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#1 |
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Administrator
Join Date: May 2007
Posts: 4,051
MercBucks: 965,024
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Gold, MF Global, and Hyperinflation
First let's start with gold. Lots of people are scared, but see the chart below. We're at the bottom of the price channel -- perfect time to buy -- and all the fundamental factors are still the same (money supply is still rising; public debt is still rising; government still sucks and shows no interest in fixing this).
![]() Now, if we do not get a bounce off this channel and if in fact we break lower, that may be a signal to liquidate until bullish signs emerge. I dislike the idea of that, because I think the case for gold is extremely bullish now -- more than ever before -- but I don't like to disobey price. Because I have an outsized position in gold (relative to my overall personal wealth, that is) I do favor some management based on technicals. If you haven't bought any yet, now is the time. Start with physical gold in your possession, then get some allocated gold in a vault if you want to aggressively accumulate and develop a larger position. I use Bullion Vault. That is an affiliate link, although I'm happy to recommend them and think they have a very valuable service. Now, moving on to MF Global. MF Global is a futures brokerage company. For those who may not be familiar, futures contracts are basically people selling promises to deliver some commodity -- oil, wheat, corn, gold, etc -- in the future. So, a farmer can promise to sell you a whole bunch of corn six months from now, and take payment for it today. MF Global is a broker that helps that transaction take place. MF Global recently collapsed and took their clients money with them. We are talking a lot of money, I forget the exact amount but basically enough to create serious problems for many farmers and speculators who had money invested with them. MF Global is NOT an isolated incident and there will be more situations like this. As this situation spreads, people are going to lose faith in the futures market and take their money out of futures. A contagion can then emerge that will spread to stocks, banks, and ultimately the dollar itself. This is how global hyperinflation can occur. Now, notice the current sentiment in the market. The average person does not know or care about MF Global. They may have heard about gold and are seeing its price plunge, glad they didn't fall for the hype. They like their US dollars. This is exactly the type of sentiment that precedes the panic out of dollars. It will not take much to get a panic going; a few more MF Globals, a few more brokerage accounts that totally screw over their customers, and you'll see it happen. Then you'll see bank runs, banks stopping withdrawals, restrictions on taking your capital out of the country, and all sorts of terrible things. Personally, I suspect that as the situation intensifies, government will print money to make the losses go away and keep the system alive. As people catch on to what is happening, they will exit dollars and go into what they trust. I do believe this means stocks, and I'm very confident it means gold. I put my money in primarily in gold, gold stocks, and now uranium stocks (I'll blog more about this shortly). So, in sum, prepare for volatility. If you have a lot of money in stocks, look up direct registration and go through that process. If you are in stocks that do not offer direct registration, I recommend you consider exiting those stocks in favor of one that do -- especially if you have a non-insignificant amount of money in those stocks (meaning it will hurt you psychologically if you lose all that money). And of course, get gold. I do believe we are set for a remarkable transfer of wealth and this has potential for enormous gains in purchasing power for those who are positioned for it, but job #1 is wealth preservation. Think of gold as your insurance, while stocks are for income gains. I believe some stocks will yield 10X - 100X in returns, and that a mania will emerge in these stocks that will surpass the dot com bubble and the real estate bubble. |
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#2 |
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#7 |
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#8 |
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Guest
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MF Global
You are partially correct about MF. It is isolated. It's the first time in commodity trading history that a firm stole money from it's customers.
It has contributed a lot of stress to the financial community, and as the scandal unfolds we will see that JPM and GS are up to their necks in it. However, hyperinflation isn't going to be the result of MF. It could be the result of the Federal Reserve artificially holding rates low and printing money. |
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