James Altucher wrote a blog post several years ago that has stuck with me. The gist of the post was that the best way to deal with crappy people is to not engage with them in any way under any circumstances. Do not argue with them, do not attempt to give them advice, and do not make any effort to get them to like you. Just ignore them.

Altucher’s message has saved me a lot of aggravation over the years. Once in a while I fall into the trap of interacting with someone I should ignore, but I’m usually successful at preventing crappy people from disrupting my peace of mind — by essentially blotting them out.

I don’t have any crappy people in my personal life. At least, I don’t at the moment. However, as someone who publishes stuff on the internet I regularly attract emails from crappy people I don’t know. In the distant past these emails would sometimes annoy or disturb me and occasionally I would get sucked into a ‘tit for tat’ exchange, but no longer. I’ve learnt that there is no point trying to mud-wrestle a pig, because you both end up dirty and the pig enjoys it.

Just to be clear, I have no problem with polite criticism. In fact, when I write something that is logically or factually incorrect I am grateful if someone takes the trouble to explain where I went wrong. Crappy people, however, do not disagree in a polite and well-reasoned manner; instead, they launch insults.

Nowadays when I receive an email from a crappy person, I never respond. As soon as I realise the nature of the email, I delete it and add the sender’s address to my “blocked senders” list, thus ensuring that I will never hear from them again.

The best emails sent to me by crappy people are the ones that have an insult in the subject line, because I don’t have to waste time opening these. For example, last week someone sent me an email with “You are a moron” as the subject line. I don’t know what the email contained, because I never opened it. I just added the sender’s address to my “blocked” list and then deleted it. My guess, however, is that it was a reaction to a post I had published a day earlier (https://tsi-blog.com/2016/08/does-the-fed-support-the-stock-market/). The post in question debunked the claim that the Fed routinely props up the stock market by purchasing stocks, ETFs and/or futures, and I’ve discovered over the years that the surest way to provoke a vitriolic response is to write something that casts aspersions on a popular market-manipulation story or that expresses anything other than unequivocal optimism about gold and silver.

It has become easy for me to ignore emails from crappy people I don’t know, but it’s a lot more difficult, and not always possible, to ignore such people in our personal or business lives. However, if there are certain crappy people you can’t completely blot out, for example, if your boss is one or your sister is married to one, then you should at least minimise your interaction with them. Life is too short to do otherwise.

Here is an excerpt from a commentary posted at TSI on 6th August.

The monthly US employment reports have no relevance except for their influence on the Fed and market expectations regarding future Fed actions. The moderately strong employment data reported last Friday, for example, provides no information about the current or likely future performance of the US economy, but was noteworthy because it led to a slight increase in the expected level of the Fed Funds Rate (FFR).

The change in the expected level of the FFR in response to Friday’s employment news is illustrated by the following daily chart. The last bar on the chart shows a fall of 0.09 in the price of the January-2018 Fed Funds Futures (FFF) contract, which means that the expected level of the FFR in January-2018 rose by 0.09 (9 basis points) last Friday.

Now, under more normal circumstances a 0.09% change in the expected level of the FFR in 17 months’ time would not have a significant effect on the gold market, but these aren’t normal circumstances. These are circumstances in which the actions and expected future actions of central banks are dominating all other considerations. Consequently, just as a minor decrease in the expected FFR during the final week of July and the first two trading days of August propelled the gold price from around $1310 to the $1370s, a minor increase in the expected FFR on Friday predictably had the opposite effect.

Does this mean that if the expected FFR builds on Friday’s gain over the days/weeks ahead then the gold price will probably trend downward over the same period? Yes, that’s exactly what it means. It also means that if something happens in the world to cause the expected FFR to move below the lows of the past few weeks then the gold price will probably move to a new high for the year.

The answer to the above question is yes and no. If the question is does the Fed use the combination of monetary policy and ‘jawboning’ in an effort to push equity prices upward then the answer is definitely yes. However, if the question is does the Fed buy index futures or ETFs in an effort to elevate the stock market then the answer is almost certainly no.

It is no secret that today’s Fed considers the performance of the stock market when deciding on what monetary measures to implement. In fact, over the past 8 years the Fed has overtly targeted higher stock prices based on the erroneous belief that higher stock prices lead to greater consumer spending and a stronger economy. It is also clear that the public utterings of senior Fed representatives are often influenced by the stock market’s recent performance. For example, soon after the stock market takes a tumble you can safely bet your life on at least one Fed governor coming out with a public comment suggesting easier monetary policy. However, the idea that the Fed brings about higher stock prices by directly purchasing futures contracts or ETFs is just an appealing fantasy.

An obvious retort is that some other central banks, most notably the BOJ, are known to have bought ETFs as part of their efforts to boost economic activity, so why shouldn’t we believe that the Fed has gone down the same path?

My response is: How do we know that the BOJ et al have made these stock-market-related purchases? We know because the purchases have not happened in secret. They have been openly declared.

Doing it openly is the only way that a central bank such as the BOJ or the Fed could ever directly intervene in the stock market, especially if the intervention is designed to be large enough to have a significant effect on the overall market. A central bank trying to surreptitiously support the stock market via direct purchases would be akin to an elephant trying to surreptitiously make its way through your living room. That is, the evidence of the central bank’s actions would be blatant. There would be an obvious paper trail and a lot of people (a lot of potential whistleblowers) would have to be involved.

Another retort is that the Fed does its purchasing of equity-related instruments via an intermediary such as a major private bank.

Yes, if the Fed made stock-market purchases then it would, of course, act through an intermediary, but this doesn’t enable the purchases to be kept secret. For example, all of the Fed’s bond purchases have been made through intermediaries, but the evidence of the purchases is as plain as day on the Fed’s balance sheet and most people involved in the markets know exactly what the Fed has done.

The belief that the Fed secretly buys and sells in the stock market as part of a largely-successful effort to keep the stock market in an upward trend is therefore ridiculous. However, the idea that the Fed will eventually intervene directly in the stock market is not farfetched. Actually, there’s a high probability that it will happen in the future. But if/when it does happen there will be no need to make wild guesses regarding the central bank’s actions, because the actions will be publicly announced ahead of time in the same way that the bond-buying programs were publicly announced ahead of time.

Some commentators have been anticipating a “commercial signal failure” in the gold market for more than 15 years. Moreover, whenever the gold price experiences a large rally the same commentators routinely cite the potential for a commercial signal failure (CSF) as a reason to maintain a full position, the argument being that the coming CSF is bound to result in massive additional price gains. The reality, however, is that whereas a CSF is an extremely unlikely event in any commodity market, in the gold market it is an impossibility.

A CSF theoretically becomes possible in a commodity market after the price has been trending upward for some time, and speculators, as a group, have built-up an unusually-large net-long position in the commodity futures. Naturally, if speculators have a large net-long position then “commercials” have an equivalently-large net-short position, since one is a mathematical offset of the other.

Commercials are generally hedging or spread-trading, so once they have established a position they will usually be indifferent with regard to future price direction. Whatever they lose on the futures they will make in the physical, and vice versa. However, in some commodity markets it is possible for the supply or demand in the physical market to undergo such a sudden and dramatic change that exploding margin requirements on the futures side of a commercial-trader’s hedge or spread-trade could force the commercial to exit (buy back) the short futures position, even though the short position in the futures is ‘covered’ by a long position in the physical. For example, take the case of a wheat farmer who has locked in the price of his yet-to-be-harvested crop by selling wheat futures. If extreme and unexpected weather suddenly causes a moon-shot in the wheat price then the farmer might — depending on how his price hedging has been structured — be faced with a huge margin call on his futures position and forced to exit his hedge, even if his own crop is unaffected by the extreme weather. Exiting the hedge would involve buying wheat futures into a sharply rising market, which would only exacerbate the price rise.

If it happens on a market-wide scale, the hypothetical case of the wheat farmer described above could be part of what’s called a “commercial signal failure”. The so-called signal failure involves commercial traders being forced, en masse, to cover their short futures positions at large losses despite the short futures positions being offset by long positions in the physical commodity. By definition, it can only happen when speculators have built up a large net-long position in the futures market (meaning, when commercial traders have built up a large net-short position in the futures, thus generating the bearish warning signal), a situation that will usually only arise after the price has been in a strong upward trend for several months. Due to the CSF, speculators on the long side make more money more quickly than they were expecting.

However, even in a market where a CSF is technically possible, a prudent speculator would never bet on it. The reasons are that 1) a CSF requires a sudden and totally UNPREDICTABLE change in either supply or demand, and 2) CSF’s almost never happen. In the rare cases when a CSF happens it tends to be the result of an unexpected supply disruption. In agricultural commodities, the most likely cause is an unforeseeable bout of extreme weather.

Major supply disruptions are possible in the markets for all agricultural and industrial commodities, but they are not possible in the gold market. This is primarily because almost all the gold ever mined still forms part of the supply side of the equation, which means that shifts in the current year’s mine production will always be trivial relative to total supply. In other words, in the gold market there is no chance that a CSF could be caused by a major supply disruption.

Although a major supply disruption is not possible in the gold market, there could at some point be a large and unanticipated demand disruption (note that the bulk of the world’s gold is demanded (held) for investment, store-of-value, speculative or monetary purposes). However, such a disruption would not cause a “commercial signal failure”; it would be the EFFECT of a total monetary-system failure.

A “commercial signal failure” is, by definition, an event that results in bullish futures speculators making large and rapid gains, but bullish speculators in gold futures could not profit from a total monetary-system failure. In fact, they would be big losers because the futures market would shut down in such an outcome.

The bottom line is that it is not a good idea to bet of a “commercial signal failure” in any market, because the probability of it happening is extremely low. It is, however, a particularly bad idea to make such a bet in the gold market because in the gold market the event has a probability of zero.