In Jim Cook's Archive


People tend to believe that what will happen in the financial future is what they want to happen.  If you believe the stock market will eventually soar upward you probably own stocks.  If you think silver is going stratospheric you probably own silver.  The problem is that when we have a lot riding on a particular outcome we tend to close our minds to other possibilities.  This is especially true with stock market investors.  If they could see clearly what the European debt situation could lead to they might not own stocks.  If they grasped the true dimensions of the western world’s financial problems they would abandon a lot of their equities.

Italy must sell $300 billion in bonds in the next year just to pay the interest on their debt.  Who in their right mind will loan Italy $300 billion?  Analyst Russ Winter writes, “Italy is finished.  Rates above 6% reinforce that. . .The ECB couldn’t step up to the plate on Greece to finance a much smaller situation, so how could this possibly happen for Italy?  The notion of more austerity and economic growth solving Italy’s debt trap is the pinnacle of [the] silly season. . . Italy is where the U.S. is going within a few years, if not months.  Put that little prediction in a time capsule.”

The debt problem is so enormous there is no good resolution.  All outcomes are bad.  The Italian bond holders are probably toast.  So what will this spreading crisis do to stocks?  The place to get that answer is on the sidelines.  Sit this one out. Everything is at risk with the exception of a few hard assets.  It’s getting dicier by the day, with volatility and price fluctuations gyrating all over the board.  By some estimates 90% of all trading comes from high frequency trading, a cockeyed computerized scheme that leaves small investors vulnerable.  Nevertheless, stock jockeys on TV give bullish investment advice that sounds more like tunnel vision.  Why would you want all your money there?

I read this quote recently, “One of the myths that everyone is taught is that the government has some sort of tremendous understanding of economics and the ability to make adjustments to economic activity.  The term fine-tuning is used sometimes.  Actually, we are talking about a group of human beings who don’t know much more about real economics than anybody else.  They think they do, but they don’t.  They just bounce around from one attempt to control things to the next, making a mess of the country.”

Market analyst John Browne writes, “Greece is a relatively small problem.  The bigger threat is Italy, with its $2.4 trillion of debt and a 10-year bond yield having just surpassed the critical 7 percent level.  This is the ruinous milestone at which the cost of new debt money surpasses the economic growth rate plus inflation.  Italy faces massive debt refunding, falling buyer interest, and no hope of a bailout.  If Italy were to default, it could threaten rapid contagion to Portugal, Ireland, Spain, and other larger eurozone countries, including perhaps France.  In such an event, most international banks and institutional investors, including those in the U.S. could suffer severe, possibly total, losses on their holding of certain sovereign bonds.  MFGlobal is but one speculative example of a looming secular trend.  Worse still, the writers of credit swap (CDS) derivatives, including many German Landesbanks (state-level banks) and major U.S. banks, could suffer crippling losses.

“This would lead to Phase Two of the collapse:  a renewed and far larger banking crisis.  This, in turn, could bring stock markets tumbling and threaten major institutional investors, including politically sensitive pension and insurance companies. . . This could cause a dramatic spike in U.S. bank failures.  Unwary depositors who have failed to watch their banks closely could find their insured funds frozen, perhaps for months, as the FDIC reorganizes the problem banks – and perhaps even waits for its own bailout.”

Stock investors may face greater damage from events in the U.S.  Editor John Williams warns,
“With the economy in ongoing crisis, with no prospect of a turnaround in the foreseeable future, the implications for the federal budget deficit, U.S. Treasury funding needs and prospective banking-system stability, in the years ahead, are horrendous.  The current, relatively happy forecasts for each of those areas are based on assumptions of solid economic growth going forward.  That growth simply will not be forthcoming.”

These types of forecasts are coming from people who have been surprisingly accurate in their predictions.  Most stock market investors won’t even entertain these possibilities.  They only listen to the people that tell them what they want to hear.  Basically that’s what financial TV does.  A bunch of people who make their living in the securities business reinforce everybody’s opinion that the stock market is the only place to be.

Consequently, very few of these stock investors give a second thought to silver.  They have missed out on an investment that far surpassed the gains in their stock portfolios.  To ignore silver and concentrate solely on stocks could continue to be a big mistake.  Our advice is to put 20% of your net worth into physical silver that you take into your possession.  That’s more cumbersome than calling a broker or trading on your computer.  Nevertheless, the actual silver in your hands provides a deep-seated psychological satisfaction and a profound sense of security and safety.

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