Ekkkkkk.........
March 02, 2008
– Comments (8)
Where does one hide in this financial mess? States and municipalities in trouble, big hit for Canadian banks... Junk where you didn't expect it...
I suspect gold bullion was a very good idea but it is simply at a risk for a correction at this point.
The municipal bonds falling off a cliff this past week is a disaster. That's people's pensions going down the tank...
When I first got wind of this thing called derivatives that I'd never heard of before, about a year and a half ago, I immediately tried to research them. All I could find out at that time was that there were a few hundred trillion dollars of them. It made my heart sink... a few hundred trillion dollars, an amount that makes the American economy look like chump change, and they are largely unknown. That is about when I started keeping my eyes open to learn what I could about these things.
The Cambridge Investment conference in Vancouver in January of 07 was awesome for me. It gave me the opportunity to talk to some very well informed people, and talk I did, Peter Grandich, Frank Veneroso, Frank Holmes, Paul Van Eeden, just to name a few. Having been ill informed of the down side in the past, with disasterous cost and consequences, although the mood was highly bullish, I made it my business to learn about what people were issuing warnings were saying and to find out more about these derivative things.
As I learned bits and pieces and thought through how it might unwind into the economy I identified three places I figured would be hard hit, banks, pensions and the wealthy. Banks and pensions seemed highly obvious to me. When there are mass losses, the banks are going to be hit because they hold loans. Pensions are simply large funds and have no power to get out quickly, if at all and the wealthy because they have no hope of having their deposits insured. I wasn't seeing how investments hold value, so the wealthy and pension funds have little hope of hiding.
Well, I missed muncipalities and how they've been hit by holding the worthless paper. I knew nothing about how treasuries work, and my goodness, those 30-year treasuries are going to fall off a cliff. I would tend to think government does offer some level of safety, but this pricing to the market when the market has artificially low rates means it is priced to an artificial level and that level is about 2x what it should be... If I was buying treasuries, I'd be sticking to short term treasuries and not worrying so much that I effectively have a negative return because of current cost increases. It protects capital. You might more on a 30-year treasury now, but let the market price a mere 2% increase in rates and you lose 50% of your capital. It just isn't worth the risk.
I almost got into gold about 3 times now and I do wonder if the state of the financial system will create mass panic and I should be there to profit from mass panic...
RSS Headlines
Fool UK