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The Paper Bugs: And Then There Were None?

Stewart Thomson
Oct 4, 2011

  1. And then there were none”. –Agatha Christie, mystery writer. One by one, all of the supposedly great paper assets of safety are falling by the wayside. Yes, the US dollar is currently rallying against some of them, but the overall picture is the death of a thousand paper cuts, for all paper assets.

  2. I’d like you to remember the 1990s, when the stock market was “here to stay”, and depressions were eliminated for all time, according those who almost opened one history book, but failed at the task. Then there was real estate, solid as a credit card on a rock.

  3. The Euro was next up on the island of safety plate. It was supposed to be the showcase preview of a one-world currency, and a one-world central bank. Now it’s a model for a possible run on the banks and breadlines in the street. The Swiss Franc was supposed to be as good as gold. Now it’s been revealed as good as the amount of gold backing it, and not one ounce more.

  4. Silver was supposedly the “new gold”, the “better gold”, the “poor man’s gold”. I’d agree with the last part, because those who tried to replace gold with silver in this crisis on anything but massive price sales have found they do indeed wear the poor man label well.

  5. Gold and T-bonds are the two “last men standing” in the financial crisis ring. I’ll give you one guess as to who emerges as the winner, and who joins the rest of paper-land in the blast furnace. I’ll give the public 25 guesses, and I still don’t think they can guess the answer, let alone buy one ounce of the answer. Hi ho, hi ho, it’s closer to the bread line they go.

  6. George Soros is speaking of Western governments having “lost control”. Do you want to own gold, or promises from Gmen that have lost control?

  7. Gold took out the September 27th highs last night. That’s a significant technical event, and more importantly, a positive emotional event for those in the discomfort and pain zones.

  8. You can’t seriously be considering buying gold at, say, $3500 an ounce, “before it gets away and really goes parabolic”, but buying absolutely nothing on a $400 price sale from $1920 to $1530, can you? Just ignore the sale and wait for $3500, when it’s really safe to buy! The banksters promise that’s your “easy-ride from here” number.

  9. The crisis is accelerating into the out of control stage, while fund managers and a huge portion of the gold community are focused on booking losses in gold and related items, and making their way to kneel in front of the Gman’s massive photocopier machine, in reverent worship. What a horror.

  10. When I say, “always trade smaller than you know is rational”, I say that with a focus on reward, not just risk. The greatest wealth is built not on momentum moves, but on values plays, which means buying assets at close to the lowest possible price they trade at.  Work hard at making that lowest price…. All yours!

  11. In giant financial crises, price tends to fall in surprise moves, and to levels far below what you and I know is rational. Analysis becomes meaningless. Your only friend in this crisis is your personal ability to “go to the mat”, which is your ability to buy an asset with some portion of risk capital, at prices far below what you thought could ever occur.

  12. Even beyond gold, it will be your own character that ultimately determines whether you make it to the other side of this crisis financially intact, or whether you are ravaged by the actions of your political leaders who have “lost control”.

  13. That fact means you must trade smaller than you know is rational, or at best you become a floating cork on an all-red  price grid, headed for a personal lost decade. At worst, the period in time that extends from 2000 to 2100 AD could become the “lost standard of living” century. Are you onside?

  14. Dow Theory involves closing prices, not intraday prices. Few investors like to follow the Dow Transports, because doing so is not exciting. All real wealth building involves a level of Chinese water torture, which is why so few ever build and maintain real wealth, in the market.

  15. Click this Dow Industrials link now to view the new closing low action for the Dow, confirming the repeated closing action of the Transports. Click here now to view the key closing lows for the Transports. Dow Theory is about confirmations, but amateurs focus on non-confirmations, which I view as naturally “confirming” their obsession with calling turns.

  16. The bottom “Dow line” is that the crisis is accelerating, and the risk of system shut-down is higher now than it was in 2008, if the market were to go into crash mode. Rather than bonds, put options, and short Dow futures contracts, focus on gold ownership.

  17. October is crash month, and it is here. If the global financial system closes down, do you really expect your put options and Dow short futures to pay you anything? Even if they do, it would be in dollars, and gold could be re-valued thousands of dollars higher by the US Treasury, under direct Presidential order, if the global financial system shut down.

  18. The big risk in the stock market now is the risk of closure, not price decline, and there are a number of events unfolding that are magnifying that risk on a daily basis.

  19. The world’s investors appear like they are being herded into the dollar and bonds. Will it end differently for the dollar and the bond than how it ended for the stock market and real estate? Perhaps, but I wouldn’t bet 25 cents on that idea.

  20. Gold juniors have been smoked recently. The theory of buying high risk stocks first with huge plops of capital, and using fat profits to buy bullion later, has been revealed as total madness. Never forget the lessons of this crisis. Always place your safest money first. That means the very first purchase in any investment portfolio must be gold bullion. How many advisors really build a portfolio by starting with managing the biggest risks? To see the answer requires an electron microscope.

  21. Those who managed greed professionally and bought bullion first now have plenty of dollar profits and/or ounces of buying power to purchase gold juniors stock.

  22. The theory that gold would decline if oil declined has been destroyed by market reality. Food and energy prices are tanking, yet gold continues to power higher. Bonds are the last “paper man standing” alongside gold in this crisis. Click this bond chart link now to view the actual performance of bonds against gold since the crisis began in the year 2000.

  23. It’s very important to stay focused on gold bullion, alone, as your sole lighthouse in the crisis storm waters. I own silver, wheat, corn, uranium, oil/gas, and gold stock, but these items are all “reflation plays”. Gold is not a reflation play, or a “safe haven”. In the final analysis, gold, alone, is the ultimate asset. If you want to be an ultimate investor, you know now where your focus must be. You might have to hold gold-related items for decades, before they pay out in the way you have hoped for.

  24. You need to be able to go to the mat on gold-related items. Because so much is marked to model, it is impossible to forecast when the “reflation trade” comes into play, and thus it is impossible to forecast when your gold-related items might skyrocket to the levels you have hoped for.  As an example, oil is trading at about $76 this morning. If you buy it every $10 down, that’s something most of you can manage. There’s only about 7 entry points between the current price and zero. Everyone can handle that. If you buy here with large capital, trying to call a turn, you’ll likely fail. Most in the gold community are in a state of emotional despair, and the reason is a massive over-allocation of financial resources to gold-related items, and under-allocation to gold bullion when it goes on sale, as it is now. Those who believe that deflation is gold-negative need to ask themselves if a closed down financial system is gold-negative. Understand the difference between the reflation trade, and the “risk to the financial system” trade. The latter involves gold bullion, alone, and the question is, are you onside?

Oct 4, 2011
Stewart Thomson
Graceland Updates
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