Sunday, March 8, 2009
Deep recession, my ass
A 1-2 decade economic depression has started. Looking for the bottom in general stocks is a trader's game, not an investors game. Investors should already be out of the stock market if they want to maintain capital. Massive debt deflations/credit contractions do not end in a year or two, they end in a decade or two. This is a secular turn for the United States and global economy, not a cyclical turn.
The only real question mark in my mind is how the currency "game" will play out. It is important to realize how important this game is to one's financial health. Conventional wisdom holds that cash is king during a deflationary credit contraction and I do not dispute this. However, I believe gold will outperform every paper fiat currency on the planet, including the senior reserve currency of the world, the U.S. Dollar.
Our government and unconstitutional central bankstas are doing everything in their power to ignore the will of their people, maintain secrecy and distort the truth. From the artificial War on Terror to the untruths regarding financial bailouts and policies, trust in "the powers that be" to fix the problems we face as a nation is eroding quickly. And so it should, but the point is that fiat currency is a confidence game.
If confidence is lost in the U.S. government and its central bank, a currency dislocation will occur that could completely change the dynamics of the global game. This dislocation would harm the value of the U.S. Dollar and start a stampede into gold. Smaller countries have seen their currencies implode, and now larger countries like England are at risk of having currency crises. While the U.S. Dollar is at the top of the heap, the heap is flattening out.
As economic despair and malaise deepen, more and more paper tigers will implode and more and more investments will fail. The "might" of the U.S. is lately based largely on its ability to borrow money and provide strong consumers to the global marketplace. We are at risk of losing both of these things simultaneously and have abandoned many free market principles in our slow slide toward socialism and/or fascism (still not sure which will win, but Obama and Bush provide respective glimpses of these paths). Our financial markets can no longer be seen as a bright beacon to the world given the events of the past year.
Our real estate market is in shambles. Our insurance companies and banks are insolvent. Our auto industry can no longer function without government support. Our stock market is in the middle of a bear market that is already on course to be similar in ferocity and intensity compared with the 1929-1932 bear market, which caused the Dow Jones Industrial Average to lose 89% of its value.
The funny thing is that the U.S. is in better shape than a lot of countries. Everything is relative. Much of the distaste Americans are beginning to experience and will experience a lot more of in the coming years is due to how good we as a country had it these past few decades.
If stocks suck, you can't trust your financial advisor, banks are insolvent and real estate has just started a Rip Van Winkle type plunge (i.e. wake me in 5-10 years), what do you do with your money? The government would like you to invest in U.S. Treasuries, for sure. And in a way, it would be patriotic to do so, as it will help fund all the programs now needing cash to continue and/or get started.
However, to get a 1-2% yield on U.S. short-term bonds entails a no-longer negligible risk of having principle attacked via a currency crisis. Hold some physical gold as insurance against this risk.
I am looking for a bottom in the stock market in the next 1-2 weeks. Don't ask me what the trigger will be, as the market is getting oversold to the point where it could be something that seems ridiculous. It will be a bear market bounce or sucker's rally and nothing more, but it has the potential to last several months. I am waiting patiently for a lower price in RGLD, GG, and physical gold to establish more long positions in the only sector that makes sense to me from an investing standpoint.