DAVOS Unplugged

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Every year for many years, the world’s elite convene with senior economists, Bankers, and Politicians in DAVOS Switzerland. This is the place where the world’s elite rub shoulders, talk about the world economy, and do deals. It is also where the World Economic Forum (WEF) meets too. Many of these rich, have had their fingers on the pulse of the world economy. Where these elite invest their money, frequently acts as a beacon, and lights the way for us mere mortals to follow suit. But for the last few years, even these people are finding it difficult to use their wealth. And even more dire news has arrived.

Just over one week ago, news arrived that something was not right in the world. The Baltic Dry Index indicated something that stopped me in my tracks. Of course, I couldn’t just comment on it, without doing further research. The first inkling that something was amiss came from ZeroHedge.com. In an article there, Tyler Durden quoted a freind of a friend, who is a shipping billionaire, who told him that “they had no ships at sea at all”.

The Baltic Dry Index, measures the cost of leasing a cargo ship, per tonne of cargo for bulk dry cargo, such as corn, wheat, flour, coal etc. etc.. The BDI is termed a leading economic indicator because it predicts future economic activity (Wikipedia).

When people don’t buy goods, retailers don’t order, wholesalers don’t order, and manufacturers shut-down production, lay off staff and eventually, if left for any length of time – close.

David Morgan of the Morgan Report, in a short piece said that the economy was at “Stall speed” – a reference to an aircraft, whose trim or angle of attack is at the wrong angle, and no matter how much throttle you give it, the aircraft will stall. The only way to stop it is to tip the nose down, to generate forward momentum, and lift, before pulling up, so you have to have the height to achieve that. And the talking heads in Davos, have already suggested QE4 is almost a given, but that it will achieve little.

George Soros in an interview at Davos, suggested China, will have a hard landing, and his interviewer wondered out loud, what impact that might have on western markets.

From my previous posts, you will glean, that commodities make up a considerable part of China’s trade, as the leading producer for export markets, China imports the bulk of international commodities, and with the reduction of growth to less than 7%, commentators are now predicting a “Hard Landing”, just as was predicted by Will Hutton in his book – “The Writing is on the Wall” in 2003.

And Tim Price, a writer for Moneyweek, just one week ago, began promoting his latest book, evocatively titled: “The End of Cash”.

Like others, if you read the book: “The Coming Battle – 2013”, in the chapter “The Death of Cash”, it has been predicted for a long time. That money and now physical currency has been persecuted, by governments around the world, for their own ends, and now it is coming to pass…

Too many, will say – “Well it will make life easier, safer, quicker, and you won’t be able to lose money down the back of the sofa”. But they are missing the bigger, more sinister, picture.

When a government controls the currency of the realm, they control YOU. Money in a bank account earns nobody anything. It is only when that money is loaned out into the economy, that it generates a surplus (for the lender) which is usually paid back by the added value produced by the payee, usually as the result of producing and selling value added goods and services.

BUT, also on the other side of the coin, (so to speak) is the Sovereign Nation, with raw materials to sell. If what they receive for their real goods: coal, oil, gas, titanium, vanadium, uranium, thorium, beryllium, diamonds, or even their smart-phones, glass, ceramics, or other high value added goods, is a paper asset, or even worse an electronic one, because the buyer nation can just produce “currency” via a keyboard and terminal on a computer somewhere, and if those electronic digits do not represent “REAL” as opposed to ephemereal assets, then the world economy can be manipulated for the ends of the Bankers, and those political puppets pulling the strings in the halls of power to the detriment of those at the other end of the economic spectrum.

This can quickly lead to the situation we had in 1930, just as Germany, looked for scapegoats, and a saviour who emerged Donald Trump like in the form of Adolf Hitler, who promised to fix things by more political interference.

Markets, work best with little political interference, though governments can, and should mitigate the worst excesses of these, for people in the real economy. Whenever politicians attempt to direct markets, they end up making things worse. Of course, when events begin spiralling out of control, people in the real world revert to either barter, or as circumstances permit, goods of sustainable value, and this usually means a return to a physical coinage in the form of Silver and Gold money.

There are those who feel the crisis of 2008, has been cured. All the mainstream media pundits are singing from the same hymn sheet – talking up the economy, but beneath the apparent surface calm, the swan is paddling like crazy. And events have a habit of veering off course, because someone, somewhere in a foreign nation feels like they’re being taken advantage of, and intervenes. Just as Mongolia did, when it thought the price of its raw materials were being taken advantage of in 2011, and it imposed a new political and contractual framework, on one of its major investors, which given recent events in the commodities space, has seen the country’s economy fall from its rapid growth projections as commodity prices have fallen back. Over the last 2 years Anglo-American a massive commodity supplier laid off 85,000 of its staff worldwide, and the recent lay-offs in Britain’s steel industry, are a portent of things to come.

The financial crisis of 2008, is far from over, and when the government gains full control over the currency, then we face either hyper-inflation, or negative interest rates on deposits, forcing spending. If interest rates rise, then the Bond markets collapse, from their 300 year highs, and property value fall alongside those as property prices are inversely related to interest rates.

To maintain some value in an uncertain world, SOME (10%-25%) of your wealth needs to be hold in your hands physical precious metals.