Get Out While You Can

Unless you are a speculator, you have no business in these financial markets. Stocks are crazy and likely overvalued. Bonds are likely the next bubble to burst.

We are approaching an inevitable economic apocalypse and the government is doing everything it can to hide it from you. What passes for economic policy is little more than the erection of a curtain to hide the powerless Wizard of Oz. Its purpose is to try and prolong the inevitable. In the process, things are made worse.

Stocks are not a good inflation hedge, at least not at the level of inflation (hyperinflation?) that the government feels they must achieve. To understand why, one need only look at the high inflation we experienced during the late 1970s and the poor stock market performance. Hyperinflation would be even more harmful to stocks as discussed in the Chile experience.

Tyler Durden comments on an excellent interview of Jim Rickards:

Jim Rickards Tells His Clients To Get Out Of Stocks And Discusses The Fed’s Final “Golden” Bullet

Submitted by Tyler Durden on 09/06/2010 22:11 -0500

Another fascinating interview by Jim Rickards, in the first part of which the LTCM GC explains why he has told his clients to get out of stocks (yes, it does have to do with market manipulation and the Fed – the two most popular topics on Zero Hedge over the past year): “Markets have ceased to function as they are intended – traditionally a place to exchange values, but more importantly to perform price discovery (people rely on markets to tell them what to do or to at least give them some guidance). What’s happened is that all the markets have become so badly distorted that their price discovery function and therefore the information content around it no longer has any value. The market has become self-referential, an algo playing itself out, almost the way you would run a self-recursive equation on a computer and you get very unpredictable results from very simple equations. It has degenerated into a joke.” Perhaps more relevant for those seeking some advice on where to put their money if not into stocks, is his observation that now that the Fed is in dire need to getting people to start spending, the only option left is to instill the fear of a dollar devaluation, but not against other fiat (as that would in turn lead other central banks to follow suit), but depreciation against hard currencies such as gold. “If you are the Fed and you buy up gold to $2,000 an ounce what have you done? You’ve depreciated the dollar by not quite 50%. Well that’s pretty powerful stuff if you are trying to get people to spend money and dump dollars. So they are not out of bullets, they have what I call the golden bullet…” As Kohn today said, it is all about expectations… Well, why not make people expect that the dollar they have today will be worth half as much tomorrow versus gold?

The interview can be listened to here and I encourage you to do so. Without mentioning the term, Mr. Rickards uses Austrian economics as the basis of his analysis and argument.

Mr. Rickards “devaluation” suggestion, as a last resort, was dealt with in an earlier post. Rickards used gold as his vehicle to achieve inflation. I used a new fiat currency. Either works.  His scenario would not be as precise because the demand curve for gold cannot be known. If too little gold were offered, however, the buy price could be increased and toyed with to achieve whatever levels of monetary increase were desired. My johnlawdollar scheme might be combined with gold backing in an attempt to provide it with some credibility.

The differences between Mr. Rickards and me regarding the means to achieve inflation are insignificant. Both work. Any discussion of the merits of either scheme would be the equivalent of Bernie Madoff and Leland Stanford arguing over whose scam would be more effective. Neither should happen, but one or a variant of one may very well occur. Either one will destroy the economy, but that is how dire the government’s situation is.

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