Warum gibt es etwas und nicht nichts? (Why is there something rather than nothing?) - Leibniz

Monday, September 28, 2009

Where to turn, for financial security?

Richard Bookstaber (whom we've met before, here) looks at asset allocation and makes a point he's made before: in a crisis, everyone wants out, and the relative merits of different assets are ignored in the dash for cash. Provided cash (at bank) hasn't itself become risky - and after last year, that's not a given. Even outside the bank, there's inflation, devaluation and also, potentially, the fate of the Confederate dollar.

Leo Kolivakis comments, "I happen to believe that diversification is still important, but loses its power as huge inflows are going into all sorts of public and alternative asset classes."

That's the problem: we no longer know where to turn. As Kunstler comments, "the most perplexing part is that there hardly seems any safe place to preserve one's savings."

How about the smart, nimble operators? Investment guru Marc Faber spends his time looking at liquidity flows, trying to predict the next sudden tide and get in beforehand - not a game for the type of clients I have usually advised. And even he appears to be readying himself for the worst, "a total disaster, with a collapse of our capitalistic system as we know it today."

Recently, I seem to have been reading more commentators tending to the view that we are heading for that Mises "crack-up boom" - outlined here nine years ago, for example. And worse:

"And 'mid this tumult Kubla heard from far
Ancestral voices prophesying war!"

The great pleasure gardens of China's Emperor took some 40 years to build, in the first half of the eighteenth century. Vast, complex and exquisite, they were testimony to the wealth and power of the Middle Kingdom, only to be methodically destroyed in an act of punitive vandalism by the French and English in 1860. Premier Zhou Enlai decreed that the ruins should remain unaltered, a monumental lesson for the Chinese about the Western powers.

Of all the curses on humankind, long and vengeful memory may be the worst.

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