To all those who say that deflationary
collapses cannot happen in paper monetary systems, I ask you: don't the
PIIGS-ies of Europe count? Because they're all
falling, one right after the other, like dominoes. Today, the Spanish stock
market ($SMSI) closed below its spring, 2009 lows. Here's a 5 year weekly
chart through today's close:
Spain joins Greece, Portugal and Italy
in slow motion deflationary stock market crashes. Italy (Milan [$MIB] Index)
did a peek-a-boo below the spring, 2009 lows in 2011, and then had a weak
rebound. It looks set to break to new lower lows soon. Here's a 20 year
monthly chart of $MIB thru today's close:
These are modern-day examples of
deflationary stock market collapses right in front of our eyes. Those who say
the bankstaz would never let it happen just don't
want to face reality. Bankers can profit from both deflation and inflation.
Who do you think is going to buy up the assets in these European countries
for pennies on the dollar (after they print themselves up some fresh new
money)? Now, I don't suspect that the larger economies with their own
printing presses are going to go this route quietly, but Japan sure doesn't
seem to have the inflationary central banksta
rescue thing down so far after 22 years.
Unlike many Gold bulls, I don't see stocks as a better play than cash or US
bonds here. I am not a buy and hold investor of these asset classes (that's
what Gold is for), but I don't expect the US bond market to crater any time
soon with a global recession in the works. I also really like the US Dollar
right now as a trade. I know it's blasphemy for a Gold bull to talk of US Dollar
strength (relative to other paper currencies), but that's what I see coming.
Will Gold survive a US Dollar rally? Is it remotely possible? Of course. Not
every US Dollar rally causes a 2008-style meltdown. All currencies are
sinking relative to Gold, simply at different rates (trampoline jumping is what I like to call it). The bears in the PM sector are out in
force and I even watched a recent interview (hat tip to John Rubino at dollarcollapse.com for the link) talking about
the Gold "bubble" collapsing with a book to back it up (an
"author" sound more authoritative than a "blogger," eh?)
- here's the link for those interested in hearing the other side of the debate.
Me? I'll stick with Gold. It's a no-brainer for the long term. Short-term?
Sure, we can correct more. I would love a dip below $1600 to shake out a few
more weak hands while Gold stocks take one more dive before starting a new
cyclical bull market. But these are short-term, casino-related concerns, not
the big picture. The big picture is shown below, a monthly chart of the Gold
to Dow ratio ($GOLD:$INDU) from 1980 thru today's close:
Its stocks, real estate, cash, bonds
or hard assets. I'll take cash in a secular economic contraction/Kondratieff
winter/economic depression. However, I prefer cash that cannot be debased by
decree, so I'll stick with Gold. I want to be like a banksta
with the money left over to buy assets for pennies on the dollar some day
when the house of cards finishes falling. The nice thing about Gold is that
this will work in both a deflationary or hyperinflationary poop storm. Those
who say Gold isn't a good hedge against deflation haven't studied their history.
One of the hallmarks of a depression is that the purchasing power of Gold
rises, which has been happening since 2000. The Gold to Dow ratio is only one
example. Try the Gold to real estate ratio (in most parts of the world), Gold
to commodities ratio or Gold to bonds ratio. They all add up to the same
thing: Gold continues to trump other asset classes and this trend is nowhere
near completion. And yes, I am aware of what happened to Gold in the fall of
2008. For anyone asking: are you aware that Gold was back at $1000/oz by February of 2009 (i.e. net flat during the
deflationary crash) while stocks kept right on going lower into their March
Having settled the long term (in my own mind, at least), I still enjoy the
short term. Short term tactics are technically based, not fundamentally
based. Trading is a tough game and 95% of traders fail. I like the game and
have learned to be quite good at it, but it is not for everyone. I will go
long or short any asset class if I think there is money to be made when
trading (for example, I have a short position in Gold stocks right now). As
for investing, however, you couldn't get me to touch paper cash, bonds, most
real estate, or most common stocks with a ten foot pole. I'll become a paperbug again, but only once we have reached reasonable historical metrics to
support such a move (e.g., how about a dividend yield for the average common
stock in the 7-10% range?).
Right now, my subscribers and I are waiting to buy the next low in the
precious metals patch, which is certainly close to being here. If this
pending low isn't "THE" low, it won't matter to me from a trading
perspective, because I can still make a lot of money trading "a"
low. If you are crazy enough to try to trade with a portion of your capital,
consider trying my low-cost subscription service. A one month trial is only $15. If you're too smart to take that kind
of risk, then hold onto to your shiny, precious,
edible Gold until the Dow to Gold ratio hits 2 (and we may well go below 1 this cycle).