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Dead Cats And Live Rabbits

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With comments from Paul Tulstain (owner of Bullionvault) at the beginning and end, didn't see it posted before but sorry if it's a repost.

Dear BullionVault user,

This week BullionVault is making a rare return of gold bullion tothe main markets, taking us just below six tonnes – twice whatwe held in October. This gives me a chance to explain one of our security features(more about that in a minute) and also to give you a bit moreinsight into how BullionVault works. We like to stay broadly balanced in both cash and gold at all times,to offer you consistent, instant liquidity whether you’re a buyeror a seller. When BullionVault's customers are net buyers we goto the main market to buy gold. Steady net selling from you makesus sell the surplus of gold, receiving a top up in cash from themain market.

This flattens what would otherwise become a long gold position. Weprefer to stay nearly flat, because that's the responsible, low-riskway of running our business. And free from worrying about trying to"beat" our customers on price, I have learned to have the highestregard for BullionVault customer shrewdness. As a group you tend to do the opposite of most investors, which Isuppose is why many clients I have spoken to over the years havebecome very seriously wealthy. You tend not to buy on sharply risingprices, but to sell into strength – and BullionVault customers,on the whole, were selling last week. To me personally, however, it doesn't make sense to "takeprofits" into currency at present, because the financial world isinverting. It is not gold, or shares, which are especially volatileright now, but the value of the world’s inflating currencies. Should we really take our profits by converting into somethingincreasingly unreliable? Or should we step away from the action bybiding our time in gold? That’s tough to get your head around.

We have lived all ourlives in a world where the absolute standard of value was ourcurrency. But of course it is not absolute – and it’s this exactillusion, in fact, which destroys private savings in the lead up tohyper-inflation, as people sell assets for a spectacular quantityof cash which a week or two later buys not much at all. I make the point because if gold is going to $2,000 and beyond(a big if, but an increasingly possible one) then we are going tohave many weeks like this, where stocks and currencies fluctuatewildly but continue to quietly lose real value. I’d hate to seeyou thrown onto the beach by a wave of anti-currency speculationwhich encourages you – as a BullionVault customer – to "takeprofits" from gold, converting back into that paper garbage justwhen everyone else has finally got around to dumping it. Hence the essay below, which I think you may find useful today. Itwas written in 2004, and it's published on www.Galmarley.com. It might strike a chord. Sorry if you read it before.

*** DEAD CATS and LIVE RABBITS ***

ONE DAY THERE will be an uncontained financial accident. Withinhours credit facilities will be withdrawn, and there will be forcedderivative position liquidations at organizations around the world. Modern derivatives will be the brokers’ loans of 1929, resultingin margin calls, liquidations, the evaporation of confidence,spectacular losses, a credit squeeze and financial chaos. Theliquidations of assorted off-balance sheet positions will causethe realization of big losses in many highly geared positions.

This will in turn cause dramatic re-ratings of the creditworthiness ofmany borrowers. The crisis will develop rapidly in the international bond markets– where corporations and western governments have borrowedcash consistently and cheaply. Borrowers whose worst excesses arecurrently hidden off balance sheet in the derivatives markets willfind themselves insolvent, and their bonds and shares will plummetin line with their credit ratings. Oversupply of bonds from hurriedsellers will drain the markets of cash and the selling of furtherbonds into the market will become impossible - even at distressprices for good bonds. The bondholders – pension funds, deposit takers and othercollectors of the public’s surplus cash – will be drawn in, andwill see that they are in no position to pay back their depositors. Insurance companies will watch as the portfolios which back theirobligations are destroyed. Their capital will be inadequate andthey will suspend paying their annuity holders.

Property securedlenders and banks will be standing in-line, having lent widely inthe mortgage, debt and derivatives markets. Of the £600,000,000,000of gross sterling deposits in the UK much is on relatively shortperiods (e.g. 30-day deposit accounts) and lent long term asmortgages on overpriced assets. Not the tiniest fraction of thisamount of money can possibly be delivered by the banks in cash backto their depositors. In 'normal' times it does not matter if a bank's withdrawals exceedimmediately available cash resources, because the bank can gatherup some cash in bond and money markets. But in a credit crunch theycannot do this. There will be queues at the bank but the doors willbe shut, Argentina style. Houses will appear on the market, as the equity rich seek to securethe cash which they regarded as their savings. But no-one will havethe cash or the finance to buy them, and house prices will slump insearch of a few brave buyers. Mortgage lenders will go hunting cashto stay afloat - they'll suspend new lending. The banks and buildingsocieties will increase borrowing rates, without increasing depositrates, and they will suspend withdrawals. Industrial businesseswill face a slump in demand like they have never seen. Unemploymentwill explode. Only the debt free who have invested in super-cautious organizationsand instruments will emerge with liquid assets. Like most predictions these particularly wild ones are almostcertainly wrong.

But they show a possibility which many savers aresimply not aware of. Most readers – even those who broadly agreethat the future could get that bad – will smile inwardly in theconfidence that they are shrewd enough and fast enough on theirfeet to get out at the first sign of trouble, before the stormreally hits. Maybe they are in that tiny number who will achieve it, but it isunlikely. Not only is there simply not enough cash to pay out morethan 1 or 2 per cent of savers there are other great difficulties. In times of crisis the marketplace makes it very difficult to act. Atevery stage of an implosion it introduces elements which obscurethe ultimately successful line of action. Prices, for example, donot descend in an orderly straight line. Almost all the sharpestrises in the markets occur directly after the steepest falls. Market professionals have a black humor expression for theserallies. They call them "the dead cat bounce", because even a deadcat will bounce a few minutes or a few hours after the slump.

People who lose 10% of their portfolio value on Monday morning,when the market phone isn't being answered, and then gain 8%on Monday afternoon, will choose to do nothing on Tuesday. Whilethey're dithering the market will encourage inaction by greatlyincreasing the trading spread between buying and selling prices –leaving investors with the feeling that to trade is to be fleecedby the professionals. They will decide to hold on rather than loseanother 10% of their money by selling while the prices are wideand the markets illiquid; and every time the prices narrow againthey will wrongly think the worst is over and will still do nothing. Of the few investors with a trader's mentality, almost all willbe over-affected by the repeated market swings. Sucked out on thefalls they will buy back in on the rally – on consistently widespreads. Meanwhile any assets which offer protection to savers willboom in price, just to the point where they are uncomfortably –even dangerously expensive to buy. This should be understood by all investors – but it isn't and itnever will be. The market doesn't wait conveniently showing the pointat which we should get out.

It hangs between greed and fear. When itfalls it tempts us to hold on with the prospect of recoveries whichdon't happen, yet it punishes us repeatedly if we start selling,with bounces which would have saved us from our loss. Bit by bitit turns the shrewdest market operator into a rabbit. The significant majority of the tiny number who eventually succeedin such chaotic market circumstances will be those who acted beforethe storm broke. By the end they will have been through the mill,having endured countless hours of anguished doubt. But aided by theinitial profits they make as the storm breaks they will have beenable to ignore strong but temporary market movements against them,provided of course they have the fundamental confidence in theirown judgment of the process of economic unwinding. But even then only a handful will exit their wealth preservationstrategy and go back into productive businesses within 20% of thebottom. This is what it is like to be a successful investor.

Evenin the good times it is painful to sell well, and painful to buywell. But during times of crisis the pain is amplified by extremevolatility, wide pricing, and thousands upon thousands of columninches of popular newspaper analysis recommending entirely thewrong action. "Perhaps never before or since have so many people taken themeasure of economic prospects and found them so favorable as inthe two days following the Thursday [24th October 1929] disaster,"writes J.K.Galbraith in 'The Great Crash 1929'. However, "on Mondaythe real disaster began." The disaster of 1929 was to continue – first down, then up;horror, then hope, then horror, for 6 months. It sunk the bulls,the speculators, the bottom fishers, the momentum trackers, thechartists, the value investors...everyone. Virtually no-one who had ever been involved in the markets cameout of the other side with any money at all.

So perhaps the lastword should be left to someone who did. "The complexity of this era of credit liquidation is far too greatfor the mob mind to grasp," said Robert L. Smitley, writing in hisusual style and with his normal regard for the intelligence of theaverage investor in his hugely entertaining book 'Popular FinancialDelusions' – published in 1933. "It is hardly possible for them to see the picture wherein about700 billion dollars of physical and intangible wealth is attemptingto be turned into about 5 billion dollars of money."

**********************************************

Incidentally, the "$5 billion of money" that Mr. Smitley referredto in 1933 was on the Gold Standard. A modern translation would read"...attempting to be turned into about $5bn of gold." But back to the "safety feature" I wanted to tell you about. You'll see on BullionVault's front page today that we are announcinga withdrawal of gold. If we do not make this public announcement 48hours before removing gold from the vault, and identify by publicalias who is removing it, then Via Mat – our secure storageproviders – are not allowed to accept the withdrawal instruction. This transparency stops any surreptitious removal of gold. Foradditional safety there's also a 5% per day limit.

Regards,

Paul Tustain

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This week BullionVault is making a rare return of gold bullion tothe main markets

When did BullionVault last reduce their gold holding?

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With comments from Paul Tulstain (owner of Bullionvault) at the beginning and end, didn't see it posted before but sorry if it's a repost.

Dear BullionVault user,

This week BullionVault is making a rare return of gold bullion tothe main markets, taking us just below six tonnes – twice whatwe held in October. This gives me a chance to explain one of our security features(more about that in a minute) and also to give you a bit moreinsight into how BullionVault works. We like to stay broadly balanced in both cash and gold at all times,to offer you consistent, instant liquidity whether you’re a buyeror a seller. When BullionVault's customers are net buyers we goto the main market to buy gold. Steady net selling from you makesus sell the surplus of gold, receiving a top up in cash from themain market.

This flattens what would otherwise become a long gold position. Weprefer to stay nearly flat, because that's the responsible, low-riskway of running our business. And free from worrying about trying to"beat" our customers on price, I have learned to have the highestregard for BullionVault customer shrewdness. As a group you tend to do the opposite of most investors, which Isuppose is why many clients I have spoken to over the years havebecome very seriously wealthy. You tend not to buy on sharply risingprices, but to sell into strength – and BullionVault customers,on the whole, were selling last week. To me personally, however, it doesn't make sense to "takeprofits" into currency at present, because the financial world isinverting. It is not gold, or shares, which are especially volatileright now, but the value of the world’s inflating currencies. Should we really take our profits by converting into somethingincreasingly unreliable? Or should we step away from the action bybiding our time in gold? That’s tough to get your head around.

We have lived all ourlives in a world where the absolute standard of value was ourcurrency. But of course it is not absolute – and it’s this exactillusion, in fact, which destroys private savings in the lead up tohyper-inflation, as people sell assets for a spectacular quantityof cash which a week or two later buys not much at all. I make the point because if gold is going to $2,000 and beyond(a big if, but an increasingly possible one) then we are going tohave many weeks like this, where stocks and currencies fluctuatewildly but continue to quietly lose real value. I’d hate to seeyou thrown onto the beach by a wave of anti-currency speculationwhich encourages you – as a BullionVault customer – to "takeprofits" from gold, converting back into that paper garbage justwhen everyone else has finally got around to dumping it. Hence the essay below, which I think you may find useful today. Itwas written in 2004, and it's published on www.Galmarley.com. It might strike a chord. Sorry if you read it before.

Big LOL, :lol: Sounds to me like they dont like you lot selling your pretend gold for profit, you got to keep it with them so they dont have to lay out money they havnt got, because they dont actually hold the gold so they cant sell it for you at the market price, hence they keep losing on the deals when you take your profits, hahahahaha :lol:

edit :bold

Edited by Loggy

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Big LOL, :lol: Sounds to me like they dont like you lot selling your pretend gold for profit, you got to keep it with them so they dont have to lay out money they havnt got, because they dont actually hold the gold so they cant sell it for you at the market price, hence they keep losing on the deals when you take your profits, hahahahaha :lol:

edit :bold

That's of course rubbish.

Apart from that, the article is known to many already since it is from Tustain's Galmarley page. Obviously many things he wrote about have already come true to some extent.

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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