3 Minute Gold News
A Quick Read for Busy People
The full interview is 25 minutes to watch and highly recommended. Well worth your time.
Ebola and the Markets
How Close Are We to a Snowflake Moment
Investors — Why Wait?
The United States is not dependent on Middle Eastern oil, but China is. Europe is also to some extent.
If the Islamic State spreads and begins to disrupt the flow of oil, either in Kurdistan or Iraq, or elsewhere like Saudi Arabia, that would have an enormous impact on markets.
The price of oil has dropped like a stone lately, because the world is in a depression and there are deflationary fears, but that could turn around with geopolitical things.
There are three things that affect oil prices:
1. Normal Supply and Demand
3. Inflation/Deflation – monetary policy independent of supply and demand
Supply and demand is slowing down because the world is in a depression.
The monetary policy hasn’t given us inflation, it’s given us deflation.
The geopolitical vector is the wild card, and it could go up. The Islamic State situation could impact global oil markets due to a spectacular act of terror or a disruption of oil supplies.
EBOLA AND THE MARKETS
Jim doesn’t usually use the term “black swan” and prefers the metaphor of an avalanche and a snowflake.
The avalanche is the embedded risk and the snowflake is the catalyst.
You never see the particular snowflake coming. You just find out that the village got buried by the avalanche.
That is a complexity theory analysis — it’s always the thing that you don’t see coming.
Ebola could get a lot worse and it could have a large economic impact but we did see it coming.
It could be a pandemic, and it could spread to Europe, to Asia and to other parts of the United States, but markets tend to discount that.
The thing that takes down the markets is the thing that we don’t see.
What could that be?
Failure to deliver gold by a major bullion dealer.
A financial collapse like MF Global that no one saw coming.
Those are the things more likely to turn the market down.
Markets could also collapse on their own for reasons that are very hard to see, like a change in psychology or the adapted views of investors.
But to the extent of a catalyst it will probably be one that we don’t see coming.
HOW CLOSE ARE WE TO A SNOWFLAKE MOMENT
The scientific answer is that we don’t know how close we are to a collapse.
The collapse could be tomorrow and it could be three years from now, but probably not as far off as five or ten years.
It’s not necessarily tomorrow but it could be.
It could also snow tomorrow but not set off an avalanche — it could just pile up and pile up.
Everyone is waiting for some blunder down the road, but the blunders have already been made. The blunders have already been built into the system.
You can see this collapse coming a mile away.
The longer it goes on and the larger the system gets, like the concentration of bank assets and the size of the derivatives books, the greater the collapse will be when it happens.
Using science we can’t say very much about the timing, but we can say a lot about the magnitude. What that reveals is that this will be the greatest financial collapse in history.
INVESTORS — WHY WAIT?
Jim can’t phone up investors the day before the collapse and tell them to sell their stocks and buy gold. He doesn’t know what day it will be. Also, when it gets to that point then it would be too late to act.
The time to act is now.
On top of the threats coming from ebola, the Islamic State, the normal currency wars and the normal depression that the world is in, there’s financial warfare going on right now.
We’ve put sanctions on Russia. Do you think Russia is just going to sit there and take it?
Russia is responding asymmetrically through cyber warfare.
Bloomberg reported in July that the Department of Homeland Security and FBI found a Russian attack virus embedded in the NASDAQ stock market in 2010.
It was just sitting there waiting to be activated.
This wasn’t some criminal gang, or someone trying to steal your credit card or identity theft. This was the Russian State apparently trying to take down the United States market. They are capable of that.
If the US ratchets up the pressure too far, and they probably won’t because they’re probably smart enough to understand. If they do increase the pressure too much then Putin will just close the New York stock exchange.
Investors would be wiped out and would lose their 401Ks, mutual funds and stock portfolios.
All your stocks would become so-called “private equity”. You’ll still own them — you just won’t be able to trade them.
BOOM AND BUBBLE
The problem with a boom and bubble, which we’re in now, is that people think everything is money.
You think your stocks are money because you can sell them and get your cash into your account in a couple of days.
You think your house is money because you can take a second mortgage or sell it.
You find out in a panic that all those things are not money.
You are locked in and locked in and you can’t get them.
The only thing that is money is money — cash, or physical gold or silver.
So, if Putin shuts down the stock exchange then people will see that only money is money.
On August 22, 2013, the NASDAQ was closed for half a day.
There’s never been a credible explanation. This makes Jim believe it could have been a military attack, and that it’s never been stated because if people knew the risk then they’d take their money out of the stock market — that’s why they’re not telling us.
Have 10% of your portfolio in physical gold.
If gold goes down 20% and it’s 10% of your portfolio, then you’ve only lost 2%. Meanwhile your other 90% would be in other things — Jim’s in a fine art fund, land, some cash and some other things, and they’re doing just fine.
Real diversification is the key.
Having a hundred different stocks is still all in one asset class — stocks. They will all go down at once or all be frozen at once.
Some art, some stock, some land, some gold, some cash — have all of them.
But, when the day comes when everything is going down, then you’ll be happy you have the gold as it’s going up 200%, 300% and 400%.
That’s when you’ll be happy to have the 10% gold.
Physical gold is recommended because it’s not digital — you can’t wipe it out with a few key strokes. It doesn’t get wiped out in a cyberwar.
Also, in a financial panic it would be easy for the government to reprogram the ATMs to limit you to $300 per day.
The five largest banks in the United States have a higher concentration of banking assets than they did before 2008. Everything that was too big to fail in 2008 is bigger today. That increases the risk. Why would the government do that?
The answer is that it’s like herding pigs into a pen before you slaughter them.
By herding the savings of the United States into a very small number of banks, it makes it easier to lock down the system.
The Secretary of the Treasury closed the New York Stock Exchange on July 24, 1914, for five months. That happened a hundred years ago, but that’s not that long ago. It could happen tomorrow.
That’s the kind of thing that people aren’t ready for.
Everyone wants to be on one side of the debate or the other.
Some say we should worry about inflation and others say we should worry about deflation.
You have to take these two opposite ideas and process them at the same time. Warren Buffet understands this.
He bought hard assets — a railroad. He bought oil and natural gas, and a large network of auto assets. Those assets will do well in inflation.
He’s also sitting on $55 billion in cash — about 20% of their total portfolio. Cash is for deflation.
So what he’s doing is saying that he’s not smart enough to know if it’s going to be inflation or deflation. The smart money knows that it could be either one.
So you need to prepare for both.
Have hard assets in your portfolio. Most of us can’t buy a railroad but we can afford some gold or silver, and that will do just as well.
But also have some cash and that’s your deflation hedge.
Using scientific models it can be predicted that there will be a financial crash.
It will be exponentially larger than any financial panic in the past.
In 1998, Jim was part of a team, which included the Chairman of the New York FED, negotiating the bail out of a hedge fund. They were hours away from shutting down every financial market in the world.
Wall Street bailed out the hedge fund.
Fast forward ten years. In 2008, it was Wall Street that was failing. Who bailed them out?
The United States Federal Reserve.
Go forward again to 2018, or maybe 2016 or 2017.
If Wall Street bailed out a hedge fund, then the FED bailed out Wall Street, then who’s going to bail out the Central Banks?
Who’s bigger than the Central Banks?
The International Monetary Fund (IMF) is.
They have a clean balance sheet and they can print world money called SDRs.
They’re already using SDRs for reserves. China has more SDRs than they got from the IMF so China’s already using them to trade with other countries.
Where does this leave the U.S. dollar?
Where this is leading is inflation because the dollar would be devalued against the SDR.
If there’s hyperinflation now then people would be protesting all the way to Mars.
If there’s hyperinflation coming from the IMF then there won’t be. People don’t even know where the IMF is.
Americans will blame Congress, the White House and the FED, and they’ll just say it’s not them… it’s the IMF.
It gets so opaque and hard to understand that people won’t even know where it’s coming from until it’s too late.
China is buying gold as insurance. They’re buying thousands of tonnes of gold.
They see something coming.
China is making great strides as a trade currency, by creating a yuan payment system with other countries, but they aren’t even close to having a reserve currency.
A reserve is savings so to be a reserve currency you need investable assets.
Reserves are the savings for a country. The only thing big enough to absorb that much world savings is the U.S. Treasuries. It would take China ten to twenty years to set up the kind of architecture needed to support that. Even then, the Chinese don’t believe in the rule of law, and you’d need the rule of law in order to instill world confidence.
What China does want is to get the yuan into the basket of currencies that are used to compute the value of the SDRs.
At the same time, they are increasing their physical gold in order to hedge their position with their U.S. Treasury reserves.
If the U.S. inflated their currency by 10% then China’s $3 trillion dollars is then a $3 billion wealth transfer from China to the U.S.
That’s how it goes — “Here’s your $3 trillion. Good luck buying a loaf of bread.”
China can’t dump their Treasuries because the market’s not that big and the U.S. can stop them. What they can do is build up their gold.
If the paper dollars are stable then the Chinese are happy. If the paper devalues through inflation then the gold will go up in value and they’ll still be fine. They’re hedging their position and that’s what Jim is recommending for everyone.
The crash could happen in three years or three minutes, so why wait to prepare.
Black Swan Dive
words and music Elaine Diane Taylor
©2014 Intelligentsia Media, Inc.
Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
from the album Coins and Crowns available on iTunes
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© 2014 Intelligentsia Media, Inc.