Holidays In France

We've been coming to France for years and have never known it as quiet as it is this year. There are few British tourists, fewer Dutch and even fewer German tourists about than we've ever seen at this time of year. We've seen two Italian registration plates, which is unusual although there has been a gradual decline in the numbers of Italians over the last ten years.

It's not as if we have stayed in one place. We drove from Calais to Bergerac via Blois then back via Bordeaux to St Jean de Monts then via Nantes to Honfleur, over 1,500 miles up to now.

Talking to locals there are bars and cafes closing down as there are pubs closing down in the UK. Many British people who moved here are returning to the UK, especially those who need to work as the French are reluctant to employ foreign labour.

We were out for a meal tonight and most of the restaurants around the harbour were empty, or at best had a couple of tables occupied. Some have slashed their prices, the really empty ones haven't.

Interestingly we have seen more Irish people than any other nationality in the last few days. Maybe a last hurrah before the Celtic Tiger is slain?

Financial Mess

I've just received my latest bulletin from the Independent Institute, well worth a read it is too. This warning particularly struck me as it seems like commonsense, aimed at the USA but equally relevant here:

U.S. Policymakers Should Avoid Japan's Mistakes, Not Repeat Them

In the 1990s, Japan tried to revive its moribund economy with deep cuts in interest rates, bank bailouts and nationalizations, and multiple fiscal stimulus packages--including a 1998 spending program that amounted to a whopping 8.5 percent of gross domestic product. Despite those drastic measures, however, the economy languished: the 1990s were Japan's "lost decade."

Economic policymakers in the United States have taken a cue from their Japanese counterparts, enacting similar policies but doing so more quickly. Unfortunately, it is the basic similarity of their approach that is cause for alarm, according to Benjamin Powell, a research fellow at the Independent Institute.

"Bank bailouts and fiscal stimulus bills don't work because they strive to maintain the status quo," writes Powell. "But the status quo is the problem and exactly what needs to be corrected.... To achieve long-term economic recovery, market forces, not political forces, need to direct capital and labor to their most productive uses."

"Avoid Japan's Mistakes," by Benjamin Powell (Washington Times, 3/8/09)

The Gold Standard

Some time back I blogged about the price of gold. I didn't claim then, nor do I now, to be a genius when it comes to high finance and economics, far from it, but often a gut feeling backed by a little knowledge, can put you in the right direction. So I was pleased to find the following press release when I was perusing the Libertarian Alliance website, which I like to do when I can.


NEWS RELEASE FROM THE LIBERTARIAN ALLIANCE
In Association with the Libertarian International

Release Date: Friday 4th April 2008
Release Time: Immediate


Statement by the Libertarian Alliance on the Financial Crisis: Time to Return to Gold

The Libertarian Alliance, the radical free market and civil liberties policy institute, today issues the following statement on the present run of crises in the financial markets. This statement is prompted by the various calls made for closer regulation of the financial sector.

Libertarian Alliance Director, Dr Sean Gabb, says:

"The world may or may not be on the edge of financial collapse. But the present run of banking crises is only the latest consequence of the ending of the gold standard. Since 1914, and more particularly since 1971, the ability of governments to create unlimited amounts of fiat money has led to bubble after bubble, each one larger than before. Financial markets have become little more than casinos. Immense resources have been diverted into the promotion and management of speculation. All other economic activity has been subordinated to and therefore distorted by such speculation.

"The latest set of problems, brought on by fooling lending on property in America, is not a failure of the free market system. It is ultimately the effect of government monetary policies. The answer does not lie in some new set of regulations, which may prevent the next speculative frenzy. The true answer lies in the return to a more sensible and more honest set of monetary arrangements.

"We mean by this the return to a fully convertible gold standard.

"The Libertarian Alliance calls on the British Government to do the following:

* To order the conversion of all foreign currency reserves held by in the Bank of England into gold;
* To sell every reasonably marketable asset of the British State, to convert the proceeds into gold, and to lodge these at the Bank of England;
* To revalue the Pound, so that all claims on the Bank of England were equal to the gold reserve of the Bank of England:
* To impose on the Bank of England a legal obligation to pay all claims on it in gold, on demand and without limit:
* To impose on the Bank of England an obligation to do all within its ability, and nothing other than this, to maintain the new parity between the Pound and gold:
* To impose on all deposit receivers operating in the United Kingdom (unless explicitly exempted by contract) to pay all claims on them in gold, on demand and without limit;
* To make the directors or, if they are without the jurisdiction, the most senior management of all deposit receivers in the United Kingdom personally responsible for any failure to make such payments:
* To impress on any foreign government or central bank that might choose to fix a parity against the Pound that no assistance whatever would be given to maintain such a parity.

"We note that these measures would bring about first a severe devaluation of the Pound, and then a credit squeeze that deflated the value of real and financial assets. But this is what we seem already to be facing. A return to the gold standard would provide us with a stable financial system, and would tend to protect us against future bubbles, and would abolish the need for intrusive financial regulation.

"We also note that a fully convertible gold standard would make all money laundering laws unenforceable, and would severely limit the ability of the British State to finance its activities by the unlimited sale of bonds to the banking system. We would unreservedly welcome both these effects.

"We look forward to a Britain, and preferably a world, in which fiat money has become as unusual as state ownership of telephone networks, and in which paper and electronic money is a rare substitute for gold and silver and copper coins."

END OF COPY

It still seems to make sense to me.

The Price Of Gold

Mrs B is taking a great interest in the recession and is convinced that gold is the way to go. So we've been snouting around, more from curiosity than actually planning to buy. As a consequence my interest in financial matters has been aroused and I am receiving bulletins from Money Week. Below is one of their articles which I found particularly interesting.

From Dominic Frisby, in London

Twice a day – at 10:30 am and 3pm - the price of gold is set on the London market by the five members of the London Gold Pool (HSBC, SocGen, Deutsche Bank, Scotia-Mocata and Barclays). This is known as the London fix and it’s used as the benchmark to price gold, gold products and derivatives in markets around the world.

I’ve been looking at some charts and an astonishing pattern has become apparent. It’s a pattern which, if you’d traded it methodically, would have earned you 1% a week over a period of 24 years. That compounds to a staggering 24,720,000%!

What is this spectacular strategy?

The astonishing pattern in London gold fixing

The strategy is really quite simple. You buy gold at the London PM fix (3pm), as the American markets have just opened for trading, and you sell your gold the following morning at the London AM fix (10:30am), as the Asian markets are closing.

My thanks, as always, to Tom Fischer of Herriot Watt Uni for the charts below. The first demonstrates the weekly 1% gain that would have been yours since 1985 (the green line).





And, as our next chart shows, if you reversed the strategy, bought gold at the AM fix and sold at the PM fix, you’d be down a bankrupting 0.67% per week.




What is more astonishing is how this pattern has accelerated since 2007. Sell gold in the morning, buy it back in the afternoon, and a cool 1.78% weekly profit will be yours:



Do the opposite, however, and you’d have suffered a weekly loss of 0.86%, despite the fact that gold is in a runaway bull market.



The trouble is, of course, that transaction costs all but invalidate this strategy. But there is nevertheless a great deal we can read into this pattern.

Why would anyone want to manipulate the gold price?

What other free market shows such a consistent behaviour over time? Unless, of course, it’s not a free market and the invisible hand of Big Brother is getting involved. Many of you will have read about manipulation of the gold price, and heard that there is a deliberate conspiracy to suppress the price of gold.

Every time I hear the words ‘manipulation’ or ‘conspiracy’, my every instinct screams ‘No’. There must be a less Machiavellian solution – most conspiracy theories are poorly researched and facile. But several people have done excellent research into this one, including James Turk of Goldmoney, the people at GATA and Paul Mylchreest in his Cheuvreux-Credit Agricole Report.

Why would anyone want to manipulate the gold price? Well, despite the fact that it is of barely any industrial use, gold is a highly political metal and a runaway gold price – which, by the way, we will eventually see, I am sure – tells you ‘something is rotten in the state of Denmark’. If people are rushing to buy gold, it shows they do not trust the ability of the government to maintain the value of paper currency. So the aim of the manipulators, the theory goes, is to devalue gold and preserve the status of unbacked government currencies such as the dollar.

One reason for the theory is that there is more gold and silver sold on the Comex than is actually possible to deliver. In the case of silver, more is sold than is actually mined on an annual basis.

And certainly, the remarkable trading pattern of the London PM and AM fix adds more weight to the theory that the West is selling gold during Comex opening hours, possibly to suppress the price.

On the other hand, of course, we have Occam’s Razor – lex parsimoniae. This is the principle that the simplest solution is the best. So rather than resorting to some mass conspiracy theory, could the answer simply be that Asians are buying gold and Westerners are selling just because Asians like, value and appreciate gold more than we do?

Whatever the reason for this price pattern, this transfer of gold from West to East is yet another demonstration, if you needed it, of the generational shift in wealth and power that is taking place. After all, they say that ‘he who owns the gold makes the rules’.

Perhaps the 'powers that be' are manipulating the price of gold.