Friday, July 11, 2008

It's So Hard Being So Right So Much of the Time (plus some quick advice on protecting and increasing purchasing power as our fiat currency dies)

A segment on ABC News tells us that the airlines are so desperate that they are scrapping in-flight movies in an effort to shed some pounds and save some fuel. The savings for doing this add up to millions of dollars so I guess it's worth it. They are also begging their customers to support legislation to reign in those wicked "speculators" who are "adding as much as $30 to $60 to each barrel of oil." The segment mentioned that experts predict at least one major carrier will go under soon. No shit. I believe they're all going under soon. The actions of the airline industry as a whole are like the thrashings of a man with his head held forcefully in a tub of water, frantic and futile.

Meanwhile not many people are talking about investing in rail. The collective aim is still to keep doing things as they've been done. That means democratized (read: relatively cheap) airline travel along with the 30-mile-or-more one-way commute in a motorized chariot. Talk about rail and living close to work in a traditional (pre-industrial town) smacks of insanity or treason. But keep watching the news. The masses will be catching on quickly. They already are. That's part of the joy I get in monitoring the Great Unwinding of Industrial Civilization and crowing about it on this blog. U.S. Americans are using less oil, driving smaller cars, driving less, consolidating car trips. It's not enough. Oil's "demand permanently outracing supply" thing is going to rip apart the megalopolis and shove North American lives into painful new configurations. People are not going to believe what's going to happen to them and the built environment assembled this past hundred years.

Speaking of crowing: I'd like to point out that, per the prediction I've made at least once in these pages, oil retreated almost $10 (although in truth I allowed for as much as $20) and then shot right back up to new records. I'd also like to take this time to reflect on something else I've said in private many times over the past five years. Stocks, bonds, the dollar and houses were bound to go down. Commodities and commodity money were bound to go up. That doesn't seem like a prediction to you readers because I never typed it here because frankly I wanted to keep that kind of thing to myself. A few years ago everyone thought I was crazy to sell my suburban co-op, get rid of my car, rent in the city, rely on mass transit and walking and start saving in a certain shiny metal instead of dollars. Crazy. Yeah, crazy like a fox. These same people are now upside down on their mortgages (some by an awful lot), increasingly unable to afford getting around their suburban wilderness and the stocks and dollars in their 401k's aren't looking like they'll buy so much as a loaf of bread by the time retirement looms much less pay for the jet setting they planned to do in their golden years.

There's a wonderful prediction by the inestimable Bill Bonner of Daily Reckoning fame (which you should be reading); There have been two times in the 20th Century when one could have bought all the stocks on the Dow Jones Industrial Average for one ounce of gold. Mr. Bonner believes, rightly in my humble opinion, that we are headed for such a time again. The boys over at Agora are calling for the cross to come somewhere around Dow 3000. I think that sounds about right. Gold is currently about $1000 for an ounce. So we are talking about a tripling of the dollar price (while the dollar buys less and less stuff in general as it slides down to its intrinsic value-- more on that later...). The real action, however, will be in silver and here I spill the beans. I mean, really, what harm could it do at this point? Silver has tripled in price in recent years, but it's still way below its historic ratio to gold. Over the past few hundred years it's taken about 15 to 20 ounces of silver to purchase one ounce of gold. A few years ago when both metals were near historic lows (thanks, Mr. Volcker!) the ratio was something like 80 ounces of silver to one of gold: What a bargain! Right now it takes 50. As this whole thing comes to a boil the ratio will shoot up and past the historic 15 to 20 mark, maybe getting as low as 10 to 1. If this happens as gold passes the Dow, we're talking well over $200 for an ounce of silver and maybe as high as $300. Keep in mind that these will be devalued dollars. Still silver has the potential to multiply ten times in dollar price while gold will probably multiply another three times. Silver simply has much more potential, though it is the more volatile of the two. Gold is the perfect way to protect purchasing power, but right now silver is a very good bet for increasing purchasing power as everyone around you gets poorer for saving in dollars.

One could ply the commodities markets and leave a paper trail for the government to follow when the lumpenproletariat are insisting on lynching and burning food and fuel "speculators." Or one could quietly accrue silver and gold and not tell a soul about it.

Note: none of the above constitutes investment advice. I'm a blogger not an investment adviser.

4 comments:

Chad said...

Gary,

I don't know exactly when or why started so suddenly, but I am addicted to your blog. I remember reading some of your earlier stuff years ago and thinking, "that sounds scary as shit," and then quickly delving back into the activities of the young, educated and affluent male. But it's like this thorn that you have planted has come to explain so much of the name terror which exist in rich countries, especially America. In short, you have given me something very important and I appreciate it. Keep up the good work.

Daniel said...

Named your blog after an old-school anime. Cool.

Jerah said...

Amen. I recently got a gift for my 2-year-old son from his godparents. They gave him a hundred dollar bill. They looked a little confused when I said, hunh, I guess I'll buy some silver with it so it's worth something by the time he's old enough to spend money. But the guys at the coin shop where I went to get a bunch of silver dollars didn't look surprised at all. They're paying attention too. :)

PS: I'm in Brooklyn, watching the slow decay of the megalopolis too, feeling kind of helpless too. Where else would I live, really? I grew up in Africa (although my parents were Americans), where the heck else could I live in this country? Just found your blog through Ran Prieur's site. Can't wait to read the archives.

David said...

Ran mentioned your blog, so I wandered by to take a look. This is great stuff. Thanks.

I like the combination of crisp clear writing with some pretty harsh truths and dark humour.

And "two-legged locust-bunnies" really made my day.