Head for the trenches while the going is good

It looks like they have been able to reinflate the economy with fresh money. Now, I am not telling you to go in and buy into this. Remember, as I have warned you dear reader, if I tell you to buy this time around – that will be the ultimate sell signal.
My baseline view is that the whole scaffolding will come crumbling down any day, and it will be fast once it happens (my actual assessment is a 20% drop in October). But before that it seems like the bubble illusion has to run it’s course. Every time we have seen a dip, we have looked to see if this was the turning point – but it has turned up again and again again. So, maybe this latest dip of this week is it, or maybe not. Regardless I suggest you stay out, and sell out what you have in equities. The time may come for put positions and leveraged selling; we are still monitoring it carefully.

Gold is holding steady at around 950, there is something about gold holding so steady while equities seem so much nervous. Being heavily in gold ourselves we kind of understand, gold’s ultimate role as a stabilizer is finally becoming obvious to everyone. Gold might fall, but it will not fall to zero. An ounce of gold bought a suit at the time of Christ, and it will so a hundred years from now.

Norwegian gold miner Crew is filing for bankruptcy and Norwegian investor Jens Ulltveit-Moe just announced he’s lost some 150 million dollars on it. It’s kind of funny, your dear writer was part of the start up of Crew back in 1993-1996. We made our very first serious money when we sold out as Crew went public in 1996 – and went straight to school at U.C. Berkeley for the money. We worked on a rerun of Crew in 1997-1998 based in the Philippines, but it fell flat in the Asian financial crisis. If Jens had only spoken to us about this gold stuff, he thought of Crew as an “investment”. Let me say this very clearly, small scale minerals prospectors and small scale miners (all but the 20 largest in the world are “small”) is NOT an investment, it is SPECULATION pure and simple. You have to be prepared to loose all. That’s why you never go all into just one company like Jens did. The sad thing is that small scale gold miners like Crew is just the kind of company that might go 20x if the next round of bubble money finds it’s way into gold as I suspect it will.

On the bigger picture, if this is the start of a new reflation bubble it is our confident assessment that this will be the last one, and that it will be short before it pops. When will this be then? Our view is that the markets by now are so skittish that it will come soon. I do not think the markets will forget the panic of 2008 before the next panic arrives. There will be no 2014’s boom when all is forgotten – forget about it. The innocence has been broken for this generation, the knowledge of what the establishment and the central banks are up to is spreading online, and can not be stopped. At least not stopped while under the illusion of a free society, and we fear totalitarian approaches to rein in the internet. The scaffolding is trembling as we speak, and it will only get worse.

If you want to play the reinflation bubble we suggest you take out maximum credit lines in your banks while credit is easy and buy into gold. You will pay very little interest. If you can stay in gold for 1-3 years you might live to see the scaffolding crumble and gold go to the roof, then you are in a position to negotiate with the bank. The timeframe is to short to play the real estate markets, the leveraged buyout markets, the raise money game or to do a corporate career with the aim to rip of the shareholders as an insider. These “plays” take 2-4-5-10 years to play out. There will not be time for that.

It is time to head for the trenches, while the going is good.

Hans Jørgen Lysglimt
September 2. 2009
Oslo, Norway

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