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The Wisdom of Looking Like an Idiot Today

Now is the time to act with the courage of our convictions
Tuesday, December 3, 2013, 10:42 AM

If you can keep your head when all about you 
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;

~ Opening stanza to Rudyard Kipling's "If"

So, let's say you're a prudent person who has concerns that our economy isn't 'recovering' as robustly as you'd like.

Perhaps you still remember the speed and depth of the 2008 credit crisis' arrival, and its toxic impact on asset prices, jobs, and overall trust in the financial system. Maybe you took notes during the preceding tech and housing bubbles and their aftermath. If so, you likely swore that "Never again!" would you put your wealth at risk during such obvious times of public mania.

Chances are, you've probably logged a lot of online hours over the past several years trying to read the economic tea leaves more closely. Are things becoming more stable, or less? What are "safer" measures for protecting and building wealth than simply putting all your chips into the paper markets (stocks & bonds) and real estate?

As a result, you've probably had a smaller percentage of your wealth in the stock/bond markets over the past few years than your peers. You probably also own some gold and silver, likely having bought much of it between 2009-2011 with the stock market collapse still fresh in your memory. Chances are also good that you've made a series of "preparedness" investments (stored food, etc.) as an insurance policy in case really tough times were to break out. Most of your family and friends didn't take these steps, nor are they particularly interested in talking about your reasons for taking them.

So, if this sounds at all like you, five years after the 2008 crisis, how is the "prudent" strategy looking today?

Looking Like an Idiot

As one who took similar steps, I'll confirm that it looks pretty lousy to the casual observer.

Stocks & Bonds

There has been an absolute party in the stock market over the past two years. The S&P is up nearly 40% (!) since early 2012 and has almost tripled since its 2009 lows. It's been nearly impossible not to make money in the stock market recently (unless you've owned mining shares).

Bonds have remained at historically elevated prices. And although 2013 has seen prices come off slightly from their highs, prices are still substantially above pre-crisis levels.

The pumped-up performance of paper assets here is, of course, due to the staggering amounts of new money that the Fed has been creating since 2008. Starting with a balance sheet of $880 billion pre-crisis, the Fed has since expanded it by an additional $3 trillion, in less than 5 years. And it's continuing to expand to the tune of $85 billion (some calculate $100 billion) per month.

Most of that money sits in excess reserves enriching the banks at zero risk, at high hidden cost to the public (a rant for another day). But enough of it is sloshing over into the markets where it does exactly what excess liquidity always does: rise all boats.

So, if you decided to stay out of the markets, you've watched the party boat pass you by. They say don't fight the Fed, and so far, the Fed is indeed winning. In reality, it will likely prove to be the Charlie Sheen version of "winning", but to the casual observer whose 401k is up 20% this year, the Fed definitely appears to be playing the better hand.

Real Estate

How soon we forget. Home prices have resumed climbing at historically aberrant rates. Case-Shiller just reported that year-over-year, its national home price index grew by 11.2%.

A number of markets have re-entered bubble territory. San Francisco, where prices are now higher than at their 2007 peak, saw a 26% year-over-year increase in average prices. Las Vegas, the poster child for housing price excesses six years ago, saw a 29% average price increase from 2012 to 2013.

The tell-tale sign of an overheated housing market house flipping is back.

If you've been holding off on purchasing real estate (as I have) expecting that a stumble back into recession, or higher interest rates, could bring prices down to saner baselines again, you're watching prices get away from you.

Precious Metals

Ugh. There's no denying that it has been a very rough two years for gold and silver holders. As I'm writing this, gold and silver are dropping to near 4-year lows.

For those burned by the last crisis who purchased precious metals near their zenith in 2011, hoping to protect the purchasing power of their capital, the nauseating declines since early 2012 (especially in silver) have done anything but.

Those who bought PMs pre-2008 enjoyed a long stretch of validation while prices appreciated year after year. With a material percentage of that appreciation now gone, and month after month of relentless losses punctuated by vicious price smashes, it's harder to feel as smart as it once was.

But it's maddening. With the $3 trillion in new currency recently created by the Federal Reserve, shouldn't precious metals be appreciating? Wildly? Isn't that their central promise: to hold value as the purchasing power of paper money inflates away? But instead, they're decreasing in dollar price, even as the money supply continues to expand. How is that possible? 

And Bitcoin! From almost out of nowhere, a new alternative currency skyrockets from nearly valueless to (briefly?) match the price of gold. It's like adding insult to injury for the 99.9% of precious metals holders who don't also hold Bitcoin. How can the world suddenly wake up to the advantages offered by non-fiat currency, and yet still treat the granddaddy of sound money like kryptonite?

Sentiment

In 2009 and 2010, those of us who had warned our friends of the lurking risks in our economic and financial system suddenly looked like geniuses, instead of the kooks that folks had dismissed us as. Now, we're back to being kooks.

A chart Chris has been sharing recently with our enrolled members shows that at no time in the past 30 years has sentiment been this bullish, not even during the Internet stock mania of the late 1990s:

Faith in the current system is as high as it has ever been, and folks don't want to hear otherwise.

This extreme optimism extends beyond the Economy. In the Energy sphere, in news headlines discussion of the "shale miracle" is still omnipresent without, of course, any mention of net energy, extraction costs, or depletion rates. In the Environment, coverage of the real-time collapse of key fisheries or water shortages likely to impact food production rarely gets any mainstream notice.

In short: If you're one of those people who thinks it prudent to have intelligent discussion on some of these risks that maybe the future will turn out to be less than 100% awesome in every dimension you're probably finding yourself standing alone at cocktail parties these days.

The Madness of Crowds

Charles MacKay's excellent classic reference book, Extraordinary Popular Delusions and the Madness of Crowds, explains the nefarious nature of public manias: They strive to suck in as many participants as possible before collapsing.

We are seeing classic signs of the abandonment of concern by the public in favor of not missing out on 'easy gains'. In addition to the examples mentioned above, signals that the fear trade has given way to the greed trade are abundant these days:

  • Stock chasing - Here's a quote the WSJ recorded from an actual retail investor buying shares on the first day of the recent twitter IPO:  I messed up not buying any Facebook so I want to get some Twitter. I'm just buying because everyone's talking about Twitter. Not because of its product (which she admitted she didn't use). Or its business model (which has never been profitable and unclear whether it ever will be). The purchase decision was based purely on hype.
  • Priority abandonment - At Peak Prosperity, we speak with professional financial advisers frequently. The advisers we know best focus on risk mitigation and remain skeptical of the sustainability of the prolonged market rally. Many of their accounts signed on after 2008, clearly declaring that they prioritized protection of their capital over everything else. Yet a growing number of these investors are watching the continued rise in financial asset prices and are now pushing for more aggressive management. They're abandoning the prudence that was so important to them just a few years ago.
  • Bear capitulation - The path to a bull market peak is littered with the carcasses of bearish analysts that dared to challenge its rise. As the % bearish Investors Intelligence chart above shows, there are few bears left to be found anymore. Just last week saw a major defection from the bear camp, with the perennially critical Hugh Hendry throwing in the towel, exclaiming:

I can no longer say I am bearish. When markets become parabolic, the people who exist within them are trend followers, because the guys who are qualitative have got taken out.

I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends.
 
I may be providing a public utility here, as the last bear to capitulate. You are well within your rights to say ‘sell'. 
  • Warning sign dismissal - It's not as if there aren't clear alarm bells being sounded by the very experts the public looks to for such warnings. It's just that these warnings are being ignored by the market. No one wants the party to end:

"All markets are bubbly"

~ Bill Gross, November 29, 2013

"In many countries the stock price levels are high, and in many real estate markets prices have risen sharply...that could end badly. I find the boom in the U.S. stock market most concerning,"

~ Robert Shiller, December 1, 2013

"Now, five years later, signs of frothiness, if not outright bubbles, are reappearing in [at least 17 global] housing markets"

"What we are witnessing in many countries looks like a slow-motion replay of the last housing-market train wreck. And, like last time, the bigger the bubbles become, the nastier the collision with reality will be."

~ Nouriel Roubini, November 29, 2013

When this latest global asset bubble bursts as Roubini reminds us, by definition, it must; the public will cry, "Why didn't anyone warn us?" The media will reflexively utter, "Nobody saw this coming," But the truth is, there is evidence galore for those who choose to look for it.

The Wisdom of Looking Like an Idiot Today

The other key characteristic about popular manias/bubbles is that they collapse suddenly. Much more swiftly than they took to build.

The resultant carnage catches the masses like deer in headlights. The Kubler-Ross stages of grief begin quickly, and since Denial is Stage 1, most folks delay taking action out of disbelief. Soon the Bargaining stage is reached, and they continue to delay reaction as prices continue falling praying for the chance to get out if a reversal would just happen. It's not until Acceptance that most will take action, selling after the down draft has largely run its course.

Here are some useful stats to keep in mind that show how sudden and savage the 2008 market collapse was:

  • Week of Oct 6, 2008 - The Dow Jones dropped 18%; its worst week ever in terms of both absolute and percentage loss.
  • March 6, 2009 - The nadir for the stock market. By this date, 5 months after the crisis began, the Dow was down 54% since October

The takeaway here is that the wealth destruction caught most investors flat-footed. Most were unprepared both psychologically as well as with their portfolio positioning to react.

Many investors thought themselves savvy and nimble enough to avoid the losses they ultimately suffered, telling themselves an ill-fated narrative similar to what Charles Prince told his shareholders:

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,”

~ Chuck Prince, Citigroup CEO, Jul 9 2007

Most readers remember how Citigroup's price dropped from over $500/share, when Prince made this comment, to $10/share in March 2009. Prince was booted from his CEO role in late 2007 due to emerging losses resulting from the bank's MBS and CDO positions, investment classes which proved to be at the heart of the 2008 crisis.

So, a smart question to ask at this time is: Is the moment in time we're in today closer to January 2006, when there were several years left of exuberance to ride? Or is it more like September 2008, poised at the precipice?

A smarter answer is: There's no way to know with acceptable certainty.

Like grains of sand piling up or snowflakes falling on a cornice, we can assess the growing level of risk, but we can't identify the grain of sand or snowflake that will cause the eventual cascade. We can't predict the collapse timing with confidence. We can and will continue to make our best-educated estimates, but the exact timing is unknowable.

So, given that fact, as John Hussman so pithily captures, bubble markets force us to make a choice:

The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. 

And so your choice is upon you. Look at the evidence around you  a movie nearly identical to one you saw in 2000 and again in 2008 and either decide to party with the herd while the music plays (look smart today), or park yourself in safety now (look smart tomorrow).

Since the timing of the next correction is unknowable, the prudent choice is obvious. But it's not easy, for all of the reasons mentioned at the start of this article.

A helpful question to ask yourself is: If I could talk to my 2009 self, what would s/he advise me to do?

For most of us, our past self, recently reminded of the anguish of wealth destruction, would say, "Run to safety!" at the first whiff of anything bubblicious. Research has shown that when the chips are down, the benefits of loss aversion are always preferred to the joys of gain.

Don't put yourself in a position to relearn that lesson so soon after the last bubble. Exercise the wisdom to look like an idiot today.

The Need for Discipline is Greater Than Ever

Okay, so what should today's "idiot" focus on doing?

  • Build cash - It's not sexy. And it's not fun to see the dollar price of nearly every asset known to man escalate while you hold cash. But bubbles are designed to take as much as possible from as many people as possible. During the popping of a bubble, the real wealth (underlying assets like companies, land, minerals, etc.) doesn't vaporize like the high prices do. Those assets are simply transferred at a lower (more attractive) price to those people who still have money. Be one of those people.
  • Hold on to your precious metals - I know. It's painful right now. For most PM owners, just hold onto what you have right now. Those with stronger stomachs should be dollar-cost averaging. Remember, the fundamentals for owning gold and silver have not changed AT ALL over the past few years. Stay largely with physical bullion. Don't speculate with the mining stocks at this time unless you're a risk junkie (or masochist?) and then only with money you can afford to lose.
  • Scout out locally-based hard-asset investments for the future - Once this bubble pops, higher interest rates and lower prices will result. Look around your local area for assets (businesses, housing, farmland, livestock, etc.) that you would consider holding at least a percentage ownership in. Calculate what price would make you an interested investor. While that price may be years away, when the impact of a market correction hits, you'll be poised to move ahead of the other savvy investors to secure the opportunities you want (and play a role in stabilizing the community in which you live).
  • Design your trading plan for a market downdraft - What steps will you/your financial adviser take if the market starts cratering? If you don't currently have a plan in place, now is the time to design it. Will you employ stops? What "safe assets" will you move to? (Treasurys, cash, other currencies?) Will you strictly be a sidelines observer, or will you take any active short positions on the downside? Will there be opportunity to generate income using vehicles like covered calls? Whatever makes sense for you, devise your strategy in the calmness of today vs. on the fly while the markets are melting down around you and everyone is panicking. And if your financial adviser is unable to provide you with a comforting answer as to his/her strategy for captaining your money through another 2008-like (or worse) correction, we have a few recommended advisers you may want to consider talking with.
  • Build your roof while the sun is shining - So many of the most valuable investments are not financial (emergency preparedness, energy efficiency, community, health to name just a few). Use the gift of time we have now to invest in expanding your degree of resilience. If it's been a while, take a fresh skim though our What Should I Do? Guide to identify any areas where you aren't satisfactorily prepared. These are the investments that it's infinitely better to have in place "a year early vs. a day late."
  • Increase emotional fortitude - Being "wrong" in the eyes of society is trying. And it's stressful for many, especially if your partner or others of those close to you don't share your views. Keep learning by reading this site and a wide range of others, including those with opposing commentary. Develop your opinions based on the data you determine is most accurate your ability to stand resolute against popular sentiment will be grounded in your confidence in the "big picture." Seek support from the thousands of other Peak Prosperity readers who are wrestling with the same issue set you are, by participating in our Groups. We created them to help people support each other both virtually and "in person" within their local communities.
  • Develop an income loss plan - If we're correct in our prediction of a major downdraft, a return to deep recession is likely, and with it, a return to higher unemployment. Loss of income is a stressful trauma, especially if it happens unexpectedly and is compounded by a hobbled job market. Take some time to assess your job's level of vulnerability to another recession. If it's higher than you'd like, ask yourself what you would do if a sudden layoff occurred. Start doing the work now to at least sketch out the path you would take if that happened. If possible, develop some relationships or related skills now that would give you an unfair advantage should you ever need to head down that route. The first third of our book, Finding Your Way to Your Authentic Career has a number of exercises that provide useful guidance for those looking to do this.
  • Develop an income enhancement plan - The resilience that comes with multiple income streams really helps you sleep at night, as you're less vulnerable to having your entire life upended if a sudden pink slip appears. Also, having extra income to direct to other goals (retirement, education, homesteading, etc.) enables you to reach them faster. We're all busy, but thinking creatively for a moment: What could you start doing today to secure extra income streams in the future? This is a topic that Chris often helps folks think through in his consultations.

Essentially, the approach here is to dismiss what is not in our control and focus on what we can best do with what is.

Be practical. Be prudent. Be dull to those watching you from the dance floor. 

John Hussman signed off his latest report with the advice: "Risk dominates. Hold tight."  I agree. Now is the time act with the courage of our convictions.

As Kipling put it at the end of his poem:

If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: 'Hold on!'

If you can talk with crowds and keep your virtue,
Or walk with Kings - nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds' worth of distance run,
Yours is the Earth and everything that's in it,
And - which is more - you'll be a Man, my son!

~ Adam Taggart

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59 Comments

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1170
Thanks, Adam

Very helpful.  Refocusing on things that matter and the long perspective.  And the madness of crowds, even those in our own families who "know" that we are wrong.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Keeping it Real.

Having the collapse of civilization branded into my soul, these words are confirmation of that which I already know. Is there a piece of music called " Play it again Sam?"

How ruthless are you? Can you choose which of your family will live and which will die? You may have to. My choice was to abandon the old. Given the same circumstances I could not do it again. (I may have to-but that would be grossly unfair.) But I know that I made the "right" decision. I cannot complain if those whom I voted in favour of make the same choice.

Do my teeth ache? Is my bed warm and dry? If I am comfortable I am grateful.

Can I materially contribute to the survival of my grandchildren- if not, can I keep out of their way? They will need room to swing an ax. There may come a time when Grandpa has to haul them to safety. And for that I need a yacht. Forget the airports, they will be shut.

The markets that I follow are Maslow's Markets. Keeping it Real. 

charleshughsmith's picture
charleshughsmith
Status: Gold Member (Offline)
Joined: Aug 15 2010
Posts: 494
the hubris of the money-management class

Good post, Adam. It's worth examining the hubris of the money management class, the "smartest guys in the room" whose success in "dancing while the music is playing" has fueled their confidence that they will be able to shuffle to the exit just before the market goes over the waterfall. Their hubris feeds back into the market, of course, as their confidence in their ability to dance until the last minute leads to "buy the dips" which pushes the market higher and keeps the music playing.

Since everyone can't exit the market at once without triggering a crash, we know that 90% of these smart guys will not be able to exit before the waterfall decline. 

I have a 2-part essay that makes the case for a stock market crash in the works--it might be up on the site by next week.

jcat3022's picture
jcat3022
Status: Bronze Member (Offline)
Joined: May 9 2012
Posts: 78
well said Adam

somedays it can be awfully lonely when you're navigating thru the bush on your own, regardless of how independent & resilient you think you are.  None of what is going on makes sense.  I've come to accept it, albeit with the same frustration as trying pitch a tent in the dark.  Eventually though, the tent goes up and I go to sleep.

I will say this, I've never been more sure that a majority of what is discussed here will come to fruition one day.  That is not said with enthusiasm or sadness, it's just reality.  I'm confident that I've done all I can to this point to protect myself & family.  Much more work and education need to take place, and I look forward to that.

As Mark Twain best put it - "Whenever you find yourself on the side of the majority, it is time to pause and reflect"

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2176
Looking like an idiot...

Thank you Adam - I really enjoyed this distillation. 

I know you are being somewhat facetious Adam... but the truth is we have a cross section of highly intelligent people that frequent these pages.  No one who understands our predicament need ever feel like an idiot.  What is sometimes hard to grasp, especially as you get, like me, into your second decade of, "discovery", is the chasm in understanding that has developed between those of us who continue to seek and those with their heads in the sand.  I sometimes gain insight from the smallest sniglets..  and one particular moment from this documentary has stuck with me since I first saw it presented on Koos Jansen's site a few weeks ago.  Shortly after 32:00 in the piece attached below, the genious HFT algo programmer turned whistleblower Haim Bodek states regarding his discovery of how order type preference allows order queue jumping;

"It was clear how many people did not know that these exchanges offered specialized orders.. you are talking about, like, 90% of Finance doesn't know how the US stock market works

And so it goes.  Most folks don't know what debt-based money is nor the implications of it.  Almost nobody has the knowledge to counter much of what comes at them via the TV and other mass media... i.e. that the US Oil Boom is a mirage that will fade quickly once the highly compacted Hubbert curves for the fracked wells really hits home.  Almost nobody realizes that in the first few days of Comex physical Gold delivery this month JPM's house account has taken 94% of them.. the Comex has become a game of banks playing with banks where outside entities barely play, and this sets the world price for Gold?  Almost nobody realizes that the US hegemony in reserve currency is being chipped away at one Yuan swap facility at a time.  So be it.       

treemagnet's picture
treemagnet
Status: Gold Member (Offline)
Joined: Feb 13 2011
Posts: 344
@sand_puppy

Yup.  My Dad is a sheeple and his recent choice of investments guarantees him a ride to the bottom.  He's feeling pretty sassy right now....I asked him, 'so who are you going to call if/when real trouble comes-a-knockin'?  Crickets.  We'll see soon enough I guess. 

dryam2000's picture
dryam2000
Status: Silver Member (Offline)
Joined: Sep 6 2009
Posts: 204
Diversification

When it comes to managing one's wealth these days I do not think it makes sense to view things from the perspective of being 'right' or 'wrong', or being a 'fool' or a 'genius'.  Trying to outthink the central bankers and politicians on their plans and the timing is a fools game.  The only thing we can be sure about is that a wicked financial typhoon has been gathering energy and it will hit land some time in the next few years.  All people can really do is diversify the best they can with a slant towards placing wealth in things they have the most direct control over such as their homestead, productive farm land, etc.  Being diversified in both stocks and precious metals over the past 2 years would canceled out the gains and losses.

It's inherent in the human psyche to feel that one thoughts are superior than a majority of those around him.  Thus, we tend to be overconfident and egotistical thinkers.  The current financial chess board is not a level playing field, and it never will be going forward.  Just like with casinos, the house always wins; it's just a matter of how much.

This is not a time to bet excessively on any one position no matter how much you think you have it all figured out.  I say it's time for all-out diversification in as many areas as possible (including equities) and just accept the fact you are not going to be wealthy, but you also aren't going to be poor.

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1170
Sheeple in the family

I hear ya' treemagnet.

I lived through the telecommunications bubble of '97 - '99.  I rode the legendary JDSU stock in its rocketship ascent to over $1,000.   During the ascent, I regarded myself as an *extremely smart guy*. I planned to retire after "one more doubling, in about 6 months." 

In the next year my imminent retirement was canceled as my 401k plunged to a small fraction of its prior value. 

But most important, I understood that I hadn't a clue how the world really worked.  And that I had foolishly rejected the words of older and wiser friends who had tried to warn me......  

gbcm's picture
gbcm
Status: Bronze Member (Offline)
Joined: Sep 3 2009
Posts: 36
Gold still does not glow !

Like most who read Adams post, one will nod in agreement about these motherhood statements, and sometime in the next 5-10 years, Adam, Chris, Peter Schiff, Alistair Macleod and Dr Doom will again be right - all markets are cyclical, and are subject to extremes , but "hold onto your precious metals" bought at much higher levels --- why ??  I know the stock answer is that the fundamentals of gold have not changed. The chart of the increase in QE / government debt / pension debt / demographics / --- fill in your own favourite correlate --- still doesn't mean PMS are precious , because it rest on a false premise - PMS are money, and the world will return to a gold standard --- NOT GOING TO HAPPEN - the central banks acting as agents for their sovereign governments wont let that happen, and most sensible 1% -er's have the vast majority of their wealth in hard assets that make economic sense, and latterly cash !

To say that investing in gold miners is risky, is an understatement - more like insane ! As this article on Zerohedge points out most gold miners are uneconomic and headed for oblivion. http://www.zerohedge.com/news/2013-12-02/gold-tumbles-towards-marginal-production-costs

Nothing short of China declaring they are going to back their currency with gold would put a floor under the gold price - why would they do that ?? It would restrict the biggest user of QE, in the most over leveraged nation on earth, and would be seen as a declaration of war by the IOUSA, the EU and Japan to name but a few. 

So, please explain why gold wont continue to depreciate and what will re-ignite the gold bull market other than the ranting of Peter Schiff ? Advocating buying PMS is 'investment advice' and should come with a soundly based investment argument -- still waiting. The mainstream rejection of gold is complete !

My prediction is that if / when JPM, Goldmans and the other Fed agents declare that gold has bottomed there will be a rally, because supply will have been reduced due to mines shutting , and there will be a temporary supply / demand imbalance --- maybe in several years time when they have maximised all the other bubbles they blow, and they have extracted all the gold from the likes of Venezuela, Turkey, Cyprus and Iran - GOK.   This is a very low probability because no government on the planet wants a currency linked to a "barbaric relic" .

Cheers, GB.

Cheers, GB.

dryam2000's picture
dryam2000
Status: Silver Member (Offline)
Joined: Sep 6 2009
Posts: 204
gbcm - Gold.....

gbcm,

Precious metals are just one form of diversification, almost insurance if you will, for a currency collapse.  Just like I stated in my post above it seems wise for people to be widely diversified without being overweight in any particular area (other than the things you can most directly control....your homestead, productive farm land, your health, etc.).

It's highly unlikely that a gold standard will return, but there is a clear economic battle between the east & west.  If the east would start to win out, then this would be a big positive for gold.

Daily, weekly, monthly, or yearly gold prices are somewhat irrelevant.  Not unlike just about everything else in these financial markets, it's safe to say that the market 'price' of PM's is also heavily manipulated.  PM's can be viewed as a 'truth-index' if there was true price discovery.  The central banks & governments around the world are trying their best to present a grand picture that the global economy is recovering via all sorts of manipulated numbers & misleading statements.  The TPTB have great incentive to manipulate PM's as low as they can.

I agree with you completely on PM miner's.  That's outright gambling.  Those businesses rely heavily on financing & credit, and many are very susceptible to going out of business before true price discovery could occur. 

Like someone wrote on ZH today, someone should only have wealth tied up in PMs if they have the mindset of running a marathon.

Soma1977's picture
Soma1977
Status: Member (Offline)
Joined: Aug 7 2013
Posts: 1
Looking like an idiot...........

Great article Adam!  I am an investment advisor working in Ontario Canada and I can attest to what Adam is talking about.  It is pretty obvious to anyone who is paying attention that we are on the brink of a major societal change. This is the most stressful thing I have ever gone through from a "career" perspective.  Everyday I try to protect people from themselves.  The heard mentality, cheered on by the financial industry, media and government is very disheartening.  I have lost more clients in the last year then I have in the 12 years combined that I have been working in the financial industry.  I refuse to buy into this facade and it is costing me.  That said, no amount of money will ever sway me to go against my own morals and ethics.  We all have the ability to think for ourselves and make decisions based on our own rational thought.  I would rather look like an idiot now than look like an idiot after the SHTF.

I find it very frustrating that you can show all the logic, statistics, facts, etc. about the state of our world and people dismiss it based on blind faith in what the powers that be state.  People do not like too much reality!  People like to have their hopes and wishes reinforced even if there is no sound information to support their hopes and wishes.  I agree completely with Adam's "What should the idiot be doing" list. Personally, I have collapsed my RRSP (401k equivalent in Canada) and I will never put a cent in the stock & bond market again.  Hard Assets make sense to me because I can physically control them.  Hard Assets can be precious metals, farm land, rental properties, small businesses, etc. All of this stuff has been covered in depth on this site and on other sites like it.  The change that is coming will bring about many challenges as well as many opportunities.  The key is wrapping your head around what is going on, planning & preparing for the changes that are coming and allow things to unfold as they will. 

Collapse is inevitable and it will be a good thing long term.  Our current way of living is not sustainable and change is coming whether we like it or not.  The majority of people are going to look like idiots for not taking steps to protect themselves.  Cheers!

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Jim H
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Gold is dead...

Long live Gold!

GBCM said,

So, please explain why gold wont continue to depreciate and what will re-ignite the gold bull market other than the ranting of Peter Schiff ? Advocating buying PMS is 'investment advice' and should come with a soundly based investment argument -- still waiting. The mainstream rejection of gold is complete !

China said,

Gold is only being rejected by the crowd who bases their views of the future on the price of Gold today... who needs it right?  The price is telling them everything is OK!  Party on!

And this is why TPTB will do their best make Gold an untouchable asset class... and to make you look like an idiot for buying it or for telling your friends to do so. 

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gbcm
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Currency collapse ??

Again, there's that much loved idea in the gold camp that a currency collapse is 'inevitable' and what the gold bugs really mean is a collapse of the US$ - not going to happen. In a world of (imposed) fiat currency, the US$ will remain the strongest, and now the Chinese Yuan is the second strongest and second most traded currency - because these are the nations that dominate world trade, world finance and are far and away the most powerful military powers with the ability to reach into the inner sanctums of any nation - just ask Angela Merkel ! Smaller nations have no choice but to use a major currency for trade, commerce and reserves, a lesson being painfully learned by Iran and Venezuela ! 

So, gold has been sidelined for the foreseeable future and to hold insurance against something that may not happen, except in Banana republics is illogical for US citizens and probably German and UK as well.

For those who think they can hide their wealth overseas in some gold vault better think again - tax laws require reporting and tax authorities have widespread powers and the backing of the NSA - just look at how safe Switzerland is now for financial refugees - NOT !

Anyone who thinks the Chinese are going to move to a gold backed currency are dreaming - they are going to out QE the IOUSA, which means they cant / wont  go to a gold backed currency.

So, I'm still waiting to see a credible defence of PMS as an asset class that rises above them being a lucky charm or St.Christophers medal equivalent for first world citizens.

Cheers, GB. ----- PS this is positively my last post !

treemagnet's picture
treemagnet
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Posts: 344
Been there.

I too once had 'the midas touch', only to see it burn with an empty water bucket.  I am ..... stunned - just amazed at the idea of owning equities and bonds, or any paper 'claim' on wealth.  The idea of having an instrument where you're the last guy to get the memo with known thieves at the helm and all around you, based on an underlying unit of exchange of a fiat note backed by nothing - riding on others faith.....faith that they won't sell.....they will, and when they do the buyers will have already sold to the retail buyer, the dumb money crowd, the desperate yield chasers and momentum chasers.  No buyers...all the way down....so who's gonna buy when sell orders come raining down.  No bid, lock-limit down freefall - the booze and the tears will be flowing on that day for sure. 

And even if a portfolio is strong and balanced and diversified and whatever.....the good stuff will be sold to cover the bad - and thats not even factoring in all time high record margin debt!!!!!!!!   This stuff will be sold regardless of the account holders 'faith' and 'outlook' - emotionless volume dumping.  HFT's that, when they learn the profitability of leap frog on the way down, will 'front run' ahead of everyone and on volume....with margin!!!!!!   Then, look around and see what's going down here, there, and everywhere......from bail-ins and more....I'll pass.  But, it'll be a show.   

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Wendy S. Delmater
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Posts: 1893
an extended family that (supposeldy) "gets it"

Four years ago one of my sisters-in law and a cousin sent me a copy of ONE MINUTE AFTER that was making the rounds in the family. I was relieved that I was not alone in assessing the coming risks - that I would not be sitting alone at family gatherings and looking like an idiot, now. But, four years later, the cousin only has a pantry that says "I will never run out of toilet paper" and the sister-in-law hasn't even bought MREs. Neither has a go bag or alternate heat and cooling options in their home. Neither has planted a single piece of edible landscaping, let alone a garden. I still feel like the odd (wo)man out. And these are very smart people who have more of a clue than most. My brother-in-law is still investing in Greek bonds, for god's sake! I told him to only do that with money he wants to gamble with. Like in a casino.

Just last week my father-in-law called me--I'm still shocked, me--for investment advice. I'd warned him last year about contango in PM ETFs so he benefited from something I learned on this site. Now, he was wary of the stock market and bonds. ZIRP is killing his investment retirement income, and the risky things you can make a decent interest rate on scare him. I suggested he invest in things that lower his food and energy costs, and buy physical silver for the long haul, keeping meticulous records.  While I understand the attachment he has to a mature and producing kitchen garden and mature dwarf fruit trees, it worries me he won't sell his 4-bedroom home even though it's in a very high-population area. At least he brought in a strapping grandson to keep an eye on him and his wife.

And my brother knows. He knows what's coming and does not even have water purification, a pantry, or alternative heating. I don't care about looking like an idiot, as I've always marched to the beat of a different drummer and the heck with what others thought, but if those who KNOW are this unprepared, I shudder at the rest of the world.

Knowledge without action looks the worst of all. And it will feel the worst of all, come crunch time.

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Phaedrus the younger
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Great article!

A few of my work associates have started to refer to our 'self-sufficient' farm as the refuge from the coming Zombie Apocalypse.   Cute.  And a little less funny every time I hear it.  But then again, who cares - we love what we're doing at our homestead!!

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dryam2000
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gbcm wrote:Again, there's

gbcm wrote:

Again, there's that much loved idea in the gold camp that a currency collapse is 'inevitable' and what the gold bugs really mean is a collapse of the US$ - not going to happen. In a world of (imposed) fiat currency, the US$ will remain the strongest, and now the Chinese Yuan is the second strongest and second most traded currency - because these are the nations that dominate world trade, world finance and are far and away the most powerful military powers with the ability to reach into the inner sanctums of any nation - just ask Angela Merkel ! Smaller nations have no choice but to use a major currency for trade, commerce and reserves, a lesson being painfully learned by Iran and Venezuela ! 

So, gold has been sidelined for the foreseeable future and to hold insurance against something that may not happen, except in Banana republics is illogical for US citizens and probably German and UK as well.

For those who think they can hide their wealth overseas in some gold vault better think again - tax laws require reporting and tax authorities have widespread powers and the backing of the NSA - just look at how safe Switzerland is now for financial refugees - NOT !

Anyone who thinks the Chinese are going to move to a gold backed currency are dreaming - they are going to out QE the IOUSA, which means they cant / wont  go to a gold backed currency.

So, I'm still waiting to see a credible defence of PMS as an asset class that rises above them being a lucky charm or St.Christophers medal equivalent for first world citizens.

Cheers, GB. ----- PS this is positively my last post !

Anyone who thinks a currency crisis is inevitable is a fool.  I haven't read anything in this article or this thread saying that.  My experience in life tells me that when people are extremely sure of their thinking it makes me have my doubts.  Sounds like you have clearly made up your mind already.  Why don't you heavily short PM's if you are so certain?  I'm curious to why you even wrote your post about gold in the first place.

Inflation is not a threat right now.  The majority of inflating force comes from bank lending in our debt based fractional reserve money system.  Banks are not lending for little.  Money printing by the Fed is miniscule in comparison.  The Fed is printing like crazy to fill in the massive holes of debt within the banking system.  At some point the Fed printing will likely lead to a loss of faith in the money system.  Our money system is only backed by two things:  faith & trust.  If and when the Fed ever stops printing there's high risk of massive deflation / money contraction unlike any other.  If the Fed prints for too long money will risk losing it's meaning leading to a currency crisis.  I have no idea how things are going to turn out.  The one thing I do know is that the system is very sick & the ultimate outcome is anything but predictable.

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sand_puppy
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Hebrew Parable of An Extreme Prepper

I love Robbie's description of the story of Noah.  And the movie is coming out and looks really good.

Doug's picture
Doug
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Posts: 3033
Phaedrus the younger wrote: A

Phaedrus the younger wrote:

A few of my work associates have started to refer to our 'self-sufficient' farm as the refuge from the coming Zombie Apocalypse.   Cute.  And a little less funny every time I hear it.  But then again, who cares - we love what we're doing at our homestead!!

Cute, I have a friend who is a cop and gun dealer and knows of my prepping activities.  His wife likes to say when tshtf they are coming to our house  and will bring guns and ammo.  That might work out. :^)

Rector's picture
Rector
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Posts: 418
So why all the Gold buying?

GB,

Why are the Chinese buying so much Gold?

Rector

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Rector
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Posts: 418
I've had the same conversation

My father-in-law is 70, retired, out of shape, totally unprepared, and lives in a megaplex.  Worse, after looking at a 7 figure brokerage account invested 75% in "equities", we had the conversation.  Everyone is in agreement about the fundamentals and what should be done to prepare, but no action has ever been taken.  I'm just tolerated when it comes to this topic and will not repeat myself.

I made him pinky swear not to come looking for help when it all evaporates.  He just laughed.

Rector

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thc0655
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Marked for extinction

I hear you Wendy and I've made the same observations. In my work I deal with everything from the wealthy and highly intelligent to the dirt poor and mentally challenged; the good, righteous people and the vicious, vile predators. I'd like to be more "positive" but many people from across the human spectrum are at this very moment simply marked for extinction by Nature (physically, financially, and/or psychologically). Even many of the people who have already shown themselves in life to be successful and resilient are way behind the curve in our current predicament, and they aren't going to "make it" (whatever that turns out to be in our time).  So of course the foolish and brittle people are going to be absolutely slaughtered (figuratively or literally, depending on how bad things get).  This "extinction event" is in progress already and will only grow from here to monstrous dimensions. I don't know which ones in particular are doomed, so I can't write anyone off as hopeless. Some unprepared people are going to be amazingly lucky and survive by the skin of their teeth. Some highly prepared people are going to be equally unlucky and succumb to something they couldn't have expected or been prepared enough for.

For me, my survival and future "prosperity" is no more than my third highest priority, and that helps me be at peace.  I don't have to be anxious about my survival or prosperity because it's not my highest priority. Focusing on those higher priorities brings peace.

Higher than my survival is my ability to contribute to the survival and prosperity of my loved ones, especially my children.

Higher than contributing to my loved ones' survival is my desire to live a life of honor, courage and adherence to the value system of the One I worship. Survive or die, win or lose, these are things I can accomplish, come what may.  Like Noah, I want to be found faithful in the midst of the storm.

I imagine many people here at PP have similar attitudes toward these things.

"Welcome to the Hunger Games. May the odds be ever in your favor."

Tom

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karenf
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yeah I get it

This post really rings true for me.  Here we/I am at another prosperity party and I am wrong or the wet blanket.  My side of the family and my husband's side are totally in the business as usual camp.  This year has been hard for me.  I have been the outsider from my family all of my life but this year I am especially struggling.  I am also the outsider in my husband's family.  With all the business as usual prosperity, I am seen and feel especially as alone.  The compass inside of myself knows that what I am doing is right but I have a hard time pushing up against family/society/my childhood wounds. 

Karen

thc0655's picture
thc0655
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In '99 these people chose to be idiots later

In 1999 these experts chose to be idiots later.

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aggrivated
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Posts: 320
the crowds

Adam

Thanks for the admonition to keep the tiller steady as she goes.  I was reminded this last weekend of the power of crowds.  While returning from Thanksgiving with family my wife and I got stuck in a 25 mile long interstate clog up.  No wreck, just a construction zone.  After 10 minutes of being in the backup I took the first exit.  The only truck stop at the exit looked like a Times Square crowd on New Year's Eve.  I was glad that I had not slipped up on my 'never get below 1/2 full" rule.  In these situations going home by another route is always the better option.

Most of my family thinks I have been going somewhere by another route for the last five years.  I got caught in the crowd in 2008 and don't want to experience the stampede of fleeing 'bulls' and other cattle again.  Personally I plan to stay on the less traveled route as  I head for home.

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ao
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it's hated so I'm buying

Jim H wrote:

Long live Gold!

GBCM said,

So, please explain why gold wont continue to depreciate and what will re-ignite the gold bull market other than the ranting of Peter Schiff ? Advocating buying PMS is 'investment advice' and should come with a soundly based investment argument -- still waiting. The mainstream rejection of gold is complete !

China said,

Gold is only being rejected by the crowd who bases their views of the future on the price of Gold today... who needs it right?  The price is telling them everything is OK!  Party on!

And this is why TPTB will do their best make Gold an untouchable asset class... and to make you look like an idiot for buying it or for telling your friends to do so. 

I figure I might as well commit fully to being an idiot.  I bought more silver and gold yesterday and even some platinum and palladium.  Even if it skips my generation and I can't redeem it, it'll still be there for my kids.  I doubt the paper or electronic stuff will be. 

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ao
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LAS, FTL

thc0655 wrote:

In 1999 these experts chose to be idiots later.

Liz Ann Sonders, lol.  My favorite resident Schwab shill.  She's a fairly good contrarian indicator.  If she's recommending, I'm selling. 

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troof
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Here's another survivor

sand_puppy wrote:

I love Robbie's description of the story of Noah.  And the movie is coming out and looks really good.

http://abcnews.go.com/blogs/headlines/2013/12/cook-survives-3-days-in-ai...

Guess what he and Noah had in common?  It's the ultimate prepping tool, no matter what happens.

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vccoleman
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Posts: 1
Great Article!!

I wish more than anything that everything we are doing will end well. I don't want any of it to fall apart - I like my life and would prefer it not to change. 

I love the book Fiat Money Inflation in France - By Andrew Dickson White, written over 100 years ago (quick read & freely available in PDF). The party will end - all parties do, they know this and history tells us this. 

Whenever I encounter any scoffers, I just tell them that I think we all need our own little money printers in our kitchens, so that anytime we want currency we can just print it like the Fed does. Letting them know that we don't need productivity and we don't need to make stuff anymore because all it takes is little bits of paper.

I will continue to be the ant...Go to the ant, you sluggard! Consider her ways and be wise which having no captain, overseer or ruler, provides her supplies in the summer, and gathers her food in the harvest" (6.6-9)

Keep up the support everyone!! - VC

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Cornelius999
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Full Disclosure

I have to confess, I have been impressed by the points that gb has made,especially his technical analysis 

argument, not that I know much about it. He seems to have a comprehensive grasp of issues, such as the US Iran trade agreement excluding gold as a means of payment and the possibility of China printing.

Anyhow, as the graph continued to decline I told my broker to get me out of gold - I've got to manage my personal risk and I was excessively, 80%, in physical. I could say I was selling to buy again in Singapore as

Jim Sinclair recommends, (it had been in Switzerland, too subject to European, US, pressure imho) but I'm

going to stay in cash and see what transpires. I value this site and Chris's and Adams commitment but as somebody just said, we've all got to make our individual investment calls.

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Cornelius999
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PS GB

PS I'd like to say thanks GB for your cautionary, and by me at least, valued comments on gold ,.at this state of play. As for the valium, I have been known to resort to the odd one, but not at the moment thankfully.

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jtwalsh
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Posts: 238
Waiting

The logical side of my brain tells me that we are in a precarious place.  Things cannot go on as they have been.  The emotional side of my mind wants to believe that everything will turn out fine.  That even if the present paradigm must end, it will somehow glide slowly down to landing, not crash with us all as passengers.  The logical side of me knows the happy outcome is quite improbable.

My wife and I are considered oddly out of touch by family.  Since we have long been non-conformists this is seen as just another phase in our quirkiness. We have friends who think we are crazy.  We have friends who are ardent preppers and who support us along the way.   This is very encouraging, especially when you begin to doubt yourself and your motives.  Most amazing are the friends and family who absolutely agree with us about where the economy is headed but who deliberately choose to do nothing.  It is like a real life playing out of a “B” disaster movie where the extras just stand still in the face of disaster waiting to be destroyed.

I agree with thc0655.  My own survival is not the primary focus of my life, if it were I would be terrified of what is ahead.  To serve the One who has guided me safely through sixty years of good times and bad times is most important.  Of next importance is to attempt to protect, teach, lead my children, grandchildren and siblings to be as prepared as they can be. Finally, I believe it is necessary to be as helpful and supportive of those around you, family, friends, co-workers, neighbors as you have the power to be.  They are caught in all of this, just as much as we are, only many of them have no way to express, understand, or find solace from the unease and fear they sense about where we are and where we are going.

Great post.  Wonderful comments.  All of you are one of my important support mechanisms.

JT

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marky
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Posts: 33
Foot in both camps

Wonderful comments in this thread, and thanks Adam for the timely article.  For the last many years now, I've had a foot in both camps: working and earning income in the system as a self-employed IT contractor, while building up my own sustainable household in a downtown section of a new england town, and starting a couple of side businesses related to this. Everything we choose to place our attention on is an investment of sorts, so here's how I've been thinking of my investment returns over the years:

- Best return has come from building skills, physical fitness, closeness to nature, a sense of confidence in my independence and emotional/spiritual resilience.  Starting to step away from the system was very difficult at first, but it is very liberating once you realize how much you can do outside of it.  Confidence and realizations and spiritual health snowball once you get going. I suppose some people think we're nuts with all the gardening and chickens and bees and brewing and herbalism and stuff, but most people we know are showing more interest in it than are sneering.  Or maybe that's just because we are tending to hang-out with more like-minded people now. So, into this pot, we've also yielded great returns in friends and community.

- We've also built out a good amount of urban homestead infrastructure. Gardens, alternate heat/water, food processing and storage, tools, some solar.  All things physical are impermanent, though, so I suppose it is our skills and abilities in these areas that are worth more than the infrastructure.  But it's certainly nice to have it while it is there.  From a financial perspective, I don't really know what it is worth.  We had our house valued last year, and the realtor just couldn't see the financial value in this stuff, although she did admire the chicken coop and helped herself to a bunch of kale. Maybe the financial value will grow, maybe not.  We've certainly crossed the line between regular home and urban homestead some time ago, so it will be interesting to see what happens if we ever decide to sell.  But I'm guessing that the longer we wait, the more desirable all of this might be.  We'll see.

- From the skills and experience, have come opportunities to earn income in other ways.  We have started a small herbal products business, which is taking off locally.  It's small, but it could source 20% of our income needs in a couple of years.  And we can expand to do some teaching and demonstrations and who knows what in future.  We are literally "getting into the market" with this since I spend a couple of afternoons a week at farmers markets selling stuff now.  Ideally, in a few years we'll be paying the bills from a handful of different things, real diversified income.

- We've also cut our living expenses by close to 50%.  So that's a great ror right there.  No more tv, smart phones, crap food, oil heat, pointless stuff.  Which in itself is a good thing.

- In terms of regular investments of our savings, we've basically been sitting on cash, sticking it in the bank, tbills and such.  Sure, I would have made some money if I had left it in the stock market a few years ago.  But even with those returns I wouldn't seriously expect to be able to retire for a long-time.  I've changed my expectations to think of retirement in the same way that 99.99% of humans thought about it until maybe the 1950s - work to generate income of some sort until you are really too old to do so, stay as health as you can, then put your feet up for a few years before the big sleep.  Getting myself reconciled, happily, back to this reality is a good thing, I'm at peace with it. And if I had inflated my 401K to the stratosphere by putting it all on blue, it could have sapped my motivation on the other things.  My Dad always said that a good dose of financial reality focuses the mind on what's really important, and on the value of work.  I understand what he meant now.

So, freedom+skills+health+infrastructure+reduced expenses easily outweigh the potential doubling of my savings that I could have made in the market these last 5 years.  So, overall, I'm happy with my returns.

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treemagnet
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Posts: 344
Just gettin it outta the way....

Everyone at PP has been there, is there, and likely to make another visit or twenty.  From time to time I've had similar thoughts as many of my friends are very, very well to do farmers.  If you want to feel bad about yourself, compare your financials with that crowd.....  However, when I do get in that frame of mind - I just remind myself that I'm just getting my pain out of the way, choosing to feel some discomfort now versus the excruciating burn that's headed our way.  Then I make a Noah joke to myself and 'return to course'. 

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cmartenson
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Soma1977 wrote: Great article

Soma1977 wrote:

Great article Adam!  I am an investment advisor working in Ontario Canada and I can attest to what Adam is talking about.  It is pretty obvious to anyone who is paying attention that we are on the brink of a major societal change. This is the most stressful thing I have ever gone through from a "career" perspective.  Everyday I try to protect people from themselves.  The heard mentality, cheered on by the financial industry, media and government is very disheartening.  I have lost more clients in the last year then I have in the 12 years combined that I have been working in the financial industry.  I refuse to buy into this facade and it is costing me.  That said, no amount of money will ever sway me to go against my own morals and ethics.  

Soma,

I want to congratulate you on having the courage to stick to your convictions, morals and ethics.

The system is designed to harvest the most amount of money from the most people and deliver it relatively few hands.  As long as the pie was expanding nicely, there was 'enough' for this to happen more or less unnoticed by the general public.  Now that the pie is no longer expanding, there just isn't enough for Wall Street (et al) to take their cut and leave enough for everyone else.

And yet the great marketing machine churns on seeking to convince people to 'invest' their hard earned capital into the very system that was specifically designed to funnel money from the public and into private hands.

It could not be more clear that the system is utterly rigged against even highly sophisticated individual speculators, or investors if you prefer, and yet many seem not to have noticed.

I am perfectly happy sticking to my own convictions, which are simply that our current monetary and financial systems are deeply flawed, and they will someday 'revert to the mean' in horrendous fashion, by which I mean balance all the outstanding claims (currency, equities and bonds) against an all-too-small pile of real wealth.

I see nothing, anywhere, to convince me that the Fed has got this right and that we should just follow along.  The world is obviously in need of our very best efforts and entirely new approaches, and the desperate (c)ramming of financial markets into higher territory proves little and means even less to me.

It is the larger sweep of this story that catches my attention...

gbcm's picture
gbcm
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Posts: 36
In CM's article "None of this

In CM's article "None of this makes any sense"

I wrote a commentary which included this on gold

But in this post apocalyptic world with its new normal , what of gold --- nothing I suspect. In the not too distant future, the memory of the Ron Pauls of the world will fade, but Bernanke will be seen historically as the slayer of the gold myth, as well as the one who's finger in the financial dyke saved the day for a long time , till financial evolution created a new way, that will by necessity and design be complex, volatile and grossly unfair to non core members, but can there be any other way. Central planners hold all the reins of power as the NSA imbroglio has clearly shown, and alternatives to fiat currency cant and wont be allowed. Gold will controlled, manipulated, taxed and if necessary confiscated for the greater good, and its time CM admitted this is logically so and warn his followers that things have changed and if you must have gold rings, so be it, but hoarding PMS and investing in gold miners is a sure  path to wealth destruction. "

as well as a gold commentary on the recent "Off the Cuff" as well as my above piece , which seems to have resonated with Cornelius999 , BUT STILL NO REPLY FROM CM ?????

Chris powers of persuasion make him an effective advocate of many issues not the least his advocacy of gold ownership, based on the store of value, Fed printing leading to hyperinflation , debasement of the US$ etc. Now that this thesis has been shown to have not materialized those who followed his investment advice , which he crucially defended with his conspiratorial analysis during the shorting action, which lead to people being convinced that things that aren't real will reverse - they were real, the are not , nor will they reverse, and those who bough gold 12months ago are sitting on 50% losses of a non-essential asset which has an extremely low value as insurance.

Deflation is established not inflation, the  US$ is and will remain the worlds strongest currency, the US government will never default on its debt, there will never be a return to the gold standard, and trading in gold may be banned or heavily restricted or taxed - call it the FDR solutions --- Nicole Foss correctly says that what one will need in a true shortage is real cash, because credit cards wont work --- etc 

When will CM stop hiding on this issue and admit that his gold thesis needs heavy a restatement ?? Please read all my recent posts and tell us all where I'm wrong, so we can all move on from this gold angst --- we know the rest about balance, harmony , simple life and all the other stuff - thats a given - gold remains a hot issue for many in the PPC, and CM just wont respond in detail to this burning question - Cornelius999 with 80% in gold would have saved a lot of money if he had been made aware that the  ground had shifted some time ago --- those who respond to my comments with puzzlement obviously don't own significant amounts of gold or gold shares , so please wait for CM response.

Cheers, GB

PS I know the Grant Williams gold thesis chapter and verse, and his You Tube lectures on the gold pyramid and gold rehypothecation are fascinating but a theory that seems not to be evolving, and his (superb) latest presentation reinforces CM position on the unreality of the current markets, and Grants main recommendation is to go to cash and wait !

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mgreenx
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Posts: 5
Gold does not glow!

Yes, you are absolutely right!  Somebody should tell the Chinese, they are on target to purchase over 900 metric tons of physical gold this year. 

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gillbilly
Status: Gold Member (Offline)
Joined: Oct 22 2012
Posts: 414
Irrational Rational

I’m always amazed at how irrational the rationality is of our logos.

My father pointed me in the direction of Matthew Fox, who puts it this way:

The two primary spiritual questions of the 21st Century are:

1. Are we destroying the planet?

2. Are we honoring the souls of our youth?

How can we wake up and educate ourselves and our youth?

He has wonderful things to say about how:

I’m honored to be in dialogue with all of you as we try to move toward a wiser path of living. To me, it really is that simple, and yet so difficult. 

Peace!

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mgreenx
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Posts: 5
Currency collapse lol, impossible!

And who does this kid think he is fooling?  I'm sure not one of his reasons will stand up to scrutiny:

"

Top 14 Reasons To Buy Silver YouTube

"

P.S. I only buy silver because, it is shiny and I can use it for Xmas ornaments...

gbcm's picture
gbcm
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Posts: 36
Chinese gold overstated !!

Please remember that there are 1 billion more Chinese than Americans, and their gold buying is from a low base, and that buying has slowed down, albeit not as much as India, where the government has stepped in to stop the current account being worsened by 'wedding' gold imports - things are changing by necessity.

Indians and Chinese buy gold with US$ --- there's the problem for them. Third world currencies are in trouble, and this will cause a rush to US$ not gold --- so stop thrusting extrapolated charts of presumed Chinese gold imports in our faces and making classic gold bug extrapolations from these extrapolations.

The charming erudite Alistair Macleod was the main proponent of this theory and he has gone very quite and has stopped doing interviews and gold presentations --- I suppose because he doesn't get invited anymore -- just like John Williams of Shadow Stats who become a voice in the wilderness - Cassandras or just plain wrong?

Cheers, GB

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Jim H
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Posts: 2176
Chinese Gold Deliveries; SGE exchange data

GB... speaking as someone who owns Gold and has seen a large drop in dollar value for said Gold (though to be honest I bought most of it in 2009).. I constantly ask myself the same questions you do.. is the case still right for Gold.. I come up with a very different answer/worldview than you do.  The Chinese rush to Gold is real.. here is the long term chart of physical Gold delivered in to China via the Shanghai Gold Exchange, courtesy Koos Jansen;

I think that the trend is self-explanatory.  The demand through just this one exchange is in some weeks rivaling the entire worlds mined Gold supply. 

The reason the price is down so hard is that TPTB want you to do exactly what you are doing... they want you to question reality, and come up with a new reality that says the dollar is sound, Gold bugs are wrong.. Gold is useless, Nicole Foss is right.. etc.  They want you to sell your Gold.  They want you to believe they are in control and will never lose control.. to believe that debt no longer matters.. that printed money now means printed wealth and that the old ways of scarce money are done for.... 

I fully understand the pain of thinking about the loss of dollars in holding Gold... but I don't see anything to make me believe that just because bad things have not happened yet.. that they are not going to be happening soon enough.  I believe that you will be very, very sorry that you sold your Gold, and that you may in fact be bottom-ticking the market here.   

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livsez
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Joined: Dec 1 2008
Posts: 69
So much for last post

Please remember that there are 1 billion more Chinese than Americans, and their gold buying is from a low base, and that buying has slowed down, albeit not as much as India, where the government has stepped in to stop the current account being worsened by 'wedding' gold imports - things are changing by necessity.

Indians and Chinese buy gold with US$ --- there's the problem for them. Third world currencies are in trouble, and this will cause a rush to US$ not gold --- so stop thrusting extrapolated charts of presumed Chinese gold imports in our faces and making classic gold bug extrapolations from these extrapolations.

Earlier today, Reuters published an article detailing the extent to which Indian smugglers will go in order to bring the money of kings into the country. This includes hiding it in underwear, swallowing it whole and even painting gold staples gray. What is most disturbing is the lengths authorities are willing to go to in order to stop a supposedly free people from buying a brick of metal. From Reuters:

(Reuters) – Indian gold smugglers are adopting the methods of drug couriers to sidestep a government crackdown on imports of the precious metal, stashing gold in imported vehicles and even using mules who swallow nuggets to try to get them past airport security.

Stung by rules imposed this year to cut a high trade deficit and a record duty on imports, dealers and individual customers are fanning out across Asia to buy gold and sneak it back into the country.

Sri Lanka, Thailand and Singapore are the latest hotspots as authorities crack down on travelers from Dubai, the traditional source of smuggled gold.

Stop one and another will rise. As always.

In a sign of the times, whistleblowers who help bust illegal gold shipments can get a bigger reward in India than those who help catch cocaine and heroin smugglers.

Because that makes a so much sense.

“There has been a several-fold increase in gold smuggling this year after restrictions from the government, which has left narcotics behind.” 

Full article here
 
Cornelius999's picture
Cornelius999
Status: Silver Member (Offline)
Joined: Oct 17 2008
Posts: 227
Hi again

Hi again, I'd just like to say again how much I value the quality of discussion on this site and the high standards by which Chris, Adam, et al have lighted the way. Chris's self - evident honesty and generosity of spirit and the clarity and scope of his articles are some of the reasons I'm still a paying member. 

I'm only too conscious that it's easier for me to play the " Assessor of Assessors " at a distance but without the studied contributions of you guys, Chris and GB, I'd have a lot less sense of direction. 

And I'm not at all sure I don't feel a fool today and tomorrow!    Anyhow I've still got the valium.

Peace

Declan

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jtwalsh
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Joined: Oct 1 2008
Posts: 238
To: gbcm

I cannot argue with your position on gold.  I have no expertise. Being a long time follower of Nicole Fosse I own no gold except jewelry and have little inclination to purchase any.

My question is:  How can you be sure Bernanke will be hailed as a hero and that a new financial structure will emerge for better or worse.  For all appearances the powers that be are merely pumping fuel into the already existing and stalled economic engine in the hope that it will somehow catch a spark and take off again.  In reality they have probably flooded the thing and damaged it beyond repair.  Far from evolving into a new reality it seems more likely to blow up from the pressure of debt and money creation.

What possible mathematical reality will allow the continued creation of debt which can never be repaid?  The Federal Government is racing to the point where every tax dollar collected will not be sufficient to pay the principal and interest on our debt.  What possible set of numbers can change this direction or offer a gradual way out?  If the Federal Government stops borrowing it will immediately be insolvent.  If its stops supporting the multitude of social programs there will be revolution.  If the Federal Reserve stops printing  it will not be able to lend the money required by the government.  The liquidity trap is here.  How can the Federal Reserve continue to will money into existence without destroying faith in the very thing it is creating from fiat? 

Judging from the bursting of past bubbles there will come a point where people loose faith in this system.  History has few examples of a slow evolution to something new, but is full of examples where pushing things beyond their limits produces rapid, violent change.

I am sure that the kings of seventeenth century England, the French nobility, the last Emperors of Russia and Austria and the Soviet apparatchik   thought they could hold the reigns forever. 

JT

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Cornelius999
Status: Silver Member (Offline)
Joined: Oct 17 2008
Posts: 227
Sorry

Jim, I may indeed be sorry. But I'm now of the view that it may be quite a while yet, if ever, before gold comes into it's own. I will concede that maybe nine months ago? there was a book review somewhere about I think , a former Chinese Assistant Director of the IMF, who was proposing a paper gold backed international currency? What I find it hard to get away from is GB's argument that TPTB will do anything to have their state's economic manouverability restricted by a real measure like gold. As Chris himself says, which of us could have anticipated the stratagms governments have deployed to keep the show on the road up to now ? 

Declan

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Mark_BC
Status: Gold Member (Offline)
Joined: Apr 30 2010
Posts: 386
Regarding the comment made a

Regarding the comment made a few times that we just can’t understand how the world works and can therefore not predict the future, so why bother investing in anything financial (and might as well get out of gold as a result…), I somewhat disagree. If we understand how energy, resources, and the mechanics of our societies work (and how these all relate to the financial system that is supposed to be representing them), then we can indeed predict the future with pretty good precision because those are mechanistic and deterministic processes that are highly predictable. The information is freely available and very clearly pointing to the conclusion that today’s exuberance is not in any way supported by fundamentals. Therefore, it will end.

On the other hand, how our leaders, and we collectively, react to the reality imposed on us by the above mentioned physical reality, well that’s not deterministic and predictable, because we are people. How are we reacting? We’re stretching a rubber band.

Our trajectory of decline has been set, and it will continue because we are really doing nothing on a social scale to change our future (i.e. reducing consumption and developing alternative energy systems). The financial manipulators can stretch the rubber band to create a façade to make the current downward trajectory resemble past prosperity, but it is an illusion. The trend is downwards and the rubber band will snap back at some point.

In hindsight, the extreme lengths the Fed has gone to in order to keep the system going can be understood and they make sense. But they have merely stretched the rubber band even further; they haven’t changed the fundamentals at all; in fact, they are now worse. They can only do so much before the rubber breaks.

Debt-backed fiat currencies (and all Ponzi schemes) are built on CONfidence. Without it, they collapse. Right now the reason TPTB can manage to distort things so much is because we are on the rising side of a bubble stretching the rubber band away from fundamentals and people have confidence. Clearly, when the bubble breaks, as it must, then confidence will be lost and TPTB will lose control, at least financially. That may be when the military will be brought in. But that can only go so far as well.

This is why fiat currencies will be rejected in the future, and why real things like PM’s will become more valuable. The purchasing power of fiat currencies is too high in relation to the real energy and resources supporting it; therefore, the purchasing power of dollars will be reduced. To those that say that gold has no value or use; that is wrong. It will have a very important use when fiat currencies die – as money! Many view gold as a barbarous relic and that it is unproductive, but neither are fiat dollars “productive”. Currency is merely a “medium of exchange, store of value, holder of wealth, yadda yadda yadda”. In effect, money is a CLAIM on the production that the energy and biomass and other natural resource systems provide, as transformed by technology. The value of a currency is merely a reflection of how well it mediates those claims, and clearly fiat currencies are getting worse at that by the week, which is why they have to print up over $100 billion a month to maintain the illusion.

I worship no one or no One. I have a wonder for the world and rather than lamenting our future or striving for some after-life reward, I try to be thankful that my life is better than most throughout history and that I will probably be around to witness the next few years which will likely be the most interesting in the history of the world. And, if my investments turn out to be fruitful, as I’m sure they will be because I understand the mechanics of the underlying processes providing value to them, then I may even come out a “winner”. Life will move on, likely minus several billion people, we’ll likely raze the planet before we’re done, and new life will evolve and develop. There will be no fossil fuels left to create another bubble like humanity today. The planet still has a few hundred million years left before life gets vaporized off its surface, and a lot of interesting new life forms will develop. I am just glad to have been a part of it. Maybe all the wisdom on sites like this should be immortalized in something physical rather than digital so that in a few thousand years someone may be able to analyze it and remember who really turned out to be right.

westcoastjan's picture
westcoastjan
Status: Platinum Member (Offline)
Joined: Jun 4 2012
Posts: 538
belief systems shining through

Thanks for the great article and the great discussion as well.  It appears that belief systems are creeping to the fore with regard to PM. There a so many statistics, charts and variables that one side of the argument is just as likely to be right (or wrong) as the other side. Both sides have credibility... it is so hard to tell which way it is going to go. The biggest factor continues to be the (unprecedented) interventions which have had the effect of sending the game into (triple) overtime. For now the fans are still in the stands, but for how much longer until they realize the match is fixed and head for the exits?

I tend to fall back on the wise words my dad gave me when I left home way back when, that being that there is only one security in this life, and that is the ability to take care of yourself come hell or high water. That is where my focus continues to be, as outlined in many steps in the article. As others have said, invest in developing a simple, authentic life that will require minimal adjustments when (not if) things turn south. What I find rather funny is how some think that living a simple life implies depravity. Nothing could be further from the truth. Abundance is a state of mind. Most of the folks here at PP have that in spades. That is not something that money can buy. It must be experienced to really feel the true value of it.

Jan

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davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 3567
deflation is established

gbcm-

Deflation is established not inflation, the  US$ is and will remain the worlds strongest currency, the US government will never default on its debt, there will never be a return to the gold standard, and trading in gold may be banned or heavily restricted or taxed - call it the FDR solutions ...

I think deflation is indeed what is happening right now especially in europe but that doesn't imply a guaranteed Nicole Foss deflationary crash outcome.  Suggesting that the US government will never default, there will never be a return to the gold standard, the USD will always remain the world's strongest currency, and so on - it turns out, "never" is a very, very long time.  Absolute statements from the goldbugs make me nervous, and so do those from the deflationists.

Most certainly, deflation is where we are now - although its not your great-grandfather's deflation.  How can the standard deflationary model explain SPX 1800?  However, assuming this strange asset-inflation credit-deflation situation is where we must stay seems quite dangerous - locked-in  worldviews of any sort are dangerous to wealth.

My guess is, a deflationary situation is likely one of the better times to pick up some gold.  Viewed with my longer term investment hat on (one I don't wear all that often here) I believe gold is on sale at these price levels.  The only question in my mind is, will the sale get better?

The Black Swan (and not really so black) is the state of the banks in europe.  What happens when if and when they start to get bailed-in?  The deflation from that will be immense.  How will our lords and masters in the central planning offices respond?  Depending on the response, gold could go absolutely nuts, or it could drop further.

The fact that JPM (and the COMEX Producer futures holders) appears to be positioning itself long gold after a $660 drop in the gold price says to me - I'd prefer to be aligned with them, position wise.  They may make their share of mistakes, but they are connected in a way that I'm just not.

Regarding Chinese Gold Sales overstated:

While I think the Shanghai delivery numbers are not being looked at in the right sort of way, its not for the same reasons you do.  What percentage of Shanghai delivery is new gold from outside China to Chinese buyers?  Some of it, certainly, but - no doubt the Chinese like to trade physical gold amongst themselves.  The Thais certainly do.  What percentage of those Shanghai delivery numbers are just one Chinese person selling their gold to another Chinese person?

That said, I do think the Indian demand situation is the real deal.  India is crazy for gold, and for the customs people there to be treating gold as more of a serious threat than drugs - now that's just odd.   I can't go the next step and talk International Gold Conspiracy, but it certainly is odd.

Grover's picture
Grover
Status: Platinum Member (Online)
Joined: Feb 16 2011
Posts: 568
Move Beyond Anger and Despair

GB,

I just saw this on Jim Sinclair's site. I would characterize your words as being nearest "anger and despair." Do you still want Chris to say owning gold is a bad thing? You would have been prescient had you focused on this tirade a year ago. Gold is literally much closer to the bottom today. Didn't you miss the boat? Would it be better to cash your tickets in now or take the next ride? As I've heard Warren Buffett say, "buy when they cry and sell when they yell."

Your comment (on another thread) about Iran being specifically prohibited from paying debts to the US in gold should tell you something. Did the US specifically prohibit food, oil, water, or any other physical payment? Why did they single out gold? I strongly believe that they are trying to discredit gold. If it truly is a barbarous relic, why do they need to discredit it so?

I know you said (a few posts back) that " ----- PS this is positively my last post !" ... so I hope you'll honor your commitment and post negatively. I wait with bated breath,

Grover

http://www.jsmineset.com/

clip_image001

gbcm's picture
gbcm
Status: Bronze Member (Offline)
Joined: Sep 3 2009
Posts: 36
Lets simplify this endless exchange --

The problem with these online discussions is that there're endless and too democratic - not all views/opinions/bias has equal merit - that's why learned journals and newspapers have editors. I'm not saying my opinion is the correct or most correct - that's why we need the editor to step in.

Lets get back to basics and ask why gold has value, and why it should hold and appreciate !

1. historically gold was valued for its scarcity, density and durability by many societies.

2. Fiat currencies and debased 'hard currencies' reinforced the notion of gold as hard to counterfeit. 

3. Hyperinflation episodes in former stable countries generated by government debt reinforced 2.

4. Gold became established as the only currency that travels well & had universal acceptance.

5. The gold standard was established by Great Britain to make its currency as the de-facto world currency.

What's changed ?

1. Governments straddled with unpayable debts after WW1 came to realise, thanks to Keynes and others, that a gold standard prevented them from creating new money (now called QE) and locked them into deflationary depressions. So all major countries came of the gold standard by 1936, and none have any intention of restoring one or tolerating a de facto one, and now are intent on using inflation to errode debts, and this has been refined by the widespread adoption of 'financial repression' which is the combination of real negative interest rates with some inflation - the latter is now skillfully hidden because governments don't count asset inflation as inflation, nor are food, health costs or declining real wages counted !

2. Although world trade has been around for centuries, globalized interdependent world trade wasn't, but its now in the DNA of all countries and the world economy has become financialised. The major governments like the IOUSA have been captured by Wall St and its counterparts in London, Paris,Toyko, Bonn & Beijing and what's good for Wall St is the most likely major influence on government policy for the foreseeable future. 

3. Debt at all levels of society has deprived people of freedom of action - now many are effectively debt serfs - student loans are just the latest most malignant variety. But its government debt that is the most toxic and threatening. The interest on the debt is now the paramount reason for the necessity of endless QE and ZIRP - all other considerations are secondary. Governments have the final threat to one and all - default!

Default of bonds --- take that Arab oil states , China and Japan ! Default on unfunded promises - death by a thousand Detroits is already well underway - what we havent seen yet is company pension plan defaults except for GM, but they are surely coming, because that money has not been collected and put away. Every pension plan like Calipers is grossly underfunded because they continue to be allowed by governments to act like Ponzi schemes - make projections and promises that everyone knows is fanciful and is currently under water, and will get exponentially worse sooner rather than later.

So like fearful concentration camp inmates, populations are ruled by the few, because they choose death tomorrow and not defiance today - that's human nature.

Gold is not a widely held asset - what goes on in places like India and China cannot be generalised. Despite the obvious smuggling and high margins being charged by a few, Indian gold imports are down 90% --- 90%. Chinese elites have been trying to get their ill gotten gains out of the country for a decade but this has now reached a crescendo. Stories of 'asian' buyers inflating real estate are every where, as well as buying up cash business like taxis, stores, especially 7/11's and lottery outlets - the UK, Canada, Australia and the IOUSA, especially in English speaking countries as English is the international language for finance, and especially in places like NY, London, Vancouver, San Francisco , Sydney and Melbourne to name a few places where the RE bubble has exceeded pre GFC levels ! Gold is probably being used by rich Chinese to convert their Yuan into a US$ equivalent, which they can export legally or otherwise, or use as collateral for US$ loans that will never be repaid. The idea that they are accumulating enough to have a Yuan backed by gold is a -----gold bug fantasy. The Chinese Yuan does not need gold backing anymore than the US$ does - who wont accept it ? - Australia, Canada, the IOUSA, Japan ?? The Yuan has become the second most traded currency, not because of its supposed large gold holdings, but because of its massive trade , economic and military power ! 

Prior financial eras did not have the internet, through which all person and financial movements can be tracked and hacked --- NSA-isation ?? Nor did governments and their central banks have such enormous power and cooperation - sort of like a super evolved mafia - transnational, ruthless, efficient and all powerful. Soon, it will be compulsory that all transactions be electronic, eliminating cash, and of course the need or functionality of cash equivalents like gold - and then they could charge you for 'keeping your money safe' aka 'negative interest rates' and make 'hoarding of cash equivalents' illegal --- gold will be purely for decoration and some very few industrial uses. Then mankind can stop wasting truly precious things like irreplaceable oil to power the digging up, refining and storing gold et al.

Sorry for being so long winded but the historical justification for a golden future is not based on current circumstances or likely future developments, and those that want a gold backed currency etc are heavily outnumbered and out gunned by those who don't --- so , I'm still waiting for a credible , succinct explanation of why gold is not a barbaric relic. I don't doubt that another economic and financial crisis is brewing , and it may be far more destructive than GFC 2 ( Great(er) Depression 2) but I just don't see how gold will be allowed to be a meaningful part of the post GFC 2 scenario , by TPTB !

Cheers, GB (former gold believer)( thank you Jim Puplava , former gold bug )

PS - I promise , no more golden comments - life is too short !

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