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Credit Rating Mirages & Sovereign Illusion Defaults: Where to Perch?
We recently saw relatively new economic evidence with Chrysler, GM and other debtholders getting hammered to pennies on the dollar or nothing at all in favor of government or union ownership. Extreme economic contraction rewards intelligent saving and solvency.
So where may the trillions remaining in dollars and debts go?
The easy popular quick answer is that cash seeking preservation and safety may find its way further into monetary or precious metals like copper, gold, platinum or silver, already up as much as 574%.
We are cautious on that prospect, partly because the good book warns us Enter ye in at the strait gate: for wide is the gate, and broad is the way, that leadeth to destruction, and many there be which go in thereat. Strait is the gate, and narrow the way, which leadeth unto life, and few there be that find it. (Matthew 7:13-14)
One major aspect not often considered by the consumer is liquidity. We know our bank accounts are now insured to $250,000, and we may be repaid in dollars with more or less value. Consider institutions with trillions of dollars. Are they likely now to rush into markets with less liquidity than Apple, Coke, Exxon or IBM?
In doing so, they could drive prices up well beyond their comfort or prudence level, particularly if they need liquidity on the way out. It may take another panic or point of view before institutions do the simple math and divide 12 Trillion in Treasury Debt by 8000 tonnes of gold reserves to see $42,524 gold or silver.
It is worth noting the USA went from owning half the world supply of gold to 6% of it. Some people, including libertarian Congressman Ron Paul, have pointed out Official US Gold Reserves at Ft Knox, New York City Federal Reserve and West Point Mint have not been audited since Ike was president.
Another point of view is that many professional money managers, including the chairman of BRK/A who sold his silver stockpile, were conditioned the last two generations to think that bonds have coupon interest, real property has mortgage rent, and stocks have dividend growth, but copper, gold, platinum and silver have neither. It may take them longer to return to this point of view: I am more concerned with return of my money than return on my money. (Originally Mark Twain and often attributed to John Maynard Keynes and Will Rogers.)
The significant users of copper, gold, platinum and silver may oppose higher prices and look for less expensive substitutes, although the prospect of digital cameras replacing film may be less than new uses for precious metals in batteries, catalysts, circuits and medicine.
Meanwhile, the more likely target for cash fleeing debt and dollars might be the equity markets, in growing quality dividend stocks at values below 20 times earnings and little or no debt…
Note to readers unfamiliar with financial charts, concepts, relationships or vocabulary:
We apologize we have endeavoured to keep things simple and occasionally complexities slip in.
We have our Tortuga eManual, Spiritual Saving Seminars on the Cardinal Solstices, and Annual Seasonal Outlook available. Just email JubileeProsperity@gmail.com for more information.
Regards*Rich
