- A hurricane of digital money created by central banks to purchase government debt and other dodgy assets from banks.
- A tidal wave of deficit spending by governments around the world. It continues, regardless of whether you call it business as usual, stimulus, payoffs, or bailouts.
- A perfect storm of derivatives – the weapons of mass financial destruction that continue to plague our financial system – but make $Billions (Maybe $Trillions) in profits for the huge banks.
- A tornado of bailouts, giveaways, loans, and currency swaps from the Federal Reserve to backstop banks, politically connected individuals and corporations, European governments and others.
- An approaching thunderstorm of new and higher taxes – perhaps a carbon tax, a VAT, and a wealth tax. We hope most of these will be downgraded to a hot air disturbance.
- A tsunami of Japanese Yen based on the election of Prime Minister Abe and his avowed intention to weaken the Yen.
Why Do We Need Shelter?
- Derivatives involve huge counter-party risk. The international financial system seems increasingly shaky. Those derivatives might be triggered by a Greek government default, another Lehman-like implosion, or a “black-swan” event that causes derivative contracts be paid. Will the counter-parties be able and willing to pay as required? Was sufficient margin set aside to protect all those derivative contracts? Doubtful!
- It seems that the $700 Trillion in derivatives is largely based on $70 Trillion of sovereign debt, much of which is of marginal quality. When the collateral is worth less than face value, the derivative is worth considerably less than face value, or perhaps nothing.
- Medicare and Social Security costs to the US government are huge and increasing. More deficits and accelerating national debt will be the result.
- Will the dollar weaken against other currencies? Will the bond bubble finally burst?
- Consumer price inflation is here and increasing.
Where Is The Shelter?
The problems are unbacked paper assets, excess debt, too much government spending, massive government deficits, derivatives that could implode, and lack of political will to correct the problems. We need a shelter that will minimize these risks.
One shelter is to divest out of paper assets and into gold and silver bullion and coins, land, farms, hobby farms, diamonds, and other physical assets. If you must stay in paper, consider using ETFs for crude, grains, sugar, gold, silver and other commodities. Read Ten Steps to Safety.
The investment world is increasingly dangerous. Few understood in late 1999 that an epic crash in the NASDAQ was about to occur. Housing crashed despite a wide-spread belief that real estate always goes up. There are several candidates for another crash – sovereign debt, derivatives, and the dollar.
We can depend less upon the safety of paper assets. We can depend less upon 1′s and 0′s on a financial server that claim we have assets in a brokerage account. When your government is seeking revenue, your assets are less safe. As Doug Casey says, your government currently sees you as a milk cow but may eventually view you as a beef cow.
Give your savings and retirement a chance to preserve their purchasing power. Minimize currency risk, find an alternative to a CD that pays 1% per year or a 30 year bond that pays about 3% per year for 30 years and is guaranteed to be repaid with increasingly depreciated dollars. Gold from 1/1/2000 to 1/1/2013 (13 years – from $282 to $1,655) has increased at a compounded rate of 14% per year. You have choices!
Doug Casey believes we are currently exiting the eye of the financial hurricane that started with the financial crisis of 2008 and that the next phase of the financial storm is imminent. Assets could be “blown away,” and supposedly safe structures might collapse in the financial winds of change.
If the financial hurricane is downgraded to a minor storm, you will still be sheltered in gold, silver, and other physical assets and have lost nothing. However, if the hurricane destroys many paper assets, then gold and silver will shelter you until the storm wreckage is cleared and financial life begins anew.
aka Deviant Investor
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Contributed by Deviant Investor of Deviant Investor.
About Deviant Investor: I am a retired accountant who has 30 years of experience following markets, investing, and trading both futures and stocks. I have made and lost money during my investing career, and those successes and losses have taught me much about markets, timing, risk, inflation, and crashes. I currently invest for the long term, and I swing trade (in a trade from one to four weeks) stocks and ETFs. I offer opinions and commentary, but not investment advice.
Years ago I did graduate work in physics (all but dissertation), so I strongly believe in data, analysis, objective facts, and rational decisions based on hard data. I currently live in Texas.