Global Wealth Destruction as Gold Rises

The following is an edited exchange between NS (a new starter who joined my team less than a year ago), LT (my lead trader), and JOE (an “Average Joe” who has a 9-to-5 job and makes $100,000 a year). This post is published without market timing, and is edited to include our “Yeehaa” catchword just for the fun of it, if we may. What you are going to do with YOUR money and YOUR wealth is entirely *YOUR* decision. bhc investment has no products and newsletters to sell. And this is a completely add-free website. We are doing this as a hobby while navigating ourselves in financial markets. All we are sharing here are our thoughts on financial markets, the macroeconomy as we see it, and positions that we put our money in when looking through the “windshield,” which we won't proclaim will always work out the way we perceived when judged through the “rear-view mirror,” which is always clearer. We are happy to keep looking through the “windshield,” because we knew it is through the “rear-view mirror” the herds look.

“In the business world, unfortunately, the rear-view mirror is always clearer than the windshield: A few years back no one linked to the media business -- neither lenders, owners, nor financial analysts -- saw the economic deterioration that was in store for the industry. (But give me a few years and I'll probably convince myself that I did.)”

-- Warren Buffett

Since making our exit from one of the emerging markets [1], we have consistently and repeatedly reminded our readers that we have no interests in stocks in the present inflationary recession, one that we have been predicting all along [2, 3]. We made our first non-stock position in Gold back in September 2007 [4]. Since mid-September 2007, we have been positioning ourselves in commodities and currencies [21, 23], particularly Natural Gas [5], Crude Oil [6], and agricultural commodities [7]. We believe the Fed, the media, and mainstream economists are MISINFORMING the general public about the state of the US economy, unemployment, and the extent of the credit crisis -- heavy bags of craps have been unloaded to investors/traders who can't be bothered to do their share of homework, as well as the SWF's. We believe we are in the process of a paradigm shift [8, 9, 10, 11, 12, 13], one that not only participants in financial markets should be aware of but also the general public, the working-class, the middle-class, the husbands and wives, etc -- we are essentially in a process of wealth destruction that's now happening at a global scale. Those who saw it coming will stand to profit, instead of seeing their wealth vaporising.

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NS: Hey LT, I can't access EWI [14]...

LT: We have ended our EWI subscription NS.

NS: Oh really... Gold has yet to prove either Boon or Prechter is right. Don't you think we should follow up what Prechter has to say [15]?

LT: Prechter is likely to stick to this guns until Gold makes a new all-time high, I guess.

NS: What about Boon?

LT: Boon started buying Gold when it was $730 [4], when nearly everybody thought the Dow was heading to 15,000, 17,000, or 18,000. You know, the herds never stop heading to the wrong direction. But Boon was trying to be clever to time the seasonal peak back in February earlier this year, which was now clear to have happened in March with hindsight. We gave back some of the gains we made to that trade. He called it his idiotic moment in 2008 [16], which was also his first stop out in 2008.

NS: That's pretty idiotic really, with hindsight. He shouldn't have traded the volatility.

LT: Well, hindsight is a wonderful thing.

NS: Sure.

JOE: Can I ask you guys a naive question?

NS, LT: Go on.

JOE: Why Gold? My innerself is telling me that I should own some commodities. [Note: we don't see Gold as a commodity [22], but we are not correcting what JOE is saying here.] But these things are pretty boring and dumb, and they don't generate revenue and profit, is not like a company you know. What's so good about owning Gold?

LT: We are in a paradigm shift JOE. We have been predicting all along that this US recession will be inflationary [2, 3]. We are in an environment of negative real interest rate.

JOE: What does that mean?

LT: Meaning even if you are keeping your cash in the bank, you are still getting POORER.

NS: You make $100,000 a year. You were able to buy 2,000 barrels of Oil when Oil was trading at $50. As Oil is now trading at $150, for example, you can only buy slightly more than 666 barrels.

“...money is demanded for its usefulness in purchasing other goods, rather than for its own sake,”

as Ludwig von Mises [17] argues. The fact that you are making the same amount of money a year but the amount of goods you can purchase is reducing can only mean one thing -- you are getting POORER!

JOE: That sux!

LT: Yes, that sux, of course. Now, let me ask you one very simple question: Queen Elizabeth has £25 millions while Mr LT Nobody has no paper currencies but he has 100,000 ozt of Gold in his vault. Who's richer?

JOE: Errr...

NS: £25 millions can only buy you just under 53,000 ozt of Gold JOE, judging by Gold now trading at $950/ozt and £ to $ of 2 to 1.

JOE: That means Mr LT Nobody is richer than Queen Elizabeth?

LT: Of course Mr LT Nobody is richer than Queen Elizabeth. It's always the one who has the most of amount of Gold who is the wealthiest. Gold is money, as it has always been [18]. But the best part of this is that, Queen Elizabeth's £25 millions are going to buy Her Majesty less and less amount of Gold if the Queen continues storing Her Majesty's purchasing power in the British Pound while Mr LT Nobody sees his wealth growing as Gold continues to go up. This is a wealth destruction process happening at a global scale, which in essence is transferring wealth from the herds who are blissfully ignorant of the crisis we are in to “forward-looking” Gold investors like me! :) Yeehaa...

NS: JOE, you and every Average Joe out there are getting POORER each day when Gold is going up against all currencies, which is happening NOW.

JOE: That sux!!!!

LT: Yes, that sux big time. Don't blame us. Is the central bankers who created such a situation. We had a global credit boom that lasted 20 years. That has now ended. The chickens are coming home to roost. When Gold was trading at $850, Boon said [19]:

“With an on-going liquidity problems as well as contracting US economy and rising inflation, I don't understand how on earth can governments make bonds more attractive than 'real assets.'”

The Fed can talk hawkishly, but it is not going to raise interest rate any time soon and bond prices are beginning to be traded down alongside stocks [20]. And let me tell you this, though you better double check it with Boon, that is: even if the Fed does raise interest rate, that ain't going to tank the Gold market either -- that's a myth that Wall Street 'analysts' and mainstream economists are yet to figure out.

JOE: Why is that?

LT: ...

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References:

1. My Secrets
2. To Zoe_H
3. Inflationary Recession
4. Dow Down 366.94 Points
5. Natural Gas: Up Up Up!
6. Oil Hit $118
7. Soybeans
8. Paradigm Shift
9. Humble Suggestions
10. Humble Suggestions, Part II
11. Humble Suggestions, Part III
12. Humble Suggestions, Part IV
13. Humble Suggestions, Part V
14. Boon vs Robert Prechter, Part VI
15. Prechter: Gold and Silver
16. How I Burned 84.18% in 5 Days
17. Ludwig von Mises
18. To Jay
19. Hidden Buffett Wisdom
20. Gold: What If Gold Gave a Party and Everyone Came?
21. Precision Timing GBP
22. Boon vs Robert Prechter, Part III
23. Made 140.74% in JY