UFC comes to politics and economics

Nothing brings out the gladiatorial side in a human being like heat, turmoil, desperation, and the instinct for survival. Win at all costs we say, fight to the end. No compromise. Sound familiar? President Obama,
clinging to whatever shred or presidential muscle he has left, will not compromise. In the face of what could be a cataclysmic economic event felt globally - triggering recession or even depression, desperate times, but no compromise. It is an epic fight fought in idealistic principles not sound economic reasoning. A failure to compromise may lead to Obama’s historical demise as the president or commander in chief when the whole economy implodes.

It has been a tight battle as alternate media outlets and political parties engage in a blame game. CNN calls it the “Republican shutdown” whilst Fox News cover it as the “Obama shut down”. To The victor go NO
SPOILS because when you shine a light on it, the situation is dire. The option to kick the debt tin down the road works until you run out of road!

Already we are seeing foreign countries criticizing the stalemate. China in particular is calling for sweeping changes including a new “world currency”. Here is an article I found interesting published yesterday.
http://www.globalresearch.ca/china-agency-calls-for-new-reserve-currency-and-new-world-order/5354190
The article is an interesting one from the perspective that China has had a huge appetite for physical gold. There are many conspiracy theorists saying that the behind the scenes physical gold purchasing by central
banks is a sign that trust in fiat currencies is being eroded by the UFC style currency wars and money printing. The theory is based on the fact that central banks purchasing physical gold is a sign that trust between the central banks as well as other banking giants has been fractured if not broken.

It makes sense that this trust would be strained. The misleading “tapering” non action by the US Federal Reserve is latest of a long running set of broken promises in this ongoing currency war. The first QE
was supposed to be the last, that was why it was called QE. When the second round of QE was injected into the markets economists had to dub the first round QE1. We have since had QE2, QE3, Operation Twist and many are saying it will now be QE Infinity.

This brings me to the next UFC fight amongst Keynesians and Austrian economists. The Inflation/Deflation debate has hit fever pitch amongst the respective economic theorist believers. Austrian economists believe in sound money, a free market devoid of government involvement an which the market equilibrium is set based on the meeting point of supply and demand. That intervention, policy, market regulations, laws and central bank monetary policy interrupts this equilibrium fostering distortions and misdirected investments. These
distortions create “bubbles” which eventually burst causing a recession/depression. Keynesians feel that through Central bank monetary policy, fiscal policy and Government intervention through spending/tightening that an economy can avoid recession and depression. Many Keynesians have pointed to the
USA economy and the fact that the CPI is indicating that inflation is being contained. I would like to point out that we live in a global economy now, where trade has never been so open and where a country can
both import or export its inflation through trade, currency exchange rates and the like.

So where are we now?

We know that the Fed has more than quadrupled its balance sheet. Something that, to my knowledge has never happened in recorded economic history. That being said, we have no precedent to look back to, only theory. Your future investment strategy depends on whether you are in the Keynes corner or in the Austrian corner for this blockbuster Fight. I am in the purist corner, the sound money corner, the Austrian corner. If
money is a concept not backed by anything tangible or precious, it is a concept I find difficult to feel comfortable relying on. When I look at the idea of safety I want to have something unique or precious. That is why I am suggesting gold as a hedge against the inevitable inflation. Gold can be explored as a hedge in a number of ways for the everyday investor. My thoughts are to buy some physical gold, remember you don’t
own what you can’t touch and possession in 9/10ths of the law! I also feel that Gold producing stocks are an absolute gift and the right ones could give you a multiple payout ratio relative to the rise in price of gold. My thinking behind this is simple. Currently it is accepted that mine production costs to produce physical gold vary but not many mines can produce gold at under $1,000 an ounce. With the gold price trading in the $1,200-$1,300 many mining stocks have been battered as mines have gone from being highly profitable when gold was at say $1,600 oz to a break even scenario at current price levels. As gold has fallen roughly 50% off its $1,900 odd highs, some quality gold producing stocks have been hammered.

Barrick Gold (ABX) is a prime example. Barrick Gold has traded as high as $55 when the price of Gold hit its peak. Gold is down roughly 50% off its peak yet Barrick Gold’s stock price is now trading in the $17-19 range. I make the point that a 50% rise in the gold price could, if past trading prices can be relied upon, see the stock trade at more than 300% higher than current price.

Newcrest Mining (NCM) listed on the Australian Stock Market is another with what I consider very little down side risk with huge upside. It is now trading at between $10 and $11 which is well off its high of $40 plus dollars when Gold hit its high.

The whole Gold mining sector needs to be broken down for those interested as it is not just the big mines that could benefit. Smaller miners like Silverlake Resources (SLR) on the Australian market could become takeover targets if the Gold price flat lines for a period before a quick spike. A spike in the market followed by a period of stability will have the big miners looking toward the juniors to further exploit strengthening
marketing positions. Time will tell who/what will win out in each battle, but for the war, I want to be sound, safe and keep some cash for the potential market correction. Make a shortlist of strong companies I think can withstand the conditions I think will prevail, pounce when they are oversold. In between time the only sector I feel is worth playing right now is the precious metals sector. It is the logical and sensible play in an economic environment that appears perilous at best. The precious metals are off their highs by 50% or more, The markets, the Dow included are all but back to their highs. I want to be buying low and selling high, not buying into the high hoping it keeps going!