From the ABC to Techrights: recognizing fake news about economics, finance and investment
On Sunday, I published some brief comments about the Eurozone, Bulgaria, fake news, inflation and bullion. Shortly afterwards, various reports appeared which contradict my own comments.
Techrights has asked Debt as the new currency?.
In fact, most banks are expected to hold some form of reserve. The reserve is actually a loan to the government. In countries with central banks, the central bank lends money to the government and it is authorized to print banknotes and make other loans. The founding of the Bank of England famously involves a loan of GBP 1.2 million to the British Government. The loan is a liability for the British government and it is an asset for the Bank of England. Off the back of this asset, the Bank can print banknotes.
Therefore, the Techrights headline was wrong: there is nothing new about debts backing up currency. Interested readers can discover more by reading about money supply or the history of central banking, in which the British have a special status.
Australia's ABC has gone on to comment that silver prices declined and palladium crashed on Monday, 29 December. They justify the comment by explaining that professional investors regard any downward price move over ten percent is a crash.
Most traders view such a price plunge as a market crash.
Fact checking, traders assign a volatility rating to every stock, every commodity and every corporate bond.
People can look at the volatility rating before they decide to purchase a stock, a metal or a bond. If you choose to put your money in an investment with a very high volatility rating then you can not use the word "crash" every time it swings ten percent in a single day.
Despite the high volatility of precious metals, people have been buying these things as long term investments to protect against inflation. Here is one of those Irish photos demonstrating how many silver coins you can buy with EUR 1,000. There is a stack of coins for every two year interval since 2007. There are ten stacks, implying the purchaser spent 10 x 1,000 = EUR 10,000 in total to buy the 607 coins in the photo.
At the silver price peak on 26 December, the coins were worth EUR 70 each, that is a total of EUR 42,500.
After the ABC's "crash" on Monday, the coins were worth EUR 64 each, that is a total of EUR 38,848. It is smaller than the peak price but it is still a lot more than the long term cost of buying the coins.
When I saw the article about a crash, I wondered whether these over-generalized comments were created by a real journalist or by artificial intelligence.
Last week, the same ABC web site published a report about an "up-crash" in the markets as people speculate on the artificial intelligence stocks.
Every stock and every metal has a bubble from time to time. Good investment may be nothing more than picking the bubble that is less wrong than the other bubbles.
Do we say that the Euro has crashed now that the number of silver coins we can purchase has fallen by more than fifty percent in twelve months?
If you took the four grams of free silver mentioned in my previous blog, as it was free, did you lose anything at all when the price changed? That depends on which metric you use to measure the price. The free grams of bullion are still available today but it feels like it won't be long before they reduce the size of the promotion.