Agora Financial’s Rude Awakening

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Pittsburgh, Pennsylvania

• Gold mounts assault on the $1,000 per ounce mark,
• China buys $50 billion in “alternative reserve currency,”
• Death creeps like a “thief in the night” and plenty more…

Eric Fry, reporting from Laguna Beach, California…

The Good Book tells us that death comes like a “thief in the night.”

But death is also like a set of rogue waves…at least for those who remain. The death of anything precious – whether that be life, love or a bull market – occurs in the twinkling of an eye. But the response to the death of something precious is anything but sudden. Instead, it is protracted, agonizing, confusing and uneven.

One moment, you tell yourself you’re over it; the next moment you’re watering a snapshot with tears. One moment, you’re celebrating the joys of the past; the next moment you’re mourning the foregone joys of the future. One moment, you’re grateful you’ve recovered some of your capital losses; the next moment you’re lighting a candle for the capital that is still missing in action.

So I say that the experience of death – for those who are still living – is like a set of rogue waves. There you are, just splashing in the gentle surf when, all of a sudden, the first huge wave sweeps through. Bam! Death arrives. It’s not YOUR death, but some precious part of you is gone forever. So you’re pulled under the wave; you’re tossed around; you can’t breathe; you think you’ll never see the blue sky again.

But then, just as suddenly, you’re bursting above the surf…just happy to be breathing. Everything is fine and safe…until the next wave. Rinse and repeat. After the last wave finally passes through…and you’re still breathing, you usually emerge from the surf with a combination of gratitude and resolve. Grateful the experience wasn’t more painful; but resolved to avoid any similar pain in the future.

In life, avoiding the pain of bereavement is all-but-impossible. The death of a loved one is just that and there is no way around it. In love, avoiding bereavement is possible, but not altogether satisfying. You avoid agony by avoiding ecstasy. Mick Jagger may have said it best when he sang, “I just can’t pour my heart out to another living thing…I won’t cry when you say goodbye, I’m all out of tears. I won’t die when you wave goodbye; I’m out of tears.”

But what is love without risk? Perhaps it is merely “like” or “you’re a neat person.” Without risk, love will never say, “I miss you so much I want to cry…. I love you… I miss you…I can’t stand not seeing you tonight.” And without risk, love will never say these words and then sleep with your best friend. You can’t avoid it. Either you take the risk or you don’t.

But financial markets are a little different than life and love. There are similarities, of course. The death of a bull market also arrives like a thief in the night. And the sufferings of investors also resemble the fate of swimmers in the path of rogue waves. But there is one major difference: the investor does not HAVE to remain in the water until the wave approaches. The very same reckless abandon that animates relationships, nurtures passions and, in short, makes life worth living…is the same quality that causes investors to lose a fortune.

There’s no romance on Wall Street folks. There’s no place for reckless abandon. There’s no reason to suffer bereavement for your capital. Participation is purely optional. So when things start looking a little “sketchy,” it’s perfectly okay to back away. It’s okay to cash in a few chips.

It’s also okay to buy an asset that does not trade under the stock symbol, “GS” or “BRK/A.” It’s okay to imagine that things might not go perfectly. In fact, it’s not only okay to imagine adverse outcomes, it’s also okay to plan for them. Mr. Market will not notice if you’re getting intimate with another asset. And even if he did notice, he would not care.

Gold, the ultimate “other asset” has been making a bit of a move lately. We have no idea if this recent move is the start of something new or just a “jiggle,” as Jimmy Rogers would say. What we do know is that gold is nobody’s fool. Like a kind of monetary prenuptial agreement, gold exists to settle the score when things go badly. Gold also exists to settle the score when governments become unfaithful stewards of the currencies they issue.

About two weeks ago, Byron King, editor of Energy and Scarcity, expressed thoughts like these to his subscribers. Byron did not know that the gold rally he anticipated would occur almost instantly. But now that it has, let’s take a closer peek at Byron’s analysis…

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——————————————

My Favorite “Mistake”
By Byron King

The price of gold has had a solid triple since about 2001, when an ounce would set you back a mere $300 or so. (Remember that? Oh, the good old days!) For the past year or so, however, gold has been stuck, trading in the $900-980 range. It goes up a bit, down a bit.

At this level, gold isn’t overly dramatic. We haven’t seen any really big moves one way or the other. The big moves will happen, eventually, I believe. We just have to be patient.

Why do I believe that gold will soar? Well, we’re still in the early chapters of the overall “gold story.” The plot is still forming, although I believe that all of the main characters are on stage.

We have excessive U.S. government spending. It’s out of control, to all intents and purposes. We have the deepening federal deficit, and associated exploding national debt. We have significant monetary players overseas, like Japan and China and Middle Eastern nations, holding trillions of dollars worth of U.S. bonds and other paper — and getting nervous about it. We have a hollowed-out North American economy that’s turned into what historian Charles Maier calls an “empire of consumption.”

Then we also have the utter incompetence and hubris of upper-level U.S. politicians and policymakers. They’re collectively so out of touch that they don’t even know that they’re out of touch. We have the parallel incompetence of the Big Media, with their overall “infotainment” approach to presenting vital news to the American people.

Where’s the tragic theme? There’s this sense of denial that anything really bad can possibly happen. It’s the monetary equivalent of a Dec. 6 or Sept. 10 kind of thinking. It’s a failure of imagination at the highest levels.

And whatever does happen, there’s this attitude that the U.S. can add complexity to the system and “spend its way” out of anything. Big government? Sure, and let’s make it bigger. (Hey, let’s have the government take over health care while we’re at it.) Stimulus? Go for it. Bail out Wall Street? Of course — aren’t they too big to fail? Cap and trade, and thus cripple the U.S. energy economy? Yep, we’ll just “conserve” more energy and build lots of windmills. Right?

It’s just spend, spend, spend, spend, spend. Or control, control, control, control, control. And bureaucratize, bureaucratize, bureaucratize, bureaucratize, bureaucratize. Modern governance is all about spending money we don’t have on complexity that we, as a society, cannot afford in any sense of the word. And few of the power brokers at the top seem to think that there’s anything wrong with it. They’ll just pass another law, spend some more money.

The tragic part of this drama is that the high and mighty are setting themselves — and the U.S. economy — up for a terrible fall. Sooner or later, with all the spending and new bureaucracy, we’re going to have an implosion and see a collapse in the level of complexity. Those green “notes” that the Federal Reserve prints — with the nice pictures of dead presidents on them — will not be worth nearly what most people believe.

Neither you nor I can do anything to prevent it. (OK, write to your congressman, for all the good it’ll do. Or go to a town hall meeting, for all the good it’ll do.)

The answer, of course, is to protect yourself and your family, and save what you can. When the mighty tumble, be sure not to be standing there in the crash zone.

Joel’s Note: Maybe the government will actually get its spending back on track…reevaluate its addiction to debt…relinquish control over things it neither understands nor can positively affect…

That will be the day to throw your gold out the window. Until then, learn the best five ways to secure a few ounces for yourself with Byron’s Gold Report, right here.

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[Rude Endnote: Speaking of government spending, control and bureaucratization, many of you have already noticed the following post doing the rounds on various social networking sites:

“No one should die because they cannot afford health care, and no one should go broke because they get sick. If you agree, please post this as your status for the rest of the day.”

Hmm…how warm and fuzzy. (We’ll leave aside the obviously flawed implications of the statement, i.e. that, if you are “anti socialized medical care” you are automatically “pro people dying in the streets.”)

Indeed, it does sounds like a nice sentiment, but aren’t we skirting a rather large issue here…as in, who’s going to pay for it? America is broke, remember? Medicare is already broke…Medicaid is broke…Social Security is broke…the entire government system is broke…broke to the tune of $65 trillion in UNfunded liabilities.

So, how to meet promises with payments? Can America keep selling debt abroad? Will Chinese bond buyers, for example, agree to shoulder the cost of American’s healthcare? Not likely. Already the Chinese are growing mighty nervous about the security of their dollar-denominated assets.

Just this week the IMF announced that China signed a deal to buy $50 billion worth of notes from the fund. (For perspective, that’s about one third of what America spends each year on “health conditions related to obesity,” according to Health and Human Services Secretary Kathleen Sebelius.)

The Wall Street Journal explains China’s move away from the dollar: “The notes are denominated in Special Drawing Rights, a quasi-currency issued by the fund and promoted by China as a potential replacement for the dollar as the world’s reserve currency.”

Translation: China is sick and tired of picking up America’s tab. Evidently, other major U.S. creditors feel the same way. India, Brazil and Russia have all pledged to purchase the IMF notes. That’s money that won’t be bidding at U.S. Treasury auctions.

How about confiscating the tax revenues of future generations (more borrowing)? Is it right to spend money these people haven’t even had the chance to earn yet in order to fix today’s problems? Forget about voting on what “your” taxpayer dollars are going towards…they were spent long ago. The debate now is about how much debt to leave the next generation…and the ones after that.

And as for simply printing more money, this ultimately results an inflation tax, which tends to hit those who are already struggling to afford adequate care in the first place.

Yet, despite all this, the largest debtor in the world continues to debate ways to spend more money it doesn’t have…as if this even matters. It’s a moot point, folks. There is no money. There are only politicians telling voters they can have the best care in the world and that everyone else will pay for it for them.

Perhaps people ought to start discussing what they can afford, rather than what they think they deserve.

We’ll be back with the usual weekly wrap tomorrow.

Until then…

Cheers,

Joel Bowman

The Rude Awakening
aussiejoel@the-rude-awakening.com