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Gold and Mentally Dealing with our changing World

By Chris Laird      Printer Friendly Version Bookmark and Share
May 12 2009 10:36AM

This is a reprint of our latest newsletter Sunday May 10 09. It talks about gold, and the mental attitude we all will need to make it past the USD….

This newsletter is a bit longer than usual. What I would really like to do is tune up the newsletter to about 6 pages generally, as we are aware that everyone has time constraints, but sometimes the topics take more time. We look at some gold, USD and CRB over the last year, then go into a discussion on mentally dealing with the huge changes in our world.

You might ask why we are talking about mentally dealing with the change. It reminds me of a quote by an LA Laker when they won one of their world championships. The journalist asked Kobe or someone what the difference was in winning. Kobe replied ‘The game is 90 pct mental. All the NBA players are very talented physically, so that is the difference.’

It is no different with us trying to protect our wealth when the world is radically changing.

Gold oil USD CRB

Comment: Even though the USD may be poised to turn down for a while, (that is not certain yet) there is so much oil in storage in parked tankers and so on world wide that I very much doubt if oil will benefit much from a USD turn down. Gold should benefit however this time if the USD turns down. IF that happens gold stocks should recover well because they are the next best gold analog to actual coins. Of course the gold ETFs are tracking spot prices and did better than the gold stocks which are very dependent on the economy.

Dealing with our changing world mentally

We live in a time of historic change, so what do we do?

This NL (newsletter edition) talks about the required mindset to survive what is happening today, all the change and dealing with it and not losing your head. I see the mental aspects of dealing with our present challenges, no matter who you are or what you do, as the 90 pct problem. IE the mental view on any challenge is 90pct of the solution. If the mental aspects are not dealt with you are going to lose right off the bat. This could not be more true than in our present time.

Over the last 5 years or so, I have been astonished to see the changes afoot. Our entire lives are turning inside out, in the sense that all the things we are used to are changing or being taken away. Before I did this newsletter, which started in 05, in the later 1990’s I told my friends that the world we grew up in is changing radically, and that we would live in a totally different world in a decade – how right that turned out to be.

In the last year and a half, the changes have accelerated drastically. I am just awed by what is happening. One of the books I use to get a ‘handle’ on these changes is the Fourth Turning by Strauss. We have discussed this book off and on, but of course, since it’s seminal, it bears bringing up from time to time. That book is mandatory reading for PrudentSquirrels.

Hate to say it but this time is like pre WW1

Strangely, many of the changes today mirror what happened in the world just before WW1. The overturn of the entire world power structures and leaders, followed by revolution and war and regime changes. The economic and political developments we see today are quite similar.

What happened then

Great Britain lost its empire in total by 1945 after virtually bankrupting in two world wars. The US emerged as the clear dominant economic, military, and political power in the 1900s. Russia had a revolution. Japan emerged into a mercantile military regime, lost a disastrous war, then had a rebirth, but it’s still a Western country more or less. Japan is tied at the hip to the West and will suffer the West’s fate to a large degree. And then we have China and India- but that gets us to the next century the 2000s.

Europe was turned inside out, suffering two highly destructive wars that broke the spirit of Britain and everyone else, as an entire generation of youth was quite literally slaughtered on the WW1 battlefields. The British Empire won two wars but died spiritually in a way. The immense sadness that permeated Western Europe after WW1, when they lost so many millions of youth in their flower, caused this. This exact pathos over the dead youth, described by the people involved as the loss of the entire flower of a generation, led to Britain’s passive attitude toward the growing Nazi threat. We all know how costly that passiveness was when WW2 broke out.

And of course, the rise of the Fascist Nazis and so on – who attempted to literally take over the world, and said so, and wanted not only the expansive  Russian ‘living spaces’ to the East, but openly enslaved the conquered populations. If the Nazis had won, and if they had the technology to create what I call a ‘technical dictatorship’ like we have now, the entire world would have been enslaved and not been able to do anything about it. And, since the ability to create a technical dictatorship exists now, I am quite concerned. I see the book 1984 as an example of what a technical dictatorship is. The cameras, the screens that talk to you (UK today), and the total control of the media message in most countries in 1984 are exactly what we see today. But that is another story.

Jumping to our present new order of changes since roughly 2000 to now

The West embarks on an historic consumption binge, leading to bankruptcy (housing bubble etc). Everyone is now a speculator, or was. Speculation is still very much alive. PrudentSquirrels may engage in the markets now, but please know that you are dealing with markets that are about speculation and not really ‘investing’. Maybe you should try to sit things out for a while?

One reason we called this commodity and energy downturn in early/mid 08 was because we knew every market is now dominated by leverage and speculators. When we suspected the USD would rally the speculators fled and the CRB and general commodities, including oil, got hammered after Summer 08. Gold stocks got taken down because these are easy paper gold vehicles speculators can jump in and out of. But gold spot held up where everything else took a dive. By the way I know there is probably gold manipulation by central banks, but all that does in my view is offer us a chance to get some while it can be got.

That is what happens when risk is high everywhere. When we thought the USD would turn up, it was clear that the general commodity sector would tank when the speculators fled, which is what happened, and it did not take long either. Supposedly the commodity sector is recovering, but from my desk, I see little reason for it to stick because the economy is continuing to unravel – over optimistic TV commentators aside. In fact, you might do well to turn off the TV media for a while too. Get your information elsewhere, which the Internet is quite good for, if you know what you are looking for.

If you think the TV media is filled with disinformation from stupid over optimistic commentators who readily admit they must show the bright side, then maybe you should turn off that channel because you are exposing yourself to their nonsense more than you might think, even if you disagree.

I guess what I am saying is that in this time of huge change and danger, one needs to be careful of what information he exposes himself to, treating it almost like a military security situation, only it’s your personal/financial security at risk here. You might want to think in terms of that. It’s unfortunate we have to do that, but there it is. We will discuss in a moment an idea I call having to ‘go outside’ to deal with the world now.

Speculation not investing

When I was a kid about 14, 1974/5, I remember my grandmother Alice Widener saying ‘every one is speculating now. Its all speculation now, investing does not exist in people’s minds.’ She published USA magazine then, a newsletter much like mine but with a focus also on US politics as well as our usual financial topics. She wrote regularly for the Wall Street Journal as well as Barron’s etc. Well, here we are again, Gaga! (Our nickname for her).

The bankruptcies and ongoing speculation fever will cause people to lose their remaining wealth, and Asia (possibly excepting Japan) will pick up the pieces and remake the world on their terms. I do hope that PrudentSquirrels understand that this is NOT the time to be speculating, or if you do (there is opportunity) then be able to absorb the risk. Let’s not be like the financial establishment that went haywire taking excessive risk. There will be no bailout for Mr and Mrs basic person (you and me). If you are Citibank, that’s different.

The Euro block might be the only power standing in the way of an Asian dominated world, while the US is rapidly becoming distracted by economic, and what will likely be military misadventures. The war in Iran and Afghanistan are only beginning stages of likely further military misadventures – all the while the US Treasury is rapidly going bankrupt in every sense but name only. We are quite concerned about Pakistan and all which is yet another huge danger with their nukes and the Taliban situation.

USD gradual fall or crash?

Our USD system is just about to collapse. Most people by far have absolutely no idea how imminent that is, which is a serious complication for us who do track this. Whether it is a gradual collapse, or a rapid one, is yet to be determined, but collapse is definitely the term to use. The rest of the world is rapidly following suit into bankrupting themselves fighting this relentless world financial deleveraging. Most people cannot imagine a USD collapse, and even we who research about it find it impossible to predict the many consequences.

But it’s the general lack of knowledge in the general population that concerns me. They are sitting ducks. If you have a single gold coin, you will likely buy a nice house with it, I am totally serious. I made a prediction about 2005 that if you have ten ounces of gold only, you will probably survive the period of transition from the USD (with careful planning). Even two ounces would make all the difference in the world. Of course that prediction does not take care of the confiscation issue, but hell, no one strategy can cover all risks.

In short, the world is right in the middle of total change and revolution in every way. Remember how things used to be 20 or 10 years ago? Well, take all that and put it out of your mind. Most of our usual things we take for granted in our ‘world’ are either gone already or the remnants rapidly going away before our eyes. As I am sure most of you already know, it is next to impossible to convince others of the dangers.

Cocktail parties

I talk to people in cocktail parties and learned a lesson about that – that this story is scaring the hell out of people and is a party killer. From now on, I will only briefly bring up these issues, having seen the previous cocktail discussions rapidly end in gloom after we get done discussing all this-to the extent the discussion is even tolerated. I find that I can talk to doctors, airline pilots, millionaire businessmen etc, and basically they have nothing to counter my concerns THEY bring up at the party, when they ask me to comment. Then what seems to happen is they tune out. You can see a haunted look in their eyes. I never get over the fact that with all their hard earned money, they are acting like sitting ducks. Denial seems to work for them initially.

Typically, one of these parties has a few doctors, a few rich businessmen, and such people, and your average 401k persons, and when they find out their world is ending, well, I can’t blame them for leaving the party. And me not being invited back. In fact, I’m not sure I even want to go to those parties either. Many of these people are hiding their heads in the sand, telling me they lost a lot of money and asking me what can they do, and then only having the stomach for a ten minute discussion before they wet their pants on what could happen if the USD fell– and cease discussing the situation. Maybe they are just giving in to fate. That is a very dangerous thing to do.

It’s 90 pct mental, right?

Not that I like the topics about the USD either. Not at all. I am very very disturbed by what I see happening. I guess that feeling comes across. Then, when I speak knowledgeably about these dangers, they are so overwhelmed they kind of shut down in astonishment.

Rather, let’s talk about the weather and the sexy 20 somethings in bikinis. When the world ends, it ends right? I’m serious, this is their point of view. IE a resigned hopelessness – and outright denial. The denial is what bothers me, as it’s a sure sign of defeat. There ARE things we can do about a coming USD collapse but you can’t wait till the day arrives. Being resigned to fate is not the way to go. People do that because they don’t WANT to believe what is happening. Think about that. (Maybe we all ought to ask ourselves what we ‘want’ to think too? That can be very dangerous if our want is too strong).

Oh, and then they tell me they leave their money in the hands of their financial advisor – again capitulation mentally.

Financial advisors are fine and well, but I have horror stories about what they can do to you. In any case, I cannot understand how a doctor or airline pilot will work his ass off making and saving $2 million and then throwing the entire sum into the hands of another person! Whew! Ok, put part of it that way if you want, but why would you work so hard for 25 years and then put all that savings into another’s hands? I don’t quite get that, except to chalk this up to resignation to a fate.

Yes I am that concerned. I just see what is happening more clearly, and well, I cannot just act like things are normal. I see people like this resigned to the changes, capitulating and basically living off their savings, and or watching them disappear when they jump back into markets every time certain persons ring a bell on TV. The feeling out there must be like the feeling of being in a losing war. Why are they losing? Because of many things, but one major one is everything is now changing drastically and people are not adapting. And this denial thing is something you all see too, talking to your friends and relatives, I am sure.

Professional myopia

Some of the people most vulnerable to mental paralysis are the people who formerly were in charge of things, or are used to being in charge of their lives and destinies. Professionals like Doctors for example. Or an airline pilot who is highly trained, but after working a lifetime saving $2 million dollars, is seeing it get creamed by the general market deleveraging (usually they don’t understand that) and becoming paralyzed from even discussing what is happening, and not doing anything but losing their savings – by not doing anything. It’s called the deer in the headlight scenario.

Financial survival mentality

Or, in my case, we have an interesting example. I worked for Oracle as a systems engineer, after studying incredibly hard for about 3 years getting Oracle certified; their database is very very powerful and complicated to run therefore. The amount of work getting that certification is hard to describe, but is well more than the amount of work it would have taken me to get a Masters degree in math. Being a mathematician, we have methods to deal with complexity, we understand it and study it. (Mathematicians are first and foremost professional analysts who carefully define questions and assumptions. I don’t do arithmetic, I keep having to tell people – please don’t ask me some question a 3 dollar calculator can take care of. When you talk to a mathematician, you ought not to think you are talking to a walking calculator, but rather a carefully trained thinker).

And, how long was I able to get paid for that hard earned expertise at Oracle? Two years, before the Tech crash and subsequent offshoring of 75% of our engineering group to India. But, even though I was very good at that job, I’d rather be doing this anyway – so I had an out.

The whole story above brings to mind this email from a subscriber :

‘Dear Chris,

First I want to thank you for your excellent newsletter. It is the #1 reason we did not lose our rear in the recent market crash You sometimes talk about some real doom and gloom stuff. This is OK because it makes me think about things I normally would not think about….?

Yes, that is what we are trying to achieve here at PrudentSquirrel.

But the point is, hard and fast change is negating lifetimes of work and painfully gained expertise – just simply neutralized as far as gainful employment is concerned. This is happening to all professions in the West…and is part of an overall change to increased communication and a shrinking world, where you end up competing against equally intelligent Asians who can work over the internet and at a cost of 10 or 20% of what it costs to live and work in the West. That kind of competitive advantage is impossible to stop.

Asking the right questions

But getting back to a mathematician’s point of view on what is happening now – well, to start with, the first and foremost thing that must be done to answer a question is to ask the right question. After that, you must identify what your assumptions are, only then may you proceed to working on the problem – if it can be solved.

And that leads us to our assumptions, what do we assume about our world? If our assumptions are right, then maybe we can handle things (whatever) successfully. If they are wrong, then you are already off in the wrong direction. Hopefully you find that out right away before you have to backtrack a long way.

Old assumptions that worked can be suicidal

But, since most of the basic reality of life in the West is changing rapidly, holding on to past assumptions is downright suicidal…and is why my cocktail parties seem to be problematic – I can’t tell these people the content of even one newsletter when they ask me how the markets will do this coming year.

Once they hear some basic assumptions they hold being questioned (for example something like ‘I worked and saved for 25 years and now that is threatened???? It can’t be THAT bad!’) it’s mental shut down time usually. I do not have the time in a cocktail party to explain why this USD danger is so real and imminent.

 I understand why they feel that way, but that does not solve the problem. I think from now on, I’ll just say that ‘that answer is not suitable to cocktail parties. It takes some serious reflection. How was the fishing today?’

And again, the most vulnerable person to mental denial is the most highly trained professional. They are used to understanding things and being in control. That is not exactly conducive to a guy like me questioning all their cherished assumptions of how the world works, or used to work. Actually now looking at it over the last two years, I realize when people hear me talking about these topics they clearly indicate they have NEVER heard what I am saying before and are at a loss for words.

But then again, if these professionals are able to focus on their area, and make money, and things are not changing like they are now, then it works. But if things are changing like they are now, these professionals are just sitting ducks, with a very dangerous overconfidence in their overall knowledge and their place in the changing world.

World does not take care of itself anymore

If the world is changing around them, they cannot safely focus only on their brain surgery techniques. They have to ‘go out’ now. Part of what we do here at PrudentSquirrel is to take people outside what used to be their safe cocoons. It’s not exactly that we want to ‘go outside’ either, but it’s necessary at this time. Frankly, I am dismayed that I have to go outside too. I hate it. (You don’t think I like seeing the world around me turn inside out, do you? It’s not fun for me either, let me tell you!).

Well, our general assumptions about our world even two years ago are now invalid – they worked for decades, but now that is all changed, right?

This list of cherished assumptions lets people stay inside their sinecure, their cocoons, and focus only on their brain surgery techniques. The rest of the world around them took care of itself to their satisfaction. The problem today for everyone in the West is, the world is not ‘taking care of itself’ anymore, so we have to ‘go outside’ and address the world that used to take care of itself, whether we want to or not.

The reason no one can make any money with acceptable risk today is because everything is changing so drastically. It’s sort of like waiting for the smoke to clear to see what’s left before proceeding…

A perfect example of a changed assumption is the banking system. It used to be healthy (Assumption: banks are safe). If it is healthy, then people can focus on making money doing what they do best, then salting the money away for later. We all know how that story turned out in the last year and a half.

Ignore at your own risk

Now, if you ignore the developments in the banking sector for example, you put your life’s savings at risk. Like it or not, you have to go outside your area of expertise. You cannot assume the banks are safe anymore (with all the many ways that presents itself in our lives) and just focus on making money in your area and not worrying about its safety.

But, you tell me, ‘Chris, I can’t track all that, I cannot take care of my bank (take action to address the bank’s dangers and constantly watch the bank), bank accounts, and at the same time do as much as a brain surgeon.’

Right. But that does not solve the problem, does it? Sorry, you have to go outside. Like it or not. Of course you can take the easier path and just work harder, and not go out. But you will probably get blindsided. Things are dangerous, and we do not have the luxury of not paying attention. This may sound obvious, but why are so few even trying to pay attention?

I see the phrases ‘walking around with a dazed look’ ‘frozen by the headlights’ ‘stunned’ showing up quite a lot in the dialog about what is happening in the world now. It doesn’t matter what level you are at either.

The fact is, the economy works far better if brain surgeons can just focus on brain surgery. But, that cannot work that way now, as the outside world is not taking care of itself, so we have no choice but to go outside our areas of expertise and address the world out there. –We no longer have the luxury of not worrying about the outside world in the West. We now have to watch everything where our life touches the outside world. Again, the world is not taking care of itself, so we must pay much more attention to it.

But ‘this takes too much time, Chris’.

I Do understand your time problems

Right, I don’t like sailing in rough weather either. Believe me, I understand that you are a brain surgeon, an example of a busy subscriber. But you will HAVE to play along.

So, Let’s get on with it.

Christopher Laird



Disclaimer: Chris Laird is not an investment advisor/professional. This article, and the PrudentSquirrel newsletter, and alerts, are general market commentary only. It is not intended as specific advice. You should talk to your own investment professionals for specific advice. All information is deemed reliable but is not guaranteed to be accurate. Any information deemed important should be verified by you.

Copyright 2009