Cerulean Dollars - Go Deep Or Go Home

“We have deep depth.”- Yoga Berra

The dollar institution is much larger than the Fed, the Treasury or the entire basket of FOREX that derives relative values of backless currencies.

Market action makes market commentary. Few question price discovery -- instead they spend precious time trying to make the fundamentals fit the price. A backwards endeavour. We need to go deeper.

Not only because the truth sets us free, but to reveal the ugliness as well. There is no reason not to appreciate the complexity.

There is an art underlying the mechanics of finance, even if it is ultimately destructive. There are rules, language, principles, and modes of conduct.

There are sets of algorithms, complex math and dressing -quite an art to dressing up a pig. The effect is that a $5000 suite has on a room filled with people wearing casual clothing.

This is the level at which that we operate, and the political/financial elite are expert at this. They don't come easy, but are often earned by long, hours of work. This doesn't mean it’s good or just.

This idea came to mind when I walked through a waiting room recently. I noticed the movie The Devil Wears Prada playing on the television. I recalled a scene I remembered from when I saw it years ago.

It was something I hadn't considered about fashion but also an example of how we think we are outside of a system when we are very much a part of it. Revisiting that scene, I realize that it goes even deeper than I thought.

Meryl Streep plays the editor of a fashion magazine.  Fashion is an institution because we can no longer feasibly make our own clothes.  Even the most industrious and clever among us, those who make their own clothes, will buy the fabric with which to do so.  Almost no one in a Western country has the faintest idea of how to make fabric, let alone the resources.

In the clip, Streep’s character responds icily when a holier-than-thou fashion outsider scoffs at her as she goes about her work.

She says, “You think this has nothing to do with you. You go to your closet and you select, I don’t know, that lumpy blue sweater, for instance, because you’re trying to tell the world that you take yourself too seriously to care about what you put on your back.

But what you don’t know is that that sweater is not just blue, it’s not turquoise, it’s not lapis, it’s actually cerulean.”

“And you’re also blithely unaware of the fact that, in 2002 Oscar de la Renta did a collection of cerulean gowns and then I think it was Yves St. Laurent – wasn’t it? – who showed cerulean military jackets.”

“And then cerulean quickly showed up in the collections of eight different designers.  And then it filtered down through the department stores and then trickled down into some Casual Corner where you, no doubt, fished it out of some clearance bin.”

“However, that blue represents millions of dollars and countless jobs and it’s sort of comical that you think you’ve made a choice that exempts you from the fashion industry when, in fact, you’re wearing a sweater that was selected for you by the people in this room.”

An institution has emerged to put clothes on our back.  The scoffer who inspires Streep’s character’s rant would like to think that she is outside of the fashion industry, that it has nothing to do with her. Likewise, many of us would like to think that we’re outside of the institutions that we don’t like. But we’re not.  That’s the rub.

No matter how enlightened or inspired we are to fight social convention, we can’t get outside the institutions that organize our societies.  We’re in them whether we know it or not.

But at the end of the day, who benefits?

How does it balance?

Where does the flow of money go?

What is the trickle down path of least resistance?

What good does it do for the real economy?

The silver price is a fulcrum for a mass of derivatives. The heart of all trading is basic price discovery. Once the bid/ask is out there, few question it.

Whatever happens after that becomes commentary. This is why something so blatantly obvious as HFT can go on for years. How does the institution come apart? The repo-generated, freeze.

“The problem of QE in repo terms was that it not only stripped usable collateral from dealer inventories and from other holders where it might be used as supply, it has seemingly diminished the entire repo market’s capacity to withstand even a relatively minor increase in volume.”

What was normal in 2013 seems to create something of a stir in function in 2014.

The problem for “markets” is that this is a primary liquidity conduit, indicating significant and persistent degradation under, again, very benign conditions.

Policymakers don’t really know what they are doing and are just making it up as they go. We are breaking away from the dollar institution, and this is why physical is the only real way to invest.

But, ultimately everything moves toward equilibrium.

Fundamentally, economies and the cancer of finance are emotional, conscious entities, extensions of a terminal condition. It is all based on a rootless, backless, untethered and pervasive institution.

And yet, the majority of those initially wake up to the idea face that something isn't quite right in the world of finance.

That what they think they have may not be diversified enough. Things are unbalanced.  And so we turn to "paper metals".

As if they were a true exit, and not another highway to hell.

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