The Associated Press recently wrote in “Stocks swoon, extending losses; Bondprices soar” that,
“U.S. stocks tumbled in midday trading Wednesday as investor fears of a global economic slowdown intensified, setting the Dow Jones industrial average on course for its fourth consecutive loss. The Dow plunged as much as 369 points in the first 10 minutes of trading, following steep declines in Europe . . . .”
Insofar as EU stock markets are also declining, the US markets may be less likely to recover on their own. So long as declines are seen in both US and EU markets, those declines may be viewed as systemic and based more on fundamentals than some recent news report about Ebola or a mathematical glitch in the stock indices.
“Traders dumped risky assets [stocks] and parked their money in investments seen as relatively safe, such as U.S. government bonds.”
If the “bow” (stocks) of the economic “ship” is sinking, short-sighted people may rush to the “relative safety” of the stern (government bonds).
However, if the bow (stocks) sinks, the stern (bonds) will follow.
Likewise, if the markets continue to decline, the public may increasingly understand that the “bow” (stocks) is composed of fiat dollars and the “stem” (bonds) is also composed of fiat dollars. If so, the public may increasingly understand that the fundamental problem is not with stocks or bonds, per se, but with our fiat currency. If that understanding begins to penetrate the national psyche, there’ll be a rush to avoid paper debt-instruments (like stocks and bonds) denominated in fiat dollars, and store people’s wealth in a tangible medium like gold or silver.
Rushing from stocks, to invest in US bonds is “a function of the U.S. being the best house in a bad neighborhood,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.
But if: 1) the US economy is a “bad neighborhood”; and 2), within that “bad neighborhood,” US bonds are the “best house”—is that relativism sufficient to prove that either the “bad neighborhood” or the “best house” are desirable and safe?
It’s a like living in Chicago in A.D. 1817 when the city burned. Some houses may have been better than others, but they all burned, just the same.
If your economic “neighborhood” is on fire, it’s not enough to brag that you live in a mansion that’ll be the last to burn. If you want to survive, you’ve got to find a “house” that won’t burn at all.
In today’s economic neighborhood, that’ll be gold or silver.
• I was pleased to see the Dow fall from above 17,000 to below 16,000.
Not because I’m a gold bug.
Written By: ALFRED ADASK, continue at ADASK’S LAW