Sunday, November 23, 2008
Counterparty risk - what?!
None of us want to believe that the government or corporations will fail to deliver on the promises they have made, yet we know it has happened many times before.
From the U.S. government's gold seizure from its citizens in the 1930s, to the U.S. government defaulting on its international gold obligation in the early 1970s, to Enron, MCI, Bear Stearns, and Circuit City - counter party risk is real. It's a low-likelihood event, but if/when it happens, it can be really expensive.
Physical gold is an insurance policy against counter party risk as long as you hold it in your possession or store it via an appropriate custodial relationship. The GLD ticker ETF as trustworthy as any random bank promise and is not the same as holding physical gold. We are entering a time in our history when promises will be broken at an accelerating pace. The government cannot possibly afford the promises it has already made and it is soon to make even more to please the sheeple.
Physical gold is portable, universal, and not subject to debasement by incompetent bureaucrats. Trust is in a bear market, which means gold and cold, hard cash are more valuable than promises and projected future streams of revenue based on hope. The U.S. Dollar is king for now, but the torch will be passed to gold soon. Will you be ready? If your 401k doesn't offer the chance to buy gold, does that mean it is appropriate to ignore your obligation to look out for #1 and avoid stepping in #2? I wonder if most E*trade customers know about their counter party risk.
Hold at least 5-10% of your wealth in physical gold outside of the system. It's no longer appropriate to pretend everything is going to be OK. It's no longer appropriate to pretend Obama can and/or will change anything and ignore your own obligation to prepare for an economic crisis. Gold has survived every recorded crisis over the past 3000 years and is now in a strong bull market compared with stocks, corporate bonds, real estate and especially corporate and government promises.