Garnering Gold Nuggets From Financial Crisis Investing
Commodities / Gold and Silver 2012 Jun 30, 2012 - 08:35 AM GMTBy: DeepCaster_LLC
“A continuation of bailouts in Europe could ultimately spark another world war, says international investor Jim Rogers….
“‘Add debt, the situation gets worse, and eventually it just collapses. Then everybody is looking for scapegoats. Politicians blame foreigners, and we’re in World War II or World War whatever.’
“The Rogers solution: ‘Let the people who have failed, go bankrupt,’ he says. ‘The banks and bondholders would lose money, but then you start over.’
“That’s classic capitalism, Rogers says. ‘Bailing out zombie companies and banks has never worked. Look at Japan.’
“But free markets alone can’t solve the problem, Rogers says. Governments must help choose the winners and losers – and quickly.
“‘If you wait two years from now, five years from now, when no government has any credibility and nobody will give you any more money, then it's finished. You better get yourself a rifle and head to Asia.’…
“Rogers isn't alone in predicting such a dire scenario.
“Bailouts and loose monetary policy won't create lasting economic improvements but will push up inflation rates that will send the economy tanking and wealthy investors seeing half of their investments wiped out, says Marc Faber, publisher of the Gloom, Boom and Doom report….
“The government, however, won't be able to prop up the economy forever, and all that borrowing will come due. When that support fades, the economy and markets will retreat and retreat hard, creating massive losses for investors, especially when inflation rates rise due to the sheer volumes of liquidity in the system.
“‘I think somewhere down the line we will have a massive wealth destruction. That usually happens either through very high inflation or through social unrest or through war or credit-market collapse,’ Faber recently told CNBC.” (emphasis added)
“Jim Rogers: European Bailouts May Lead to Another World War”
Dan Weil, moneynews.com, 6/22/12
Rogers’ statement – “Bailouts May Lead to Another World War” – sounds extreme but, given the facts it is not, really – repeated Bailouts may result in war. Nor are Rogers’, Marc Faber’s and Deepcaster’s views that QE et al. is driving us toward much Higher Inflation.
The indisputable fact is that Piling Debt (in order to continue bailing out the Mega-Banks) upon already unpayable Debt, is Unsustainable.
But one can Garner the Golden ‘Nuggets’ of Information and, indeed, Profit Opportunities, if one correctly forecasts the consequences of certain ongoing Trends.
Consider, for example,
Rogers’ conclusion about the result of continuing this “Bailout” Course of Action, is likely correct: “eventually it just collapses.” And his proposed Solution “let the people who have failed go bankrupt” is also reasonable. Indeed, it is a variant of the successful (Iceland is thriving again) Icelandic Solution: Debt Repudiation, i.e., force the Mega-banks to accept Defaults.
These “Bankruptcies” (defaults) would rid the system of debt which cannot be paid under any reasonably likely Economic Scenario. Significantly, Deepcaster, Jim Rogers, and Marc Faber all agree on one increasingly threatening consequence fo Bailouts to Infinity: “Bailouts and loose monetary policy won’t create lasting Economic Improvements but will push up Inflation Rates.
Indeed they have already! The Central Banks grossly excessive Monetary Inflation has pushed up Food and Energy prices around the World. And the recent blip down in Crude Prices will not last, we forecast. N.B. Food Commodity Prices are Rising Again, (Corn has a $6 handle, Wheat a $7 handle, and Soybeans a $14 handle AGAIN! and the elevated Order of Magnitude of these Essential Food Prices is not mainly weather related) notwithstanding other recent Commodities Price Takedowns.
This reveals a ‘Golden Nugget’ Opportunity – essential Food Producers are likely to be Inflation-Resistant and Profitable regardless of Economic Conditions.
The Real Numbers, (as opposed to Bogus Official Statistics) show Inflation in the U.S., for example, is already Threshold Hyperinflationary, at 9.3% annualized per shadowstats.com (Note 1).
Important to Note also are certain other Mortally Negative Consequences of this policy of Excess Money Printing and Credit Provision. Perhaps the most Negative is that Debt Saturation, or more correctly, Debt Hypersaturation which places an Intolerable burden on Economies. It creates Economic Stagnation. So the result is impending Hyperstagflation – Stagnant Economic Growth and Hyperinflation. This is why Deepcaster’s High Yield Portfolio is aimed at achieving Returns in excess of Real Inflation (Note 2).
The consequence of Economic Stagnation and Inflation for the Markets was accurately expressed recently by Richard Russell.
“I’m fairly convinced that this is a legitimate primary bear market. And it will end the way all major bear markets end -- with good stocks being tossed into the market for whatever price they may bring. The good stocks will be sold last, because there will, at least, be a market for them. They will sell below known value. If I had to guess, I’d say the Dow will sell below 10 times earnings, and the dividend yield will be above 6%.
“This bear market will be different in at least one respect. Before it’s over, all paper or fiat central bank-created ‘money’ will be suspect.”
Richard Russell’s Dow Theory Letters, ww1.dowtheoryletters.com, 6/18/12
And, By the Way, the Fact that Corporate Earnings have been (and probably will continue to be, when the July reports come in) “strong” (albeit not as strong as in earlier quarters) does not serve as a sufficient durable support for the Equities Markets. Net Corporate Assets/and Earnings are Orders of Magnitude Smaller than the Multi-Trillion Dollar Order of Magnitude of Sovereign and other Unpayable Debt.
Durable support for the Equities Markets would require lower unemployment levels, inter alia.
The fact that the Markets are Trading on Headlines, (for example, recently they have been trading on Expectations of a Euro Decision or non-Decision) demonstrates that Fundamentals are very weak for the Equities Markets in general. Therefore, a ‘Golden Nugget’ Opportunity is on the short side of Equities if one’s timing is right. However, we have Good News for Gold (and Silver) Partisans.
After last week’s Cartel-facilitated (See Note 3) Massive Gold Price Takedown, the Good News is that Big Buyers flooded back into the Market Monday this week, taking Gold back up some $20 from the $1560s to the $1580s. Subsequent Takedowns wiped out these gains. But such action is Noise. The Essential Golden Nugget Opportunity results from the fact that Gold and Silver have been bouncing back almost immediately after Takedowns! Big Buyers are buying on dips. This was not typically true after Cartel-generated Price Takedowns several years ago.
In other words, even though last week’s Takedown generated a short-term sell signal, long term, Gold (and Silver) is still very much in a Bull Trend. And Gold’s recent Weakness is due in part to a weak Indian Rupee which has recently lost some 30% of its purchasing power vis-à-vis the $US, but this weakness likely will not continue. The Equities Markets Negatives do adversely affect the prospects, short-term, for the Mining shares however, because they tend to follow the broader Equities Markets. Longer term they are Golden too.
Distinguishing underlying Golden Nuggets of Accurate Information from Markets Chaos and Noise facilitates obtaining ‘Golden Nuggets’ of Profit.
Best regards,
www.deepcaster.com
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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