Telemarker: Good links, and you should be a bit scared if
you haven't got some of the investment that dare not speak its name. JP Morgan just got some, buying 8% of DROOY, no doubt in order to further hedge its derivative position. That position has been widely thought to include a large bet against gold rising.
I think the two articles are a bit overdone. For example, MZM is about more than the Fed deciding to add liquidity; investors shift their assets from stock funds to money market funds and thus add MZM liquidity. A lot of that was going on beginning September 17. Still, the articles speak some essential truths, most often associated with Austrian economic theory. I share their basic premise.
I'm long gold shares and about to get more so. But I've kept enough tech and E&P positions to enjoy the up days in those sectors. I have another hedge, being long some puts. To me the key to capital preservation here is not being out of the market (given the inflation risks the first article notes, plus our inability to predict the future), but having a mix of positions that leaves one hedged to his comfort level against the risks he sees.
For my part, I discount deflation risk--the last year's Forbes bugaboo--to zero. First, I agree with the Austrians that inflation consists of pumping up the supply of money and credit (I would say raising it above the rate of real growth). Second, I don't agree that deflation of an asset bubble, as we're still seeing with stocks and have yet to see with real estate, is "deflation" in the historical sense of an overall falling price level.
I believe there is recession and inflation before our eyes. The combination was once called stagflation, but its nasty CPI manifestations have been largely held in check because money and credit went into the asset bubble. Now that the feds rig the CPI and there are very important unanswered questions about their swapping, leasing and/or selling parts of our nation's gold reserves, both historic price signals for inflation may be compromised. I believe that in any democracy today, you can count on the government to inflate. That is the short term solution that isn't just "standing there," but constitutes "doing something."
I would thus start my planning by abandoning any thought that politicians will act in the people's long term interest (i.e., let market participants themselves benefit or suffer from whatever wise or foolish capital allocations they made), mostly because they lack the necessary knowledge and conviction about free market economics. Politicians in and wanting to be in power will be advocating more government as the solution to problems that few will realize (and fewer will say) the government itself created. That will not be good for stocks or bonds, IMO, unless they are of solid gold companies or of a few others in niches that do well in troubled times.
If you're pondering the entire financial system going down, in the sense of markets being closed and deposits unavailable, I have no opinion. I guess I'd be buying land, seeds, farm equipment, etc. if I doubted that I will be able to liquidate my market positions at market value as needed. I expect the only situation that would prevent my doing so would be one rendering largely moot my financial asset classes. I don't see much point in physical gold. You can move assets into other currencies, stocks, or funds, across the globe, faster and safer than you can visit your local gold dealer. |
