Thursday, September 22, 2011
It's gut check time as the banks go bust.
Over the next several weeks the banks will be issuing lots of reassuring statements. To helps you understand them I'll provide a translation in advance:
"We have no exposure to the French Banks:"
This means: "We're loaded to the gills with European debt we just can't tell which country it's from since it's been all bundled together in weird ways by Goldman Sachs."
"We have no liquidity problems."
This means: "We're insolvent. Technically that's not really a liquidity problem."
"We have plenty of cash on our balance sheet."
This means: "We have plenty of cash in the cash column. Just don't look at the debt column. And even if you do, you'll never decipher it. We sure can't."
"Don't worry this isn't 2008. There's not going to be another Lehman."
This means: "Back in 2008 everyone understood they were loaded with bad mortgage debt. This time around we're all loaded up with bad sovereign debt and nobody understands how to unravel this mess."
Everything's deflating. Including gold and silver. Silver has an industrial component which is why it's not a pure currency play. But what about gold? What's wrong?
Gold gets hit when funds delever. What does that mean? It means that funds borrow tons of money to gamble, and when their bets go against them they sell all their positions to keep from going under. Especially profitable positions like gold. Gold will bounce back. Maybe not today or tomorrow. But soon enough.
But the market's another story. The problem there is that the global banking system is broke. And broken. Just like the global political system. Which, in many ways are one in the same.
You see the Banks became gambling parlors. And a very few very smart traders at Goldman Sachs and a few other funds you've probably never heard of created a mess of financial gambling instruments that turned debt into a high powered craps table with rules that almost nobody understands.
Unfortunately the dumb guys at the big banks bought all this crap thinking they were real smart and now they have no idea how far in the hole the actually are because they still don't really understand all of the complicated paper bets that they acquired - with money borrowed from the Central Banks - that just printed it up.
Nothing will get better until we allow insolvent banks to go under. It's that simple. And even then - especially then - it's going to take time for the banking system to heal.
Until then protect yourself. Buy Gold.