The bull-run in silver has been quite extraordinary of late. After trading in the $15-$20/ounce range during the second half of 2009 and the first half of 2010, it has exploded higher to almost $50/ounce.

 

After a decade of popping bubbles, a great number of commentators have succumbed to the temptation of calling silver a ‘bubble’. Although I empathize with this skepticism of the recent drastic price rise, I beg to differ on the terminology. I contend that such widespread ‘bubble-watching’ is a symptom of an embarrassed investment community. Collectively (and definitionally), they missed out on TMT in 2000, Real Estate in 2006 and just about everything in 2008. Here, in defiance of the contention that ‘Silver is a Bubble’, I contrast the characteristics of the famous Tulipomania with the recent bull market in Silver.

continue reading »

As I have mentioned previously, the financial services industry is becoming increasingly populated with avid ‘bubble-watchers’. After having missed TMT in 2000, Real Estate in 2006 and just about everything in 2008, they’re determined to catch the next one. Alas, I admire this new found skepticism and respect the desire to be prudent. However, as always, group-thinking is the antithesis of good thinking when it comes to financial markets. Any group enterprise based on a conviction about the future course of prices is bound to fail. Here, I contend that gold is not in an exuberant bubble (yet!). Moreover, I liken the recent up-trend to the up-trend in the paper mark price of gold during the Weimar hyperinflation. [Full disclosure, we buy gold online very regularly.]

continue reading »

Gresham’s law states that ‘bad money drives out good‘. However, as Murray N. Rothbard pointed out in ‘A History of Money and Banking in the United States: The Colonial Era to World War II‘, the ‘triumph’ of ‘bad money’ is not a perverse feature of the free market, but a direct outcome of government intervention:

 

…when government compulsorily overvalues one money and undervalues another, the undervalued money will leave the country or disappear into hoards, while the overvalued money will flood into circulation.

 

In this article, I’ll consider the implications and manifestations of Gresham’s law for traditional commodity monies as well as present-day fiat currencies.

continue reading »

As a contrarian investor, I seek to profit by opposing trades based on self-assured judgments about the future. So, in defiance of the calls for an imminent hyperinflation, I ask; what idea really killed the French Assignat? And does it threaten the dollar today?

 

I recently wrote about the idea that killed the mark. This article is intended to confirm the rudimentary premise of my previous work; namely, that a tragically vicious idea has to firmly grip the minds of the masses in order for a hyperinflation to ensue. My contention is that the misguided premises of today are (fortunately) less vicious.

continue reading »

Previously, I explained why it may be inappropriate to liken the dollar to the paper mark of the Weimar Republic. It recently occurred to me that I could explain this in a simpler fashion via the tool of analogous thinking.

 

Imagine that Bernanke (and the rest of us of that matter) firmly believed that the Fed should print dollars to buy – say – 1000 ounces of gold every day. Those gold ounces would be distributed to the public at the end of every day. Furthermore, suppose that we also believed that every time the price of gold rose by $1, we should buy 1 ounce extra every day.

continue reading »

As a contrarian investor, I abhor mechanistic ways of thinking. So, in defiance of the formula that says ‘money printing leads to hyperinflation’, I ask: what idea killed the paper mark of the Weimar Republic? And does it threaten the dollar today?

 

The idea that killed the mark was self-sustaining, spiraling and vicious. In short, it was this: any fall in the external value of the mark was deemed to necessitate the unconditional discounting of treasury bills at the Reichsbank. Plainly put, it was; ‘print paper marks when the paper mark falls in value’. Every bout of money printing brought a decline in the mark’s value against the dollar, which brought about fresh rounds of money printing, and so on. The period of inflation in the Weimar Republic was doomed to continue insofar as this idea held its legitimacy.

 

continue reading »

The inflation in the Weimar Republic is widely understood to be one of the worst periods of monetary debauchery in the history of the world. Of course, I agree with this notion. However, in the spirit of a true contrarian, I’m interested in one of the great trades that you didn’t hear about: betting on deflation in 1923/4.

continue reading »