UNDERSTANDING ZELENSKI'S HISSY FIT

2 March 2025

Well, that's right—it's very difficult to make sense of what's happening here. We can understand the events as they unfold, but explaining the thinking behind them is much harder.

To me, the simplest way to understand the relationship between a metropole and its vassal states is to see it as a parent-child dynamic.

The metropole acts as the responsible authority, making decisions and providing stability, while the vassal behaves like a dependent child—lacking responsibility, struggling to pragmatically assess consequences, and making demands based on emotion rather than a well-thought-out strategy.

We armchair analysts can observe these moves from our Olympian heights, where action and reaction are easy to interpret. But for the "child" vassal, subject to the authority of the parent metropole, the bigger picture is often misunderstood. Instead of strategic reasoning, emotions guide decisions—leading to hissy fits when demands aren’t met or sulking or self-harm, when things don’t go their way.

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WHERE IS THE GOLD

26 February 2025

WHERE IS THE GOLD?

Where is australia's gold

We all remember when Germany asked for its gold back, in 2013, and was told delivery would take seven years. 

Are the countries asking for repatriation of their gold from the LBMA being told the same thing? 

And if LBMA runs out of gold and goes bankrupt, what happens to the owners of ETFs with unallocated gold? Eg SGLN? SGLN is backed by physical gold, valued at spot prices, held in LBMA and certified by  Blackrock. It is the most convenient and least risky ETF.... But what happens if the LBMA vault turns out to be empty. And it goes bust?

In fact, this hypothecation and rehypothecation is how governments manipulate the price of gold.The paper gold market (COMEX, LBMA) trades maybe 20 times more contracts than there is actual gold. It is done on futures contracts. Means banks can massively short-sell gold futures, artificially suppressing spot prices.

Why do banks do this?

The truth is that their currencies are devaluing all the time. A fiat currency is a currency that is not tied to the value of any asset. So governments* can just borrow all they want, they can print as much as the desire. They can have these mad spending programmes where there's no proper fiscal control, i.e, spend more than they tax. The States is doing two trillion of extra debt every year.

* with their own currency.

So why do these fiat currencies devalue all the time? 

Devalue means that they buy less and less of what people want in the real world. And this is because the governments are constantly expanding the money supply, so more and more money is available for the same amount of goods, which inflates the currency.... more and more currency is needed to buy the same thing.

Fiat currencies are not tied to an asset in the real world, this is the trouble and the blessing, but gold is. If central banks didn't keep shorting the price of gold, then gold would rise in value according to the inflation in the money supply and be worth an absolute bomb, and people would see gold as a reliable store of value - as it has been since the time of stonehenge - and put their money into gold and not into government issue treasuries, which are promises to pay, packed solely on the credibility of the government..

So if gold was only traded in physical form - ie if you buy at the spot price and take delivery of the physical gold itself - prices would without doubt be much higher. And when the day of reckoning comes, this is the day where the government can no longer borrow enough to meet its obligations, which in includes paying interest on it's treasuries, then we'd expect gold to rise to its real price, while paper assets burn.

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HAVE MARKETS PEAKED, OR IS THIS JUST A PAUSE

22 February 2025

There's something going on in the markets. They are set to pause, perhaps worse. Why?

Markets seem to be topping. Take VHVG, SGLN, ZPRW and WSML, draw a horizontal line at what looks like the top, and then mark in a stop loss 7% below that. As / if price dips towards that stop loss, we should be thinking about what to do next if we are to preserve wealth.

For example, this chart, taken from 11 February, shows that for YTD, VHVG (developed world markets) has been trying without success to breakthrough 92.30. It's much the same for the others, and it's still the same today.

So it seems that after reaching new peaks, financial markets have decided to take a breather this week, spooked by the spectres of a trade war, the possible return of inflation meaning at that interest rates will be on hold, and the ongoing geopolitical uncertainties in Ukraine, Palestine and the Middle East, and China. 

The major indexes may have paused, but overall momentum remains intact. There is confidence from continuing positive fundamentals and earnings results, a process both started in Riyadh to end forever wars, to judge from volumes investors keep buying. Markets on the march often pause to rest and when good news emerges they recover and continue up - recall the taper tantrums of 2013, the covid crash of 2020 and the fed hike fears of 2023.

For a good understanding of the  macroeconomics of the moment, listen to Luke Gromen. Interesting answer on revaluing gold to question two. It's hard to see how this could ever happen. For a fuller explanation, listen to Joseph Wang. 

The baseline understanding of the price of gold. is that 

•  rising inflation would be dealt with by rising interest rates, which would strengthen the dollar and increase its attractiveness as a safe haven vis-à-vis gold

• remember too that, as a safe haven in times of geopolitical attention, investors prefer gold - safer them treasuries. But note that with the arrival of Trump, tensions are lessening. 

• And thirdly for reasons - the narrowing interest rate differential between Japan and the States - although the dollar has been weakening against DXY, this has not led to a decline in the value of gold.

• So the conclusion would seem to be that gold is at a high and possibly an all year high, and it might be worth switching to silver.

With significant events on the horizon this weekend, German elections being one, and next week, investors should brace themselves for some volatility, but the overall message is continue as you were, cautious commodities, keep an eye on the Japanese Yen as this could likely be the main driver of US equity markets for the next few months.

Footnote - risks are building:

It's worth noting that margin balances are increasing and investors are piling into ETF, with leveraged ETFs getting more attention than normal. 

This is okay as momentum is still there, it is a sign of confidence. But if there is a reversal, the losses could be big and then you get what's called margin call and traders could be forced to sell assets in order to cover their borrowings. This will reduce liquidity and have a downward effect.

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