I want to talk of a simple concept here which everybody knows but global crises proved that very few practice. Bill Boner, founder & president Agora Publishing, said in a recent very interesting interview that Gold will be the last man standing when global portfolios will go down the drain, and when China will bust which could happen anytime 2012 onwards. Even my gradma told me same, “Gold is always a better currency, don’t know why we print papers, which losses its value continuously.” Jokes apart... Well as we work for loosing currency, maybe employers should put some component of gold each year to CTC at least we will hedge for inflation directly. In India with 10% hike and 8% inflation what employees actually get is a 2% inc in salary. Hope employers are reading this.
The wise man says Crises are not yet over. They will be back by end of the year with a new face; they will put another mask this time. Sept 2008 was Credit Default Swaps and Shadow banking leverage that made many jobless. This time its government debt and the passionate dragon..yes I am talking about China…. China is very passionate about growth, it is competitive, it wants to position itself at the top of the world and I feel they are doing this with lot of debt which is actually owned by Chinese Banks. According to Bill, “China is a central planning story. They are building cities that don’t have any people in them. That is not a good idea. Some bank in China has bonds as debt for those cities. It’s impossible that debt is good.”
After all, debt is always a worry for everybody, whether it’s an individual or a government. Till last year all investment banks had highly levered balance sheets but now its government whose balance sheet is highly levered even more than last year.
The Fed’s Balance sheet:
Economic policies are like a Homeopathy medicine, when you treat economy with these policies it really takes time to cure, but what if you gave wrong medicine in first place,theorotically you have to be correct. Otherwise, the disease will not be cured moreover body might accumulate a new disease in long term. Global economy is facing the same situation, it has given liquidity in time when debt was already high, and liquidity is not free, it meant putting more debt on government.
As far as gold is concerned I hold some in my portfolio and will continue to hold. IIn times of these crises its imp to listen to good analysts..one of them is Dylan Grice.
Dylan is of the view that the reason he owns gold is because he is worried about the long-term solvency of the developed market Governments. Thus, eventually there is going to be a crisis of such a magnitude that politicians will be forced to accept that inflating one's way out of a recession is indeed not the right thing to do. And this is when the time will be right to sell gold. For the time being though, no such thought is even remotely entering the minds of economists and politicians. Thus, gold may continue to appreciate as western governments continue with their senseless policies.
So employers please include gold in salary :)