Those in the know have nowhere to go
Warren E. Pollock
In conversation with an author of a New York Times bestseller, on value investing, it was no surprise to me that he characterized the market as "terrifying." Me being a cynic, It was not really surprising to find that he was allocating his private fund money, big money against his own perceptions and metrics.
Again no surprise, he was investing "other peoples money" against every word and concept printed in his best selling book. He could not hold "other peoples money" without providing return even though by his own analysis the risks were horrifically terrifying.
Many CEOs, and insiders, know that their companies cannot provide a return on investment to compensate for risk so they have been cashing out as quickly as possible. They know that the company they manage cannot grow to support current valuations. Other people's money fills the gap here as well.
Bill Gross, a bond guru, has the ethics and guts to tell us that the financial system approaches "high noon." However, be assured that other people's money will be lost in his products, should high noon arrive.
Central Bankers like Malcolm Knight, the head of the Bank of International Settlement, know that markets can become vulnerable and dysfunctional. It would be a reasonable bet that he and his peers know they are behind the controls of an Economic Chernobyl that no man can fully understand or can truly influence.
Those In the Know have Nowhere to Go
In a financial world where many people are in the know, why would most stay in bonds, stay in stocks, stay in paper currencies, be in debt, and own someone else's debt?
The answer to the question is simple. Wealth has been trapped. Those in the know have nowhere to go!
Wealth has been trapped by a system and by perception as well.
Very smart people cannot find any place within the mainstream perception that can store wealth in bad times and hold value. If you own a gold coin show it to people around town. You will find, as I have, that few people have even seen one.
The term "Gold Bug" describes part of that perception.
THE INVISIBLE HAND
Here resides the bottom line, A dysfunctional economy with poorly functioning markets can stay intact for a very long time.
Be assured that at some point an "invisible economic hand" will eventually seek to correct the accumulated imbalances.
Dislocations will occur as the non-functional status quo gets replaced with a more sustainable system. The Federal Reserve calls this "Constructive Destruction."
Dislocations, the process of constructive destruction, are incredibly painful to people. On an individual level "Constructive Destruction" usually means unemployment, not being able to provide for your family, and/or asset loss.
A major macroeconomic task of the invisible hand during constructive destruction will be to properly value any wealth that has been trapped into a poor investment.
Once the process has been completed stocks will have good PE ratios, people with savings will be able to live on the interest, and most people will have jobs.
SO WHERE DOES GOLD COME IN
My conclusion is that physical gold stands a very good chance of having its purchasing power remain either intact or amplified after an adjustment.
I am not viewing physical gold as an investment and I am not measuring it to the dollar. It does not matter if an adjustment never comes, the metal will survive my time on this earth and will provide value to someone else.
I am holding gold because I want to have something left over should my Real Estate, stocks, bonds, foreign currency, commodities, all blow up in a dislocation. As I have hoped to explain, Many people in the mainstream investment community, not just the bear market community, see an economic dislocation on the horizon.
After an economic dislocation, Gold will provide purchasing power to buy assets that are properly valued or even undervalued.
(1) I have
drawn my own conclusion regarding gold and gold ownership After
many challenging discussions with my friend and peer, John Mackenzie.
is a guest author on Jim Sinclair's Mineset and has been published in journals
including the Journal of Homeland Security.