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Where do we go from here?Craig Harris These days,
in semi retirement, I am a private citizen managing my own money
for a living by speculating in the markets, any markets, around
the world. I am a long term, buy low sell high kind of investor.
The following observations, commentary and opinion come
from watching markets daily, most of the time in a professional
capacity as the owner of a brokerage firm and a CTA, and watching
things evolve for the past 20 years. I am in a unique position
because I can say what I think without having to answer to anyone
or please a vested interest. The background for what I'm about
to say, which I have thoroughly chronicled daily for the past
several years to my blog subscribers and documented with story
after story, is as follows. 2.) Post 911,
"emergency measures" which were stated by Mr G. as
"doing whatever is necessary" for the financial markets,
has become the standard order of business. The Government now
regularly intervenes in most major markets under the auspices
of maintaining price stability and orderly markets, but it denies
doing so for obvious reasons. 4.) Inflation as reported by the CPI, has very little to do with the actual cost of living for ordinary Americans. The actual cost of living as measured by the expenses of ordinary Americans like Health Care, Insurance, the price of a home, food and energy.the largest ands most important ongoing expenses, is literally skyrocketing, while wages are stagnant to slightly rising. This charade has been going on for years now but it has been accelerating. Any American who plots their monthly expenses on a spreadsheet and keeps records can see this clearly. Going forward, the CPI will continue to show very little inflation. Always. Forever. 5.) The current account deficit, the trade deficit and the debt service level for the government have all reached unsustainable levels. In other words, simply stated, the status quo is unsustainable. 6.) Due to covert market management and manipulated Government data, price relationships, interest rate levels, currency relationships are not at equilibrium levels which free markets would dictate. They are at managed levels, which greatly increases global risks from exogenous shocks. 7.) The US dollar is the worlds reserve currency. It's created with the stroke of a pen, in any desired quantity, and happily converted to real tangible goods with intrinsic value by foreigners and foreign governments around the world. In other words, something with no intrinsic value, is created in unlimited supply from nothing, and exchanged for things with limited supply and real intrinsic value. That's what I call a good deal! Because of the management, the natural economic function of decreasing its value as more of it is created, has been effectively nullified, for the time being. In light of these basic premises, what I am expecting is a continuous and continued gradual economic decay and erosion in the "real world" in the United States. We're seeing it now. We're watching the middle class evaporate, and the poverty level rise as the debts pile up and the cost of living for ordinary Americans greatly outpaces wage gains. Americans across the board, with the exception of what is becoming the ruling elite are working harder as they watch their standard of living decline and cost of living increase relative to what they earn. Demographically, it is clear that a greater and greater percentage of the total wealth is being concentrated in a smaller and smaller percentage of the population in a decades long trend which is now accelerating. So in the real world, things will continue to erode. In the financial world, or what has evolved to be basically the "contrived world" of managed prices through derivatives, it has become more like a game than anything else. I approach it from an investment perspective as such. It's a shell game merged corporate/Government war for the hearts and minds of the herd. Unlike many of my peers who also subscribe to many of the unsustainable imbalances and issues I discuss, I'm not predicting the imminent collapse of anything. I'm thinking things will continue to be "ok", to have the appearance of stability and sustainability, until they are not ok.
Think of this like New Orleans. It was common talk at dinner tables, in songs, in comedy, in all walks of life, literally for decades, that if the levees broke, New Orleans would flood. It was also common knowledge that a category 4 or 5 hurricane would be enough to cause that. However, in spite of all the talk and foreknowledge, no one did a darn thing about it for decades. Same deal with the US economy and financial markets. I'm not the only one who can cite this increasing litany of problems, unsustainable imbalances and issues. In fact, just like New Orleans, most market participants are aware of these issues... but what is being done to correct them? Nothing. What will be done? Nothing... until the whole thing comes unglued. The common sentimentis don't bother me with any of that because things appear to be fine. They appear to be fine because the markets are being managed and the data is being manipulated. So the US dollar is valued solely on confidence. Until that confidence wanes, game on. As to that loss of confidence in the fiat dollar, the thing is that all the other major G8 Governments have a vested interest in that not happening, so they are creating a higher toll to pay the piper when it comes. As an investor, when looking at investments around the world, whether it's palm oil in Malaysia or shares in the US, it is very difficult to find compelling value. It's equally difficult to find a currency other than using "better than the other" comparative rationalizations. Management of the price of gold is a key tenant in keeping that equation desirable for the g8, because if all the fiat currencies were to have issues (which they do), you would expect the tether to real things (gold) to skyrocket. Preventing that from happening sends a very strong signal to market participants that things are indeed ok. So... I've wrestled with the when question a lot both in my daily blog and just in my brain... and I still do. As I get more and more empirical data, I continue to believe more and more that it could well be a while in coming, which is an evolution in my thinking because if you had asked me in 2000 when would it happen and then list all the things that were going to happen in the next 4 years, I would have said that's more than enough to do it. That said, I believe that when it does come, it doesn't matter where your money is if it is in US assets. You either aren't going to be able to get to it, or it isn't going to be worth much, or both. The Government recently confirmed that in a time of crisis, confiscation of gold was within their power and authority. The point there is that for people who believe gold is the solution to maintaining wealth... that is likely to be a false sense of security unless you have "Stealth" ownership, which would make you an outlaw because physical ownership is now required to be reported. Picture a sort of nation wide New Orleans 2 nights after Katrina. That's the scenario which would likely result from a collapse of the financial house of cards. Think about who would fare best in that scenario and who would fare worst. It's clear to me that people living in big cities would fare worst. Anyway, that is the end game of this financial shell game... collapse and chaos. It has become so contrived and so leveraged, that the failure will cause a systemic breakdown of "normalcy," almost overnight. There will most likely be some exogenous trigger, but maybe not. By the time it happens, I believe the world will have become much less dependent on the US and there may not be as much contagion as many would expect. So related to all of that, one question would be... so with that outlook, you could say... so what... everyone knows nothing lasts forever, why even talk about it. My answer to that is that it's key to understand the evolutionary path that is being traveled, because it greatly affects the investment decisions over a very long term... if I'm right, I expect to be able to get on the right side of some long term trends. A quick example of that would be holding a lot of foreign shares (in the right countries). Another example would be to recognize that the trend of higher oil and commodity prices is a secular trend, one that could have a huge rally at some point. The thing is, after that rally, what do you do? Take delivery on cows, hogs, grain, coffee and oj and move to Montana? I mean it's a serious question. If I'm correct, at some point the correct decision would be to cash out and become self sufficient but that point may well be a ways off in the future. Lots to think about. Craig Harris 321gold Inc |
You're probably scratching
your head after that comment, but what I'm saying is that the
continuous gradual erosion in the real world, which most ordinary
Americans see but no one likes to talk about, will be met with
an ultimate sudden collapse of the house of cards, but not until
the confidence in the all powerful fiat dollar wanes.