Hi Tom. (smile)
Where does gold fit? I wish I knew!
When Jim Willie wrote his "Endgame" piece, it just got me thinking about the "endgame" from more of a historical balance of powers perspective. I found myself thinking, IF there is an underlying K-wave in operation, what does the REAL endgame look like ... AFTER fantasy and illusion ends, and the situation normalizes, albiet potentially at a very disrupted level of economic activity?
I also tried to think about a situation where almost every present tenet was reversed - i.e. the U.S. behaves fiscally responsibly, money growth resumes to more normal levels, or even suffers a period of contraction as liquidity efforts fail to conteract an imploding debt bubble. And the US$ stabilizes in the short-to-medium term. I know that such a policy seems almost impossible given recent policy. But all the more important to consider the possibility IMO.
And could such a situation of economic and financial policy reversal be forced on the global economy and financial system as a result of (a) an episode that made evident dramatic policy failure, and (b) an alteration of dominant interests in the "old regime" such that the political will existed to effect policy reversal? Could there actually be a "policy" inflection point that would reverse the "hyper liquidity" policy of the Fed?
Well, such policy inflection points have certainly happened historically. Whether it occurs this time, or whether present trends continue for much longer remains to be seen.
So, if we have a serious deflationary episode, what would happen to gold? I'm really not sure. In fact, if anyone has any articles discussing gold's performance throughout the 1930's I'd be most interested.
How I'm playing it now Tom is to keep a core position in both bullion and stocks - around 20% at present. Really this is a hedge, in case I'm wrong. Cash and cash equivalents (currently 50% of my portfolio) I believe will be a better hold, as liquidity could dry up very quickly. It is my suspicion that if we had a seriously deflationary episode, the scramble for liquidity would be so severe that gold will also suffer, at least initially. As the deflation progresses, and credit quality and bankruptcies deepen, I would imagine that gold would retain a good amount of its luster. I'm not sure central banks would let gold rise too high, however, in a deflationary bust. Unless global monetary consensus completely collapsed among the great powers (existing and emergent), I believe there will be some attempt to keep the price rise in bullion muted.
But really this is just a starting point. An initial thesis. I'm open to considering alternatives. But for now, more than happy to largely sit on the sidelines and watch the show.
How do you see things Tom?
Regards,
The fool. (glenn)
(much more comfortable with this monicker than "oh wise one") :) |
