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January Notes from All Over
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(January 27, 2009, The Year of the Ox) Taking stock of this New Year, we find a global situation of reduced economic circumstances, in which the flow of world trade has slowed, and remedies such as bailouts and rescues are focus of the day. Is this the Gloomer’s time to shine?
The world economy continues to experience what is referred to as the curse of interesting times. The US is not alone in this economic upheaval, as most world economies have suffered slowdowns, massive credit meltdowns, insolvencies, layoffs, business and bank failures, abandoned projects, and let’s not even get started about real estate. Crunch, crisis, meltdown, or Greater Depression – call it what you will. But there is no arguing that we are experiencing the most devastating economic shakeup in the world since the 1930s.

The first rumblings were in US residential real estate, where prices peaked out sometime in 2006 or early 2007. The credit crisis of September 2007 was the first to raise awareness among the general public of the phrases “subprime” and “Triple-A.” Naturally, some bewilderment followed when it was discovered how narrow the distance was between the two - when there was any distance at all.

By the summer of 2008 the stock market was in a free fall, offering more education to the general public, and Baby-Boomer citizens in particular. This time the subject was their retirement, and the fact that the plans that were made back when both their house and 401-K were actually valuable assets, should possibly be readjusted to the more sobering reality that, given the current performance rate of their investments, retirement itself was not likely to be the endless leisure holiday previously anticipated. It might actually be a lot of work.

In September of 2008, the ‘crunch’ or ‘crisis’ grew into a good old-fashioned panic – and during a Presidential election season, no less. But even the word ‘panic’ is a bit stale for these modern times. What are we in, really? History will no doubt give our current economic state a name of its own, but as for now, our recent economic unpleasantness remains a nameless orphan.

Our Recent Economic Unpleasantness started with real estate, but the rot has spread now to the whole economy. People simply aren’t spending money - on houses, cars, vacations, meals out, new furniture, spas, or much of anything. The US consumer, for so long the savior of our economy, borrowing against home and hearth, piling up debts, and generally demonstrating a wanton spendthriftiness, finally seems spent-out. And with reduced consumer spending, it naturally follows that there are now fewer jobs for people who make and sell consumer goods.

And does anybody remember the service economy? Back in the 1990s, some wise men said that our burgeoning ‘service’ economy would be a dandy substitute for our former manufacturing economy that, in its old-fashioned wealth-generating way, served the USA well for over a century. Well, now you can forget about it, as there are simply fewer customers to serve, from restaurants to hair salons to theatres to shoe-shine stands. In short, ‘service’ has slowed, at some places, to a crawl. So another characteristic of our present dilemma is Reduced Monetary Velocity. Cash simply isn’t flowing.

Overall, things are not good. Reliable estimates are that some 10 million US mortgages either now are in foreclosure, or, barring some near-magical intervention, will soon be. Therefore, figuring three people per domicile, some 30 million US citizens are likely to give up ‘ownership’ of their current residences sometime this calendar year.

More astoundingly, some 60 million or so US citizens currently live in homes that are not worth today, in actual cash value, what is owed on them.

Ben Stein writes (New York Times, Sunday business 1/25/09):

“The age when money was a free good, available in 
unlimited quantities just for signing a note, may well be over. What 
the heck will we do when we have to start acting like mature adults? 
How will we cope with limits? With reality?”



John Hathaway, of the Tocquevlle Funds, and a very knowledgeable fellow on the subject of money and gold, wrote in his Year-End Letter for 2008:

“The investment world huddles today in the perceived safety of cash 
and treasury bills, accepting non-existent yields in hopes of further 
dollar appreciation and lower interest rates. In light of record 
money creation and fiscal stimulus, what strategy could be more ill-
advised?”


 “The unstated objective of government economic stimulus would seem to 
be currency devaluation. Success will be defined as inflation that
alleviates debt burdens to a degree sufficient to rekindle the appetite for risk in the private sector. Since nobody knows in advance how much inflation is required, it is more than likely that
policy makers will overshoot their objective. The results could well
be of Weimar proportions.”


Raymond Lai of Hong Kong writes in the 1/25/09 “Letters” page of the Financial Times,

“Fundamentals are what matters in the long run for the price of an
asset class, not its movement over the past few months or a year.
With the US having inevitably to raise more and more debts in 
astronomical amounts, does …(anyone)… really think US government 
bonds are going to remain a safe haven for an extended period? Those
who have studied history should know the fate of all currencies not
backed by anything but mere promises. Those who are not certain about the nature of gold should study history.”


But while gold is becoming more universal, the doomsday mavens are having a field day. After all, much of what they warned us of, has actually come to pass. And of all things, the New Yorker magazine has published a very funny article about them.

Ben McGrath’s article in the January 26th New Yorker magazine is entitled “The Dystopians: Bad times are boom times for some.” In it he highlights a cast of characters for the most part previously unknown to the average reader of that magazine, but probably familiar to students of gold, money, 
and economics as practiced today.


 The article devotes most of nine pages to profiles of people such as erstwhile futurist James Kunstler (the name of whose internet URL we can’t even 
mention in a family publication), “king of the goldbugs” Jim 
Sinclair, and Nassim Taleb, author of “The Black Swan,” an amazingly 
prescient tome on the inevitable primacy of randomness and unforeseeability, and the fallacy of using complex mathematics exclusively to make trading and investment decisions.




 From McGrath’s article we learn some new words, or at least, new to this reader, among them: “Doomersphere,” “collapsitarian,” and 
“peaknik,” Plus, the sheer fun of being able to eavesdrop on Kunstler and Taleb will provide you an evening’s worth of stuff to think about.


The piece succeeds because he seems genuinely interested in this dystopic crowd, as should anyone who is curious as to where our current state of reduced circumstances is likely to lead us. Today you’re certainly more likely to find true answers among this group rather than by listening to, say, Ben Bernanke or Hank Paulson.

McGrath gives many of them a fair hearing, but to soften the often dead-on incisiveness of the genuinely creative thinking he encounters, he introduces some wacky Vermont secessionists, a couple of beyond-the-grid rhubarb-wine and road-kill gourmets from Alaska, and brings up discredited names from times past, such as population alarmists Thomas Malthus and Paul Erhlich.

Thus, without actually accusing anyone of actual crackpottery, he makes sure we are cautioned against taking any of this crowd too seriously. He even finds among them a defender, in a fashion, of the writings of bomber-sociopath Ted Kaczynski.

It would spoil the surprise for you if I were to name the Ted-sympathizer, so you’ll just have to buy the magazine and read the article yourself. A lot less entertainment is often had after shelling out much greater sums than five bucks.

But enough about spending your money somewhere else – let’s get back to gold.

It would be an understatement to say that gold has increased in popularity during our Recent Economic Unpleasantness. As the ultimate safe haven, physical gold is known to provide the sleep of the secure for those with assets to protect. As for the greater masses of the un-golded, the act of flitting from currency to currency, bond to bond, or from one arcane investment strategy to another, increasingly resembles skating on very thin ice indeed.

Our business this year hasn’t yet hit the pace of 2008’s last quarter, but still continues at a rate that, until last fall, we had never experienced before. During this seasonal Christmas-to-Superbowl lull, gold bullion product availability is much improved, and we are expanding our line of inventory.

Demand for physical gold bullion continues strong. Our regulars continue to add to positions and gold buying generally is taking a higher profile than we have seen in years. In fits and starts, the idea of gold is dawning on people.

Both the Wall Street Journal and Barrons have recently spoken more sympathetically about the timeless yellow metal. The simple fact of this website being listed first in a series of online gold bullion sources by Barrons January 12th issue recently brought us a wave of first-time gold buyers.

Rather than seeing it as a dead-end, nonproductive investment, people today perceive that gold is the ultimate store of value when virtually nothing looks safe. When currencies the world over are showing a frightening weakness, and governments are universally pursuing the idea that producing more and more of those currencies is the cure for virtually everything that seems to ail us, then the only thing left of value is gold.


 

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