Gold & The Wizard of Oz

Terrifically amusing take on Gold, via RaJa’s Jeff Saut:

"We thought a lot about gold over the holiday as we watched “The Wizard of Oz.”

Now, most people know The Wizard of Oz as one of the most popular films ever made.  What is little known, however, is that the book it was based on was an economic and political commentary surrounding the  debate over “sound money” that occurred in the late 1800s. Verily, L. Frank Baum’s book was penned in 1900, following unrest in the agriculture arena (read: farmers) due to the debate between gold, silver, and the  dollar standard.  The book, therefore, is supposedly an allegory of these historical events, making the  information easier to understand.  In said book, Dorothy represents traditional American values. The  Scarecrow portrays the American farmer, while the Tin Man represents the workers and the Cowardly Lion depicts William Jennings Bryan. Recall that at the time, Mr. Bryan was the official standard bearer for the  “silver movement,” as well as the unsuccessful Democratic presidential candidate of 1896 (he was also a  main character in the Federal Reserve Act of 1913). Interestingly, in the original story Dorothy’s slippers  were made of silver, not ruby, implying that silver was the Populists’ solution to the nation’s economic woes.

Meanwhile, the Yellow Brick Road was the gold standard and Toto (Dorothy’s faithful dog) represented the Prohibitionists, who were an important part of the silverite coalition. The Wicked Witch of the West  symbolizes President William McKinley and the Wizard is Mark Hanna, who was the chairman of the Republican Party and made promises that he could not keep.  Obviously “Oz” is an abbreviation for “ounce.”

As we watched the movie we thought how appropriate an apologue for our current environment given the recent action of gold, silver, the dollar, the T’Bonds.  This time, however, the “man behind the curtain” is Alan Greenspan, to which we are paying little attention.  What we are paying attention to is the charts, since in this business price is reality.  Consequently, when we look at the “gold standard” of our era, namely the dollar, the picture is still not a pretty one, even after its recent rally.  As a sidebar, it should be noted that before 1873 the U.S. dollar was defined as consisting of either 22.5 grains of gold or 371 grains of silver.  This set the legal price of silver in terms of gold at roughly 16:1 and put the country on a gold/silver bimetallic  standard. Since both metals had other uses than just coinage, whenever the ratio got out of whack, rational people would buy the cheaper metal and take it to the mint to coin.  That provided a natural stabilizing arbitrage. With the 1873 Coinage Act, however, the silver dollar was omitted, effectively shifting the country  from a bimetallic to a gold standard.  Other countries soon followed this shift and as tons of silver were unloaded, the market silver price of gold rose from 16:1 to 40:1. 

The result was that the dollar was now linked to a metal that was getting scarcer and scarcer."

Who knew?

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Source:
Investment Strategy
by Jeffrey Saut
December 27, 2005
http://www.raymondjames.com/inv_strat.htm

Following the Yellow Brick Road: How the United States Adopted the Gold Standard
FRANCOIS R. VELDE
Federal Reserve Bank of Chicago
Economic Perspectives, 4th Quarter, 2002
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=377760

Category: Commodities, Federal Reserve, Inflation

Death of Volatility

Category: Markets, Psychology, Technical Analysis, Trading

For 2006: Feedback, Please!

Category: Weblogs

Window Dressing

Category: Investing, Trading

P/E vs S&P 500 (50 Years)

As promised, today brings us to the 4th in our series of charts: P/E vs S&P500 click for larger chart courtesy of Mike Panzner, Rabo Securities > I’ll get into the significance of what this means to the markets later, but for now, note where the P/E is over the median, and its impact on…Read More

Category: Earnings, Markets, Psychology, Technical Analysis

Annual CD Sales Slide Resumes; Down 8% for ’05

We’ve broadly discussed the recording industry this year. How’d they do in terms of numbers?

Wsj_music_20051215
After a slight blip up in 2004, CD sales resumed their prior slide. Sales were off 7% (CD albums only) or 8% (CDs and singles). The decrease is comparable to the decline in Movie theater attendance, which fell about 7%.

Reported Album sales (January through the week ending
December 25) were 602.2 million in 2005; weaker than last year’s 650.8 million. Digital singles sales more than doubled to 332 million — a 148% increase.

Some blamed the Album CD sales slump on the cherry-picking of singles by a fickle public. But the broader analysis reveals that CDs are a format in decline. While 95% of music sales are still in the CD format, there are plenty of signs this is changing. In addition to the different fortunes of the two formats — CDs are slumping while digitial downloads skyrocket — the industry itself is changing. A new breed of music label is distributing their product strictly in digital format, thereby bypassing CDs entirely. See Cordless Recordings as an example of this.

This year’s biggest sellers, according to Nielsen SoundScan, were Mariah Carey’s Emancipation of Mimi at 4.866 million; In second place was 50 Cent’s The Massacre, which sold 4.834 million. "American Idol" winner Kelly Clarkson’s Breakaway finished 3rd, selling 3.4 million copies. The top sales position has not been occupied by a female solo artist since Alanis Morissette’s Jagged Little Pill in 1996. In 2005, female solo artists captured the gold and the bronze.

Although the major labels lament the internet, P2P, and file sharing, it turns out that the Net has been a boon for Indie Labels. Much of the industry’s complaints are actually about disintermediation — the web forces them out of the relationship between the artists and their fans. The indies understand this, and have been using the net to promote their unknown artists.   

While sales here, in the UK sales continue to do better than in the U.S. — despite Great Britain’s widespread adoption of broadband. Credit likely goes to the wider playlists in UK radio, and a payola-free radio industry. Britain does not have the same concentrated private ownership of Radio Stations which have become so prevalent in the U.S. since the 1996 Telecommunications Reform Act, which enabled firms like Clearchannel and Infinity to scoop up 1,000s of stations.

Its no coincidence that music sales problems can be traced to what occurred following that legislation’s enactment.

While legal Music downloads more than doubled this year, so too has the recording industry’s misconduct. After settling Price fixing charges in 2002, it appears that the recording industry brain trust is at it again: An industrywide probe into how much record companies charge for digital music was started by NYAG Eliot Spitzer; subpoenas have gone out to several labels.

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One last astonishing piece of music trivia: Mariah Carey’s CD spawned her 17th #1
single, "Don’t Forget About Us." This places her in second place on the
all time #1 hit list — behind the Beatles’ total 20 #1 hits. If Carey
manages to pass the Fab Four, I will interpret this as incontrovertible proof that life is meaningless or God is dead . . . I haven’t decided which.

Finally, you can see my Anti-"Best of 2005" here.

UPDATE January 3, 2006 6:09am

It turns out that the British are the ‘world’s biggest music buyers.’  According to figures released by the British Phonographic Industry (BPI) early 2005, the UK music industry recorded an overall 3% increase in volume sales, mostly due to its robust albums market.

The British buy the most compact discs in the world – an average of 3.2 per year, compared to 2.8 in the US and 2.1 in France.

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Sources:
Silent Night for Music Sales
Holiday Buyers Spurn Tunes As Industry Picture Worsens; ‘Cesspool of Really Bad Bands’
ETHAN SMITH
THE WALL STREET JOURNAL, December 16, 2005; Page B1
http://online.wsj.com/article/SB113469750280524159.html

UK ‘world’s biggest music buyer’
BBC, Tuesday, 22 March, 2005, 12:25 GMT
http://news.bbc.co.uk/1/hi/entertainment/music/4371673.stm

The extensive list of sources used in this posting can be found below

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Category: Music

A Different Kind of Music List: The Anti-”Best of 2005″

Category: Music

1966-1982 Trading Range

Here’s the 1966-1982 trading range: > click for larger chart chart courtesy of Rydex Funds > If we are in fact in a long, post-Bull trading range — see our 100-year Dow chart — than this is year ~5 of what could be a 10-15 year secular Bear market. As the 1966-82 trading range above…Read More

Category: Markets

2 Studies on the Flattening Yield Curve

Category: Federal Reserve, Fixed Income/Interest Rates, Inflation, Technical Analysis

Alaska is Melting . . .

It seems that the melting polar ice is becoming more of a concern to Alaskans than those of us in the lower 48. click for larger graphic courtesy of  Anchorage Daily News > Thank goodness there’s no Global Warming — imagine how much more of Alaska would be melting if there was! > See also:…Read More

Category: Science, Technical Analysis, UnScience