The financial crisis is fast unfolding as Fannie Mae, Freddie Mac, AIG,
Lehman, Merrill Lynch, Washington Mutual and Wachovia are joining Countrywide,
Bear Stearns and company in their disappearing acts.
There are rumors now that Morgan Stanley is in trouble, too. I am surprised
that the administration did not do more than they did to stabilize the financial
sector (not that I am for it). There's no question in my mind that conditions in
the market are worse than 1929, except that this time the dollar is not anchored
to the gold standard so governments are printing at will. Watch out for credit
card collaterals deteriorating, which will hurt Citibank and Bank of
America.
Before you put me in the economic doom and gloom camp, let me be specific. I
am anticipating more trouble for the financial sector, not doom and gloom
spanning the entire economy. The debt implosion in financials merely facilitates
wealth transfer, not economic collapse. This is the time to go shopping for hard
assets. International land, apartments, good stocks, metals. Those hard assets
are not disappearing and with a poisonous dollar, and after the crunch we're
having, those assets priced in dollars will act as a shelter for all dollar
holders. I expect the dollar to freefall relative to metals and Asian currencies
in the next 6 months.
Oil is down slightly to $96 while gold is up $86 yesterday and $42 today to
$905. AIG and Lehman both have big positions in the futures markets (long oil,
short metals), and I highly suspect those positions are being unwound (ie. Sell
oil, buy to cover metals). I have been VERY careful in not calling a bottom,
however I am confident now that the bottom is in, and things can unravel quickly
if short stops are taken out, creating a squeeze.
Below,
I've linked to an interview of John Embry, the most famous gold fund manager in
Canada. His fund is down 45% YTD, which makes our numbers look very good. Like
Embry, we now have positions that are selling for as much as 20% below the cash
they have in the bank. Finally, I expect a very healthy rebound in metals and
metal stocks, while rest of the markets continue to yo-yo. Finally, the wait is
over.
