Quietly edging towards the exits, before the general panic

Htp: Michael Panzer, for this:

They are taking cash out of the bank in preparation for a long-haul bad time. A friend in Florida told me the local bank was out of hundred-dollar bills on Wednesday because a man had come in the day before and withdrawn $90,000. Five weeks ago, when I asked a Wall Street titan what one should do to be safe in the future, he took me aback with the concreteness of his advice, and its bottom-line nature. Everyone should try to own a house, he said, no matter how big or small, but it has to have some land, on which you should learn how to grow things. He also recommended gold coins, such as American Eagles. I went to the U.S. Mint Web site the next day, but there was a six-week wait due to high demand. (I just went on the Web site again: Production of gold Eagle coins "has been temporarily suspended because of unprecedented demand" for bullion.)

Like I said over a month ago: "this is a time for individuals to make their own quiet plans and preparations."

Global monetary inflation and the threat to peace

Last week, I suggested that we could be entering an era of competitive currency devaluation. Now, Mish sees it happening in Russia, Mexico, Indonesia - and hints of intervention in Japan. The Canadian National Post predicts a drop in the US dollar, too (htp: Jesse).

Can the Euro -already strained by member countries moving in different directions - take this pressure? A friend told me recently of an old restaurant incident involving people he knew, where first one "did a runner", then another, so that the last man left at the table was stuck with the whole bill. This is a game that punishes the virtuous.

Gold is supposed to be a haven in such conditions, but is already above its long-term post-1971 trend, as I show here. So the bold investor might buy in now, knowing it's high but hoping it'll go higher (or fearing that other things will go lower still). Others say silver, or oil, or agricultural land. "The best lack all conviction, while the worst / Are full of passionate intensity."

These are tricky times. As in revolutions generally, it's hard to see which faction will be victorious, but loss, injustice and confusion are certain: "we are here as on a darkling plain / Swept with confused alarms of struggle and flight / Where ignorant armies clash by night."

This may seem over-dramatic; but when money ceases to be dependable and deadly dull, everything else becomes much too exciting. If the middle classes suddenly find their savings wiped out by inflation, their assets generally devalued and their businesses and employment under threat, watch out.

Financial experts "miserably bearish"

This report by Jim McTague from Barron's, reproduced on the Cumberland Advisors site, gives an indication of how the money experts were feeling this month, on their annual fishing trip in Maine:

[David] Kotok's diagnosis of the cause of the gloom that permeated the crowd was this: Most of them see more economic downside than upside; we don't have functioning credit markets; banks and big Wall Street credit intermediaries are either dead, wounded or on life-support; housing is a wreck; and the auto industry "is done."

Once the economy stabilizes, it will take many years to fully recover, he said, because no strong growth engines are evident. "That's why people are so gloomy! They see no upside!" He personally is investing client money in agricultural plays because, he says, the long-term price of food is trending up. He likes bio-companies whose products are geared to an aging population. And he likes Asia as an investment destination...and he doesn't like much else.

I conducted in-depth interviews with a dozen of the participants. They all perceive the economy in the early stages of a multiyear recession that will be the most painful downturn since the 1970s. The housing market, which experts once predicted would recover in 2008, may not recover even in 2009. Credit woes on Wall Street will begin to inflict real pain on Main Street.

We're already seeing the impact on housing, though the worst may not have happened yet; and I think stocks and bonds are still in something of a fool's paradise. I'm sticking with my guess that in retrospect, we will see that the upturn began in the Spring of 2010.

Investment in agriculture sparkles

Watching the idiot's lantern last night and who should be interviewed (on the subject of food prices and speculation) but Hugh Hendry, about whom I wrote last year. And his CF Eclectica Agriculture Fund currently ranks top out of 317 in the sector (up 35% in a year).

Of course, the poor are being hit badly (not the poor here, who aren't really poor). Hendry argues that rising food prices will encourage more (and much-needed) investment in agriculture.

And so say all of us...

Investment experts Jim Rogers and Marc Faber agree with Jim Puplava that (a) the US will try to reflate out of its troubles, and (b) cutting interest rates to achieve this, will lead to worse trouble.

According to Bloomberg today, "Rogers said he is buying agricultural commodities and recommended investors purchase Asian currencies including the Chinese renminbi and the Japanese yen.

Faber, publisher of the Gloom, Boom & Doom Report, said he is buying gold."

DOW 9,000 update

At the time of writing, the Dow stands at 13,493 and gold at $713.70/oz. Adjusted for the change in the price of gold, the Dow has fallen by just over 10% since July 6.

Agriculture on the up

An interesting report this week in the International Herald Tribune about the coming boom in agricultural commodities, powered by demand from emerging economies.

Meanwhile, cattle are moving off the Argentine pampas to make way for crops of soybeans and corn. The cattle are being crossbred to cope with the rougher conditions they'll face.

More on Marc Faber and agricultural land

Zee News reports Dr Faber's continuing support for the agricultural sector, in which he himself has invested:

Faber... owns agricultural land and plantation stocks in Indonesia, Thailand and Malaysia.

Gold and farmland: further points

The Daily Reckoning Australia has very stimulating thoughts today.

(1) Dan Denning quotes a friend (David Evans) on the divergence between physical gold and shares in gold mining companies:

If the price of gold rises a lot, gold shares have greater leverage and will tend to go up more than gold bars (the cost of mining the gold stays constant, but the price of the mined gold goes up). When the general public gets involved and everyone just wants gold, gold bars tend to appreciate faster... The obvious strategy is to own gold shares now, and when every man and his dog is clamouring for gold, sell your gold shares and buy gold bars to enjoy the last part of the ride.

So when I looked at gold dropping with the Dow, maybe I should have also taken a peek at what gold shares were doing at the same time. For example, Newmont Mining opened yesterday at $40.30 and closed up at $41.07, whereas gold for delivery in December fell by $2.70.

(2) Chris Mayer looks at agricultural land in Brazil and Argentina, in the light of a hungry and resource-limited China:

In Brazil and Argentina, you have one of the few places left in the world where you can acquire large tracts of land in temperate climates with plenty of rainfall to support large-scale agriculture. Already, the two countries produce about one-third of the world’s agricultural commodities. As China is the world’s workshop and India its back office, so has South America become its breadbasket.

Maybe this is why Hugh Hendry and his colleagues have just launched the Eclectica Agriculture Fund.

The money supply, the stockmarket, gold and land

Here's part of an interesting interview with a hedge fund manager in 2003, reproduced in October 2005:

An old interview with Hugh Hendry (2003)

Hendry: What's happening today happened 300 years ago in the French economy when John Law, another Scotsman, was allowed to launch the first government-sanctioned bank, which replaced coins with paper money. Commerce boomed. Politicians recognized this correlation between issuing more money and people liking you. They issued more and more money, but it was a false promise. Nothing intrinsically was being added to the economy except promises, which could never be redeemed. Selling by speculators caused the stock market to correct. The correction encouraged the authorities to print more funny money. Ultimately, the continued pumping of liquidity destroyed the economy, the stock market and France's currency.


More recently, the U.S. came off the gold standard in 1971 and the Dow Jones Industrial Average bottomed in 1974. Over the next 25 years, the Dow goes up 20-fold because every period of economic anxiety brought forward an orthodoxy of generous liquidity. Money has to go somewhere. It seeks to perpetuate itself by going into a rising asset class. This time, it is financial assets. Just like the Mississippi stock scheme in 1720 and the South Sea Bubble in London at the same time.

Hugh Hendry set up Eclectica Asset Management in 2005 and like others I've mentioned before, seems to have discovered an enthusiasm for agriculture; Eclectica's new Agriculture Fund is detailed here.