by Gary Christianson, Miles Franklin:
Lance Roberts listed James Montier’s 7-Immutable Laws of Investing. They are:
- Always insist on a margin of safety.
- This time is never different.
- Be patient and wait for the fat pitch.
- Be contrarian.
- Risk is the permanent loss of capital, never a number.
- Be leery of leverage.
- Never invest in something you don’t understand.
Those sensible rules apply to gold and silver.
ALWAYS INSIST ON A MARGIN OF SAFETY: Don’t buy gold or silver on margin. Always take physical possession personally or in non-bank storage vaults. Trust that governments and the banking cartel will drive nominal prices far higher as they devalue currencies.
Problem: The gold and silver paper markets (COMEX and LBMA) are managed markets. The managers are incented to maintain low prices. This will change. I believe prices will rise, slowly and then rapidly in 2019 and 2020.
THIS TIME IS NEVER DIFFERENT: The banking cartel will “print” fiat currency units until they can’t. Governments will spend in excess of revenues until they can’t. The only question is how rapidly fiat currency units fall in value.
BE PATIENT AND WAIT FOR THE FAT PITCH. Trust the banking cartel to push fiat currency units lower and gold and silver prices higher. Central banks (not the Fed) are buying gold. Individuals should buy gold and silver.
BE CONTRARIAN: When others proclaim gold and silver are dead, then buy. When gold or silver prices have increased by a factor of five or ten, reconsider the risk and reward profile.
RISK IS THE PERMANENT LOSS OF CAPITAL, NEVER A NUMBER: Gold and silver coins and bars will always stay valuable. There is risk of permanent loss of capital with COMEX paper gold and silver, buying on margin, or trusting banks to hold your metals. Minimize risk!
BE LEERY OF LEVERAGE: The COMEX creates leverage with paper gold and silver contracts. Assets can disappear but debt remains.
NEVER INVEST IN SOMETHING YOU DON’T UNDERSTAND:
- All fiat currency units devalue.
- Many currency units have turned into waste paper and are no longer used.
- The almighty dollar is now a mini-dollar, and soon will become a micro-dollar.
- Propaganda and government statistics may delay the inevitable, but they cannot prevent an implosion or reset.
- The banking cartel created too much debt. That debt will be repaid in devalued fiat currency units or defaulted.
- Gold and silver do not default and have no counter-party risk.
- Gold and silver stored in a non-bank vault are boring. Sometime boring is good. History will show that 2018 – 2025 was one of those times when boring investments in gold and silver were necessary.
These sensible rules apply to debt-based fiat currencies.
ALWAYS INSIST ON A MARGIN OF SAFETY: With fiat currencies a supposed margin of safety is automatic. The government makes pieces of paper legal tender and prints more paper as needed. Governments and central banks encourage fiat currencies because controlling the currencies benefits them.
Problem: Politicians, governments and central banks inevitably print too many pieces of paper. The currency loses value and is replaced, shunned or becomes worthless. The “bad money” drives out the good money (gold and silver) because few people want to exchange valuable gold and silver coins for soon-to-be-worthless paper currencies. Zimbabwe, Venezuela, Argentina and the list goes on…
THIS TIME IS NEVER DIFFERENT: Most unbacked currencies have disappeared into the trash heap of history. Remaining fiat currencies – dollars, euros, pounds and yen – are devaluing every year toward worthlessness. This time will not be different regarding the demise of fiat currencies.
BE PATIENT AND WAIT FOR THE FAT PITCH: A “fat pitch” in the fiat currency world is a profit mania from speculative trades. Buy Amazon stock at $6 in 2001 and watch it run past $2,000 in 2018 – a huge win for fiat currencies invested in Amazon.
Problem: How do you find the next Microsoft, Netflix or Amazon?
Problem: Don’t overstay the party. Remember Enron, Global Crossing, and hundreds of other high fliers that crashed into the dirt. The investment landscape is littered with debris from winners that turned into losers. Deutsche Bank and General Electric sell for small fractions of their earlier highs.
Problem: When you cash out, how much will the fiat currency units buy? The banking cartel and government deficit spending guarantee further devaluation of fiat currency units.
BE CONTRARIAN: A contrarian buys when “blood is in the streets” and sells when everything looks rosy. Remember the “permanently high plateau” story before the 1929 crash. A contrarian knows propaganda from government accountants and central bank Ph.D.’s has limited usefulness. The cheerleaders sell their story and hope the public will keep their misguided faith in fiat currencies.
Problem: The contrarians in the fiat currency world want to escape. They buy hard assets including gold and silver. The managers of fiat currencies discourage opting out.
Problem: People might abandon fiat banks and only use cash. Their solution: Make cash illegal and force people to use digital currencies.
Problem: People might lose faith in stock and bond markets after multiple scandals and crashes. Solution: Force interest rates to near zero or negative levels and discourage parking cash in banks.
RISK IS A PERMANENT LOSS OF CAPITAL, NOT A NUMBER: The real risk is that the managers will abuse fiat currencies, print too much, and devalue the currency so far that people rebel. It has happened in many countries and will occur again. What is your capital worth if you measure your paper assets in dollars or euros and both currencies fall to near zero value?
BE LEERY OF LEVERAGE: Leverage results from investment debt. Buy stocks on margin and watch profits soar in a bull market or shudder as bankruptcies expand in the inevitable bear market.
NEVER INVEST IN SOMETHING YOU DON’T UNDERSTAND: Advisors encourage buying for the long term. Did they explain the inevitable loss of purchasing power of fiat currencies?
Problem: Fiat currencies must devalue. People hope the nominal gains from paper investments offset the devaluation of the currency.
Problem: If people realized how rapidly currencies devalue, they would object to rampant price inflation. Solution: create a Consumer Price Index (CPI) and “manage” the results.
Problem: Devaluation and inflation run in cycles. Inflation was high throughout the 1970s while hard assets soared, and the stock market stagnated. During the “age of paper” from the early 1980s to 2000, the stock market soared, and hard assets languished. Stocks have bubbled higher since 2011 while the COMEX crushed silver prices. Cycles favor hard assets for the next several years.