My last article, Chaos, talked about the unpredictability associated with the logistics equation. Logistics equations have been shown to be intimately tied to our economic life and looking at them, they compare the consumption of a resource to the supply of the resource. Now I'm not going back into it and I'm just going to speak generically.
First, the main thing the logistics equations suggest is that when the economic system becomes unstable, it is not possible to determine the outcome.
Let me be a little more specific. There are debates going on now, as to whether we are going to see hyperinflation, or deflation. Frankly, I don't see a heck of a lot of difference. Both of these phenomena mean that our economic life as we know it and depend upon are coming to an end. The implications of chaos are that we do not know whether it will be inflation or deflation, to me. I may do some research on this to use logistics equations to look at the inflation vs. deflation debate later. But the point is, we don't know whether is will be one or the other.
The same dilemma applies to our gigantic investment community. Whether it be the bond market. or the stock market universe, or the par excellence market-- gold, there are indications of both inflation and deflation in the winds. As I said, in the chaos article, the gold and bond markets are indicating to me a deflation to come. Not hyper inflation. However, as I said in that article, if the US government decides at any point to forgo its obligations, then we will indeed see a collapse of the US dollar, and ensuing hyperinflation. That decision has not been reached by either the market or the US government as of this time.
Now then what can I see coming, and what can we do about it?
What I see coming: A DEPRESSION.
In 1929 the US entered a depression lasting over ten years. The world quickly followed, and theirs was as bad or worse than ours. (all trading nations with the US). As I said some banana cultures lived just fine through it. In the 20's Germany went into a hyperinflationary depression, and the free world hence went into a deflationary depression. The end result was the same for both in many senses. Starvation, mass unemployment, and shifting winds of change of the governmental systems. The outcome was two societies: The free West vs. the fascist West, a world war of unparalleled destruction, preceded by massive social dislocation, starvation and suffering on both sides.
Essentially in both cases people were reduced to mere survival as a goal. The cultures that emerged from the cataclysms of WW2 were far more circumspect in their life goals, and most certainly were not big time speculators, but rather savers and builders.
The point is that both societies encountered severe depressions that led to a general war. We are in this period as of this time. The players are different, but the circumstances the same. The first thing we will have to face is a depression lasting at least ten years. The second will be a general war. I say this because we cannot continue to support the entire world on the back of the US consumer who is so preoccupied with their exciting housing bubble. The US government is highly indebted as well, as is the US corporate universe. All this means is that we are living on borrowed time, literally. As soon as the US consumer collapses under the weight of his debts, all the economic world dependent on them will too. It's that simple.
Now then. Surviving the depression:
I was listening to Doug Noland at financial sense talking to Jim Puplava. And at the end of this very insightful discussion of where we are at today, Jim asked Doug, well, what are investors to do?????
Well now isn't that the 64000 question? ! Every hedge fund is seeking that answer.
Alright, if Buffet loses 300 million dollars shorting the US dollar, and hedge funds lose billions because GM stock rises because Kirk Kerkorian wants to buy GM -- after all the hedging strategies say hedge using puts on GM stock....well my friends u are not going to outguess these professionals. A word of warning. DON'T NOT ENTER INTO ANY SPECULATION. PROTECT YOUR CAPITAL.
Upon being asked by Jim how to protect ourselves, Doug said, "all I can say is be risk averse, and diversify". Now Doug does know what is up. I have been asked repeatedly by investors, "Chris what shall I do?". The answer is the same as Doug's. Be risk averse, and in my case I add DON'T SPECULATE.
Now then, regarding metal stocks. Metal stocks are more risky than owning physical metals. Yes physicals are, well, hard to handle. In deflation metals languish. So what. The risk of inflation far outweighs the lost purchasing power of metals. I would rather have metals that deflate along with the stock than even try to ASSUME RISK in paper.
Another thing I want to point out. I am very uncomfortable with all the talk on energy and commodities. In a real worldwide depression these both will take if far worse than gold. Yes, China is a huge potential and present consumer. Well the fact is, they can just as quickly become a disconsumer. Same with the consumption crazy US. We can very rapidly become disconsumers.
Meaning? Deflation, depression, and commodities and energy collapse.
I have no Idea why many other analysts aren't saying this too. OK I am saying it, and I have wanted to for months.
I was interested that Doug Noland had the same view that I have, that we are in a time of extreme caution, and to be risk averse. He also mentioned that metals are one of his components as well as some foreign investments and diversification. In this I strongly disagree, do not send money overseas. Keep your wealth here and find out how to do that.
The best thing to do is be out of debt. Have a residence that is paid off, plan on living without the majority of monthly income. Have enough metal to pay property taxes. etc. Live very cheaply, no matter how much you have. We are in for bad bad times.
You might want to read my article "Subsistence Crisis" here at GOLD-EAGLE.
May 15, 2005
No comments:
Post a Comment
Everyone is encouraged to participate with civilized comments.