When a daisy chain of retrocessionaires exists, a single weak link can pose trouble for all. In assessing the soundness of their reinsurance protection, insurers must therefore apply a stress test to all participants in the chain, and must contemplate a catastrophe loss occurring during a very unfavorable economic environment. After all, you only find out who is swimming naked when the tide goes out. At Berkshire, we retain our risks and depend on no one. And whatever the world’s problems, our checks will clear.
– Warren Buffett in the 2001 Berkshire Hathaway Chairmen’s Letter
Having read all of the Berkshire Hathaway Chairmen’s (BRK.A) letters I can attest that there are many pearls of investing wisdom contained therein. I prefer to keep my capital safe and not dependent on insolvent banks, which are barbarous relics compared to digital gold currency, in order for my checks to clear. Just look at the FDIC failed institution list. Nevertheless, the Great Credit Contraction grinds on and it appears the next round is imminent; a Laboon is coming. As Australia’s News reports for the week of 6 Feburary 2010,
Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet tomorrow at a secret location, the Herald Sun reports.
Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.
If the recovery is doing so well and if the credit crisis has subsided then why all the secrecy? Why not tell everyone, openly, the true state of affairs? Why does the Fed deny release of gold swap information under the FOIA requests from GATA? But we know why. Vampire squids operate in the shadows of secrecy and evaporate in the sunlight of truth.
THE LAST DAYS OF LEHMAN BROTHERS
Over the weekend I watched The Last Days Of Lehman Brothers (LEHMQ.PK) and found it pretty entertaining. For those who have not seen it I would recommend picking up a copy.
The day of reckoning has only been delayed and will be intensified. This round will be attacks against currencies not investment banks. Perhaps that day of reckoning is coming sooner?
EURO BEGINS EVAPORATING
The only plausible fiat replacement for the FRN$ is the Euro. But if you think the FRN$ has problems the Euro’s are a multitude greater. But after the Euro evaporates, and it will eventually, then it will be time for the FRN$ to evaporate. There is only one alternative for the world reserve currency.
On May 20, 1999 Alan Greenspan testified before Congress,
And gold is always accepted and is the ultimate means of payment and is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold.
WHEN THE TIDE GOES OUT THE LABOON COMES
In Southeast Asia on the coasts of Thailand and Burma (Myanmar) live the Moken people who catch fish for their sustenance. For hundreds of years the tribal knowledge of the sea has been passed from father to son. One sign of particular importance is when the water recedes. Why? It heralds the ‘Laboon‘ – a wave that eats people.
The elders of the village saw this terrible sign in December of 2004 when the massive tsunami slammed Southeast Asia killing over 200,000 people. I am sure the greyheads shouted and hooped and hollored in an attempt to warn everyone to run to higher ground. And like humans are I am sure not everyone listened or was liquid enough to move and undoubtedly some must have perished in the Laboon.
In the financial world, gold is the highest ground to protect against financial asset destruction because it is the King of Commodities, the ultimate means of payment and is always accepted. Gold can stay at the bottom of the ocean for 500 years and still have the same amount of value when you pull it out. In other words, you can wait any crisis out indefinitely.
On the other hand, when you are in money market funds, auction rate securities, the massive bond market, (nationalized) retirement accounts, frozen bank accounts in Greece or Iceland, Monex, Failure-To-Delivers that weave the fiction of liquidity on the NYSE through the DTCC, or any other multitude of financial asset then you do not own an asset with intrinsic value. That asset can become either worthless or not be accepted for value like with ARS, CMBS, and etc. which makes H.R. 4248 The Free Competition In Currency Act of 2009 all the more important.
THE GOLD PULLBACK WAS HIT
On 28 December 2009 in Third Round Of Gold Upleg Ready To Start I concluded,
Sure, the third round of the upleg could not materialize for any number of reasons such as interest rates being raised, the mythical Cibola being discovered, etc. As the upleg progresses the gold to silver ratio should probably close from the current 63.27 towards a more normal 50-55. The better time to buy gold, silver or platinum was before the first or second rounds of this upleg. But if the precious metals are absent from one’s portfolio then the second best time to buy them is now although the real bargain may be around $1,050-$1,080 but we may not see that.
With gold trading around $995 on 9 September 2009 in Gold Party Barely Started I wrote, “This puts $1,300 gold and $25 silver within range without greatly exceeding previous trading norms”. With the current silver to gold ratio at 70.8 silver looks increasingly cheap.
I reiterated the opinion of $1300 by Q2 2010 on 9 October 2009 when interviewed on BNN. About a month later I was joined in the $1300 price target by Paul T. Jones II of Tudor Investment Corporation and on 4 February 2010 John Embry of Sprott Asset Management, a long-time gold advocate, chimed in with a similar opinion.
Gold should continue to consolidate over the next few weeks but, the next big move is likely to be up.
This is the view of Sprott Asset Management’s chief investment strategist John Embry, who says he is looking for the price of the yellow metal to hit around $1,350 to $1,400 by late spring.
The Last Days of Lehman Brothers, like the movie Rollover, is playing out before our eyes but not with investment banks but with currencies, the common stock of nations. A memorable quote was, ‘Nothing is something.’ And that is the reason to own gold. As The Great Credit Contraction grinds on capital will oscillate in waves between gold, the FRN$ and the Euro as capital seeks safety and liquidity which results in the fictitious capital being evaporated. For those who have not secured their financial castle on high ground, now is not the time to be hunting around for sand dollars in the retreated water.
The bailouts, quantitative easing and gigantic government enforced Ponzi scams known as retirement schemes will only cause the Laboon, which currently races towards the financial shore at a breakneak pace, to be that much larger and more intense. Despite what Geithner shrills, Treasury debt will not only lose its Aaa status it will eventually become worthless. The impotent costumed officials will be no more successful at holding off the Laboon than King Cnut was in ordering the sea to go out.
DISCLOSURES: Long physical gold and silver with no interest in sovereign debt from Greece, Portugal, Italy, Ireland, Spain, etc., Euros or the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.