-- Posted Thursday, 8 January 2009 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Thursday, January 8, 2009
“Phenomenally accurate forecasts”
Today and tomorrow we will be featuring the thoughts of two erstwhile gold bugs who are having second thoughts. Although both evidently believe in their hearts that gold is honest money, neither is certain that that will suffice to push its price into the stratosphere, as some seers are predicting.
First up is our friend Erich Simon, an occasional contributor to Rick’s Picks whose dispatches on the bird flu epidemic have kept us a few steps ahead of mainstream news. Here is the letter I received from Erich yesterday morning:
Music Has Stopped
The most precious commodity is time, then land -- in a finite world. The currency of the future, here today, and maybe even yesterday, is power, not money. The population of the planet from 1929 until the NASDAQ collapse in March 2000 doubled. The dot.com blow-off nearly ten years ago was “the last dash for a place in the sun.” It was the final mass exodus out of fiat for the accumulation of stuff, mostly “essentials,” not unlike musical chairs. The investment landscape today is desperate and imploding. The music has stopped.
The mining equities collapsed because they are subject to the same corruption as the broader indices. “Corruption” is one man's quest to secure a larger piece of real estate. The primary corruption in all the issues was stock dilution through share-printing and marketing through Wall Street under government sanction. Shares were exchanged for currency, and currency is a claim against man-hours of work so that governments can apportion scarce resources.
Paper Falls Short
So the government, Wall Street and corporate insiders absorbed all of the prevailing man-hours of work and laid claim to all of the scarce resources, foremost among them, time -- yesterday's, today's and tomorrow's. This is the main reason why no amount of reflation will suffice: because paper-printing will not create the time needed to grow an ear of corn to prepare a meal at supper time, let alone create a barrel of oil out of thin air.
In 1983, when I was in Japan studying international business, I concluded that there were just two possible economic outcomes for the world: peaceful integration, with the U.S. as lead sled-dog and the dollar as world reserve currency; or, a failed U.S. business model and subsequent rescinding of the dollar as reserve currency.
Vestigial Support for Dollar
In the late 1990s, Alan Greenspan's credit boom turned bust, causing the global village to implode. Sadly, it has become clear that the dollar is going to collapse and that all claims against it will be forfeited. Despite this, there remains in the Western World a vestigial instinct to support the dollar. Indeed, the global financial system that connects the Bank of England, the European Central Bank and the Bank of Japan insures that their respective currencies are interchangeable with the greenback. Thus, when the U.S. “fails,” so do the interlocking markets. The desire to prevent this is the main support under the dollar at this time.
Meanwhile, mining shares have been looted along with the rest of the publicly traded issues. They have an underlying value, but a great deal of that value will not be available to U.S. investors because these global ventures have been targeted and are being absorbed by foreign ownership: “passive” investment by China, and more aggressive takeovers by others. Governments like Japan, with their own imperialistic mandate, are securing ownership at the expense of greedy insiders who have been bankrupted by financial deleveraging. Against the growing tide of East versus West, a hungry and focused discipline versus wanton excess and division, a battle is raging that the West seems likely to lose.
Frivolous Tangibles
As to the spoils, all that is tangible -- gold, silver, platinum, fine wine, collectible automobile, artwork, real estate -- can be ranked according to its value in the investment arena. At this time and against the backdrop of credit collapse and deflation, “frivolous” tangibles – vintage muscle cars come to mind -- have suffered immensely and will continue to do so. But against the larger reality of institutionalized historic inflation and resource depletion, tangibles are paramount.
Gold's desirability can be ranked by category. Jewelry demand is one weakening category that will detract from the metal's value for years to come. In Japan, frivolous tangibles like jewelry never recovered to pre-1989 levels and probably never will in real terms. And in the latest downturn, jewelry-related stocks have suffered more than most.
The international race for ownership of metals mines, however, is testimony to the worth of these metals -- for industry and value (money). Gold is strong and gaining as a monetary unit accepted by both East and West in spite of the loss of jewelry demand. While ideological skirmishes roil the borders of an overcrowded planet, the larger investment reality is resource depletion.
What was left of the dot.com bust rocketed into real estate. A part of that remaining wealth is today moving into gold.
A System in Collapse
It is fashionable these days to anticipate market bottoms based on contrarian indicators. The greater the number of bears, the closer to a bottom. But this is not an economic truism. Indeed, if you take the quantity of bad news and the pace at which it is assaulting the system, this indicator now is telegraphing a system in collapse. We have only to look to the droves of Madoffs coming into view, swindlers who operated under the umbrella of the SEC, the Enrons and the Tycos of yesterday. Nearly every publicly traded issue is now being exposed as a post-GAAP sham.
How big a sham? If you take the total number of shares outstanding in every publicly traded company (using the Wilshire) and divide it by gross money supply (never mind debt comparisons) one can gain insight into the worthlessness of equities -- and the insulting charade of liquidity injections at any level.
In an inflation, money is worthless (we've been mired in an inflation from the start; the evidence is in the evolution of the relative prices of everything, including the metals... POG was $35). In a deflation, assets (wealth) are worthless. This is semantics. In the end, broke is broke. For Bernanke to sell inflation is pure tomfoolery, an ultimate sleight of hand that at this point appears to be nothing more than a stall to buy time for the insiders to high-tail it out of Dodge.
Usefulness Begets Value
The value of gold lies in its place in time. And the problem with gold is its quasi-existence as a monetary unit during flight to safety. The final and ultimate security is not a “worthless' metal,” one that adorned the bodies of kings and queens. Ultimately, the tangibles that are most in demand are functional -- like tickets to a sold-out show, or respirators when the volcano erupts.
Gold has its place in time. But at the time of lowest common social denominator, an investor has to produce something of barter value. Because the more dire the landscape the less use for a “frivolous” tangible like gold. It is this competition from other tangibles and the perception of this conundrum that has kept a leash on the yellow dog.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Thursday, 8 January 2009 | Digg This Article | Source: GoldSeek.com
