What is going on in the financial markets? A rare, but typical, meltdown. Like America in '29, but without the flappers; like Japan in '89, but without the sushi. Nothing to worry about really—just the end of the world as we have known it.
Asset prices will fall—erasing trillions of dollars worth of 'wealth.' Millions of people will lose their homes, their jobs, their pensions and retirement savings. . .their self-respect. Hundreds of thousands of businesses will go broke. And the monetary system we've had since 1971 will collapse. And, oh yes, there will probably be a revolution in China.
The world's main debtor—the U.S.—is also the custodian of the currency in which most of the world's debts are denominated. And because Ben Bernanke is hell bent on making sure that the U.S. does not follow the Japanese example or the example from the U.S. in the 1930s, he won't stand for deflation. He'll want to fight it in the worst possible way.
Checking the 2008 numbers. . .we gave thanks for gold once again. 2008 was a tough year for everyone—everyone, except those who held gold and stuck to gold. Over the course of the year, only two asset classes rose: U.S. Treasury bonds and gold. One of these things, we believe, is in a durable, reliable bull market. The other is a fake-out.
Stick to the basics—stick to the Trade of the Decade. Sell stocks on rallies; buy Gold Bullion on the dips. Now, we see the results for the year. The S&P is down 40%. Gold—bless its heart—is up 5%.