Run to Gold
Source: James West, www.MidasLetter.com (7/18/08)
Is there a mounting sense of panic in North American stock markets, or is the freefall led by financials just a reflection of the demise of ludicrously leveraged banking? Should we panic? Should we be in the stock market or the bond market or the supermarket? Or should we cling to our cash in the hopes that increasing prices lock-stepping with currency devaluation don’t finish us off financially?
These are the questions flying into my inbox at an enthusiastic rate, and I propose to consider these in the light of unbiased, impartial analysis.
Clinging to cash in this environment is akin to trying to tread water holding a boulder. The purchasing power of the U.S. dollar is deteriorating daily, and the sheer scope of monetary publishing (which we should really start to referring to as what it really is….counterfeiting) necessary to shore up the deflated balance sheets of the nation’s banking system perpetuates the blood-flow.
And statements by Ben Bernanke during his testimony to Congress presenting the Federal Reserve’s Monetary Policy Report, when subjected to the B.S. sniff test will underscore the intention to continuously print dollars representative of a derelict national balance sheet in reaction to every fresh contraction of liquidity and bank failure.
Consider this excerpt from his testimony:
“Following a significant reduction in its policy rate over the second half of 2007, the Federal Open Market Committee (FOMC) eased policy considerably further through the spring to counter actual and expected weakness in economic growth and to mitigate downside risks to economic activity. In addition, the Federal Reserve expanded some of the special liquidity programs that were established last year and implemented additional facilities to support the functioning of financial markets and foster financial stability.”
“Special liquidity programs”? Pardon?
The only meaning special liquidity program can possibly have in my understanding is “we’ll give you money if you are too big to allow to collapse”.
And where is this money coming from? What fresh tax base or investment success is justifying the forward splitting of shares in the U.S. economy? If the only demand for U.S. dollars is domestic, and the value of assets behind the debt that the money being counterfeited to service is free-falling, what does that say about the future price of these baffed out shares. I mean dollars.
I remember when presenting Canadian cash for purchases in the southern U.S. throughout the nineties, tellers would smile then laughingly advise that “we don’t take that funny money…no sir…huh-uh”. My thought then was that the absence of grace and abundance of arrogance would yet be the undoing of the U.S. Being proven right amid current circumstances is scant consolation.
But I digress.
Panic is certainly never productive. I sense a lot of divestiture of shares in perfectly valuable companies occurring as a result of doomsday forecasting by sensationalist pundits.
A complete global financial meltdown is underway, true. But there’s a characteristic about the human race that needs to be born in mind at all times when trying to predict the future. And that is resilience.
Some of us are going to lose our homes, our cars, our jobs. Some are going to find putting supper on the table increasingly challenging. But regardless, we will pull through. Theoretically, little bit wiser? Doubt it. Unfortunately repeating mistakes is nearly as prevalent as resilience in the human psyche.
The only sane tactic an American tied up in U.S. dollar denominated assets can consider in light of this is the immediate liquidation of all such assets and the purchase of gold and silver to replace cash positions, and investments in commodities producers and explorers to replace investments.
The strengthening indicators suggesting a fresh assault on all time highs for gold are manifest, and the crescendo from the blogoshpere is intensifying.
In Bernanke’s testimony previously mentioned, he alludes to special facilities, financings and easier terms for large corporate lenders repeatedly as evidence that the Fed has the problems in hand. Extending additional credit not only further destabilizes the U.S. dollar, but it will start to undermine the currencies of other nations with large U.S. dollar investments. The Fed has even instituted a program to facilitate the borrowing of U.S. dollars in Switzerland and
Investors will increasingly turn to gold, and there’s a tipping point in there somewhere the price will start to gap up in thirty to sixty dollar spreads. The gold market has always been small, but if there’s nowhere else to go but into gold and silver, the upward pressure that results with the entry of previously non participating institutional and sovereign investment entities on the largest scale will be stupendous.
Make no mistake…trying to whether the upcoming storm holding cash you’ll find yourself with ashes slipping through your fingers. Bullion, ETF’s, or mining companies….run to gold. Run like the wind.