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Debt Lies Exposed, Hope and Massive Change

Commodities / Gold & Silver 2009 Mar 02, 2009 - 06:34 AM GMT

By: Neil_Charnock

Commodities Best Financial Markets Analysis ArticleI have just got back from a camping trip and feel clear and refreshed. It is good to get away briefly and to clear the head and look at things from outside the trees. Yes inside the forest you cannot see any wood for all those trees and your view can be very microscopic.

Last week I penned an article in which I stated gold was about to fall and gold stocks were about to correct. The bulk of the talk then was about gold going through US$1,000 and shooting upwards. My take was that we will see perhaps a flat top triangle formation first and a good multi test of the US$1,000 ceiling for a few months. So far so good we got the reversal I expected and I look to further falls over the next week or two possibly into the $850 to $875 area.

Make no mistake this is a fantastic opportunity to buy gold and silver. Sophisticated investors should visit GoldOz in this regard and email us for a major gold purchase opportunity. We may see an early take off from these gold and silver prices – earlier than I stated last week.

Information has come into my possession that a giant financial change is closer than I thought and I am still assessing the implications for currencies and precious metals. For this to come to pass we will have to see accelerating disaster in the coming weeks – massive printing of USD's to continue and more asset deflation. The only trend direction for gold and silver is up in the foreseeable future.

Tired Old Lies

The lies of the past several years have given way to the main game at present – change. The lies I refer to are “debt is the way to build wealth”, dubious balance sheets, over inflated and heavily promoted asset bubbles such as real estate and stocks. People were fed the inflation lie that they were well off and “rich” because they owned valuable houses. They believed the lie that life was good because they had access to unlimited credit in a new wonder financial age. Precious metals are a barbaric relic; the list goes on and on – all lies and illusions!

It would seem change cannot come without fear and disaster – people mainly sit back and refuse to accept or agree with change otherwise. The media machine rolls out the shock and awe as always and have had this “new” financial disaster this past year to latch onto. I don't really think people want negative news it is just that it gets our attention so thoroughly that it has long been the ideal modus operandi of the media industry.

Fear and mystery both lock human attention and major change usually follows something monumental. This is what we are seeing now right around the world. The gold commentary community and those that bother to get the essential life skill of financial education saw it coming years ago and we have done our best to wake up as many people as we could. Did we succeed or not? Often I felt like I was only talking to the converted anyway but I hope others that suspected something was wrong may have been assisted.

Bull markets were experiencing a major long term trend change – real estate, bank stocks and the finance sector, industrials were all looking dangerous. Gold and silver had not only established a strong trend – they had proven it year over year enough to indicate a long term trend had commenced.

Property - Beware

Nearly three years ago I was warning about property in Australia and many still don't get it. At the time there were numerous programs on television promoting the ‘get rich with property' mantra. All you had to do was to immerse yourself in leverage and renovate – simple and everybody could do it . Now as the bubble continues to deflate we still occasionally see a real estate agent state that it is a great time to buy – they have to say that . Another one came on television just tonight saying buyers are $80k better off than last year – what he either fails to understand or neglects to state is that buyers are at least $100k worse off buying this year compared to next year. But gone are the heady false demand days of the boom and gone are the renovation programs and get rich with property experts. Extreme danger lies directly ahead in Australia for property investors (housing) as the ‘for sale' signs begin to line our streets. Where is it headed?

Banks will not loan money as freely as they did the past several years – we may even go back to lending practices we saw 20 years ago the way things are going. Risk is being factored in at last and sanity is entering into financial markets with force. This is a simple statement however like in contracts the devil is in the detail. Imagine what happens if the banks will only lend three times borrowers yearly income and require a minimum 30% deposit. I will tell you were this is headed – as sellers out number buyers we are sure to see a price drop!

To make things worse right now we are seeing the opposite phenomena of zero risk. We are seeing over compensation for risk by some institutions that have limited lines of credit and have to be over choosy in their allocation of funding. I arranged an account a month or two back for our gold sales program and one bank refused us. Why is this startling you may ask? The point is that we only wanted to put money into an account to pay for gold, then sell the goods and put the money back again. We did not want to or ask to borrow any funds. Fact is they wanted no new clients or new business and that was the standing order right down from Board level. Fortunately we arranged what we needed as not all banks are taking this line – however it does illustrate my point.

Now we have over restrictive banking practice that exacerbates the money flow crisis. From a bank culture of zero risk - through the imploding collapse and asset destruction and beyond - we then see over zealous risk conditions. A contact in banking that I spoke to a few weeks back told me certain international banks have an A list and a B list of clients. The A list will get credit to roll over their debt when it falls due and the B list will have to go elsewhere. This B list has no idea they are headed for ruin or at best more expensive credit and a frantic search for finance in this climate when they need to roll their debt. The ramifications of this are serious indeed.

I am still trying to get this warning through to people and wish they would spend time getting a stronger financial education. A problem is that it takes half a lifetime and they cannot recognise bad information from good in the early stages of this education process. There is so much miss information out there.

Perhaps after things get as tough as they are going to be people will consider “financial education” as important as sport in his country. Watching the TV on return from camping I am seeing a “financial advisor” being interviewed with his victims who are blaming the banks and the advisor. No heed is being paid to the responsibility of a borrower earning $25k PA and receiving a $2M loan to play the stock market with margin loans all arranged by this “advisor”. Fair enough it is obvious that unscrupulous operators took advantage – but these victims have to wear the effect of the bad information so they also need to get educated on these matters and take responsibility or they face more of the same in future.

Yes these people took little notice of all things financial and were not interested however they must have known or at least suspected something was wrong to borrow that much money on a small income. $2M is a lot of money for an investor with an income that small. It is damn sad to see this carnage in the aftermath of the inevitable financial wreckage post ‘zero risk' banking. The banks hold a large responsibility in all this however no more than their part.

The financial “advisors” that do a course in Super Annuation and tax and financial products – that know nothing about the subject they “advise” about (money and investment cycles) are highly complicit however no more than their part. They may be complicit but not deliberately – they get paid to put your money into certain investments and if clients cannot see that these businesses are getting paid by the financial businesses that provide the products then the clients are not even looking.

Think about it logically – the client does not pay the advisor - and the “advisor” is eating and driving a nice car so you have to wonder if the client even questions who pays who and where the loyalty lies. This particular “advisor” above took a large % up front so the poor old un-educated investor could not even see this much evidence in this case – and he encouraged them to feed heartily on debt and margin – so their greed bit them harshly in the end.

Getting Educated

Talking to an investor thinking about buying 1 kg of gold off me the other day – he thought buying shares was ‘safe' because he could set a stop loss. Too bad if the company goes into a trading halt and then receivership. He could not see that a process I had taken 3 months do de-risk for turning over physical gold at a 5% profit per transaction was safe. But the time I spent talking to this guy made me go directly to my site and increase the smallest investment to 5 kg so I did not spend disproportionate amounts of time at this end of the market that I could not afford.

This small investor would not listen to soft words of truth and was clouded by the fear of the financial carnage that lies all around and his own lack of knowledge. If I was a con man with a lie to sell and promised big and talked it up, paid him lots of compliments and heaped validation on him he might have listened like the victims of the “advisors”. Fact is we don't have fancy brochures or a fancy sales pitch and so the smaller investor will avoid this real opportunity in droves. That is fine I am dealing with much larger investors that have gone to the trouble to understand financial matters and investment. In fact our fancy brochure is replaced by a simple Term Sheet and we have no fancy promotion at all. Our simple product has to stand on its own. But my point is that well promoted lies seem to sell to the uneducated and genuine deals put together by the honest operators can go unrecognised by these investors.

I apologise to the excellent professionals that do reside in the financial advisor line of work – there are actually many and if your advisor got you out of share and property trusts and the like last year he does not fit into this group I am talking about above.

A family member – I have to be careful here – was finally in enough financial pain last year about June – to listen to me and get out of many funds against the “advice” of his advisor. It took many weeks to redeem most of his funds and then I got him into cash on term deposit at 7.5% and some in short term. As the longer term escape from the disastrous “investments” was finalized in October I had this family member get into silver and the “advisor” asked him “why silver”?

See what I am saying – no knowledge about real money from the advisor whatsoever. He has no doubt studied nothing of the gold and silver booms because there were no financial instruments that would pay him a fee to put client funds into precious metals – so no interest!

That day silver hit US$8.80 and the family member (investor) I put onto this idea was told to keep his money in the share market and property trusts in the USA and Australia . I would have had that advisor charged with professional ignorance if I had my way. Fortunately I was listened to in this case but the family member still has no real idea why it was a good investment. Worse still the financial advisor knew nothing of gold and silver and failed to grasp the severity of the financial collapse.

Schools, financial advisors and individuals alike should learn and teach about investment cycles, money, banking, finance, cumulative mathematics, real estate cycles, financial history, share market trading and all the associated jargon that they can. For now buy gold and protect yourselves as you should have been doing over the past 7 years – it is not too late if you have capital left. Food production, clean energy, sunrise industries also have a bright future and change should be embraced. Change can be extremely liberating and valuable if it is faced with a sense of responsibility, learning from the past and positive thoughts / actions.

Good trading / investing.
Neil Charnock

GoldOz is currently developing a Member area and has added further resources for free access. We have stepped up our research and stand by to assist investors from all walks of life. We sell an updating PDF service on ASX gold stocks from only $AUD35 for 3 months – the feedback is grateful and enthusiastic because we are highlighting companies that have growth potential and offering professional coverage of the sector. GoldOz web site is a growing dynamic resource for investors interested in PGE, silver and gold companies listed in Australia , brokers, bullion dealers and other services.

Neil Charnock is not a registered investment advisor. He is a private investor who, in addition to his essay publication offerings, has now assembled a highly experienced panel to assist in the presentation of various research information services.  The opinions and statements made in the above publication are the result of extensive research and are believed to be accurate and from reliable sources. The contents are his current opinion only, further more conditions may cause these opinions to change without notice. The insights herein published are made solely for international and educational purposes. The contents in this publication are not to be construed as solicitation or recommendation to be used for formulation of investment decisions in any type of market whatsoever. WARNING share market investment or speculation is a high risk activity. Investors enter such activity at their own risk and must conduct their own due diligence to research and verify all aspects of any investment decision, if necessary seeking competent professional assistance.

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