A track record going back nearly 600 years is not enough for investors to depend on in today’s uncertain world. Investors would do better to depend upon an asset that has a track record of security and stability that is 10 times as long as that: GOLD.
It has generally been accepted that derivatives are problematic financial instruments. Warren Buffett has called them “financial weapons of mass destruction” and he refuses to delve into them because he, of all people, simply cannot understand them.
That’s what makes this recent report that bank exposure to derivatives has skyrocketed all the more worrisome.
Given the lessons of 2008-2009, one would have hoped that banks would have backed off of derivatives. Today, US banks exposure to derivatives lies at $225 TRILLION. That is up from $120 TRILLION just six years ago.
This poses a great deal of risk to the banking system. The outcome is uncertain at best. It behooves investors to diversify into assets that are not vulnerable to a derivatives meltdown, namely gold. Gold is REAL and is thus not subject to the forces that could literally destroy the value of financial assets in a derivatives meltdown.
The bulls once again ruled the gold market on the first day of the 4th quarter of 2012. This positive 4th quarter trading day comes on the heels of an excellent 3rd quarter for the yellow metal. The price of gold increased by 10.6% during the 3rd quarter, its strongest quarterly showing since the 2nd quarter of 2010.
The spot price of gold rallied $8.70 per ounce to finish above $1,780 per ounce.
Gold was buoyed by a positive manufacturing report, continuing weakness in the US dollar, thanks to the Fed’s QE3 monetary policy, and by the fact that Fed Chairman Ben Bernanke gave a speech in Indiana at mid-day. Though the speech contained nothing surprising for gold investors, as often happens in Bernanke’s case, the Fed chairman managed to spook the financial markets, derailing what was a much stronger rally on Wall Street.
“With the dollar weakening and debates over inflation and fiat currency debasement now likely to move back to center stage, QE3 is likely to support the recent pickup in physical and futures market buying, which should help to bring to an end gold’s position as one of the weakest commodity markets in 2012.”
How is it that investors have come to expect a positive outcome from that?
Well, volumes could be filled answering that question, but we’d like to report a more useful exercise for your time: three of the world’s largest financial institutions have issued warnings about the US economy which can only be taken as a signal to get out of the stock market and get into safe havens.
Goldman Sachs, Bank of America and UBS have all issued such warnings in recent weeks and investors best pay attention. When folks in the business of being cheerleaders for the stock market start waving red flags, it is time to head for the exits before things get REALLY ugly…probably after election day in November.
UBS economist Drew Matus warned on Bloomberg TV that there are signs that the US economy is headed for its worst long-term decline in 60 years:
Bank of America’s top economist, Ethan Harris, warns that current conditions are the equivalent of the “eye” of a hurricane. For those who don’t know, conditions are very calm and even serene inside the eye of the storm, but once it passes, the worst of the storm immediately rises up:
Finally, as if all that was not enough, Goldman Sachs chief US equity strategist, David Kostin, warns that the approaching “fiscal cliff” is a lot worse than investors realize and investors in the stock market are being set up for a nasty fall:
What all this suggests is that investors need safe havens and alternative investments for the future. Rare coins and precious metals fit that bill nicely, since they have historically moved independently of stocks and are not subject to many of the risks that negatively impact paper assets…
Here’s a news story that does anything BUT create confidence in the investment world.
US regulators have told America’s largest banks to prepare for a financial crisis to prevent a collapse because they won’t be able to count on government help next time there is a serious economic and financial crisis.
This is certainly no surprise given the US government’s fiscal condition, reduced credit rating and monetary policy at the apex of what it can do to attempt to blow wind into the economy’s sails as it is. But it is also a concern because, as JP Morgan Chase has shown recently, counting on these financial institutions to be responsible is a questionable policy.
Investors need to take their own action to prepare for a financial crisis. That means NOT depending on ANYONE’S promise to repay. Gold is an asset in its own right, completely independent of anyone’s promises. That’s why it has stood solid as a store of value and trusted medium of exchange for 5000 years…
U.S. banks told to make plans for preventing collapse
U.S. regulators directed five of the country’s biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help…