Here it is TL: http://www.prerequisite.com.au/blog/

My reference was mostly from the point of view of a tethering to gold being a form of ultimate restriction to trade and capital flow imbalances. In the different ways I look at the global system, I don't really see that oil operates in that sort of manner. Unfortunately I'm not familiar with Simon Hunt's views around this, but I've always thought that he was quite a capable analyst.

Ok, thanks Daniel for taking the time to respond. I referred to Oil and Energy, as it is such a necessary and widely-used commodity, and the decision on which currency to use to settle contracts would no doubt affect demand for that currency. So for example, if China negotiates a massive energy deal with Russia, for example, and they agree to use the Yuan to settle contracts (this occurred in 2014), well that's one less massive energy deal settled in USD. And the growth in energy demand in recent years has been mostly China, so the impact is possibly significant. So if the marginal increase in demand for currency is going elsewhere, then a new source of demand for USD needs to be created. It was also in 2014, for example, that US Commercial Banks were required to hold greater reserves of US Treasuries. There may be no connection at all of course, but these are the dots we try to connect. Ultimately, demand for USD helps fund US deficits - d'Estaing's moniker of an 'exorbitant privilege'. Simon Hunt did not specifically make this connection to Oil, (though he was a USD bear late 2016) so possibly an incorrect projection on my part. Thanks again for your thoughts and insights.

Absolutely Correct....

agreed

I would encourage you to keep thinking in the way that you are - velocity I have learned is such a multi-faceted concept, that to simply use the word 'velocity' is too blunt a term. Most people's thinking about velocity starts and stops at an GDP/M2 concept, whereas different sectors and levels of the domestic and global systems have vastly different 'behavioural' dynamics interjected within them. Money demand is a term that in theory is supposed to be synonymous (but inverse) to the velocity concept - where an increase in money demand (say, as a hoarding response or loss of confidence in non-money alternatives) is equivalent to a fall in velocity and visa versa. But increasingly I have realised that velocity as a circulation concept is subtly quite different to money demand as a behavioural function (depends also on the context within which you are applying these concepts too), but don't ask me to explain this here. Usually it's easy to see quantity dynamics of monetary or financial/economic variables, but to see quality and circulation dynamics within different realms is something that I have found to be quite a fruitful line of enquiry. Also I'd suggest that some areas of a system are more important than others - to figure out what is 'symptom' and what is closer to 'core' within a system dynamic is more the battle we need to be contending - for example, I'd suggest to you that there is some validity to your observations around the buyback aspects, but in the current structure I would posit that those particular dynamics are more symptoms of larger dynamics than necessarily at the core of the significant drivers of the system. Definitely looking at banks tends to take you more towards a core dynamic than symptom, but not always the case. Unfortunately, this is where some training in systems analysis can come in handy - yet another topic that is beyond this forum. Hope this is somewhat helpful - my main point is to encourage you to keep thinking in the manner you are. Surely I am reaching the word count limits of these comment areas :)

Thanks Robert, most appreciated. With regards to the gold comments at the end - the only way I could see the network/crowd effect working as you describe (where friends/followers/'every-person-and-their-dog' piles into gold in the manner you describe) would be as a RESULT OF a multi-year strong rise in the price of gold, not so much a driver of such. In markets, more often than not it is increased price that tends to beget increased demand by a broader audience - by the time everyone was 'piling in', the price of gold will probably be quite mature in its trend and probably going parabolic, we'd likely be in the later stages of a bubble type condition rather than the early stages of a sustainable bull market? But who knows, I'm sure we could figure out an array of circumstances wherein your observations may play out as you described - though I can't really see it happening anytime soon. As an aside, I should probably point out that although I have an on-balance negative view of precious metals, we still hold an exposure to precious metals of circa 7-8% in our portfolios. I think everyone should have a diversified holding of some sort to precious metals, but at this point in time this represents an 'underweight' position for us relative to our broader strategy and mandate. In some ways I'd love a sustainable bull market in precious metals, because their underpinnings tend to be highly reflexive in nature and the trends strong to ride, but at least at the moment the frameworks and tools I have regarding the precious metals complex suggest that such favourable underpinnings are not in place. I should also note that I'm not trying to call tops or bottoms, if I can capture the middle 70% of the major multi-year trends more often than not, then my portfolios will do very well.

Yes, this is counter-intuitive at first, but it is exactly what I'm saying. Precious metals trends are defined by 'excess' liquidity trends (mainly relative to USD liquidity as reserve currency benchmark). So if effective USD 'supply' is out-pacing 'demand' for USDs, then you typically have a bull market in Gold and bear market in the USD (i.e. you have an 'excess' of USD liquidity above what is being absorbed by the global economic system). Presently we have the reverse, an underlying trend of problematic effective USD liquidity 'supply' that is being outpaced by USD demand, which basically means USDs are becoming more valuable (Precious Metals less valuable compared to USDs) - The Shiller CAPE is effectively a measure of the value of $1 USD in earnings, Precious Metals effectively represent the inverse global value of $1USD, so a downtrend in precious metals (increase in global value of $1USD) typically is reflected as an expansionary uptrend in P/E multiples (as every $1USD in earnings is becoming 'more valuable') as represented by CAPE. Conversely, bear markets in P/E multiples (falling CAPE) typically occur when the value of $1USD is 'falling' globally (i.e. rising Gold trends, or conditions of 'excess' liquidity supply above demand, the value of $1USD of earnings also falling hence contracting P/Es). Hope this helps

Thanks Daniel, that’s definitely an unique view of the world. btw, I think it's awesome you're replying to the comments here. Cheers!

1) Daniel's explanation of relationship of CAPE and price of gold holds as long as financial system (in particular USD flows) function. 2) And furthermore, Anglo-Saxon states were first to achieve technological independence and maintained the leadership against the rest of the world, and the world is forced to use USD. Difficult to see 1) or 2) breaking, which would move gold from being commodity to being monetary base (as it was in 19th century, when France, the Netherlands and Germany were a somewhat equal trading partner.) China still can't produce about 15% of products they like to use.

Yes - I can't see 1) or 2) breaking in a hurry

Japan is definitely not heading in a great direction, and no doubt there will be a point in time where confidence begins to materially fail. But this is probably a topic best left for a future RV interview - I wouldn't want to try and broach it in a comments section sorry. Thanks for the kind words though

Definitely a good idea not to give money to people with blind beliefs.

Sorry, Prof Richard Werner, quite a warner.

I definitely agree that Professor Werner would be a great candidate for an interview. I came across some of his work maybe 10-15 years ago and thought it was very interesting.

Believe me, I share your frustration, but I well and truly doubt it. No one in power wants to pay attention to those guys since essentially their whole argument is that the central banks never had a clue what was going on to begin with (and still don't). To your second point, even if Yellen was replaced by Jeff Snider today, I think it's impossible to switch from our current broken system without a tremendous degree of pain/loss. That's why the powers the be have engaged in QE/ZIRP/NIRP/"stimulus" for the last decade... to delay the pain and prop up asset prices. Sadly, I think it will take a bigger crisis than 2008, serious asset price deflation and ultimately the final collapse of the eurodollar system to reveal the central banker charlatans for what they truly are... which is clueless at best, criminal at worst. Once the whole mainstream is finally discredited in the eyes of the broader public, it's far more likely that a greater share of people will listen to the real experts. Sooner the better.

I might look at doing a presentation for RV on this subject as it comes up a lot with people I speak with.

Thanks Daniel, that would be a real educational interview, set it up, Grant and RV team!

For what it's worth, I loosely see the inverse correlation between gold and the USD being maintained in the years to come. At some point the USD will materially loose its reserve currency status and the 'excess liquidity' framework will need to expand to become less USD centric (I already run such a model, and on an underlying trend basis, problems in non-USD liquidity are still causing flows to the USD rather than gold, this is always worth monitoring but in my view it's still too early to be expecting the inverse correlation between gold and USD to be breaking down yet on a sustained basis. But will see)

Apologies, I communicated that poorly. I did not intend to imply it would result in a 'perpetually' strong USD... but rather I was trying to point out that these dynamics are likely to strengthen the USD further, and that any further strengthening 'may' reinforce (& trend) a little longer than people might have otherwise thought as there are likely to be other reflexive processes triggered wherein stress begets a stronger USD, and a stronger USD begets more stress globally, which begets a stronger dollar etc. This obviously may not be the case, but I was trying to make the point to Grant that these trends can take on a bit of a life of their own due to self-reinforcing processes that can often be triggered. Will be interesting to see how the system unfolds. Gold may be a safe haven, but probably only after a lot more pain in the system that catalyses an over-reaction by authorities, but in the earlier phases Gold is likely to remain under pressure as there is more demand for USDs than effective available supply of USD liquidity (i.e. Gold bearish)

In America we have an educational system that's based in Hellenistic thought. Therefore most educated people do not have critical skills necessary to have critical thinking or what we would call common sense. That being said history teaches us people always revert to some form of monetary exchange that is incorruptible or not easily counterfeited.I submit ultimately paper currency Will fail and they'll be some currencythat we will be back by a unit of intrinsic value of something possibly like gold.

Thanks. I try to avoid (as best as I can) from stumbling into making 'predictions'. Largely I try to develop a reasonably robust approach for the major macro markets wherein I can probabilistically decipher 'signal' from noise, to gauge the probabilities of a market move being 'counter-trend' or a 'change in trend' on my time horizon of operation... obviously this is just as much an art as a science, but it enables me to 'adapt' rather than 'predict' when managing portfolios. By observing 'what is', I can gain a better appreciation of what 'might be' and when I need to take action or sit tight. An example would be some of my discussions in this interview around the reflation trade narrative having the patterning of being simply a 'counter-trend' dynamic, hence (on the time horizon I operate on in the portfolios) not necessarily requiring an 'adaptation' or increased weighting yet to precious metals. In order to protect against getting these dynamics wrong, I try to build into my allocations a reasonable degree of portfolio wide resiliency (basically diversification) and I always maintain a 'line in the sand' which if market price moves against me too far then I'll capitulate. It's not perfect, but by adhering to this philosophy I stay fairly safe & resilient, and on balance am able to generate the returns we are aiming to generate for clients whilst preserving capital and without necessarily having to 'predict' things too much.

I was actually a subscriber to his newsletter almost a decade ago. I'd love to see him interviewed on RV if anyone can track him down? He had a fascinating view of the world well-informed by history

I second the motion put forward by Sam B. Wants, Sniders, Mylchreests and Pozsar would be *amazing*.