Tuesday, March 13, 2012

Gold and the CDS Fiasco (reprise) and the Ides of March

I had a goodish sleep. The markets were quiet and the world didn't come to an end.

Has the trigger been pushed on the CDS exposure and all is to naught, or is the pressure of the finger on metal increasing and the flash point about to spring?

Give me a dollar for all the times I have heard the term 'kicking the can down the road' in the last few years and I would be a Central Bank. Its kind of an annoying phrase, but useful nonetheless.

It appears that the ECB and the Federal Reserve were on to this Greek default six months ago. This is partly why the ECBs balance sheet has ballooned to £3.5 trillion. This is 30% of the total European GDP of over €12 trillion. Not earned, not real wealth, not even real. Just currency units created by typing 3500000000000 and pressing ENTER on a Central Bank computer keyboard. Oh if only I could do that; now what would I buy...

This is the can and the can is now being kicked in a dead-end street, soon to smack against a wall with a sickening sound.

How do I know? Because historically, cans have always eneded up in a bad place. The saying goes, history is what someone wrote about what happened, not what actually happened. What do you think is actually happening? What will 'history' report at the 'ides of March'?

In my view, what happened this week was a tightening of the finger on the trigger. The same fundamentals and forces that always work against too much debt are playing out. The situation cannot be brought under control with the current policies. What actually happens when you print currency units is that you debase the value of that currency. 1 + 1 = 2. Maths can't change.

And everyone is debasing, trying to be the last to kick the can. Not wanting to destroy their economies first. Looks like the West is losing this battle and needs other options; soon.

Let's hope that trigger finger isn't on a real gun.

Gold in New Zealand dollars: $2078.16 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $41.01 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)

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