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Black Swans and Precious Metals

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Despite PROPAGANDA to the contrary, PHYSICAL Precious Metals are NOT “investments”; but instead, savings.  While 600 fiat currencies have come and gone throughout history – as well as countless “monetary substitutes” – only gold and silver have maintained their purchasing power.  The fact that the U.S. government has spent the past six months desperately defending their own “monetary substitute” – i.e., the dollar – by fraudulently naked shorting PAPER gold and silver doesn’t change their intrinsic value; and if the current scenario of a collapsing mining industry doesn’t PROVE that in spades, nothing will.

Holding 95%+ of my liquid net worth in the form of PHYSICAL PMs – with the rest in cash in a Charles Schwab non-margin brokerage account, upon my wife’s orders –  I enjoy the “Sleep Of The Just” each night.  And not just because my gold and silver aren’t going anywhere, or because no amount of Central bank manipulation can defeat them over the long term; but just as importantly, because there are literally dozens of potential catalysts that could drive their prices higher; although in many instances, I’d best describe the situation as other assets – like “dollars” – plunging, rather than gold and silver prices rising.

Obviously, “monetary catalysts” attract the lion’s share of MSM commentary; as clearly, their roles as inflation hedges are tantamount to any discussion about gold, silver, and ALL financial instruments.  However, the non-financial factors that contribute to inflation are myriad; and in countless instances throughout history, inflationary – and HYPER-inflationary – episodes have been directly related to such events.  Among them, WAR is the most obvious; but so are revolution, recession, plague, political dissension, social unrest, natural disaster, and – of course – terrorism.

I have written “early and often” of the “Black Swan” events that could occur at any given time; in turn, throwing the political, economic, and/or social landscape into turmoil.  By definition, a Black Swan event is “unanticipated”; however, one would have to be wearing blinders to consider much of what is unfolding today as unanticipated.  Back in 2001 – for example – the world was a much safer, and “better” place.  An event like 9/11 was unquestionable unanticipated; and if it weren’t for the PPT dramatically expanding its operations in the aftermath, a global economic crash – that will ultimately be much worse as a result – was temporarily averted.  The Precious Metals bull market was just starting at the time; and indirectly, 9/11’s ramifications on gold and silver demand have been both profound and irreversible.  And for the record, directly after the attacks, gold and silver immediately surged by 10% each – whilst global stock markets plunged.

Of course, even in the worst of political, economic, and social times – as we are rapidly approaching today – not all events are as “unexpected” as others.  True, an international terror attack is highly unlikely during peacetime.  However, would ANYONE be surprised if one were to occur today?  Using America as an example, try to consider just how much it was globally loved in 2001; as compared to 2013, when by and large, it is universally hated – ironically, in large part due to its 9/11 response.

Moreover, America is just one of 195 nations in the world; any of which could host such an event.  Yes, I know a major terrorist event is unlikely in St. Lucia; but what about the UK, Germany, or Israel?  And more importantly, who would be blamed for such an event?  The Iranians?  Syrians?  Russians?

As I wrote earlier this month in “Population Growth Supersedes All,” it impossible to control increasingly large groups; as by definition, ecosystems become more unstable as they expand.  “Dunbar’s Number,” for example, states there is a cognitive limit to the amount of people one can maintain stable relationships with; and given the world’s population is now growing geometrically, one can confidently state the odds of conflict are increasing in a like manner.  To wit, the world held just 3.5 billion people when I was born in 1970, compared to 7.0 billion today; and by the year 2050, most statisticians predict more than 9.0 billion.  That’s a lot of people to feed, clothe, house, and govern!

Moving from the theoretical to the REAL, there’s a whole category of potential events that – while not necessarily “anticipated” – have relatively high probabilities of occurring in the coming months and years; and, frankly, in some cases, sooner.  I deem such outcomes “Grey Swans” – as for example, it would be difficult to consider it “unexpected” if we awaken to a Greek or Spanish bank bail-in; a Suez Canal oil blockage related to the Egyptian Revolution; a U.S. and/or Israeli-led invasion of Iran; a derivatives blow-up at a major Western bank; bankruptcy of a major municipality (like Detroit); escalating civil unrest in India, Brazil, or Turkey; or implosion of the U.S. Treasury and/or housing markets.

The events listed above could be considered the current “who’s who” of potential Grey Swan events.  However, the news items that actually catalyzed this article were none of the above.  In fact, they related to two nations on the opposite ends of the globe – with diametrically opposed issues; Syria and Japan.

In Syria, we learned overnight of an alleged “chemical attack” that killed at least 200 people; and by some accounts, closer to 2,000 people.  Both sides of the nation’s ongoing civil war claim the other was responsible; but at this point, the actual details are elusive.  Those following this volatile situation – in which major nuclear powers like the U.S., Israel, China, and Russia have taken strong positions (in some cases, defining “red lines” related to chemical warfare) – understand it could catalyze a Mid-East conflagration at any moment.  And with oil prices already hovering around $105/bbl; neighboring Egypt amidst its own civil war; and Iran “at the ready” for Western attacks, who knows what might occur – particularly as now that Obama has been re-elected, he claims he has “more flexibility?”

As for Japan, I have long chronicled its hideous DEBT, DEMOGRAPHICS, INFLATION, and MONEY PRINTING issues.  Frankly, it’s difficult for even me to consider the U.S. worse off than Japan; although admittedly, Japan’s citizens – unlike Americans – have historically been savers.  That said, a little savings can’t offset a LOT of debt; and in the case of Japan, it’s quite clear its 230% (and rapidly rising) debt/GDP ratio will dramatically CRASH in the not-too-distant future.  Considering this situation – and what’s currently occurring in the plunging U.S. Treasury market – how long do you think the Bank of Japan will be able to maintain sub-1% JGB rates?

Anyhow, as crazy as it sounds, this horrific, untenable financial situation isn’t even the main reason for citing Japan as a potential “Black Swan” candidate.  No, in this case it’s Fukishima – the ongoing nuclear disaster that is rapidly “losing containment”; both within its decaying, contaminated reactors and the worldwide media.

Since the March 2011 tsunami overwhelmed the shoreline-located Fukishima nuclear power plant, the Japanese government has done everything in its power to convince the population “all’s well.”  Unfortunately, it’s decidedly NOT; and based on today’s news that the latest containment leak has been officially upgraded to a “Level 3” disaster proves it.  All along, the Japanese government has insisted the situation was under control.  However, like the MSM’s insistence of U.S. economic “recovery,” the evidence says otherwise.  As of now, it appears more likely that the “Chernobyl” end of the spectrum is a more likely result; and thus, the odds of something MASSIVELY market roiling emerging from Japan increase with each passing day.

The whole point of pondering Black Swans, “Grey Swans,” or any type of potential event is considering the odds of them occurring; and subsequently, acting to insure oneself if they do.  In today’s turbulent world, in which I anticipate a dramatic increase in financially destructive – and inflationary – events to occur, I fail to see how ANYONE can neglect the only assets that have served to PROTECT one’s wealth throughout history; i.e, PHYSICAL gold and silver.

 

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