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LAWRIE WILLIAMS: Own gold – fiat currencies are potentially worthless

One of the newsletters I occasionally gain access to is that penned by the very outspoken Republican-supporting investment adviser, Michael Lewitt with his Credit Strategist publication, which I would commend as great reading to anyone – even Democrats.  The recommendation is not because I would necessarily agree with all his views – as a Brit I am naturally rather to the Left of Lewitt’s political stance despite perhaps being right-leaning by U.K. standards - but because his often highly outspoken comments on the economy in general and his investment advice make an awful lot of sense - to me at least.  He may be an outspoken Republican politically, although is not an out and out Trump supporter, in recognition of many of the U.S. President’s personality ambiguities.  

He is, though, hugely critical of the overall extremely partisan direction of U.S. politics, media coverage and its acceptance by the U.S. public and particularly of Elon Musk and Tesla among others and is a big supporter of holding gold as the ultimate wealth protector.  “Buy gold and protect yourselves” is one of his mantras.

It is in this context that I have extracted the following paragraph from Lewitt’s latest issue of the Credit Strategist: “All of the paper wealth in the world is an illusion, but people might as well enjoy it as long as the global Ponzi game continues. The only way to protect yourself from the inevitable collapse of this regime is to own gold and other tangible assets and operating businesses that will be needed to run the world. Fiat currencies aren’t worth the paper they are written on.”  In this context ‘regime’ is largely aimed at the U.S,, but is also just as relevant to most global administrations too.

Now maybe Lewitt is currently fighting a lost cause with gold, which is languishing out of favour with the major institutions which traditionally drive the investment markets.  But, if he is correct in his overall analyses which suggest that the current ever-increasing debt policies of the world’s central banks means that equities markets are hugely over-valued and many key currencies are hugely vulnerable, then his ‘lost cause’ may well be about to end sooner rather than later.

Lewitt goes on to note that central banks now have little choice but to quadruple down on their policies. He comments that the mere hint of higher rates sends equity markets into a tailspin, which is unsustainable politically and psychologically as well as structurally because the value of so much debt is dependent on inflated stock prices in the over-bought equities markets.   He says these profligate building-up-debt policies will lead to an inevitable collapse of what he terms a funny-money regime and investors will need to seek out sustainable assets, like gold, which can withstand the eventual fall-out.

Lewitt’s warnings will inevitably fall on deaf ears until it is all too late as the bulk of investors are too caught up in what they see as an unstoppable ever-continuing rise in the equities markets.  The signs are out there of a collapse/recession – notably the reversal of the yield curve which is currently seeing longer term debt at lower interest rates than its short term counterparts.  While some may recognise the inevitability of a collapse occurring at some future time, historically they tend to wait too long to pull out as the market downturn, when it occurs, will likely be rapid and steep.  And it’s unlikely to be just U.S. equities which suffer – the signs are pointing to a global financial fall-out.  Even safe assets may not be immune to falls, though, as much of today’s investment is undertaken on margin and good assets may have to be sold off for mega-investors to stay afloat.  But these investment assets will doubtless recover far faster and rise quicker well before overall markets start to pick up again. 

01 Apr 2019 | Categories: Gold

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