"The Man In The Moone" by Francis Godwin, Bishop of Hereford (1620)
I noticed years ago that you get the crispest explanations from someone who's busy trying to get to their main point - Isaac Asimov's "Extraterrestrial Civilizations" (1979) is an excellent example. Even if you disagree with the conclusion, you have learned so much on the journey, and so quickly.
Doug Casey in DollarDaze yesterday summarises the theorised relationship between the money supply and the business cycle, plus subprime mortgages and hedge fund gearing, as part of the argument for gold mining stocks. Again, you may not agree with him that gold "is going to the moon", but in the meantime he has given us a clear and concise exposition of two important economic topics.
This is getting very 1920s/1930s - Argentina as the home for the jet set. Here's Doug Casey:
...we're at the end of a 25-year boom. It's gone on more than a full generation now. And I'll tell you how it's going to end: It's going to end with a depression, and not just a depression; not just another Great Depression; it's going to be the Greater Depression...
I think what you ought to have is your citizenship in one country, your bank account in another country, your investments in a third, and live in a fourth. You've got to internationalize yourself...
What am I doing about this? I've been all over the world. I guess I've lived in 12 countries now. And out of 175, I've been to most of them, numerous times actually. What am I doing, where do I want to go, where am I living? Well, in New Zealand.... But... the currency has doubled and the real estate within that currency has doubled at least. So I'm getting out of New Zealand. Where am I going now? I'm going to Argentina...
I wouldn't touch Europe with a ten-foot pole...
...everything in Argentina costs between 10% to 30% of what it costs in North America. That's correct. It's that cheap... So you're getting a massive immigration from rich Europeans that can see the handwriting on the wall and like it down there. And I really like it down there. It's just a great society, great society, great place to hang out, prices are right. I mean this can solve most of your investment problems right there, just by transplanting yourself, if you've got some capital.
This may sound like it's only for the really rich, but I have had perfectly ordinary clients sell up their over-priced ordinary British homes and move permanently to the Far East. For personal reasons, I can't be a globe-trotter, but international relocation is happening on a much bigger scale than London to Provence. For a while, I subscribed to one magazine, "International Living", that looks for bargain locations to spend the rest of your life - Panama appears to be a good one, if you dress conservatively and mind your own business.
So although Mr Casey talks dramatically in a non-Brit sort of way, he is backing his judgement with his considerable money; and ordinary types like ourselves currently have options that we could scarcely have dreamed of before WWII. Whether we will always have such options, is another question.
A trenchant interview with Doug Caseyin Financial Sense today. Some highlights:
At some point there’s going to be a panic out of the dollar. When it happens, it’s likely to be the biggest financial upset since the 1930s. Part of the question is what they’ll panic into. The euro? As I have said many times, if the dollar is an “I owe you nothing,” the euro is a “Who owes you nothing?”...
If an American doesn’t get significant assets outside the U.S. now, it may be impossible in the future. The best thing to do is buy real estate abroad, since it’s currently not reportable, like bank and brokerage accounts, and they can’t very well make you repatriate it...
We’re now experiencing a lot of monetary inflation, which eventually will be reflected in price inflation. What’s really going to tip this over the edge, however, is the rest of the world deciding to get out of dollars. A lot of those $6 trillion abroad are going to come back to the U.S., and real goods are going to be packed up and shipped abroad. Inflation will explode...
Markets are about trade... At some point the Chinese will want payment in something other than dollars. In the meantime the yuan will go higher...
What do I think is likely? Certainly a depression, probably of the inflationary type. But if there are widespread defaults in the mortgage market because of a housing bust, hundreds of billions of dollars worth of buying would disappear, which is deflationary. You could have both things happening at once, in different parts of the economy...
I hate making predictions, but if things continue down this path, I think we could see gold going over $1,000 within the next 12 months, and maybe even before year-end. And then the mania starts for the mining stocks.
Bill Bonner, in The Daily Reckoning Australia yesterday, quotes Paul van Eeden as saying that gold has kept pace almost perfectly with inflation since the 1920s.
My post of 29 July did some figures with US gold stocks, the price of gold and the money supply, and came to an arresting conclusion. A kilo of gold costs x dollars, yet at that price, all US gold could be bought for 1/66th of all US dollars. There'd be a huge pile of spare paper money left over, completely unrelated to gold.
From one point of view, the current gold price is not surprising, if gold is merely one tiny part of the overall economy governed by the dollar system. Yet the ratio in the previous paragraph - 1:66, which is the same as 1.5 cents to 1 dollar - is almost exactly what The Mogambo Guru (Richard Daughty) said is the difference in purchasing power between one modern dollar and one 1913 dollar. According to him, the modern dollar is worth two 1913 cents.
Perhaps Doug Casey is right: if trust in the dollar collapses, gold could be "going to the moon".
Let's combine the recent mystery about Britain's massive investment in US Treasury securities, with the worldwide asset bubble.
This is Doug Casey speaking to the Agora Financial "Rim of Fire" conference in Vancouver this week, on YouTube (thanks to "Daniel" for alerting me to it).
His view on American bonds? "A triple threat". Why?: (1) interest rates are very low and are going to become very high; (2) credit risk: he says he would not wish to be a lender now, with so much debt everywhere -he refers to a possible "financial credit collapse"; (3) currency risk - he says dollars say "IOU nothing", and compares them to the Argentinian peso 10 years ago.
So, why has the UK invested an extra $112 billion in US-dollar-denominated Treasury bonds, between June '06 and May '07? To dramatise this figure somewhat, let's look at the Forbes list of the richest people in America (Sep 2006): the top 5 billionaires are worth $155 bn between them. Britain is now into America for $167.6 bn. The increase in the last year alone is more than the net worth of Bill Gates and Warren Buffett combined. I wonder (rhetorically) whether they would bet their entire fortunes on US Treasuries?
We already know what Casey thinks about cash held in dollars, and he regards stocks and property as overvalued, too.
So what does he favour? Gold. "It's not just going through the roof, it's going to the moon". He's been a gold bull for the last 7 years. He picks mining stocks, but warns that they are very volatile, even more than Internet stocks. But there are other ways to own gold.
Meanwhile, is there anyone here in the UK who is willing to grill the supposedly independent Bank of England (it wasn't the British Treasury, after all, it seems) about the rationale for its vast punt on "triple risk" US bonds?
Let's finish with Bill Bonner's keynote speech at the same conference, on the difference between the real boom of the Far East and the Ludwig von Mises "crack-up boom" of our inflationary economies:
"The Man In The Moone" by Francis Godwin, Bishop of Hereford (1620)