The Beginning of the End
Over the weekend, the lines in Greece stretched along
the street. Around the corner. Down the block. Lines to get cash. Lines to buy
gas. Lines of people eager to get their hands on something of value. Food.
Fuel. Cash. Pity the poor guy who was last in line …
… the poor taxi driver, for example, standing behind
300 other people, trying to get 200 lousy euros out of an ATM. Like a tragic
nightclub customer … among the last to smell the smoke. By the time he headed
for the exit, it was clogged with desperate people, all struggling to get
through the same narrow door at the same time.
Being the last in line usually means you have waited
too long.
Remember: When a bear attacks in the woods, you don’t
have to be faster than the bear. You just have to be faster than at least one other
hiker…
Likewise, you don’t have to be the first one to get
your money out of an ATM. You just want to be sure you get your money before
the machine runs out of cash. And when a bear attacks Wall Street, you don’t
have to be the first to sell. But you definitely don’t want to be the last.
The Dow lost 350 points on Monday – its biggest point
drop in two years. On Tuesday, Greece was expected to default on a $1.7-billion
payment to the International Monetary Fund (IMF). And on the other side of the
planet, analysts are looking at “the beginning of the end for Chinese stocks.”
We doubt it is the beginning of the end. More likely,
it is just the end of the beginning. On Friday, the People’s Bank of China cut
rates to a record low, after stocks in Shanghai slipped 7% in a single day (the
equivalent of about 1,300 points on the Dow).
Analysts expected a big rally in response to the rate
cut. Instead, the Shanghai Index plunged again on Monday, dropping 3%.
Greece… China… said one commentator interviewed by Bloomberg: “You have a
potentially very ugly situation this week.”
Our guess: Stocks in the U.S. and China have topped
out. Old-timer Richard Russell, who has been studying markets since 1958,
agrees:
“I believe the top has appeared, like the proverbial
thief in the night. The Dow has fallen below the 18,000-point level, and is now
negative for the year. The Transports, which have led the way recently, are
down triple digits for today and are only 89 points above the critical level of
8,000. The Nasdaq has closed under 5,000. At the market’s close, gold was up
5.3 at 1,179.”
When Gold Is Declared
Illegal …
But wait … What about silver and gold? As regular
readers know, we recommend having some cash on hand in case of a monetary
emergency. But a reader asks:
“In the same vein as your reader’s question as to what
good cash is when it’s declared illegal, what good is gold when gold is
declared illegal?”
First, precious metals aren’t illegal, so far. Second,
making something illegal doesn’t necessarily make it unpopular. President
Roosevelt banned gold in 1933. The feds wanted complete control of money. The
dollar was backed by gold. So getting control of the dollar meant getting
control of gold.
Once the feds had the gold, they could devalue the
dollar by resetting the dollar-gold price from $20 to $35. In an instant,
people lost more than 40% of their wealth (as measured by gold).
That ban lasted for 42 years. It ended in 1975,
largely because of our old friend Jim Blanchard. Jim set up the National
Committee to Legalize Gold and worked hard to get the ban lifted.
Today, the feds don’t need to outlaw gold. It is regarded as “just another asset,” like Van Gogh
paintings or ’66 Corvettes. Few people own it. Few people care – not even the
feds. They are unlikely to pay much attention to it – at least, for now.
That could change when the lines begin to grow longer. Smart people will turn to gold… not just in time, but
just in case. It is a form of cash – traditionally, the best form. You can
control it. And with it, you can trade for fuel, food, and other forms of
wealth. Lots of things can go wrong in a crisis. Cash helps you get through it.
Generally, the price of gold rises with uncertainty
and desperation. Gold is useful. Like Bitcoin and dollars in hand (as opposed
to dollars the bank owes you), gold is not under the thumb of the
government … or the banks. You don’t have to stand in line to get it. Or to
spend it.
Yes, as more and more people turn to gold as a way to
avoid standing in lines, the feds could ban it again. But when we close our
eyes and try to peer into a world where gold is illegal, what we see is a world
where we want it more than ever.
Buy it as long as nobody cares about it. By the time
they care, you’ll want to have as much as possible.
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