March 25, 2011

Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

1. Who Is the Devil?

Libya is a quagmire and troops have not even been put on the ground. Like Japan, with one issue morphing into many, we’ll have to wait and see how many new issues arise out of the initial decision to bomb Libyan sites.

Germany has retracted equipment from the NATO coalition, not wanting it to be used in the campaign. Italy holds the position that the French are being aggressive in order to be at the front of the line for Libyan oil contracts. UK Ministers believe this may be the first salvo in a 30-year conflict. The Russians have accused the US of initiating a “crusade,” self righteously doubting the veracity of the stated objective: protecting civilians from an autocratic – no, despotic regime. In very short order, what seemed (to someone) a very good idea has gotten complicated.

When the US acts unilaterally, it is believed by some, we have failed to respect the new order of international democracy. And apparently acting multilaterally affords no less criticism. Like the EU bailout, the Libyan issue is confused and lacking in clear direction or leadership. Too many lines of self-interest have been crossed for a clear picture of intent to be drawn.

Living out west, I’m reminded of how matters of justice (if we dare call it that) were solved out on the range. Got a bad guy? Get a rope!

Things aren’t that simple – they never were. But now we have international politicians pretending to be morally upright, humanitarian, and with intentions like those of a Mother Theresa – while practicing such hypocrisy and deceit as to make Beelzebub himself take note! The selectivity of our interventions and escapades underscores the centrality of self-interest, not a humanitarian motive.

The global economy and world monetary systems are today in no position to cope with further headwinds, disappointed expectations, or severe market ruptures. Yet, looking around the world, from Japan to the Middle East, to European issues (Portugal and Spain again prominently in the news with ratings downgrades), not to mention our own homegrown balance sheet concerns, you find unresolved problems and policy makers attempting to maintain the old normal. Can’t we just go back to the days of excess global consumption driven by easy money and easy credit? Why must there ever be a piper to pay? Let’s just pretend things aren’t that bad.

2. All that Glitters Is Not Gold (Sometimes It’s Silver)

Silver and gold are drawing attention from even the news media this week, and put on a remarkable performance. At one point you could have exchanged 38 Federal Reserve notes, and a little loose change, for a single ounce of the white metal. I liked it better at six bucks. Unfortunately, time cannot be rolled back, and we live with present realities, including the host of delusional central planners and central bankers all trying to fix the system with the same tools that have brought the system to its knees. Is silver saying anything about investor concerns with inflation? In a word, yes.

Note, the gold/silver ratio has broken out of a range that bound its behavior from 1983 to the present. Ratios from 40:1 to 100:1 defined the range for that period, with lower numbers (sub 40) existing only during the inflationary days beginning in the late sixties and finally slowing down in the early eighties.

May we pause for a moment and revel in the numeric coincidence of silver trading at 38 dollars at the same time it takes 38 ounces of the white metal to get an ounce of the yellow metal, gold?

More significant to us than the outperformance of silver in recent and perhaps coming months is that it signifies a transition in investor sentiment. People, average people (remember “poor man’s gold”), are figuring out that the Federal Reserve note/dollar scam is costing them greatly, and as far as they are concerned the game is up. Insurance is not an option: it’s a necessity. “Buy gold or silver,” they say, “whatever you can afford.”

Also of note is the excessive insecurity expressed by the Department of Justice this past week in throwing a man in jail for creating a silver coin he dared to (ironically) call the “Liberty dollar.” By calling it a dollar, something that could compete with the Federal Reserve money monopoly, he was charged with domestic terrorism and given eight years in jail.

Land of Liberty, you say? Is there either justice or rationality in today’s legal system? The treasury should worry less about how a $7 million silver business could jeopardize the world’s largest economy and the world’s most important currency (that’s surely a job that only Alan Greenspan and Ben Bernanke could, perhaps, have accomplished), and assess the inherent risks of worthless fiat scrip. It’s a confidence game, and it’s the larger audience of global dollar holders they should be mindful of. You can teach one man a lesson about challenging a monopoly power, but you can’t throw the world in prison when your currency is soundly repudiated.

Radical price movements and the expression of profound insecurity – pure power plays by the DOJ, Fed, and Treasury – are a sign of the times. You’ve heard it said, “our currency, your problem.” Those days may be numbered.

Have a great weekend.

David McAlvany
President and CEO
MWM LLLP

David Burgess
VP Investment Management
MWM LLLP

2014-09-23T18:45:16+00:00