I received an e-mail yesterday from a friend who from time to time sends me articles, op ed pieces etc. He and I think in quite similar terms. He is very knowledgeable in economics and finance and is in his 80’s now so if he hasn’t seen it all, he’s seen a very good part of it. I read his short e-mail and then went on to what I was doing at the time but it struck me that what he said is absolutely true in my opinion. The e-mail follows, there is nothing new or truly remarkable about it except for the fact that “I hadn’t really thought about it” …or all the way through anyway.
“We are on the same page. My contribution, this is not going to take months or years but only weeks. When started, this is not going to take weeks or months but days, probably 24-48 hours. Your gap up and gap down theory is half right. The gap up will be in gold but the gap down will not take place as markets will close within 24 hours of commencement. We live in fascinating times and the crap is extremely close to the fan!”
OK, so as you know, I believe there will be a “gap” up in gold and more than likely down in most everything paper including the stock markets. His suggestion of only being half right and that the equity event may only last 24-48 hours made me look at this from an entirely different perspective. I don’t think it will really matter if there is a false flag event or not, let me explain.
I can foresee a Monday morning coming where we have a huge $50-$100 gap up in gold that does not get filled and then moves higher for the remainder of the day. I also believe that this will be followed by another $200-$400 day which also does not fill the gap and powers higher as the day goes on. In contrast, I could see a 500 or 1,000 point Dow drop followed by a weak close and the next day another 2,000+ point drop. If this action were to happen, I don’t think there is anyone out there who would deny that the financial system as a whole would be on the verge of a credit unwinding. Margin calls and forced sales into illiquid markets with few or no bids would be our greatest nightmare.
This is where the e-mail that was sent to me got me to thinking. He is correct in my opinion and as you know, I have believed that we are headed into a “bank holiday.” But, I had not really thought it all the way through until yesterday. The bank holiday in my opinion will not come after some long protracted downtrend like the 1930’s; I think it will come quickly to “stop” (in reality, HIDE the reality) the carnage. I think that my prior error in thought process was that as an American, I looked at it from an American centric standpoint; I know this needs some explanation.
Assuming that this scenario comes into play (and yes you can argue that it will not but it would be wishful thinking in my opinion) and we in fact do get into “bank holiday limbo,” what will really happen. U.S. banks and markets will close and probably most western markets will also decide (be forced) to close. My guess is that some though not all eastern markets will close also but guesses what …even though the financial markets close it doesn’t mean that “stuff” doesn’t get “revalued.” Just because stocks, bonds and currencies etc. are not trading, it doesn’t mean that their “values” are not changing. Just because some exchanges are not open does not mean that “deals” or trades of wheat, copper, oil…and yes, gold and silver are not privately being done. Actually, there will be some markets open where prices of non U.S. assets are being priced and re priced.
I knew all of this but I had never thought of “how” it would get done, the logistics in other words. By looking at this through “American” eyes, I somehow forgot that while “we” are closed, others may be open…open to trade and to revalue markets. While “markets are being revalued,” we will for the most part have to sit idly by and watch it happen. “Watch it happen” as in powerless to get at or move funds or positions to “save” or protect what we have (left) …or to purchase what is being revalued higher.
In past devaluations, stock markets usually reacted by moving lower initially until it was understood that this is an avenue to get funds out of the currency. Stock markets usually then moved higher from there and became thought of as an inflation hedge. The math normally works like this, let’s say that a currency devalues by 75% and the stock market doubles, this will leave “50%” of the initial buying power intact. If my friend who sent me the e-mail is correct which he very well may be, stocks will close and not be allowed to go down, they may even open up higher but by a lesser amount than the dollar loses value.
To close, it is important to understand that EVERYTHING will be reset. Dollars versus all other currencies, all currencies versus real goods, stocks, bonds, real estate…everything. I believe that the biggest loser in all of this will be the dollar. This only makes sense because the dollar has been in the biggest financial/currency bubble that has ever existed. It only stands to reason that when this thing blows, the biggest loser will be the dollar. We as Americans will see this (actually the word is “feel”) as inflation. A reset of 25% would mean that goods and services would immediately cost 33% more, a 50% reset would make things cost double etc.
It is also important to understand that “stuff” and assets will be reset or revalued at different rates depending upon supply and demand. Candy bars may not have the demand that baked beans or toilet paper has. Or whiskey and cigarettes may have more demand than say something like home furnishings. The world is about to change drastically, our media, Washington and Wall St. may not be telling you this but the rest of the world is. The biggest problem is that we do not manufacture like we once did and thus we are forced to import many goods. If foreigners turn their noses up to the dollar which they are already doing, how will we pay for these imports? The answer is that we will pay dearly or do without. Sad to say, this is how a “forced” reset generally works. In this case however it is not going to be “forced” simply because of finances, our policies and actions will come into play…because we haven’t “played well with others” for a long time now.