Posted on 28 September 2013 with 3 comments from readers
Chaos theory is a very different game from conventional economics or investment analysis. The latter assumes continuity and stablity in markets that make projections from the past and cash flow calculations meaningful. What do we mean by chaos?
We mean the Fed loses control of interest rates and they jump by 50 per cent in two months. That’s just happened. We mean the S&P 500 does the Elliott Wave theory correction and drops by 50 per cent. Comng next? We mean interest rates rocket all over the world and there is a massive deflation is followed by a hyperinflation.
Cash not king
You can’t expect to pick the one winning stock when everything is in such a state of flux. You’re even going to get screwed by holding cash. Money can become worthless as it did in Zimababwe so recently. There will be too much of it around when everything is sold off.
Now why should we anticipate this sort of disaster? Have the Fed and global central banks not been correcting the mistakes of 2008 for the past five years? Well that is of course the problem. They have simply solved a debt crisis by creating yet more and more debt. Next week the US Government shutdown looms due to overspending and another crisis over the debt ceiling is next on the agenda.
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All this money printing over the past five years has made the global economy more unstable and liable to sudden shocks and violent reversals. Many people feel this instinctively and have pulled back from investment and spending, and that of course has only made things worse.
What you want to buy is an insurance policy against this coming catastrophe and preferably one that does not have a third party between you and your money. Gold is the ultimate money in times of chaos. It has been in civil wars, major financial collapses and World Wars too.
There is no point in running over the argument about the role of gold in an upcoming global economic reset of currencies but we have reviewed the work of Jim Rickards (click here) and there will be a much longer article explaining his logic in the next issue of the ArabianMoney investment newsletter (subscribe here).
His conclusion is that gold will hit $7,000-10,000 an ounce, depending on how the crisis evolves. Investment experts, fund managers and professional economists just do not seem to get this argument. You might say that is why they completely missed the 2008 debacle coming. We did not, you can find the articles in our archives.
So here we go again. But gold is in a different position to 2008. It’s already had its price correction and is currently cheap. That just leaves more room for the price to advance as financial markets enter a period of chaos after the initial down pull of the whole financial system going down like the Titanic.