Is there a growing level of risk in the world and for investors in particular?
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Again I see a repeat of the cycle that we've really seen over the last, particularly over the last 10 years but also over the last 20 years, which there's a lot of risk builds up in the financial system. One of the largest causes of this risk is the belief in assurance of financial markets that they'll get bailed out by central banks when they get into trouble, which has been correct. They have been bailed out, out of the LBO crisis in the 80's, out of the housing decline back in the early 90's if you recall, that required the Fed to actually lower reserve requirements to zero on some accounts that kind of thing; so they've always been there to save the day. This tends to build up the risk premium in the markets over time. Then the question is, when you're at a peak of risk, what are the likely triggers? Economists like to call them random exogenous events, but as you can tell by the name it's random so you don't really know when it's going to be or when. The reason that the dot com bubble collapsing, by the way, was more predictable was that I understood at the time that there'd be a lot of tax while selling in April of that year. The markets would think that was actually a panic and then it actually did panic.
In terms of the current amount of risk that's in the financial markets probably the most likely risk is in the Middle East and this is actually also the traditional trigger for a crisis in monetary systems. I really do see a risk of an expansion in the conflict in the Middle East to resolve. These sort of unresolved tensions that could potentially be a very big conflict and seeing is that's where all our oil comes from this could be extremely disruptive. If the stakes are high enough, it could actually produce much larger conflict involving the United States, and Russia, and China. So if that were to occur that would obviously be the most extreme trigger for the kind of event I'm talking about, but there are lesser things that could also instigate it. For example, we're counting very heavily on the United Kingdom to purchase U.S. treasury debt and agency debt. They actually were a larger purchaser certainly relative to the GDP than either China or Japan have been as recent purchasers in the last couple of years. It's probably no accident that they're major purchasers of the U.S. debt at the time when they are the sole major partner with the United States in Iraq and Afghanistan at the moment. So if the United States were to do something which would cause a general repudiation of U.S. foreign policy that of course could again be a trigger for a significant event. So these risks are out there and what I recommend to people is if they have some allocation of their portfolio in gold, they hedge that risk. We all hope it doesn't happen of course. I hope that my house doesn't burn down, but I do have fire insurance.