Copper Being Remilitarised

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Good news everyone! NASA researchers say there is at least a billion gallons of water on the moon. And that’s just in one crater! They published the findings in the journal Science. Raise a glass to la bella luna!

This means that if the accelerated depletion of natural resources by the limitless printing of fake money continues – and there’s a pretty good chance it will – we’ll have to find a new home with new resources to put to good use after this planet has been looted and depleted into a scorched and lifeless husk, like the moon.

The other good news is that the moon is pretty close, physically speaking. You just look right up in the sky and it’s there! It looks so close you could almost touch it. It was especially beautiful and silvery when we woke up at 3am last night wondering what the price of gold would do today.

But speaking of gold brings us back to sliver. Scientists say there is some silver on the moon as well, but not enough to mine. That’s okay, though. There’s no need to hop on Virgin Galactic flight to the moon for your silver. You can buy it for US$23.19/oz. That’s 31% more than you would have paid if you bought a year ago. But it’s 5.84% less than sliver was selling for just a few weeks ago.

Non Lunar Silver Descending from 52-week Orbit High

Non Lunar Silver Descending from 52-week Orbit High

You can see that sliver is selling off a bit as the U.S. dollar rebounds. We’ve written about this all week so we won’t blather on. The dollar was probably oversold on a technical basis. Silver, gold, and other commodities are consolidating. This is good news if you haven’t bought any yet. They’re getting cheaper, for now.

Gold, in fact, is on track to make its largest weekly decline since July. Gold bullion is already at a three-week low and is set to make its first weekly decline in 12 weeks. But once again, we greet these sorts of corrections with relief. It’s a sign that there are higher highs ahead. How do we know? Just check the charts.

The chart below shows that the current US dollar price of silver, adjusted for inflation, is lower today than it was during the height of the American Civil War. The 1980 inflation-adjusted all-time high of $134.69 was somewhat anomalous since it was also the product of the Hunt brothers buying up a lot of silver futures.

Incidentally, it’s often repeated that the Hunt brothers tried to illegally corner the market and manipulate the price of silver higher. They are often portrayed as rich, evil, capitalist pig villains. This telling of the tale is different. It suggests the Hunt brothers wanted a large position in silver to prepare for an inflationary melt-up precious metals.

It also suggests that the only reason the Hunt brothers were busted was not because they had really done anything illegal, but because the government directly intervened against them. First, the Feds prevented the number of long positions that could be taken in the futures markets. Now, instead of the market reflecting two highly-motivated, leveraged, and cashed-up buyers, the shorts stepped in and began to overwhelm the longs and silver prices fell.

Then the Federal Reserve actively discouraged what it called lending for “speculative activity.” The Hunts had good credit on Wall Street with a large family fortune. But New York bankers knew the Feds were after the Hunts and the loans and leverage dried up, forcing the Hunts into a corner.

You can see that the government does like competition for its money. The Hunts correctly saw silver as a store of value and a viable competitor to the Federal Reserve Notes passing themselves off as American money. Faced with a direct threat to its counterfeiting monopoly by real money, the government simply changed the rules in mid-stream to destroy someone who challenged its privileged position.

Of course you might think we would be all in favour of a Federal Reserve that discourages speculative lending…or lending for speculation. And you’d be right! But in the Hunt’s case, the government was clearly looking after its own interests (retaining the credibility of Federal Reserve notes as money) and not on the legal functioning of a real market. If anything, it looks like the government intervened to distort a market that was functioning perfectly well.

These days, of course, the monetary authorities don’t have any problem encouraging speculative lending. That lending funds the asset bubbles which made banks rich – the same banks that own the Fed. If you’re a drug dealer, you want people using the product. Anyone who tries to get clean, honest, and sound is bad for business.

This has been going on for a long while, as the chart below shows. The active suppression of alternatives to Federal Reserve Notes started in the American Civil War and has since gone global, with all governments everywhere keen to replace good money (gold and silver) with debt-based money. This is an era of State-backed monetary fraud that your editor thinks may be ending in your investment lifetime, as the State itself reaches a fiscal crisis. More on that after the chart.

Silver Reaching Civil War Levels

Silver Reaching Civil War Levels
Click here to enlarge

It’s probably no coincidence that silver is approaching about the same price it fetched when the American experiment in a strong Federal government with its own monopoly on money was just getting off the ground. A strong central, federal government does not appear to be possible without a centralised monetary system that does not tolerate competition.

Murray Rothbard explains in A History of Money and Banking in the United States:


The Civil War exerted an even more fateful impact on the American monetary and banking system than had the War of 1812. It set the United States, for the first time except for 1814-1817, on an irredeemable fiat currency that lasted for two decades and led to reckless inflation of prices. This “greenback” currency set a momentous precedent for the post-1933 United States, and even more particularly for the post-1971 experiment in fiat money.

Perhaps an even more important consquence of the Civl Warwas the permanent change wrought in the American banking system. The federal government in effect outlawed the issue of state bank notes, and created a new, quasi-centralised , fractional reserve national banking system which paved the way for the return of outright central banking in the Federal Reserve System.

The Civil War, in short, ended the sepeartion of the federal government from banking, and brought the two institutions together in an increasingly closeoe and permanent symbiosis.

It’s important to note that the American monetary system Rothbard describes – espeically the post-1971 experiment in fiat money – is the one the world now uses. Gold is held, inreasingly we might add, by central banks as a reserve. But for the most part, the world has been on the dollar standard since 1971. And the dollar is backed by exactly nothing other than the full faith and credit of the United States government.

It would be tempting to go into a much longer analysis of the permanent symbiotic relationship between government and banking. If you did, it might suggest that the reckless risk-taking of one entit – enabled by a private authority subcontracted to manage the price of money – is capable of causing permanent and irreversible damage to the credit quality of the other authority.

The U.S. banks may be too big to fail. But their liabilities are so large that assuming them or backing them is going to take down the U.S. government and its money.And when its money is the world’s chief reserve asset, the world is in trouble when US banks are in trouble.

The world is in trouble (although the moon is still beautiful).

We won’t go into any more depth on the symbiotic relationship between centralised power and centralised money.But we will say, for a variety of reasons, that even though the symbiosis is permanent, the lifespan of the abominable organisation this unification has produced is not. Political arrangments to govern and regulate the economy don’t last forever when they are based on unsound money.

We’re not exactly breaking any new ground with this analysis. But for investors, a newer issue is whether metals other than gold and silver are equal stores of value in a world moving away from finanical assets and toward “hard assets.” This is the case Dr. Alex Cowie made yesterday in the newly published monthly issue of Diggers and Drillers.

In deference to his paying subcribers, we’re not going to say too much about the details of the cae he’s made or the stock he’s recommended. But Alex has essentially made the case that because of an extremely favourable supply/demand scenario, and because copper is enjoying a bid as “hard and tangible asset”, copper prices are both headed higher AND more resilient to the big falls on slower economic growth we say in 2008.

This isn’t a small claim. There was an enormous amount of leverage in commodity prices in 2008. When the credit crunch hit and the leveraged dried up, commodities prices crashed and so did comommodities stocks. Is today any different?

Alex argues that it is. And at a fundamental level, he concludes that the growth of the emerging (emerged) markets is the bigger drive of base metals prices over the next twenty years than anything that happens in the American mortgage market. He may have a point.

But even if you’re bearish on global economic growthh – say because you believe China’s commodity demand is itself the product of a huge stonking property/credit bubble – there is a case to made for base metals aslo being “financialised” into the world’s investment markets now the same way gold and sliver were a few years ago through exchange traded funds.

The other, slightly less cheerful argument, is that the breakdown of the post-1971 world money system leads to currency wars. And if currency wars – which amount to contests over the real price of labour and commodities and who is to benefit from them most – lead to real wars, real wars are probably bullish for copper. But don’t take our word for it. Check out the chart below.

Copper Being Remilitarised

Copper Being Remilitarised
Click here to enlarge

Copper may not be money. And in the past thirty years, its price per pound is most highy correlated with economic growth. That’s because it’ used in all sorts of construction activity, especially electricty, houses, and cars (everyone needs them all).

But copper mades its 100-year high at $6.30/pound during the Great War. That is the last time the world of integrated trade, travel, commerce and capital flows broke down utterly. Scarce resources became politically scarcer.

If the sybmiotic partnership between central banking and big government is in rapid sysemtic decline, gold and silver will go to the moon (gold, presumably for the first time). Base metals like copper might not be far behind. And if things reach that point, you might want to own some lead and brass too.

By the way, if you’re interested in this line of inquiry into precious metals prices – espeically gold – take the time to check out the program for the Gold Symposium in Sydney November 8-10th. There is still time to sign up. And Daily Reckoning readers get a special discount to days two and and three of the show, where all the big heavy idea lifting will take place.

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. symbiotic :)

    thanks – good article

    Reply
  2. Prayer is the only answer – When I was a young man I prayed daily for a bike. The I realised that isn’t how religion works – So I stole a bike and prayed for forgiveness! :)

    The game will be won by the biggest thieves as always. It’s reassuring to see them all doing well:

    http://www.dailyfinance.com/story/investing/warren-buffett-looks-to-make-70-for-bailing-out-goldman-sachs/19683337/

    Reply
  3. When I was five I desperately wanted a bike, but my evil parents, chanting The Summertime Blues, made me take on a paper round. Every fortnight I ran around on foot to collect my earnings door-to-door. I banked every penny in commissions and tips.

    “You’re our best paperboy!”exclaimed the newsagent, several years later.
    Indeed so impressed was he that he added a nearby maternity hospital, St Anne’s, to my round. This meant I was able to sell not only the more expensive weekend papers, but magazines, which had a higher return, sixpence, I recall.

    More years passed. Finally, by my twelfth birthday, I had saved enough to buy a brand new Malvern Star. No more running fifteen miles a day six days a week, to deliver papers.

    I’d only owned the bike for a week before some little b@stard from Queensland pinched it!!~

    Reply
  4. Too bad man has never actually managed to put a human on the moon. That makes it a little difficult to harvest these “riches”. At what price does it become economical to design and use robot machinery to find, mine and retrieve? $10,000/oz silver?

    What a nonsense.

    Reply
  5. What is the case among gold bulls for the upside if there is the prospect of a physical only gold market backed by a major regulatory authority?

    Reply
  6. Well written BP…five stars ;)

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  7. Ha ha Ned Love it five for you too

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  8. And five for a most relevant question Ross…but the answer takes too much effort on Sunday. Oh the sun is bright the air is warm…its a lovely five star day…and Im not even drunk..Just kidin ;)

    Reply
  9. Used to have a paper round myself BP, shared it with my brother. It paid $3/week and we didn’t touch the money until the summer holidays and then we would blow it in a few weeks…..

    I tried to do the money collection thing – where you go door to door and collect the money owed on subscriptions and the like, toting a little leather satchel filled with cash. Was deathly afraid it wouldn’t tally and was releaved when it balanced, so relieved I ironed all the paper notes so they were nice and crisp – ha don’t know what the distributor thought when he collected it but I didn’t get a second go :( so I guess that was not a good sign.

    Reply
  10. Probably thought you were doing a pre-Bernanke, Don… printing ’em and foisting them on the dozing public!~ ;)

    NB: Most of the paper-round tale was true, except for the State of Origin of the miscreant… .

    Reply
  11. Paper round; Schmaper round – It’s all about speculation these days chaps. Get with it – No one sees value in hard work anymore.

    As evidenced by the cute young blonde at the bank who got a look at my balance and asked How did you make all that – By trading stocks?! To which I said No, I worked and saved my money. At which point the conversation died! :(

    Reply
  12. Yep, when blondes look at me that way, I’m off balance too, Ned.

    Then I recommend a good optometrist… . ;)

    Reply
  13. You’re obviously a visual type of chap mate? I’m more than happy with the fact that my eyesight started fading at 40 ??? :D

    Reply
  14. “…a visual type of chap (?)…”

    Put it this way, Ned… If I was a font, I’d probably be Zapfino or Dingbats!~ :D

    Vision was good ’til I hit fifty. The good news is that after sixty it doesn’t get any worse.
    (And after 160, it all just moves by like a blurrrrrrrrrr…. . ;) )

    Reply
  15. Lord strike me blind now – At least four times every night! ;)

    Reply
  16. Damascus is that way, Ned Saul. From this day ‘fourth’, thy name shalt be Ned Paul. (Paul Kelly is already taken!~)

    Discard thy blinders, hasten thy ass… and speedily convert the gold buggers* of DamnAssCuss… .

    * Note ye that the automod does not accept the correct spelling….

    Reply
  17. I remember that joke from my bike stealing days – It was the one about the Lord commanding Moses to ‘come fourth’ but he slipped on a bananna peel and came fifth!

    Damned if I know what the Yanks are trying to achieve. Their economy is stuffed so they want to crash the USD? A cleaner re-start where they owe a lot less than they do is all that would give them. But there is simply no way that a population that produces some wheat and corn and Big Macs and intellectual property and does financial tricks at a per capita labour cost of about $40K pa is going to compete long term with one that can potentially do all those same tricks at a cost of about $4K pa.

    Unca Sam (and some other places), have a BIG problem …

    Reply
  18. Talking of bike-stealing Ned, you were an amateur. I was at UBC in ’87 and the bicycle entrepreneurs used to simply drive through the 27,000 student campus and fill a truck with bikes… and drive out, unchallenged.

    I was riding 22kms round-trip each day on an old Norco… too downmarket to steal, so they never bothered to lift it. :D

    The US mess is all about politics. What government wants to _utterly_ gut an economy… lift unemployment to 20% in the short term… deal with eighty million homeless, lose 90% of its banks? Theoretically, Bonner & Co are spot on, but where could you find any politician with the cojones to tackle a problem a.) not of his own making; b.) which would undoubtedly launch a 1930s depression?!~

    Reply
  19. Difficult call Biker – As the Americans are fired up about their way being the ‘good’ way like no other nation I’ve ever read about. When it is obvious that in practice it is totally corrupt. I used to respect the Yanks once. But now just consider them the world’s filthiest bunch of scum buckets. I should make allowances perhaps – They did what they did simply to make money rather than any explicit desire to intentionally fork the world.

    Reply
  20. “…just consider them the world’s filthiest bunch of scum buckets….”

    Not sure you can lump ’em all in the same bag, Ned. Yes, there’s a pervasive sense of ‘rightness’ (righteousness?) evident in their cultural/ educational/ political/ financial systems, but there are probably more victims than vile cons.

    If I had to categorise the US, the imagery conjures up a driver on a 23-lane highway (LA to San Diego will do) passing smoking wrecks, asleep at the wheel. That picture has persisted fifteen years. It’s still as fresh and real as it was in ’95. No amount of shaking could have woken the giant drunk at the wheel back then… and I’m not sure that the driver, General Publick, has woken yet. It predicts an almighty pile-up in a few years down the highway.

    Happy to be Here Now.

    Reply
  21. My ‘2nd mum’ is American Biker. As is one of my relatively few mates. So I’m not trashing the 85% of them who could actually be ‘normal’ – Just commenting on how abnormal their others are maybe? … And seriously in need of an extreme attitude adjustment!

    Reply
  22. True, but that sense of _entitlement_ isn’t uniquely American, Ned.
    There are a few here who assert that life IS meant to be easy, that all one need do it wait… that it will all fall into one’s lap.

    Best friends here are Californian. They go home for a look every few years or so… but always return quite relieved they emigrated back in the 70s… .

    Reply
  23. I have a good many friends in the US.. LA, San Fransisco, Connecticut, Wisconsin, Chicago, Phoenix Arizona and Fayeteville Arkansas.

    My friend in LA, she is a teacher in the public school system, as is her husband.. The get stood down each holiday period so the government does not have to pay them..
    at this stage only one of them gets stood down at a time.. their house has only dropped about 10%, not a bad area close to the beach median price house around 800K
    She thinks it is as bad as it will get… her husband is starting to to change his mind and think the same as me… they are in the shit, or will be.

    My friend in San Fransisco is my friend in LA mother.. she just recently retired on advice from her accountant, he basically said retire now as you will not be able to afford to later.

    My friend in Connecticut is an alarm installer… he has never been busier..
    My friend in Wisconsin.. Mechanical Engineer.. has gone on to the tools just to keep his job
    Couple of friends in Chicago.. One a Mechanical Engineer also, works in the renewable energy field, is doing OK
    Another is an air conditioning mechanic he luckily owns his own house as work for the moment is ad hoc and unreliable, so to the payment of his bills to clients.
    My friend in Phoenix survives on the proceeds of a trust fund and works in an Aquarium because he likes fish not because he needs the money..not sure if he even gets paid for it… never asked.
    My friend in Arkansas is a builder and he saw the shit hitting the fan a few years ago and started firstly, diversification of his income source, stopped building spec homes as he saw the glut of them and only does custom homes.. just finishing a 9000 square footer now, things are tight fro him but he survived. He had a 4500 SQ/Ft home which was on the market for 2 1/2 years before he sold it.. got what he was asking for but time to sell was lengthy to say the least. Moved to a 3100 Sq/ft house and paid down debt.

    Some in the US are aware of what is happening but feel helpless to do anything, others are blissfully ignorant and others have the utmost faith in the US government. The last lot scare me the most.

    Stillgotshoeson
    October 26, 2010
    Reply
  24. comment awaiting moderation

    Stillgotshoeson
    October 26, 2010
    Reply

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