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What should people do to protect their wealth right now?

*Dow Theory Letters, by Richard Russell, December 21, 2007

“But there other and even bigger problems, and Bill Gross, he of the giant PIMCO funds, is warning about it. ‘What we are witnessing is essentially the breakdown of our modern day banking system, a complex of leveraged lending so hard to understand the Fed Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.’  Later Gross adds, ‘As the commercial paper market shrinks by hundreds of billions a month, central bankers worldwide are facing a giant stress test of the modern-day shadow banking system. The publicized and photographed overnight ‘runs’ on Contrywide and the UK’s Northern Rock in mid-august were nothing compared with what’s taking place in the shadows of the real banking system. Credit contraction, with its inevitable companion of asset destruction, is spreading with the speed of an infectious bacterial disease. “How does one protect ‘deposits’ during a run that no one can see? To be blunt, what does this mean to your pocketbook? … Home prices have been the obvious first hit, down 5% nationwide already, with perhaps another 10% to go over the next several years. Following in lock-step have been financial stocks followed in short order by consumer-based equities as jobs and disposable income falter.’

Is that scary enough for you? Let me put it this way. Bill Gross is one of the smartest men in the business, he manages billions in assets and has access to the best information on the face of this green earth.. Gross is worried, not just about the subprime situation, more importantly he’s worried about the whole US and world banking system!”

“Wait a second, what if Bill Gross is right? What if Bill Gross’s disaster scenario comes to pass? It’s possible. What then? My own instinct is that the best place to be would be in short-term Treasuries (T-bill) or maybe two-year T-notes.

And gold. If the banking system is in trouble, gold is money that is outside the banking system. Gold is pure tangible money that stands on its own. This is the truth that gold detractors cannot get through their thick skulls. GOLD IS MONEY. And most important, gold needs no nation, no government, no central bank, to dictate that it is money. And, of course, that’s the difference between gold and all fiat currencies.

Odds — Disasters, true disasters, are very rare. The odds are always stacked against a disaster. Which is why it usually pays to bet against a disaster. But this is also why true disasters are so expensive. The irony — people instinctively bet against disasters. They can’t conceive of a disaster. Thus, when disasters do occur, few people are prepared for them.

It’s a puzzle that you can’t win. Prepare for a disaster, and you’re probably going to be wrong. Don’t prepare for a disaster, and if one occurs you’re going to pay the price, and the price can be terribly steep.”


*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

Aftershock Investor