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The world economy
continues to experience what is referred to as the curse of
interesting times. The US is not alone in this economic
upheaval, as most world economies have suffered slowdowns,
massive credit meltdowns, insolvencies, layoffs, business and
bank failures, abandoned projects, and let’s not even get
started about real estate. Crunch, crisis, meltdown, or Greater
Depression – call it what you will. But there is no arguing that
we are experiencing the most devastating economic shakeup in the
world since the 1930s.
The first rumblings were in US residential real estate, where
prices peaked out sometime in 2006 or early 2007. The credit
crisis of September 2007 was the first to raise awareness among
the general public of the phrases “subprime” and “Triple-A.”
Naturally, some bewilderment followed when it was discovered how
narrow the distance was between the two - when there any
distance at all.
By the summer of 2008 the stock market was in a free fall,
offering more education to the general public, and Baby-Boomer
citizens in particular. This time the subject was their
retirement, and the fact that the plans that were made back when
both their house and 401-K were actually valuable assets, should
possibly be readjusted to the more sobering reality that, given
the current performance rate of their investments, retirement
itself was not likely to be the endless leisure holiday
previously anticipated. It might actually be a lot of work.
In September of 2008, the ‘crunch’ or ‘crisis’ grew into a good
old-fashioned panic – and during a Presidential election season,
no less. But even the word ‘panic’ is a bit stale for these
modern times. What are we in, really? History will no doubt give
our current economic state a name of its own, but as for now,
our recent economic unpleasantness remains a nameless orphan.
Our Recent Economic Unpleasantness started with real estate, but
the rot has spread now to the whole economy. People simply
aren’t spending money - on houses, cars, vacations, meals out,
new furniture, spas, or much of anything. The US consumer, for
so long the savior of our economy, borrowing against home and
hearth, piling up debts, and generally demonstrating a wanton
spendthriftiness, finally seems spent-out. And with reduced
consumer spending, it naturally follows that there are now fewer
jobs for people who make and sell consumer goods.
And does anybody remember the service economy? Back in the
1990s, some wise men said that our burgeoning ‘service’ economy
would be a dandy substitute for our former manufacturing economy
that, in its old-fashioned wealth-generating way, served the USA
well for over a century. Well, now you can forget about it, as
there are simply fewer customers to serve, from restaurants to
hair salons to theatres to shoe-shine stands. In short,
‘service’ has slowed, at some places, to a crawl. So another
characteristic of our present dilemma is Reduced Monetary
Velocity. Cash simply isn’t flowing.
Overall, things are not good. Reliable estimates are that some
10 million US mortgages either now are in foreclosure, or,
barring some near-magical intervention, will soon be. Therefore,
figuring three people per domicile, some 30 million US citizens
are likely to give up ‘ownership’ of their current residences
sometime this calendar year.
More astoundingly, some 60 million or so US citizens currently
live in homes that are not worth today, in actual cash value,
what is owed on them.
Ben Stein writes (New York Times, Sunday business 1/25/09):
“The age when money was a free good, available in unlimited
quantities just for signing a note, may well be over. What the
heck will we do when we have to start acting like mature adults?
How will we cope with limits? With reality?”
John Hathaway, of the Tocquevlle Funds, and a very
knowledgeable fellow on the subject of money and gold, wrote in
his Year-End Letter for 2008:
“The investment world huddles today in the perceived safety of
cash and treasury bills, accepting non-existent yields in hopes
of further dollar appreciation and lower interest rates. In
light of record money creation and fiscal stimulus, what
strategy could be more ill-advised?”
“The unstated objective of government economic stimulus would
seem to be currency devaluation. Success will be defined as
inflation that alleviates debt burdens to a degree sufficient to
rekindle the appetite for risk in the private sector. Since
nobody knows in advance how much inflation is required, it is
more than likely thatpolicy makers will overshoot their
objective. The results could wellbe of Weimar proportions.”
Raymond Lai of Hong Kong writes in the 1/25/09 “Letters” page of
the Financial Times,
“Fundamentals are what matters in the long run for the price of
an asset class, not its movement over the past few months or a
year. With the US having inevitably to raise more and more debts
in astronomical amounts, does …(anyone)… really think US
government bonds are going to remain a safe haven for an
extended period? Those who have studied history should know the
fate of all currencies not backed by anything but mere promises.
Those who are not certain about the nature of gold should study
history.”
But while gold is becoming more universal, the doomsday mavens
are having a field day. After all, much of what they warned us
of, has actually come to pass. And of all things, the New Yorker
magazine has published a very funny article about them.
Ben McGrath’s article in the January 26th New Yorker magazine is
entitled “The Dystopians: Bad times are boom times for some.” In
it he highlights a cast of characters for the most part
previously unknown to the average reader of that magazine, but
probably familiar to students of gold, money, and economics as
practiced today.
The article devotes most of nine pages to profiles of people
such as erstwhile futurist James Kunstler (the name of whose
internet URL we can’t even mention in a family publication),
“king of the goldbugs” Jim Sinclair, and Nassim Taleb, author
of “The Black Swan,” an amazingly prescient tome on the
inevitable primacy of randomness and unforeseeability, and the
fallacy of using complex mathematics exclusively to make trading
and investment decisions.
From McGrath’s article we learn some new words, or at least,
new to this reader, among them: “Doomersphere,” “collapsitarian,”
and ?“peaknik,” Plus, the sheer fun of being able to eavesdrop
on Kunstler and Taleb will provide you an evening’s worth of
stuff to think about.
The piece succeeds because he seems genuinely interested in this
dystopic crowd, as should anyone who is curious as to where our
current state of reduced circumstances is likely to lead us.
Today you’re certainly more likely to find true answers among
this group rather than by listening to, say, Ben Bernanke or
Hank Paulson.
McGrath gives many of them a fair hearing, but to soften the
often dead-on incisiveness of the genuinely creative thinking he
encounters, he introduces some wacky Vermont secessionists, a
couple of beyond-the-grid rhubarb-wine and road-kill gourmets
from Alaska, and brings up discredited names from times past,
such as population alarmists Thomas Malthus and Paul Erhlich.
Thus, without actually accusing anyone of actual crackpottery,
he makes sure we are cautioned against taking any of this crowd
too seriously. He even finds among them a defender, in a
fashion, of the writings of bomber-sociopath Ted Kaczynski.
It would spoil the surprise for you if I were to name the
Ted-sympathizer, so you’ll just have to buy the magazine and
read the article yourself. A lot less entertainment is often had
after shelling out much greater sums than five bucks.
But enough about spending your money somewhere else – let’s get
back to gold.
It would be an understatement to say that gold has increased in
popularity during our Recent Economic Unpleasantness. As the
ultimate safe haven, physical gold is known to provide the sleep
of the secure for those with assets to protect. As for the
greater masses of the un-golded, the act of flitting from
currency to currency, bond to bond, or from one arcane
investment strategy to another, increasingly resembles skating
on very thin ice indeed.
Our business this year hasn’t yet hit the pace of 2008’s last
quarter, but still continues at a rate that, until last fall, we
had never experienced before. During this seasonal Christmas-to-Superbowl
lull, gold bullion product availability is much improved, and we
are expanding our line of inventory.
Demand for physical gold bullion continues strong. Our regulars
continue to add to positions and gold buying generally is taking
a higher profile than we have seen in years. In fits and starts,
the idea of gold is dawning on people.
Both the Wall Street Journal and Barrons have recently spoken
more sympathetically about the timeless yellow metal. The simple
fact of this website being listed first in a series of online
gold bullion sources by Barrons January 12th issue recently
brought us a wave of first-time gold buyers.
Rather than seeing it as a dead-end, nonproductive investment,
people today perceive that gold is the ultimate store of value
when virtually nothing looks safe. When currencies the world
over are showing a frightening weakness, and governments are
universally pursuing the idea that producing more and more of
those currencies is the cure for virtually everything that seems
to ail us, then the only thing left of value is gold.
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