Paper Money Yielding Madness

The mainstream investor (with any time and "money" left), wielding an internet connection, and hell bent for yield is about to feel the temperature drop despite a thousand reminders that the cold winter is coming. (Or perhaps not - if you are in South Florida.)

Zero interest policy scorches the planner and the saver, rotting the seed corn while providing fuel for speculation, breeding the trading culture pestilence we see today. Yet again, another tiresome cycle appears. More bubbles to end all bubbles.

Modern bubble incarnations are fueled by a social media driven propaganda and the same dog and pony we've seen over and over. All the cash on the sidelines needs a willing seller to come back in.

The winter always comes. To illustrate the detachment from prudence...

The following comes from a retired relative (frustrated investor) after a long discussion about precious metals price manipulation.

A Confession

"Jeff,

This stock has been referenced as one of the most shorted stock, manipulated stock ever- perhaps an exaggeration but definitely painful for me. The company has a great scientific platform and a pipeline that has a lot of potential.

I have owned it for 10 years; bought when it was $1.20 and, unfortunately, at $11.20. My biggest mistake was when I sold every one of my 10,000 shares on a stop order that I placed the day before the FDA approved Belviq.

The price dropped from $11.00 to under $7.00 where I had ready to get out before I lost everything. It stayed down for seconds, was back up to $11.00 and I repurchased every share - bad mistake.

You can take a look at what it has done since then and I have added to my position to get my average cost per share down.

Bottom line is I am in for as long as it takes to get me the Porsche, yacht and cruise around the world. What has happened is that reality has finally set in that these companies selling obesity drugs are worth only as much as their revenue and profits.

It is said by longs like me that there are paid pacers that try to get less committed longs than me to see so the Hedge Funds can cover their short position."

And therein lays the rub.

In the metals – futures - the big commercial banks induce the hedge funds and small specs into collectively going short using the same methods as above.

The hedge funds or managed money category are notorious for utilizing spoof trades or fill/kill orders to induce weak longs into selling - and then covering in the aftermath. This is HFT, computer driven pump and dump scams at their worst; typically dumping or spoofing massive uneconomic lots into low volume overnight trading.

They drop the price, where the big commercial shorts buy back positions. The rally comes when all these specs decide to book profits and cover.

Of course, all of this is derivatives wagging the dog. Commentary comes in the aftermath of price movement, not the other way around. Ultimately, it adds an unseen layer of geometric risk to the markets in general.

The whole thing is uneconomic, unnatural.... really just an extension of the monetary policy underlying it all.

The retail investor gets thrown under the bus. Everything is managed in a paper fiasco. And that's just it. It's all paper.

My relative should know better, but will have a hard time at this point changing his view. He is one of a class of speculators chasing a dream with their retirement accounts. Ironically, they will be blamed in the coming crash. And they will willingly give up their accounts in the name of safety, allowing the bail ins.

Sometimes I imagine these guys, who are used to the trading terminals at Charles Schwab  (or speaking with friendly account managers) walking in to visit my coin dealer, in his tiny disheveled shop, with the am radio blasting, seeking shelter from the financial storm to come. And only for a tiny allocation.

Sadly, most people shall remain literally oblivious, by measure of average PM portfolio allocation, to general awareness. The Wall Street Journal/Financial Times reader has seen a few articles praising the coming of silver — but through the lens of the ETF. This perpetuates the paper madness.

It is not easy to escape the profit driven mentality at a time where the storm clouds read:

RETURN OF INVESTMENT

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