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A Bubble Can Stay Inflated Longer Than You Can Stay Solvent. Or Can It?

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Published : May 17th, 2018
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Category : Gold and Silver

Written by Chris Marcus for the Miles Franklin blog.

There’s a saying in the financial markets that a bubble can stay inflated longer than you can stay solvent. And there is certainly a lot of value in thinking about and understanding that statement. Yet is it possible that it is not necessarily true in every case?

Obviously those who have been following gold and silver over the past decade or longer have learned that the incredulous can go on a lot longer than most would imagine. The government continues to pile on debt at a faster rate than ever, while at the same time giving the appearance that they’ve given up even attempting to ever reign in the spending. Meanwhile the Federal Reserve has interest rates still below 2% even a decade after the crisis, which has helped fuel a new series of bubbles in the stock, bond, and real estate markets.

At this point many can see what’s going on and are aware of the situation. Yet in an attempt to time the market, many are left feeling confused as to what to do, and often make trades that ultimately are not productive.

But that doesn’t mean that these bubbles necessarily have to stay in existence longer than you can stay solvent. In fact, the premise of physical precious metals as a response to the imbalances offers the best of both worlds.

Because you get to remove the time element.

Let’s imagine that the bubble goes on for another few years. Or even a decade. If you own physical gold or silver and just leave it where it’s sitting, it doesn’t matter how long the bubbles go on.

Sure. There is opportunity cost. And if you need to access your funds before prices are higher, you can run into the situation where you have to sell at a level that is not ideal.

Yet if you structure your investments in a way that views gold or silver as a form of long-term savings, and invest an amount that you won’t need to dip into for your everyday living expenses, I simply have never come across a situation like this where the odds are more in your favor.

Because as long as you have the metal stored safely somewhere, it’s still going to be a piece of metal when you check back on it. Whether that’s in a year or 10. While at the same time the fundamentals that support an increase in price are more pronounced than ever. Specifically because the government is piling on so much debt. Specifically because they give every indication that there is no political will to ever reverse that. And specifically because the Federal Reserve is in the position where it is forced to watch the bubbles implode or respond with a shock and awe campaign of more money and credit creation.

Of course I can understand and appreciate that sometimes it’s not so easy to remain patient. Especially if you had your money invested in precious metals and missed out on the price rise in the stock, bond, and real estate rallies.

But keep in mind that I never claimed that capturing a bubble from a trading perspective is clean or easy. Yet I do maintain that an appropriate exposure to gold and silver offers a low-risk approach to virtually guaranteeing that when the finances of the United States are finally exposed as insolvent, you don’t have to follow the same trend.

I wish I could tell you exactly when all of this will end, and I can promise you that I will continue watching every sign I can find and share what I’m seeing. However what I can offer that might be of value now is this approach of removing the element of time from the equation, so that you can invest wisely, and know that whenever the inevitable occurs, you have a great form of insurance in place.

Chris Marcus

To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).

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Andrew Hoffman was a buy-side and sell-side analyst in the United States (including six years as an II-ranked oilfield service analyst at Salomon Smith Barney), but since 2002 his focus has been entirely in the metals markets, principally gold and silver. He recently worked as a consultant to junior mining companies, head of Corporate Development, and VP of Investor Relations for different mining ventures, and is now the Director of Marketing for Miles Franklin, a U.S.-based bullion dealer.
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