Why Gold Is The Best Defense Against A Global Financial Crisis
Jul. 13, 2015 4:44 AM ET
Business relationship disclosure: As a lifelong world traveler, Jeff Opdyke has been investing directly in the international markets since 1995, making him one of the true pioneers of foreign trading. He is Investment Director for The Sovereign Society and a weekly contributor to The Sovereign Investor Daily (http://thesovereigninvestor.com/).
Summary
° BIS and IMF have issued warnings that America's economy is not equipped to handle another financial crisis.
I live in hurricane country, South Louisiana. You learn down here that the first sign of blue skies after a 'cane passes through isn't the relief it first seems. It's a head fake - the quiet, clear eye of the storm.
The horrible truth is that it's a beautiful lie. For on its way is the backside of the hurricane, and the destruction it brings is often worse than what you've already survived.
Economies have their own analog. The financial storm passes; the regulators, politicians and populace exhale their relief … and then the backside slams with an unanticipated ferocity - just what happened after the 1929 financial crash.
Here we are today, seven years after blue skies re-emerged over America, and all is worryingly unwell. Is the backside of the global financial crisis, a crisis born of imprudent fiscal and monetary policies in America, bearing down on our shores?
That's the worry of the Bank of International Settlements (NASDAQ:BIS) and the International Monetary Fund (NYSE:IMF).
In separate reports over the last week or so, the two global finance agencies cautioned that Western economies, led by the Pied Piper of America, are ill-equipped to handle the storms that will arrive on the backside of a global financial crisis that has not yet blown itself out.
Hidden in plain sight in their reports is a clear message: Lighten up on paper assets and load up on real assets that will weather the storms, namely gold and silver.
The Global Financial Crisis
The global financial crisis is not done. Not yet.
The blue skies we're told to look at - the supposedly improving jobs market, the supposedly improving GDP, Wall Street near record highs, the strong dollar, the rebound in housing - all beautiful lies that paper over a horrible truth: Nothing much has been repaired.
We've not allowed it.
We - and I mean politicians and monetary bureaucrats - have not allowed capitalism to expunge the detritus built up during years of bubble blowing by letting companies to simply fail. We administered CPR in a crunch to keep the patient alive, but the root cause of the illness - excessive debts and government's efforts to fend off the painful yet necessary correction - here at home and across much of the Western world has not been addressed.
Sure, we have Dodd-Frank(enstein), but it's a bloated grab-bag of reactionary codswallop that makes politicians - and Big Government cheerleaders - think they've built a bulwark that will stand in ending in the next crisis. That's what government always does - react to the last problem by applying Band-Aids.
But what has really changed?
Too-big-to-fail banks are bigger today than they were before they helped bring down the economy.
As a Harvard business school study found, Too Big to Fail has itself been a failure because its onerous regulations have crushed smaller banks and allowed the problematic big banks to get bigger.
American debt hasn't decreased; it has risen by 83% since the end of 2008!!!
The U.S. economy isn't the model of health the media and politicians tell us it is. We're generating low-pay jobs in the service while losing high-paying jobs in manufacturing and, yes, technology. The stock market is in another paper-asset bubble and has reached valuations not seen since just before 1929 and during the salad days of Alan Greenspan's delusional reign.
Perhaps worst of all, the Federal Reserve has limited ammunition with which to fight a new war - be it inflation, a currency or debt crisis, an uncontrolled sell-off on Wall Street (à la China), an imploding mother of all bond bubbles, or even a simplistic recession.
Which is why the BIS, central banker to the world's central banks, announced that the world is out of options when another global financial crisis hits. Interest rates have been so low for so long that they are now the very reason for economic anemia rather than the solution they're supposed to be.
Meanwhile, debt burdens in the West and the inherent financial risks remain much too high.
"The unthinkable" the BIS concludes, "risks becoming routine and being perceived as the new normal."
The BIS takeaway: Central banks have mismanaged the global financial crisis to a large extent because they don't understand the crisis very well. They're effectively trying to cure a drug addict by pumping his system full of speed, and failing to realize the new drug is doing just as much damage, if not more.
As for the IMF … executives there are doing everything but falling to their knees and begging the Federal Reserve not raise interest rates any time soon. The IMF sees "key fault lines" across all manner of the U.S. financial landscape and that "new pockets of vulnerabilities have emerged."
Reflecting my earlier comment, large and interconnected banks, the IMF concludes, "dominate the system even more than before." Leverage has ramped up in the non-banking financial sector, and insurers have taken on more risk "and could be faced with negative equity in a downside scenario."
When the blue skies yield once again to storm clouds and the winds roar ashore again, the second time around will be worse - if only because the Fed has little left in its quiver.
A Safe Haven in the Storm
Your solution is simple: Take some money off the table. I am.
I've seen my personal portfolio increase nicely in recent years and I don't want to see it retreat if the backside of the global financial crisis roars through the economy.
You don't have to sell everything, but sell enough to keep your heart rate calm in a crisis.
I'm using the cash to add more real assets to my portfolio. I'm buying gold bullion and adding investment-grade ancient and rare European coins to my collection. I like bargains and collectible European coins as an asset class have not kept pace with U.S. coins. They're cheap.
I have written many times that gold is not an investment but, rather, an insurance policy protecting you from political and monetary stupidity.
Now is not the time to believe the sugary hype of Wall Street and spin-doctoring of Pennsylvania Avenue. The risks to your personal wealth are too high.
Until next time, stay Sovereign…
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