GOLDBUGS AMEX Goldbugs Index (GOLD)

[bob3]

Don Coxe says: "...once you have systemic risk showing up – and it’s showing up big time – then you’re going to have all sorts of things starting to unravel."
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Now I know that people say “Well the TIPS haven’t widened out that much”, indicating that investors don’t think there’s that much inflation. But that’s a small market, not big enough when we’re dealing with the whole global financial system now, which is in what I call a 'death grip' with the Dollar.

Because as the Dollar goes down it means the inflows to support all these various kinds of various instruments slow down or get choked off. And you’re always at the most risk, for a financial system, when your currency is in trouble.

And then when you have a current account deficit of two billion dollars a day, which means you’ve got to have that much in, to protect your, keep your currency from going down further...these interlocking forces become mutually reinforcing. Which means the value of credit in the US financial system which is lower-quality bonds, lower-quality bank loans, lower-quality municipals, they go down.

And the Dollar keeps going down. And as the Dollar goes down more and more people get terrified about exposure to the US and they sell if they can get bids, but what they don’t do is put any new money in.

That’s why if you add these together, it’s one of the reasons why we have been such enthusiasts about gold.

Because gold is that rare asset where it’s nobody’s liability.

And what you don’t want right now is a liability of anything other than true Triple AAA issuers, of which in the corporate sector there’s only about two or three and governments that you can trust. I mean, it’s a situation where all of these things coming together…and I’m sorry to keep ladling all these on to you because some of you, your eyes may be glazing over, but I want you to understand that this is not just a risk confined to Bear Stearns and Merrill Lynch and Citigroup. And that these things can gradually be papered over and that the economy’s in pretty good shape so therefore we’re going to come through all of this. We probably will.

But what it does mean is that we are in the liquidation mode and where those people who have savings are not likely to add more money into what they already feel they are overinvested. Most global investors are still overweight the Dollar relative to their own portfolios.

And so we’ve got a process…once you destroy faith in the system like this and in the currency at the same time, then investors who don’t have to be in Dollar securities...are going to exit.

So gold is no longer something where you can put a cap to it.

And that also applies to the Canadian Dollar. And to the Euro. And to the Yen. It simply means that you go in to assets where - although they’ve gone up a long way - that you have some confidence they’re not exposed to systemic risk the that anything denominated in Dollars is.

That’s why I don’t think anybody should be committing new money into the stock market. And you can’t just say it’s the US stock market, because Wall Street’s problems become the world’s problems. And that’s why we still say that you own the commodity stocks. Because they are tied directly to the cash flow of the global economy as opposed to somebody else’s balance sheet

Courtesy... TheSlowLane @ SI

Don Coxe: Fridays weekly audio program.

http://events.startcast.com/events/199/B0003/#