My empirical basis for this is that it's already been happening. Europeans have been buying USTs, USDs, and gold. It's portable, it's valuable, and it's not printed by gov - oh my god make me stop saying these things - it's not printed by governments.

Basically, if you can't trust the banks, if you can't trust governments, you can still trust gold. The Jews in 1930s Germany learned this, the capitalist class in 1910s Petrograd learned this, the Parisians in 1940 France learned this, the people in any Gonzalo Lira-style deflationary/hyperinflationary LatAm disaster area learned this.

Now you and me don't need gold because we're the peasant class so fucking get that straight. The peasant class survives by joining work gangs, living under bridges and eating tulip bulbs. So don't go buying fucking silver rounds on the internet like some fucking survivalist dumbass. Learn how to repair boots and electric armatures if you want to survive and thrive.

But the rich seem to be getting back into gold as "a hedge against fat-tail risk", as Bernanke calls it.

Getting back to GT:

I emailed him a couple days ago asking why silver hasn't collapsed yet. The GSR should have shot up when markets started to dive. I mean, this is a collapse in the coming. It's a "Lehman moment". So why isn't silver diving?

Is it because people are also using silver as a monetary metal now?

You think about it. I have no opinion either way. I'm just curious.