Why Wall Street Can’t See It
February 24, 2010 by John Myers
Youth is everywhere. The Barack Obama administration is packed with young academics. Big corporations enlist young people the way an army conducts a draft. Yet the greatest danger to your pocketbook and overall prosperity is the youth that invests America’s money.
According to Money Magazine, the average age of a stock fund manager is a tad over 30. Now that I am in my 50s that makes me more than a little alarmed. I remember when I was young; when I was a dumb college kid.
Years ago disaster stalked me. At the time I was in my 20s, unaware of calamity until it was sprung upon me.
My dad and I motored towards the extreme end of Idaho’s Lake Coeur d’Alene.
After several arm-aching pulls on the starter cord we had the trolling engine sputtering along. We traced the outlines of the pristine bays and points along the southern shores.
It was a lazy afternoon; the calm before the storm. Over the rhythmic cough and choke of the outboard, from a distance of at least half a mile, I heard a squirrel skipping through the turquoise pines. How strange, I thought. I glanced towards shore and noticed an absolute deadness to the lake—a motionless mass of water stretching out like a giant sheet of stainless steel.
Above the tree-line I saw a monster: colossal cumulus black clouds—swirling and spinning—compressed upon the forest hills. Within this charcoal mass was a tiny grey vortex, tipped to its side, spinning downward, as if to reach out and pull us in.
Now my father was the calmest man I’ve ever known. In fact I had never seen him excited by Mother Nature, an amazing accomplishment for a man who spent most of his life on the brutal Canadian prairies. But this day was different.
As I pointed my finger towards the horizon the old man jumped to his feet and shoved a cigarette in his mouth.
I should have been on notice. The old man never swore and he never, ever panicked. But he was cursing like a sailor and tossing gear about as though we had just been called to general quarters. Before I could manage to reel in the second line, our cabin-cruiser was up and running.
“Our best out is to outrun this,” yelled the old man above the roar of the V-8.
Moments later the rain and wind pounced on the cove we had just evacuated.
After another 20 minutes the storm was closing fast. Across the lake stretched a line. It was surreal—on one side tranquility; on the other, chaos.
Dad yelled, “Get the lifejackets!”
Now that concerned me. The old man wasn’t a life jacket kind of guy. He had never so much as worn a seatbelt.
As I jumped below deck I remembered that I had forgotten to transfer the life jackets into the new boat (remember… dumb college kid).
As I stumbled up to tell the old man about the jackets the storm had closed to within a hundred yards of us. I was shocked by its enormity. The waves were huge. Only half home and we were about to be engulfed by a typhoon.
“Where are the jackets?”
I had to say something, so I lied. “I can’t find them.”
I will never forget the look on his face. It was a combination of rage and terror. For a moment, I didn’t know what to fear more—the old man or the storm.
“You idiot,” he screamed. “You can’t find them because you didn’t pack’em!”
By this time the storm had closed to within yards of us. For a few seconds it engulfed only our stern, turning the boat into a gigantic surfboard. Then it grabbed us whole.
All hell broke loose. A tremendous wave crashed over our starboard. Inside the cabin, dishes and groceries flew across the galley. We began taking on water.
Dad switched on the sump-pump, but the up-swell was beyond its capacity. The lake opened up into a giant trough.
I couldn’t help but notice that the boat was lower. Inside the cabin there was water.
Then it hit me: we had no life raft, no life jackets, not even a two-way radio. We were trapped in this damn boat. If it sank, so would we! We were 20 minutes from the marina. I didn’t know if we could make it, and there wasn’t a thing I could do about any of it.
Then, through the grace of God, the storm began to dissipate. By the skin of our teeth we reached the marina.
Others weren’t so lucky. We saw a 21-foot ski boat sink just outside the marina. Later an old timer told us that it was the worst storm he had seen in 60 years.
Two things still stick in my mind: The utter calm before the storm, and my idiotic complacency, even after its approach.
My fear is we face another financial storm, this one from a tsunami of dollars that have been created by the Federal Reserve and the Treasury Department.
Yet that has created a perfect storm for rampant inflation.
Over the past year the Obama administration and Wall Street have been urging banks to increase lending. However the banks have not yet lent out much of the new reserves that the Fed has created. Rather they have left these reserves on deposit.
That means that the velocity of all this new money (how fast it changes hands) has been slow. But that will change as soon as the banks begin lending in earnest which will likely happen this year.
It is little wonder, then, that Reuters reported last week that, “the ultra-rich are increasingly buying copper, nickel and other physical commodities to shield themselves from paper-money inflation.”
According to Ronald Wildmann, who manages three Basinvest funds from Zurich: "As a wealthy person, the worst that can happen to you is not that your relationship manager gives you bad advice. What is much more worrisome is when you wake up in the morning and you look out the window and paper money is worthless."
Wildmann is in his late 40s and is one of the few money managers that even sees the potential for an inflationary storm. The majority of fund mangers are a generation younger and so busy fishing for profits that they haven’t even looked towards the horizon.
But a financial squall is approaching just as surely as that lake storm struck my dad and me three decades ago. When it does, Big Board stocks and blue chip bonds will collapse. At the same time fortunes will be made in hard assets, especially gold and silver.
Action to take: I urge you to divest out of paper in all but the most special situations and buy shares in either blue chip gold and energy companies or physical precious metals.
Yours for real wealth and good health,
Myers’ Energy and Gold Report