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The New EraSam Mathid Fear has finally manifested and is building day by day. Large 'up' days of the general stock markets will still occur, but the inevitable trend is down; down until the systemic problems are fixed. A crash is not the historic norm. A slow, grinding, downward graph is what will more likely be seen. The 'bottom' is a long way off. At least a year or two, probably considerably longer. The Central Bank handouts in the U.S. and Europe are worsening the situation, not helping it. When the mood of the investing public changes then so does their response to Central Bank actions. In the past, large bailouts were reassuring (Long Term Capital Management etc) and boosted confidence, now they are downright scary and only serve to reinforce the rising general perception that something is seriously wrong. It is; it has been for a long time. The Euro is not the saviour, indeed a good case could be made that it is in even worse shape than the U.S.$, as is the U.K. pound. Every action taken by Central Banks and governments now to help the situation will only exacerbate and prolong the situation. Intervention in the currency markets by the G7 to 'stabilize' the U.S.$ will have as much chance of success as taxpayer handouts to banks. None whatsoever. At best they will just waste more money causing further impoverishment, and at worst they will precipitate a stock market crash. They are solutions that do not address the problems. The problems are: a) Huge inflation of currencies...
all of them, not just the U.S.$. The problem is not a lack of liquidity, the problem is insolvency. That insolvency has been caused by rampant speculation born of massive inflation. More inflation cannot possibly solve that. The lubricant for all the excesses of the past few decades was never easy money, it was confidence. The easy money was simply the most obvious by-product of that confidence. The confidence was born out of a naïve belief that governments and Central Banks could control the economy and ensure continuing prosperity no matter how daft the investments and no matter how bizarre the government impediments to production. To pronounce that confidence as misplaced would be the understatement of the century. Printing more paper coupons with pictures of dead presidents and numbers on them and making them easy to obtain is cheap and simple. Recreating the confidence that would allow people to borrow that money is a completely different matter. It cannot be done, full stop. Not until this generation of investors is dead and buried. Fool me once shame on you, fool me twice shame on me. We now really are in a new era, but a very different 'new era' than that touted by the snollygosters (shrewd fraudsters) and shysters of the inflation fuelled, stock market, finance and real estate 'booms'. The discussion is no longer an intellectual one as to what might happen. 'It' has now happened. We have passed the tipping point. Underpinning all credit based economies is confidence; when confidence departs so does credit, it does not easily or quickly return. Confidence is now departing at a speed that ensures that it will completely vanish in the next few weeks; months at most. Central Bank attempts to 're-liquefy' the system are in the same vein as that which destroyed the German Weimar Republic in the early 1920's. They will fail. It is unlikely that governments now will persist to the same catastrophic point though. At some point governments will realise that their efforts are futile and are only making matters worse. At that time, and not before, the system will be allowed to correct itself. Prior to that the public will have to be gradually appraised of the severity of what is happening to condition them to the fact of ever lower standards of living for the foreseeable future. New governments will come to power untainted by the follies (crimes?) of the previous administrations. It will be those new governments who will take the corrective actions necessary, and, unfairly, the inevitable consequences of correcting the situation. Political and social instability is upon us. The middle-class will be wiped out as it always is in such circumstances. The poor are already poor and cannot be further bled to any substantial degree. The very rich are well protected and have usually foreseen which way the wind was blowing long before the storm arrives. That only leaves the middle-class and it is they who will pay. There is no one else. There never is. Gold will continue to reflect the underlying currency conditions which is all that gold ever does. Gold will continue to rise in price to a level undreamt of at this point. Always remember: It is not the price of gold that is going up, it is the value of the currencies used to purchase gold that are going down. If you do not always hold that in your mind then you will not be able to make sense of what is happening and, more importantly, what is going to happen. You will also not be able to correctly estimate when to sell gold and return to currencies. That time will probably come. Please note the word 'probably'. For gold to achieve the level that it achieved during the last systemic crisis (1980) it would have to rise to at least U.S.$6,000- per ounce (http://www.shadowstats.com/). That will surely be well exceeded as the problems this time around are considerably more severe and the depths of confidence and heights of panic subsequently reached will be proportionally greater. During the gold boom of 1975 to 1980 the situation never became so bad as to cause public panic, yet still gold rose to U.S.$6,000 in today's terms. The word 'panic' will be headline news within the next 12 months. Watch what that does to the price of gold. Silver will, if it accords with history, exceed even gold's price rise in percentage terms. This is because gold's price tends to move out of the reach of most people as a safeguard investment. To some degree it already has. We are in uncharted waters here. The modern world as a whole has never faced such a severe financial crisis. One can only hope that our officials are up to the task. Doubt has to remain about that as these are the same people who allowed this situation to develop in the first place, seemingly oblivious to the consequences of their actions (and inactions). However, be that as it may, they certainly understand the full gravity of the situation now. The big losers between now
and 'then' will be the world's pension/superannuation funds.
The entities that control these funds are the most exposed to
the alphabet soup of structured investment vehicles that are
currently being reduced to their real values, which start at
zero and tremulously move upwards from there. The savings of
a generation are being wiped out along with their hopes and dreams. I have been invested in gold and silver for the last eight years. The current circumstances were wholly predictable. What happens now is no longer predictable, at least not by me. The only thing I do know is that Gold will now start its real rise based on a building general fear of all other options. It will only stop rising when that fear abates and when the excesses of this past few decades of profligacy have been corrected and sound currencies restored. If you can afford to buy some gold or silver do so, as much as you can. Gold and silver mining stocks are also an option, but some stock brokers will likely be bankrupted. You may eventually receive your stocks, but it may not be at the time of your choosing. They could be held up in legal situations for years. I anticipate a strong rise in gold/silver mining stocks, but will be seeking the right time (fingers crossed) to swap at least some of those stocks for more bullion. This is not a time to trust any sort of paper. Paper (including currencies) is only backed by public confidence in the strength of the people issuing it. When you look at a chart of gold, you are best to turn it upside down and regard it as a chart of confidence in the currency, and by extension the economy. That confidence, or rather lack of confidence, is the big imponderable right now. Mar 17, 2008 © Sam Mathid 2006-2008 321gold Ltd |
