Moneyization: The global financial phenomenon
of individuals and businesses moving their funds to
monies in which they have the highest confidence,
or money which has a higher store of faith.
The Last Battles of Paper Debt
Last battle of paper assets is being fought.
Paper assets appear to be losing. Real assets are continuing
to gain ground as the grandeur of investing in paper
fades slowly into history. Not many years ago investors
were fed a huge dose of nonsense in the form of "Buy
and Hold Strategy." As the first graph shows, it
failed them. Now they gorge on trading schemes, paper
and electronic. The results will be as dreary.
For Gold to be providing the higher return,
money must be flowing into it from paper assets. Actually,
decisions on several questions are being made. The answers
for most lead to an investmort preference for Gold and
Silver. First of these questions relates to what assets
investors prefer to own. Investors are looking to the
global changes taking place and quite frankly do not
see the preponderance of the equity markets offering
the investments they desire.
Equity markets continue to be dominated
by yesterday's themes. Tomorrow's investment opportunities
are not represented in the existing list of stocks,
in large part. Yes, a few are able to nibble at the
important trends of the future but not feed directly
enough. Too much talk though of yesterday's technology
darlings still dominates. Yesterday's popular technology
plays are fading rapidly in economic importance, slowly
moving to low margin businesses. For example if all
the copies of MSFT software sold in the world are considered,
the actual economic margin on those sales is far below
what the company reports.
While many fund managers continue to be
bogged in the names of yesterday and elaborate strategies
doomed to failure, investors are moving on. Quite simply
U.S.-based companies are not in the mainstream of today's
economic shifts. Production and control of that production
are moving to other countries. The global shift in
the center of economic activity is away from North America
and Western Europe.
around the world is trying to get in harmony with the
trends of the future. Those trends include moneyization, China, and perhaps the finale
for paper debt. Individuals have been and are shifting
to stronger monies. Gold is simply one of them. China is a story well discussed, and clearly destined
to be the epicenter of future economic activity. Investors
are slowly moving to alternatives that match that shift.
Commodity funds have become popular. Widespread is understanding
that the Chinese renminbi might be a better money choice
than the dollar. As of yet, investors can not buy the
renminbi. Western financial markets as they are constructed
today, do not offer the investment alternatives attuned
Hedge funds losing money on "correlation
trades" involving GM stocks and bonds are examples
of the lack of real investment alternatives in markets.
These funds do little if any investing, but focus on
trading. Using computers to bet on red and black, CDOs,
CDXs, or whatever is not investing. Today's trillion
dollar hedge fund industry is simply creating fancy
algorithms with the hope of beating the trading roulette
wheel. The house will get their money, as it did with
the GM trades. For good reason, trading of paper
equities, derivatives and esoteric combinations of fictional
financial vehicles will continue to provide inadequate
returns. Lottery tickets have better odds.
Gold and Silver simply offer the best
alternatives available. For that reason they have done
better than equities. For that reason, those superior
returns will continue into the future. Remember though
that investment returns accrue over time, not every
day or week or month. Until the Chinese economy is truly
open for investment and until the dollar has its final
crash, Gold should be the investment of choice for investors.
The bell has not rung yet on the Great
Housing/Mortgage Paper Debacle. A bell did ring for
the end of the technology bubble, but one had to be
listening. Iridium Satellite was a multibillion scheme
to provide satellite phone service to nearly every hill
and dale in the world. Nice idea, but it was just a
few years ahead of itself. The company failed in near
silent solitude. In and of itself, the company's
failure was not a monumental event. It was just a little
bell that warned of the end of the technology stock
bubble. We should all be listening for the tinkling
of that little bell for the Housing Paper Debacle. Many
will ignore the tinkling. Others will not be listening.
We do not know who will be the first left
standing when music stops on Housing Paper. The source
of the problem will be "debt." Someone owns
that debt. Someone will lose an unimaginable amount
of money in it. Who might be among the "someone"
is the really exciting question. When the mortgage
debt implosion arrives, paper debt will be worth little.
Fiat money is just debt of the government. In the case
of the debt of the U.S., dollars, that debtor also will
be striving to save itself from the billions of dollars
of collapsing mortgage debt. The U.S. economy will be imploding.
Who will be taken care of first? Those around the world
that own those dollars? Or, those domestic firms hemorrhaging
from mortgage debt gone sour?
Many have a decision to make. Should they
continue to hold dollars? Should they continue to hold
their national money? These worriers are not alone.
Fiat money may be a serious financial casualty of
the next paradigm. With China's
currency not available, Gold and the Euro are what is
left. Some of you have money destined for oblivion,
and doing something about it now is appropriate.
About 117 distinctly different brands
of national money exist in the world. Most of them make
no economic sense, and have little reason for existing.
Our second graph gives us a way of looking at these
global monies. For each of those 117 brands of national
money, the percentage each represents of the total global
money supply has been calculated, based on the latest
complete data available. As shown in the graph, the
top five brands of national money represent about 80%
of the global money supply. The next five brands of
national money represent about 7%. The bottom
77 brands of national money represent a total of about
2% of the total world money supply.
Over time Darwin will take his toll on this structure of national monies. In
the days before technology increased the speed of global
finance, local money was needed. In today's world, local
monies are not needed except for government imposed
reasons. In the table below, the data for the top 11
money brands is presented. No need exists to discuss
the rest. Investors have no business in the other brands
of national money, except for filling scrapbooks for
grandchildren to someday take to 'show and tell' at
Again, if your national money is not on
this list, what you have is something that may someday
have value to collectors. In short, some day it will
not exist as money. Who else wants it? Where does it
have use? In short, its functional domain is small and
shrinking. Move your wealth and life to another brand
of money. What about those on the list? Hong Kong will eventually converts to renminbi. Reason someday may develop
in the UK, leading them to the Euro. Switzerland eventually also
goes Euro. Only reason for franc once being popular
was financial privacy, the Gold backing and the inability
to easily buy Gold. Those reasons are all fading. The
dollar will fade as the UK pound has. Do you want to hold the dollar as
it shrinks from over 20% of the world money supply to
7%, like the British pound?
% GLOBAL MONIES(2003)
Ranked by Size
At the present, the Euro is larger than
the dollar. With Japan's
economy in recovery that currency is likely to remain
large. The world now has four large brands of national
money, including Gold as one of them. When China joins fully the world
economy and the renminbi becomes convertible, the Chinese
brand of money will grow materially. In a number of
years the renminbi may be competing with the Euro for
money domination. In this coming battle for brand leadership
between the renminbi and the Euro, how investors react
is important. With collapsing dollar hegemony, this
battle may simply be ignored. Investors and central
banks after learning an expensive lesson on the value
of debt and fiat money may indeed return to Gold.
In short, the world will have five large
brands of money. The remainder are not necessary. Canada, so tied to the U.S., eventually will be forced
to convert to U.S. dollar. Australia eventually uses the renminbi. Russia,
and likely India
too, move to the Euro. National monies representing
2% or less of world's money are not likely to rise to
the top. If you are an investor in that group, two choices
exist at the present: Gold or the Euro.
The central bank is the brand manager
for a national money, or international money brand in
the case of the top four. What we are seeking is a brand
manager, central bank, that is aware of the world and
the implications of its actions. Do we have that in
the Federal Reserve? Many of us have been critical of
the Federal Reserve's Housing Bubble Strategy. Federal
Reserve policies of the past decade have resulted in
the central banks of the world financing the deficit
of the U.S. government. Had the Federal
Reserve not created the problems with current account
this situation would not exist.
That at some point the central banks of
the world will have no choice but to let the dollar
go where it may is generally now accepted. Central banks
around the world have been financing the U.S. spending spree, as we
well know. The Federal Reserve has not yet had to monetize
the national deficit, but the trend seems to point in
that direction. Inflation has moved up and the dollar
has lost ground as central banks have simply slowed
their buying. What will happen to U.S. inflation and the dollar as the Federal Reserve
must increasingly fund the debt binge?
The longer term situation is well in place
for Gold. Only crucial decision for investors is when
to buy. Those times to buy Gold are when the
optimism on the U.S. dollar has been pushed too far,
as is the recent situation. Dollar
optimism is to too high, and due for a sharp reversal.
These are the times to buy Gold, as shown in the last
graph. Now is the time to get on for the next leg of
the journey to $1,300.
Ned W. Schmidt,CFA,CEBS
is publisher of THE VALUE VIEW GOLD REPORT. That report
now includes a weekly message, TRADING THOUGHTS, to
help investors identify timely points for buying Gold
and Silver. You can join him for the Gold Super Cycle
His monumental report, "$1,265 GOLD", which
has now been read in 12 countries, has 255 pages and
98 graphs, is available at www.amazon.com
or from the author. Ned welcomes your comments and questions.
His mission in life is to rescue investors from the
abyss of financial assets and the coming collapse of
the U.S. dollar. He can be contacted at email@example.com.