 Official Insanity
Der Invest
Informant
Randy Buss
15 December 2004
No matter what we do, we are doomed. No matter what we don't
do, we are doomed. These seem to be the two current camps of
thought at the present time. I'm not sure if my "radar"
is in perfect functioning order, but it seems the world is increasingly
becoming "out of whack." Exactly what "out of
whack" means is basically relative to the person whom it
affects. This can either be positive or negative. To people like
Stephen Roach, the world is precariously imbalanced and needs
these macro imbalances to be resolved or the risk of a "meltdown"
grows nearer. To a certain degree he is totally correct. On the
other hand, to a Chinese official, the world is probably looking
pretty good -- albeit out of whack as compared to
his former life in a grey factory -- with increased world-wide
exports, increased quality of life and the consumption of luxury
goods... and quietly he grins inward and is joyous at the "nasty
westerners" being dependent on his people's exports. Macro
economics scenarios likely play no large and forefront role in
his world.
I have read recently, going
back to my indexed "pile of papers" on the floor, an
article written in 1980. It was written by an American grandfather
to his grandchildren and he lamented about the entire economic
decay and the lack of fiscal "backbone" of the politicians
and how the entire debt (at that time) would bury the US Dollar
in the coming few years - he urged his grandchildren to buy gold.
Obviously he had been through the !930s Depression. Was he right
in 1980? On a certain level, yes. But, also no. Again it is all
subjective.
I am going to go out on a rather
unorthodox limb and try to explain all this economic "stuff"
which we seem to be caught up in. For every article where I read
"white" from an experienced market person or intellect
or guru, I then read an article "black" which states
entirely the opposite, and with an equally intellectual and seemingly
strong base of information to support his/her viewpoint.
I currently believe the explanation
lies simply in human psychology. In mechanical systems, transitional
states which lead to a break down usually occur along fixed physical
and known quantities or levels. The stress or fracture point
of material, the temperature swings a material can withstand,
etc. The fracturing or breaking occurs along these known parameters,
usually. The human being is much more resilient. But equally,
the human is much more subject to perceptional aspects and thus
any fractural stressing points are not fixed and known. They
are likely more adhering to the chaos theory. I currently believe
we are in such a period of complexity where the human psychology
in the West will determine the marketplace. Of course this does
not occur in a vacuum - the macro economic parameters must also
accommodate the raw numbers.
On paper, the Roach's of this
world grind numbers and look at GDP and percentage of debt and
compare it to historical data, etc. etc. In their eyes, the US
and other western States are treading dangerously high debt loads
along with gross trade imbalances and savings next to nothing.
Indeed, this is a "cocktail of doom" on a pure numbers
basis. But the consumer, being a complex and usually rather irrational
animal, would not know a GDP from a MPG from a QED. You know,
it's just numbers, it will be alright. We've always made it through.
This is exactly my point. The
psychological "tipping point" has not been reached
yet. The chaos principle has not yet kicked in. From a purely
rational and logical point of view, the State could curb outgoing
costs, could have raised interest rates long ago to curb consumption
and increase savings, etc. It was not done. The consumer
could have simply stopped buying on credit, paid down existing
debt, etc. Alas, we are human and lazy and think the good
times will last forever.
And that is maybe the key word
- "think" - so long as people think that things will
work out, maybe they will. But as soon as the mass psychology
tips too far to the "What have we done? This is not sustainable
and is pure insanity" will the markets react, and likely
also too far to the other side.
Currently we just don't know
"how far to the other side" things might tip and it
is exactly that fear which drove that grandfather to write about
gold as in investment. I think that is also why gold and silver
are coming back in vogue. I believe people intuitively feel that
things are "out of whack" and not sustainable at their
current pace respectively imbalance. I also believe that western
government officials know this current state of fiscal affairs
is currently VERY precarious. They are trying to macro-manage
and massage the data to keep the masses from not tipping over
into mass hysteria on the down side.
I truly believe they are deathly
afraid of this scenario. But strangely, they show little desire
to truly tackle the logical issues which would deflate this potential
tipping point. It sort of reminds me of a sanatorium where all
are insane but nevertheless the people inside expect one of them
to stand up and lead them out. It will likely not happen. Which
reminds me: What is the definition of insanity? Doing the same
thing over and over again while expecting different results.
Our fiscal and monetary officials are now classified as insane,
to my way of thinking.
Whenever the tipping point
does come, then I believe the final rush will be into commodities
and not more printed paper, commonly referred to as "money"
and electronic debt. By that time, "money" will be
referred to as toilet paper and DEBT will be the nastiest of
four letter words.
People will be looking for
and asking for and demanding tangible assets.
12 December, 2004
Randolph Buss
http://www.dinl.net
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purposes only. DINL is not a registered financial advisor in
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