Tuesday, April 27, 2010

Heads down

May I draw your attention to an interview with Dr Marc Faber on CNBC on 21st April (see videos on sidebar in Broad Oak Blog)?

Dr Faber is a highly respected commentator and his predictions of economic disaster, though cheerily delivered, are perfectly serious (he has a European way of giving bad news with an ironic smile).

He believes - and has done for a long time - that governments will try to inflate their way out of the long-developing overspending mess, and that eventually all "fiat" money (currencies not backed by anything that restricts the growth of the money supply) will become worthless. Then there will be a crash of epochal proportions, and the social consequences will be very painful (which is why his website is called GloomBoomDoom.com).

As he says in this interview, his view is that gold and silver are not to be considered as commodities like oil and corn, but as a form of money that governments cannot multiply as they do with their sovereign currencies. He advises (please remember that I cannot advise you here on this blog) investors to build up their holdings of physical gold and silver - "physical" because there is much speculation in this market and many times more in contracts than can be actually delivered. After that, maybe some investment in precious metal exploration companies.

Given Dr Faber's view of the real practical consequences of economic collapse, I think it is not irrelevant that he lives in Chiang Mai, northern Thailand, an area that can provide the needs of life locally and that is close to several international borders.

We may still have time - Dr Faber thinks that with continued monetary inflation, we could still see markets go up for quite a period; but from all that he says, and all that I have thought (and said) for years now, we appear to be facing a prolonged period of high volatility and the danger of sudden and savage reverses in valuations. Until inflation takes off, it can be good to hold cash; but if Dr Faber is correct, ultimately cash will be the worst possible investment.

I would also say that before considering your investment portfolio, there may be other issues to resolve - where you should live, what work you should do, what skills you should acquire, security precautions you should take, emergency provisions you should stock up with. Even if disaster does not strike with full force, big rises in fuel costs would transform the conditions of our daily life.

It is curious that we are now expected to be exercised by climate change issues, yet the media have yet to come to grips with our economic climate. It is still not generally known that the good old days (as remembered) of the Conservative boom in the 1980s (and mid-90s) was because of excessive bank lending, which caused both housing and the stockmarket to become heavily overvalued. This process of inflating the economy until it pops (as it must, one day, but who knows exactly when), has being going on for decades.

I've tried to get the message across to the public; perhaps I should spend my time quietly advising my clients, instead. Anyhow, I've told you, now.


James Higham said...

investors to build up their holdings of physical gold and silver - "physical"

Would that be gold or gold alloy?

Sackerson said...

Hoho. Caveat emptor.

James Higham said...

What's silver at these days anyway?

Sackerson said...

Like gold, it seems it's above trend; but not so much as gold. Both, at this stage, look like insurance rather than investment.


Paddington said...

Ok. You have say 1,000 gold coins at home, and the collapse comes, with social unrest, unemployed military, etc. How exactly do you exchange those coins for products which are no longer being made? Or, if one coin becomes the value of a house, how do you make change? One idea I had was to put away a large stock of whiskey. That's a trade good.

Sackerson said...

I don't think it'll be that kind of collapse. Modern society is too complex and interdependent - we won't be paying the doctor with live chickens. I think we may see some kind of currency restructuring that effectively wipes out the savings of the middle class, plus mass unemployment and its unpleasant side effects.

But there may be disruptions to supply while the new system for feeding (etc) us all is set up, so personal emergency and security provisions are appropriate.

Gold, silver and other portable forms of wealth are ways for the better-off to have something that may eventually be exchanged for whatever new currency we have, when it's all over.

Anonymous said...

Well done!........................................