The Inevitable Contagion

We are on the verge of severe political and social volatility, and we are ill-prepared for it. No doubt Keynes if he were alive would pen a sequel to the “Economic Consequences of the Peace”; perhaps he would call it the “Economic Consequences of Government Stupidity”. Our leaders have had over 3 years now to think of ways to get out of this mess, and there are no intelligent ideas headed our way. So just be smart and prepare.

European Contagion

Greece is headed for default, as I’ve consistently said they would. A lot of people make the asinine argument that Greece is inconsequential because they are so small. Well we are talking about the disintegration of the Euro here and this is no big deal? The biggest events occur from seemingly inconsequential events. The risk here is of contagion. I told you of the risk of contagion with civil unrest a long time ago, and now you are seeing it play out with Occupy Wall Street. Markets are no different.

Anyway, European leaders just have the wrong focus. A single currency was supposed to alleviate volatility, but it didn’t because traders just replaced currency bets with bets on sovereign bonds. This is so basic and if European leaders don’t understand this, trust me, the worst is ahead for them. The Euro is no shield for weaker European members.

This crisis is going global, and any American who thinks we will get out of this unscathed is deluded. Austerity won’t work, neither will raising taxes. We have $1 trillion budget deficits a year, so austerity basically means a drastic reduction of the public sector. We have protests around the country that are turning ugly and this is with borrowing to mask our true situation. Austerity would create a sharp and sudden reduction in the public sector, which would create a level of civil unrest we’ve never seen in our history. And this is the genius solution people are coming up with? Oh lord.

Let’s face it, once you hit a certain age, you become a blockhead. You start to think you know everything and stop learning. If you are an American politician with a law degree and think you can pontificate about economics, then you are an advanced form of blockhead. Understand that these blockheads run the show and their decisions will move markets, for better or for worse. My goal is to accept truths I cannot change and step ahead of trends.

I cannot stress enough how gold needs to be bought on all pullbacks. There are no true safe havens besides gold. People thought the Euro was a viable alternative to the dollar just a couple of years ago- now those views are laughable. People thought the Swiss Franc was a safe haven until the government devalued. Now people think Treasuries are a safe haven and I am telling you this is the spike top in Treasuries. Gold and treasury yields should rise in explosive fashion and I am sure most of you will regret not buying more gold shares when you had the chance. Don’t be a blockhead and see what’s right in front of you.