George-Orwell-001

Orwellian Global Economy? “Backwardation”, Negative Interest Rates and the Gold Market – Bill Holter

We live in a truly messed up and Orwellian world if you will. 

In many parts of Europe, interest rates are negative.  Savers “pay” for the privilege of banks to hold their money, lenders pay sovereign treasuries to lend, new homeowners who borrow to buy property are paid to borrow.  This situation where borrowers get paid and lenders pay also exists between banks which is really strange because you would think bankers understand money and interest …just a little?

As a question to set the foundation, I ask you this; if you could sell something today for $100 and be contractually guaranteed to be ABLE to buy it back 30 days later at $99, would you do it?  I hope your answer is not only yes, but you return with “how many times can I do this, it’s free money?!”.  In the real world, this is called arbitrage.  Rarely does the condition ever exist on a single exchange, normally when it does exist it happens over two or more exchanges and even time zones.  The discrepancy can be miniscule as billions of dollars scan the globe 24 hours a day looking for this situation and lock the profit in until there is no more to be had.  Arbitrage is a big business and for the most part, RISK FREE.  The condition described above is called “backwardation”, the remedy is ALWAYS arbitrage.

Please notice I bold printed three words, “able, risk-free, and always”.  Starting with the first word “able”, if we changed that word to either possibly or cannot, the whole equation changes as the trade is no longer risk free and will not ever be done without risk assessment.  As I understand it, physical gold is in backwardation in London and silver in Asia.  Why has not big money stepped in and arbitraged the “guaranteed” profits out of these markets?

Read more