Hmmm... Do I hoard cash or gold.....what to do, what to do!!!greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
By Martin Armstrong [Warning! This guy may be a renowned economist but I think he's talking out of his arse regarding y2k in many respects! - Andy]
While there are a lot of people running around with tinfoil [puuuhleeeeze - Andy] on their heads yelling about how society will crumble and the human race will be forced back into the stone age of barter, there remains one glaring issue that is seriously overlooked. No matter what you have read about the Y2K bug, the US remains the most compliant of any nation on earth. Canada and UK are right at the top of the list as well, while Japan is perhaps far ahead of Europe [oh really??? - Andy]. Nonetheless, when it comes to the question of banking, no one even comes close to the preparedness of the US banking system [the problem of imported data is conveniently overlooked... - Andy].
Both the Fedwire and CHIPS systems that are critical to the central clearing between banks in the United States have been tested and are ready to meet Y2K [I doubt this to be true - the only real test will come after rollover when corrupt data starts flowing - Andy]. Some people have been trying to twist these words by emphasizing that the Federal Reserve has warned that it cannot guarantee that international clearing systems outside the United States are in fact prepared. Such distortions of testimony on this issue concerning the banking system has been relentless. The fact remains that there may indeed be isolated disruptions among some small banks with antiquated ATM machines, but any serious disruption in banking will take place on an international level rather than domestically from the United States perspective [bullshit - what makes the US impervious to disruption, compared to say the UK??- Andy]. After reviewing this issue carefully, the evidence is clear that the safest place for capital will be within the US banking and market systems compared to those outside the United States. It would be advisable to hold off on any wire transfers at yearend that are destined for overseas markets. This means that as this issue is discussed in more detail internationally, the safe haven for capital would appear to be the same net reaction that occurs during periods of war - a flight of capital to the US dollar. After discussing this issue in depth among many of our US institutional and corporate clients, there appears to be a tendency to American capital repatriation whenever assurances from overseas markets are not meeting Y2K certification. In part, any American institution will repatriate capital in order to void any legal liability for failing to insure that overseas investment was secure. Insurance companies are already warning in many cases that they will not cover such liabilities under current insurance plans.
While there are many who have been attempting to scare people into buying gold, hoarding silver bars or buying a log cabin far from the bands of lawless subhuman thugs, it is complete nonsense to purport that civilization will end come January 1st, 2000. Hoarding gold or silver coin will not help when it comes to paying your mortgage.[this fool does not get it - nobody will be paying their mortgage if the collapse goes that far - duh! - gold is a method, time honoured, of preserving wealth until the dust settles... - Andy]. Neither gold nor silver will be acceptable among the normal business participants within the economy - including the taxman. There would be no way a supermarket would accept gold coins without having any knowledge as to their authenticity. After all, they have special pens to test $50 bills. People over 45 might remember a silver coin but you need to be over 80 to recall the last time a gold coin was in circulation. General commerce would not have a clue if they were receiving the real thing or a counterfeit. And as for platinum, well the average person can't distinguish this metals from polished nickel.
We must understand the Y2K issue from a practical perspective not merely for surviving the worst case scenario, but how to profit from it on an investment perspective. The vast majority of society will not have a problem with Y2K since they are using Y2K compliant PC based systems [BWWAAAAAHAHAHAHAHhahahah - Andy]. The majority of any problems will be restricted to government and manufacture that makes significant use of embedded chip technology. This means that if there are disruptions, they should occur on the supply-side of the economy. Shortages in goods typically do not produce recessions, but rather sustained periods of inflation. The oil shortage due to OPEC embargoes of the 1970s resulted in a lot of inconveniences. When gasoline was rationed at $2 per day in purchases, I personally could get to work, but I would never have made it home. I was forced to dash out and buy a Ford Pinto station wagon with a 4-cylinder engine, 4 speed and there wasn't even a radio. The price I had to pay was 10% over the sticker price and I actually got the last one only because I knew someone in the business. Prices soared and people began to hoard all sorts of commodities including toilet paper because of false rumors of shortages. I lived through the 1970s and heard the same nonsense about the world coming to an end. Guess what, gold fell from $200 to $100 between 1974 and 1976. The second oil shock had little or no impact upon gold going into 1980. Gold rallied because the huge price increases of the previous cycle set off a supply/demand led style inflation that was quickly followed by a demand/supply led inflation. In other words, there was a hoarding panic and people lost confidence in the purchasing power of the dollar, mark, yen, franc and sterling - just to mention a few. Gold then rallied into 1980 reaching $450 by December 1979 finally almost doubling during the final 6 weeks into January 1st, 1980. After reaching $875 on Monday morning of the 21st, by Friday January 25th, 1980, gold had fallen to close at $630.
By now, our usual hard metals critics are rushing off to send us the usual hate mail whenever we speak ill of silver in particular. Nevertheless, while the metals guys are trying to scare the hell out of everyone in hopes of creating a bull market again, they had better think of the consequences of their actions. If everyone panics and buys metals in fear of a total banking collapse and it doesn't happen, will they then create a new overhang of sellers that will perpetuate the bear market into 2002 or beyond?
The likelihood of a total world collapse is out of the question [oh really??? - Andy]. Will there be disruptions to supply - highly likely! Just-in-Time inventory systems can also contribute to a shortage on the supply side of most durable goods. The system is perhaps skewed to a return toward inflation rather than a collapse of civilization. Let's get real for a minute. Even if the banking system completely failed, no one would be able to collect debts as well as pay them. The courts would be backlogged for decades if banks tried to foreclose and if they did who would the sell the assets to a society that did not function? Even when the Euro was introduced, the first week was hell. There were all sorts of problems with the computer systems when out-trades failed to settle. But within a week, after working 24- hour shifts, the problems were solved without Europe collapsing. The same will be true when it comes to Y2K problems on the financial side of the equation. You can bet that banks would work 24 hours a day to fix any problem if they couldn't collect money. So, it would be a two-way street. If you can't get money out of the banks, no one would be able to pay them either. The problem just might be fixed faster under such incentives.[if the power stays up - Andy]
Nonetheless, the real problems will clearly reside on the manufacturing side of the economy and this is more reminiscent of the 1970s than the doom and gloom of world depressions. As a result, we must clearly and rationally look forward to how an investment portfolio might be structured for the crossing over into Y2K and beyond.
As far as gold and silver are concerned, the scare tactics will keep retail demand strong while professional selling appears poised to continue as well as central banks and the IMF, who by the way will sell first and announce later. The huge glut of gold options for December 1998 [I assume he means 1999 - duh! - Andy] and just beyond also have huge premiums attached. The professionals within the industry are willing sellers to the public and they usually defend their positions quite well. Given the fact that the vast majority of options usually expire worthless, the odds are in favor of the professionals winning this big bet as well. Therefore, the options strategy for Y2K appears to be a highly risky adventure. However, it may be the scare tactics that causes excessive buying ahead of Y2K that in the end leads to a final liquidation in early 2000 with new lows. Still, if we see the current seasonal Jan/Feb high for the metals stand, then there is a risk that a declining trend could unfold into 2000. Long-term, this may be the most bullish pattern of all because Y2K may indeed cause a return to inflation in 2000. Given the fact that gold has made a major low every eight years since the 1960s, the next target of 2000 should present a great promise for a bull market unfolding next year and moving into at least 2003 if not into 2007. The key to a SUSTAINABLE bull market in the metals is NOT Y2K, its the end of liquidation of gold reserves from the central bankers combined with lower prices that force the closure of gold mines thereby truly restricting supply. Given the questionable bugets for the babyboomers in the years ahead, gold may indeed provide a hedge against the future - just not the immediate present. There is a high probability that the Y2K option trades for the end of the year may expire worthless, but calls dated well beyond into 2001 could prove to be a perhaps a good strategy. Given the March 31st, 2001 Phase III of Big Bang in Japan, if there is going to be a surge in demand for fear of banks it will come in Japan - not in North America. It might not be Y2K that creates the bull market in gold, but rather an economic destabilization outside the US that sparks even higher volatility in the years ahead.
The most likely thing to be hoarded in case of a short-term disruption to the economy it will be CASH. The Federal Reserve is already anticipating this factor and is increasing the supply of currency notes for the last quarter of the year. Printing even $70 billion is not inflationary nor is it a reason to buy gold. When you are talking about an economy approaching $10 trillion, the increase in currency is only about 0.7% - nothing! The money supply exists mostly in electronic form through credits, notes and bills. The actual amount of currency that circulates is relatively small and has no impact upon inflation. However, there is a side-effect of the increasing the money supply at the Fed. Since the US is in a balanced budget, it is not a stupid move to retire short-term notes and bills to be replaced by currency. In fact, the Fed is merely exchanging interest paying debt for non-interest currency. In reality, the greater the demand for cash, the greater the trend toward a balanced budget. If the Fed were really smart, they would issue a $1 trillion in cash and retire short-term debt. The effect is actually less inflationary at the end of the day.
It would be a good idea to hoard some cash rather than gold. There appears to be a rising demand for the US dollar in physical form according to our sources in Washington [???!!! - Andy]. It appears that the rising demand for cash is coming particularly from overseas. Keep in mind that the new Euro does not exist in physical form whatsoever. Euro notes and coins will not be issued until 2002! This means, that the rising demand to hoard cash for the millennium is being felt at the Federal Reserve rather than the European Central Bank. It looks like what is shaping up is a bull market in dollars rather than gold or even euros according to the very same reliable sources in Washington. Combine the demand for dollars coming from around the world, even from Russia, with the prospect that the US banking system will be the best equipped for Y2K [as in, the boat with the fewest holes - Andy], and we just may see the rally in the dollar fulfill our long-term objectives for a high in 2003. Throw in a reversal in trend for the great America global investment industry turning to net sellers of overseas assets, and the dollar just may become the next interest stock late in the year.
During inflationary periods, tangible assets are often the best bet. However, not only would one classify real estate as a tangible asset, but also US government securities and US equities. Most brokerage houses actually out-source their back offices. These service bureau facilities are few and all are prepared for Y2K in the United States. The same is not yet true overseas. If you prefer to be safe, you can always take delivery of your shares and bonds. You can't trade on margin, but if its Y2K you're worried about, then simply take delivery. The US futures exchanges are also Y2K compliant as is the case for clearing. Those people who are telling everyone to buy gold because of Y2K are not thinking this scare tactic out quite well. If you think the world is coming to an end, then why buy gold in options from the very banks you think will collapse? Why buy gold futures and options if you fear the exchanges will cease to exist? In both cases, if you were correct and the world ceased to exist, your gold stocks, options and futures would all also be worthless.
There is no doubt that Y2K will have an impact even if everything in the US went smoothly. The likelihood of serious economic disruptions increase exponentially the further you travel from the center of the US. By the time you get to Russia and China, the embedded chip problems become very serious indeed. We do not have to worry about most PC networks and even the Internet is likely to survive. There will be some problems in power that are more likely to cause brown-outs for 3 to 6 months into the millennium for some regions. If you are buying one of those log cabins far from everyone else, you may be the last person to receive power from a grid or even telephone service for that matter. We are also likely to see some problems on ocean based oil platforms that could at last turn events around in the crude market as well.
In the end, civilization will not collapse. When the Black Plague wiped out almost two-thirds of the population in Britain, it too had a major effect upon the history of economics. There were not enough people to do the work in England and serfdom came to a halt when landlords began to bid for labor introducing the concept of wages. The downside to this economic change was that government also needed cash and responded by introducing a tax on income.
Y2K will come and it will go. The effects upon the global economy will be substantially different depending upon your residence. Hoarding gold or silver may be the correct answer in third world countries where the banking system is already fragile without Y2K. But within the major industrial nations, it appears that the trend is toward the dollar given the absence of the euro and pending problems with the Japanese banks aside from Y2K issues. We could see a move toward the dollar also cause a bubble top to form in US assets if this share market makes new highs beyond April surpassing 9750 on the Dow. When you have serious money to preserve, institutions flock to the biggest and most liquid market - the United States. Our long-term models still show that while new lows for commodities could develop going into early 2000, there is a reasonable chance that Y2K could disrupt commodity production and establish a true change in trend for this entire sector next year.
In the end, we strongly warn against those who would run to gold or silver. While it is never wrong to have some physical gold, it would be wrong to pour any significant amount into this medium solely based upon Y2K fears. If the metals markets fail to make new highs beyond February, then the seasonal highs may be in place for the year and the true trend of demand will be toward the dollar on a global scale. Even if the banks collapsed, physical dollars in currency form would move to a premium due to the fact that so few dollars exist relative to the outstanding electronic debts and credits.
Liquidity will remain the top priority and instead of a serious recession laced with a great depression, you should also look for the key signals that would argue for a return to inflation rather than a collapse of civilization. Those looking for an option play might be better off looking at long-term call options for the dollar against the yen and euro. If there is a disruption in the banks of the US, it will be a total black-out overseas. Just imagine the premium a dollar will bring in Russia, China or Latin America.
Comments ladies and gents? Are you gonna buy some eagles now at $300 or stuff that $300 under the mattress???
-- Andy (2000EOD@prodigy.net), February 13, 1999
I have written a little song for Mr. Martin Armstrong. I for one would like to see everyone roll the clocks to 2000 as of today, come on go ahead we're in such good shape anyway. Roll-em, roll-em, roll-em take those clocks and roll-em better get a shotgun by your side. The mainframes will be a crashin and your head they'll be a bashin sooo run to the mountains and hid get-em-up move-em-out move-em-out get-em-up raw-hide! BRAHAAAAAAAAAAAAAAAbrhaaaaaaa Sorry Andy I had to sing it. Tman
-- Tman (Tman@IBAgeek.com), February 13, 1999.
Accumulate and hold reasonable reserves of both for more self- reliance during disruptions and emergencies.
-- Finding (firstname.lastname@example.org), February 13, 1999.
These guys did predict the correction last summer. They have been wrong about most everything else they have forecast since then. Just wait until this July or August. Bet they factor Y2K in a little more correctly.ww
-- WAYNE WITCHER (WWITCHER@MVTEL.NET), February 13, 1999.
I have an e-gold account
You can hold in account gold, silver, platinum, palladium and/or you can have physical metal shipped to you or wherever. You can also have them cut a check to you or whomever.
Anyway, within last few days, my combined holdings have increased about 4%, where for months, total value pretty well static (one metal may have gone down, another up, so evened out). Start of a move?
-- A (A@AisA.com), February 13, 1999.
"Do I hoard cash or gold?" Neither.....HOARD SILVER !!!
-- flierdude (email@example.com), February 13, 1999.
Again and again and again.... .
Water, food, fuel, sanitation and security FIRST. If there is excess, worry about where to put it after ESSENTIALS are taken care of. Diversify- some cash, some silver, some gold, some other currencies maybe (Swiss francs perhaps?) or whatever the Financial Diversity Fairy puts into your head to do. But first things first, always.
-- Darth (Darth@Vader.org), February 13, 1999.
Great point -- and one we haven't talked about -- is that there is a strong demand for US cash coming from overseas. Hmmmmmmmmm. That may make the cheese a little more binding. Foreigners are realising that their banking systems are toast and are looking to hold greenbacks.
Yes, cash is good for one situation, gold for another. Note that what this guy was hitting on was thinking that options (or futures) were the way to go. They're not. If you want to hold gold, hold physical gold.
Again, the price of a small amount of physical gold (1/10 ounce) far exceeds the cost of one ounce. This is because of Y2K demand. Gold hasn't risen much lately, although I do expect it to climb to about $330-340 an ounce this year before declining. [That should draw flames from all who've bought into the gold scenario without thinking it through.]
Again, gold will generally hold it's value against things (100 ounces of gold = 1 moderate priced car). That car may cost $30,000 now. If the car goes up to $100,000 because of hyperinflation, it still will take (roughly) 100 ounces of gold to buy the car. If the car drops to $10,000, you buy the car with 100 ounces.
Gold is also a great chaos currency. Holding gold for this reason is goodt, as long as you realize that this is what you're doing.
For this reason, first hold the things you need (and the things your neighbors will need and will be willing to barter for), then hold cash because cash will be needed when the liquidity crisis comes (banks stop permitting withdrawals in cash), then hold some gold because it might get you through chaos.
-- auric (firstname.lastname@example.org), February 13, 1999.
Neither, I vote for brass with lead tips.
-- y2klady2 (email@example.com), February 13, 1999.
y2klady - will you be my bodyguard???
tman - LOL!
Auric and others - thanks - good advice - I gotta admit I'm pretty confused, I have a little nest egg that I've worked hard for and would like to preserve it in anything other than a 10 scenario.
I'll paste in some advice from Gary North - see what y'all thaink - he says to kep cash too - cash is king!
-- Andy (2000EOD@prodigy.net), February 13, 1999.
y2klady2 is on the right track...lock and load! Can't hurt to have tons of ammo and tons of guns.
-- bardou (firstname.lastname@example.org), February 13, 1999.