Gold-silver ratio over 20 years in phase space

Today's chart is the rate of change of the gold-silver ratio plotted against the ratio itself over the last 21 years (beginning of 1994 to the end of 2014).

The major features are three regions of stability--one in the low 50s, one in the low 60s, and one in the mid 70s.

For stackers of both gold and silver, the lesson here is to buy silver when the ratio is in the 70s and trade it for gold when it is in the 50s (or on rare opportunities when it is lower, as in 2011). I traded about 200 oz of silver for gold at about a ratio of 45 back then, and in hindsight wish I had traded a lot more.

Concentrate more on gold when the ratio is in the 50s. Sometimes this is difficult because of all the voices clamouring for silver to "go to the moon", but that never quite seems to happen, unless the moon is $50.

Music for a cold day

Another week and I head back to China. Just gotta get through PDAC.

Multistability in the political world

In this blog I have tried to show that economic systems behave very like complex natural systems, which are often characterized by multistability. These demonstrations have been easy because of the data available from economic systems.

Political systems may similarly exhibit multistability. But this is not so easy to demonstrate in phase space.

Rosie Dimanno has a recent opinion in the Toronto Star about the ongoing horror in Afghanistan. Unfortunately, she draws the wrong conclusions, stating that the internecine warfare amongst groups of Muslims is occurring because "we" are withdrawing our troops. According to Rosie, all would be well if only the West would continue its benevolent humanitarian interventions in Afghanistan and other places around the world.

She doesn't pause to consider--why all this violence? Were all these countries this violent before the foreign interventions? How was Afghanistan before all the western intervention--which goes all the way back to the Russian invasion (if not earlier)? The pictures in the above links suggest it was a pretty nice place.

The current state of Afghanistan is completely different from the above earlier version of the country. What changes a peaceful place into one wracked by war, kidnappings, and all forms of extremism?

I believe we are looking at a state change much like we observe in complex natural and economic systems. Most systems find themselves in some stable state (which one is a function of the entire past history of the system). External forcing mechanisms (often in conjunction with internal mechanisms) may drive the system from its zone of stability.

Once the system leaves an area of stability, it tends to behave chaotically until it settles in another region of stability (or perhaps the same one).

What may have happened in Afghanistan is that western intervention drove the social system from its former stability and into a chaotic regime. Ordinarily, we would expect the system to evolve to some other stable state, but perhaps the ongoing interventions have kept this from happening.

It isn't clear if the social state in Afghanistan has switched to a new and very undesirable stable state, or whether it is winging through the realm of chaos. Trying to drive the system to a particular realm of stability is difficult--we have no theoretical framework for success. For this reason, it is typically better not to intervene in the first place.

Year of the Sheep

Happy New Year. 恭禧发财.

As it is the Year of the Sheep, sheep are a common motif in displays around Zhengzhou.

And superheroes.

I don't know what everything represents.

And the last two a blast from my former home.

Harper looks serious

. . . in the photo on his Facebook page.

Very serious, very leader-like, as he condemns ISIS for beheading 21 Coptic Christians.

Does he consider his own role in the debacle? Perhaps if he hadn't been so gung-ho to murder in favour of progressivist "R2P" bullshit, he wouldn't have broken Libya, and there'd be a whole lot less killing going on.

But of course, in his mind, there is no connection between his past actions and the present consequences, which shall go on and on.

In the forest of pagodas

I am returning to Canada briefly later this week, where I will remain until just after PDAC.

Assuming I can find my way through the Forest of Pagodas*.

*just a short jaunt from the Shao Lin temple, which will be the subject of another post.

How QE helped Main Street, Example 2: Maserati dealerships

I haven't written on this topic in a long time, but it is time once again to look at the magnificent benefits that have accrued to main street businesses as a result of bailing out bad bets of banks. Today I have selected another typical main street business--the car dealership. I have randomly selected the Maserati brand as the subject of today's investigation.

Sales data for Maserati sold in North America are available here.

Annual sales of the Maserati brand (in number of cars sold) ranged from less than a thousand per year in 2002 to nearly 13,000 in 2014, thanks to the benevolent leadership of the Fed.

This is a chart that truly screams "Recovery!" In fact, it is quite clear that things are far better now than they have ever been before. If your life seems to be at odds with the obvious economic reality, you are clearly not working hard enough (or perhaps not at all).

All the propaganda to the effect that the goal of quantitative easing was to make the richer even richer still is thoroughly debunked. We can see that small, struggling family businesses like high-end diamond retailers and Maserati dealerships have indeed benefited from quantitative easing.

Shattered (updated with King Kong)

Broken things in China.

In a place of constant renewal, the destruction never ends.

Update: today, at the new mall that just opened the week before Christmas, I found this . . .

Differing trajectories of gold and copper

As discussed previously, the real economics of mining for non-US based companies needs to include not only the price of the commodity of interest, but also the value of the dollar. I have used the product of the US dollar index and the gold price (in US dollars) to try to assess the real impact on gold mining companies. As both of these components have been rising of late, we should see improvements in the bottom lines of well-run operating mines (poorly run mines may be a different story).

Today we try the same idea with copper. I managed to locate a fairly user-friendly site from which I obtained weekly closing prices of copper. The copper price has fallen quite substantially lately, but at the same time the US dollar has been rising. Do they cancel out?

I also have gold x USDX on the same graph for comparison. Gold x USDX has popped out of a fairly long trading range. Copper x USDX by contrast, resembles an old man slowly falling down the stairs. Until quite recently, it looked like the 2.5 level was an important low, but that has recently been broken. So if your copper mining companies haven't been doing all that impressively lately, this may be one explanation.

I can't say for sure what's behind it. It would be interesting to perhaps note QE decisions/PBOC pronouncements on the chart to see if there's a political angle. Maybe China is gradually transitioning from building way too many empty buildings to just building too many.

Incidentally, on the chart above, the gold x USDX has been scaled by a factor of 400. This means that where the two curves meet, the gold-copper ratio is 400. When the yellow line is higher (like now), that ratio is higher.

Elsewhere in Luo Yang . . .

. . . is the Baima temple complex.

The White Horse temple is purported to be the first Buddhist temple in China.

The scriptures were brought to the area on two white horses, which are commemorated in front of the temple complex.

A particularly pious worshipper.

As in most temples in China, joss is freely burnt.

The temple grounds contain extensive gardens (most likely full of peonies, the flower of Luo Yang). But not much can be seen in winter.

More recently, a replica of an Indian Buddhist temple (the Sanchi Stupa) and a Thai Buddhist temple have been built on the grounds.

One of many shrines.