Events of the past several weeks have left individual investment portfolios devastated as trillions of dollars in paper wealth have literally disappeared from world stock markets.
Even safe haven investments like gold, which normally performs well during financial crisis, have been decimated, adding to the state of shock and confusion.
This meltdown has surpassed all expectations, and has no historical precedents.
We are in uncharted waters. And it is very difficult to make any kind of prognostication about the future of the world stock market or where this gigantic mess will lead to socially, politically, etc. simply because have no archetype. And the main reason for this is because over-the-counter (OTC) derivatives didn't exist historically.
World Stock Markets and OTC Derivatives
Over-the-counter derivatives, or OTC derivatives, are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. This means that they are unregulated and often the subject of manipulation.
The OTC derivative market is the largest market for derivatives. According to the latest report from the Bank for International Settlements, the notional amounts outstanding of OTC derivatives continues to grow and currently stands at $683.7 trillion in the first half of 2008. This represents an 876% growth in the past ten years.
To put it bluntly: OTC derivatives are an immoral, corrupt, more recent creation on the part of so called "shrewd financial types" looking to make obscene amounts of profits with total disregard for the public safety in the world stock markets. They are the most destructive investment products in the world.
There have been a few analysts, including myself, that have been warning for years of the absolute destructive nature of these instruments. Only a hand full seriously listened, until now. And now the OTC derivatives are helping to rip the world stock markets apart piece by piece.
Unfortunately, I expect that the carnage from these imploding derivatives is still only in its earliest stages. There is a mountain of this "financial sewage" (as Warren Buffet calls it) that is still to come that I expect to continue weighing down on the world stock markets.
The U.S. Dollar and Gold Prices
The U.S. dollar, which now seems to be defying gravity, will eventually crater to its intrinsic value, which is zero, before all this is over.
One of the reasons for this recent but absurd dollar strength was best explained in my opinion by financial analyst Rob Kirby who said the following:
| What folks need to understand is that the global OTC derivatives market, measured in tens or hundreds of trillions, is virtually all U.S. dollar denominated. Its systematic failure, which is now occurring, requires U.S. dollar balances to clear (settle) the trades (bets). This has created the paradoxical global demand for U.S. dollars, the currency of a country that is fundamentally bankrupt. By rationing credit to hedge funds that were naturally levered and "long commodities", institutions like JP Morgan routinely took the other sides of their customers commodities bets, ruining institutions like natural gas player Amaranth, and propping up the balance sheets of those who were short commodities, such as the banks. The Federal Reserve led cabal of Central Bankers have engineered the collapse in commodities prices while creating the illusion (of a perverse U.S. dollar rally). The engineered collapse of the commodities complex became necessary in the eyes of monetary elites because the rush for tangibles and corresponding repudiation of fiat money was becoming manic, as so clearly evidenced by the emerging shortages of precious metals, gold and silver bullion. |
There it is in a nutshell folks! I couldn't agree more with what Mr. Kirby has so wisely written. You don't need to look any further in understanding what has happened to the United States.
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This is why I have been so adamant in saying that the Federal Reserve criminals and the monetary elites are the source of our plight as citizens. The real world terrorists don't hide out in jungles or caves. Here is the real terrorist hideout:
Their tinkering, bailouts, interventions, and utter stupidity are going to cause the greatest depression of all time. It is not a matter of if; it's a matter of when will this occur?
There is a lot of attention focused on the January COMEX gold contracts that will expire sometime in the later half of this month. This just may be the catalyst we need for gold prices to blast off from their artificially suppressed levels due to massive short covering. Something has to give between the phony paper price of gold and the physical supply/demand imbalance. When it does, gold and gold-related investments will recover and the U.S. dollar will resume its long-term downward trend.
The World Stock Markets in the Next 12 Months
Gerald Celente of Trends Research Institute recently wrote:
| The Fed cannot print enough money to paper over the $531.2 trillion in derivatives and credit swaps, the trillions in the overbuilt commercial real estate market ready to collapse, the multi-trillions in leveraged buyouts going bust, and other exotic financial instruments that have turned toxic. Yesterday's lowering of interest rates and the continual Fed action to flood the markets with money will lead to an era of hyper-inflation, the likes of which no living American has ever seen. We continue to forecast gold $2000. And once again, we urge you to take precautionary measures in view of a worsening global market meltdown. |
Hyperinflation of this sort will absolutely drive gold prices to levels we just can't imagine. Gold priced in German Marks between January 1919 and November 1923 increased 51,176,470,588,135% during the hyperinflationary period of the Weimar Republic.
John Embry, of Sprott Asset Management, who was recently interviewed regarding this topic, believes as I do and said, "The U.S. authorities will not hesitate to debase their currency in an attempt to salvage the financial system. In the fullness of time, this will be wildly inflationary and should propel gold and silver prices that would be viewed by many in today's context as surreal."
Hyperinflation with extreme volatility is what you need to understand and keep in mind about the near-term future of the world stock markets. This is what we can expect given the current circumstances.
How to Beat the Falling World Stock Markets
People will be startled and surprised at how quickly gold and gold-related investment can and will recover. And there's no better time than to start buying gold now as a hedge against continuing disater in the world stock markets.
Gold prices have given back most of the gains made in November, and now sit at about $775 an ounce. I highly recommend that you buy physical gold now before things get even worse.
On Thursday I will be making a very special offer exclusively to Gold World readers that will allow you to buy physical gold at a considerable discount to spot price. This discount will be a limited time offer. So keep an eye out for my special offer in Thursday's issue of Gold World.
Until then,
Greg McCoach
Editor, Gold World
Investment Director, Mining Speculator
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Have you ever counseled otherwise? Your gold flag waiving is obvious- not that I don't agreed at teh core of it, but it never lets up or at least posited as speculation. Just an observation....