Wednesday, September 17, 2008

Guns and Gold?

Good evening everyone!

What an epic day on Wall St. I must admit that I also find it to be a very sad day based on some news from the Treasury. I think I may have to tweak my thesis on the economy my friends. Watch the following video, and I will explain what scared the daylights out of me today.




Wow me might as well call this guy Nostradamus based on his recommendation to buy gold. I have been in the deflation camp throughout this crisis. I thought the gold bugs had it wrong because I thought the Fed would shrink the money supply, and we would work through this via a Japan like deflationary scenario.

I thought surely the government would understand that trying to hyperinflate out of this would be insane. I say this because they would risk destroying themselves in the process because governments are ALWAYS overthrown when the hyperinflationary route is taken. Go Google Argentina and Germany hyperinflation and see how it worked out for those two governments. (I'll give you a little hint: Germany ended up with Hitler in power).

Now why am I now worried that we might try to inflate out of this? The Treasury announced today its going to turn on the printing press because the Fed is broke:

"Sept. 17 (Bloomberg) -- The Treasury will sell more debt to enable the Federal Reserve to expand its balance sheet, a sign of the strains created by the biggest extension of central-bank credit to financial companies since the Great Depression.

The program starts today with a $40 billion auction of 35- day bills, a day after the government agreed to take over American International Group Inc., the Treasury said in a statement in Washington.

The proceeds will ``provide cash for use'' by the Fed as it seeks to boost liquidity in credit markets struggling from $515 billion in writedowns and losses since the start of last year. The announcement illustrates the potential drain on the government's finances in taking over AIG, Fannie Mae and Freddie Mac, and taking on $29 billion in Bear Stearns Cos. assets.

``It is becoming imperative for the Fed to take actions to enlarge its balance sheet,'' said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York.

Yesterday the Fed announced an $85 billion loan to AIG, in exchange for a 79.9 percent government stake in the largest U.S. insurer. The Fed also has set up several other emergency lending programs to provide Wall Street firms with ready access to funding.

``The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program'' and ``will provide cash for use in the Fed initiatives,'' the department's statement said."

My Take:

I was speechless after I read this. I have always wondered where the government thought they were going to get the money to pay for all of these stupid bailouts. Now I know: The Printing Press!

Folks, the more dollars you add to the money supply, the less the dollar is worth. If we start printing money, the hyperinflation scenario has to be part of your investment thesis. This is why gold had its biggest one day move in history. Are you guys ready for $30 bread? This is what happens when countries try to print out of financial catastrophes.

That $500,000 nest egg you saved for your retirement all your life becomes almost worthless. Of course after this happens, the citizens revolt and the government gets overthrown. Folks, the government has been overthrown every time this happens. Every time!

Bottom Line:

I gave you examples of foreigners backing away from our debt yesterday. Today the printing press was turned on to make treasuries for sale because the Fed is broke. As we fall into a severe recession and the government keeps spending like a drunken sailor, foreigners are going to start bailing on the great USA and our debt.

Think about it:

What incentive will they have to buy treasuries if we continue to spend spend spend which eventually kill our dollar? Turning on the printing presses will only exacerbate the fall of the dollar which makes treasuries even less attractive.

To make things worse, we are no longer consuming like we used to. This was a big reason why China keeps buying our debt in the first place! They knew we would take the money and buy import billions of dollars worth of Chinese goods.

We are becoming a less attractive place to invest. This will make printing out of this via hyperinflation a much more attractive option for the government.

So what should you do as an investor? Buy some gold. I will be picking some up this week and I will buy more if I see more printing by the government. We need to put a stop to this. Call your Congressman and tell them to stop spending money we don't have. We cannot allow hyperinflation to occur. Its the worst case scenario folks!

Guns and Gold. This is what it is coming to if we don't clean up our act.

Stay Tuned.

12 comments:

Minton Mckarkquey said...

It'a amazing how rapidly things are unravalling - even now MS is thinking of buying Wachovia.

Any prudent reader of this blog for the last year should be safe but for everyone else "under the mattress" is looking good.

johndaniels said...

Get out of the system. Get into cash (can always visit the coin shop if things get dicey for the buck). I have about 65% metals 35% or so...now i have to look going even deeper into metals.

Right now: Best prices are silver (if you can get it; no one has any) palladium, and platinum. These are way off the highs and buying now gets you in at lows while the system hyperinflates. Gold? Id look at the industrial metals previously mentioned first.

Get your money out of the banks and into cash. It takes time; ive been planning for months and have pullout a lot (they dont just hand you a wad of cash if you dont give them a weeks notice, you should know lol). now it may be tougher. If you cant get your cash out, order the metals online for personal delivery to your home; thats an alternate way to exit the system. stay in assets that are moveable, valued internationally, readily liquid, and untraceable.
stay out of paper, cd's, stocks, real estate (non liquid), etc. If we get simultaneous bailouts by the Baby Boomers, The FDIC will be useless and it will take months (if ever) to get cash, which will be 50% or more worthless than when you requested it.
wasnt going to say this, but you may consider holding off paying your mortgage as well to stock up cash. There may not be enforcement because once they forclose, they own it and all the bills that come with a home (taxes, ins, hoa's, etc). I dont think they want that. You could renegotiate a year later at 20% of the amount owed.

I know its bad, but if your hurting, better save yourself than keep paying on a dead mortgage on a house that wont come back. save your family first. NOTE: think of OTHER people realizing and doing this too. where does that leave the banks?

good luck.

Jeff said...

Minton & JD

I am amzed as well. It looks like the shorts are moving from financial to financial and power driving them out of business.

Morgan looks to be next on the list so I guess they figured they better find a partner. Wachovia is such a crappy bank. Its shows me the desperation of Morgan.

JD

One thing that concerns me regarding gold is that the government forced everyone to give up their gold in the 1930's.

I might do a combination of gold ETF's like (GLD) and hard gold.

Tomorrow should be interesting. I feel like I am watching a trainwreck in slow motion.
Paulson better put the printing press away or the government is doomed.

johndaniels said...

jeff: Gold confiscation? Not with the internet (which is our best freind). There is NO WAY any politician that supported (or even suggested) gold confiscation would live longer than a few days. Seriously. He (or they) would be snipered. I say straight out: politicians wouldn't DARE. Thats who you are referring too. Some politician gonna take MY gold? Better bring an f'ckin army, im armed to the teeth and have very low tollerance for that type of government action. I'm in my low 40's; so im definately a bit suicidal anyway lol. Fact is, when FDR did it, there was unification behind one political party; now we are absolutely poliarized: BLUE/RED. Fortunately, our government is weaker than ever now; and I don;t see it getting any stronger soon with these two clowns at the helm.

Jeff said...

JD

LOL

Thats cool. It sounds like you have done your research on gold. I am just starting to sink my teeth into it.

Its up another $44 by the way. Almost touching $900. Unbelievable.

Neither party will be at the helm if it comes down to gold and guns. They would be overthrown.

Who knows who would rise to power and be at the helm.

I can't believe we are all having this conversation. I feel like a moonbat and one year ago I would have thought someone was nuts for having a discussion like this

Now I seriously think that this is a possability.

Its a crazy world!

Jeff said...

OMG

Read this article. Morgan doesn't think they can make it. Goldman next? Historic stuff:

"Seeking to avoid the kind fate that led Lehman and Bear Stearns to collapse, John J. Mack, Morgan Stanley’s chief executive, made an unsuccessful effort on Tuesday evening to persuade Citigroup’s chief executive, Vikram S. Pandit, to enter into a combination, according to people briefed on the talks.

“We need a merger partner or we’re not going to make it,” Mr. Mack told Mr. Pandit, according to two people briefed on the talks. Mr. Pandit, a former senior investment banker at Morgan Stanley, said Citigroup was not interested. It is thinking of deals it can strike with consumer banks, like buying the struggling Washington Mutual out of bankruptcy if its reported efforts to auction itself should fail, that would provide it with cheaper deposit funding. A Citigroup spokeswoman declined to comment.

Having failed at that, Mr. Mack entered into discussions on Wednesday with Wachovia and several other banks, people briefed on those discussions said. The talks with Wachovia are preliminary and a deal may not emerge. The banks declined to comment.

Investors appeared to be questioning whether either Morgan Stanley or Goldman Sachs would be able to survive alone as panic spread through the markets. The cost of protecting against defaults on the debt of both have shot up, a signal that some investors believe one or both of the banks could be next in the growing list of financial companies to either go bust, get sold or require a government bailout. Any institution without a big, stable balance sheet is seen as vulnerable to the kind of rapid collapse in confidence that led to the demise of Bear Stearns and Lehman Brothers.

http://www.nytimes.com/2008/09/18/business/18wall.html?_r=1&oref=slogin

John Maynes said...

Jeff,

Martin Hennecke is the biggest loser this year in the financial world. Everybody who listened to him has nothing left to invest/speculate. Would be interesting to hear what his customers are saying. ;-) I think they withdraw a lot of money the last months. China has wiggle room? Give me a break. The US and Europe are going into a depression and China will do pretty well? Ridiculous. They produce for the world not for their domestic economy.

Jeff said...

John M

I didn't agree with the China thing either. China is going to get pummeled in this slowdown IMO.

Their economy is depends on the US consumer and we both know the consumer is toast.

I was just using this guy to help explain the hyperinflationary case if the government decides to print.

Most of the gold bugs haven't made much money during this downturn like the deflationary camp has.

I am trying to stay ahead of this mess and it may be the gold bugs turn to cash in.

I am still not sold on hyperinflation. I would hope we were smart enough to avoid this. However, I do think gold might work for awhile here.

John Maynes said...

Hi Jeff,

I invested twice in my life in gold. The first time was great (in the 80s), the second time (beginning of this year) terrible. I will never invest in gold again. It has become a very risky investment class with all these ETFs and other paper golds. No save haven as many call it. My advice: stay away from it. There are other, more lucrative investments right now.

johndaniels said...

RE: John Maynes

I dont follow you.

You said: "There are other, more lucrative investments right now."

Thank gold and PM's? please enlighten us.

I think the entire scope of the marketplace has changed. The investment house, wall street ideology is to focus on return ON investment; when what we really should be concerned with in todays economy is capital preservation (return OF investment). I don't see how any mainstream "investments", or paper assets or stocks, qualify as being more lucrative than gold now.

Theres alot of stocks I like; but my concern is that its not the fundamentals and valuation anymore. Because a stock looks cheap doesnt mean its a buy; just like housing. Stocks and real estate valuations are engulfed in systemic tangents right now; and they hold significant risk.

now i like cash and metals. ready for either deflation or hyperinflation scenario. i agree with jeff to a point about the deflation: but one has to consider the powerful lobby of the Baby Boomers. Will they let the government deflate their assets just into retirement, and raise interest rates? Wont happen, Baby Boomers have to lobby for their entitlements and their assets.

The fed will print to cover any deflation, then of course we get the hyperinflationary impact. IMHO

johndaniels said...

hey did you see that bullshit reversal today? All moring metals up big then suddenly around 12:30 PM 9/18 the gov't makes a bullsh*t announcement about a 'possible' sewage system for allt his bad debt: then the markets rally over 400 points and metals/gold tanks. smells like a rat. our government is getting so transparent, its getting pathetic. Once the slaves (us) see all the angles of the master (govt, banks) the jig is up. The system will collapse because they cant really fool us anymore; they have no credibility.

Jeff said...

JD

I can't believe they are already pulling the RTC card. This is all about the Realty Trust. I was warned this was coming, but I didn't expect it this soon.

The Treasury is panicking. The bond market is going to love this one.

Check out the blog a little later. This post might take awhile to put together.