Popular Delusions...Even If "Popular" Are Still Delusional

My e-mail box has been filled up this week with panicked owners of gold and "trolls" – (indeed) it is sometimes hard to decipher which is which.  I say this because the logic being employed is in some cases panic driven and in others just plain flawed, but similar nonetheless.  Some who own gold assets have come to the mindset that even though they know precious metals are manipulated, they fear it will "go on forever".  The same goes even for some of the leaders in the gold community…as weak knees abound.  The bottom line is this, once the last ounce of deliverable gold is received, the game will end.

Let's ask a few questions to put this in perspective.  If your local forecaster showed you the radar of a cat5 hurricane out in the gulf moving very slowly toward you, is there anyone or anything that could get you to cancel your homeowners or flood insurance?  This is the case in today's financial and geopolitical world.  You see daily where leverage has risen to previously unseen ratios.  You have watched as interest rates around the world have been zeroed out and in many cases have gone negative.  You see reported economic numbers that make no sense and are regularly contradicted by real world experience. 

Geopolitically you see the United States losing power at every turn to the hands of China/Russia and the rest of the world.  Power is being supplanted in trade, finance, manufacturing and production, socially and even militarily.  This loss of power is unmistakable ...but, none of this matters because the stock market is up, credit markets are still stable (on the outside), the dollar is firm versus other fiat currencies and gold has been pressed down and down.  THIS is now the "new normal" and nearly everyone is extrapolating it forward "forever".

Sorry to break the news to you but ALL of this is unsustainable.  You need not even take Bill Holter's word for this, just listen to the number crunchers and bean counters regarding Social Security, Medicaid, pensions, healthcare, military spending, the real economy and on and on.  In many cases, the "bean counters" are previous federal employees like David Stockman and David Walker, who better would know? 

We mathematically have the largest financial hurricane of all time coming and will be a direct hit worldwide.  All of the "rigs" will be taken down and lost.  Have you ever asked yourself what the world would look like should free markets price everything?  Do you really believe interest rates would be where they are?  Or the stock markets?  Would a McDonalds hamburger only cost $3?  Would you be able to get $2 gasoline when the rest of the world in many case $5 per gallon or more?  When the financial storm hits, do you believe your bank or broker will survive because they are "special"? 

What comes will be ALL engulfing.  We will see what should have happened in 2008 but was postponed.  It was "postponed", NOT cancelled because no policy changes were allowed to take place.  What comes our way is 2008 on steroids!  No central bank, no sovereign treasury nor collection of same will have the power to save, rescue or mitigate the 100 years of credit growth when the great unwinding comes.

As for gold (and silver), this will be your only insurance and the only lifeboat on our global Titanic.  I asked earlier, if you knew a category 5 hurricane was about to hit, would you cancel your insurance?  If you were told over and over again your insurance company was broke and could not pay, but then did your own due diligence and found it was not true, would you listen to the naysayers and cancel?  Currently we are headed into December, historically always the largest delivery month for COMEX.  This at a time when nearly no gold has entered the registered vaults for 50 days running.  COMEX holds less than 5 tons of gold while China's Shanghai exchange is withdrawing 200 tons per month. 

Do you see a problem with this?  Is this any different from the FDIC having less than a quarter penny per $100 to insure deposits?  Just because a bank run has to this point been avoided (by any and all means), do you really believe it will "never" happen given the financial leverage now embedded in the system?  Is COMEX any different?  Just because a "run" hasn't happened does this mean it will never?  Of course the next questions should be "what if I have money in the bank and don't own any gold when the storm hits"?  Do you really expect your bank account to survive or for you to have the ability to buy your way into a lifeboat? 

Maybe you feel you are smart enough to know ahead of time when exactly the black swan will arrive.  If you believe this you are fooling yourself.  Anything from a derivatives blowup, a single bankruptcy of the wrong entity, a mistaken dogfight in the sky or at sea, a flash mob riot or secession somewhere or even "nothing at all" will get a cascade of defaults started that cannot be stopped.  This is the nature of credit booms...they ALL bust and this just happens to be the BIGGEST credit orgy in ALL HISTORY!  All that is "in control" now will suddenly be out of control in an instant.  All that you see as "normal" in today's world was 20 years ago considered insanity.  Just because the vast majority believe in a grand delusion, this does not make it any less delusional.  Once the cascade begins, your insurance company will not be accepting applications or even phone calls at that point until the dust clears! 

Holter-Sinclair collaboration

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