Ever seen a set of "white knuckles" up close? I have. I was a young boy at the time, following a couple of my mates up a cliff. This was in the 1950s, a different age, when skinned knees, elbows etc were a daily occurrence, broken bones were no big deal, and kids routinely did things for fun which would make today's parents keel over in a dead faint. Anyway, I got to that famous point on the cliff where you can't find a way to go up and you can't find a way to go down. Hence the white knuckles. Luckily, both my mates were climbing ahead of me so I knew there was a way up, after all, they had found it. I found it too, but I gave myself a real good scare looking for it. That was fun too, in those days.
The whole world is in "white knuckle" territory at the moment.
Part of this comes, of course, from the determination of the US (and the UK) to go to war in Iraq. Next week, both houses of the US Congress are expected to "abdicate" and give Mr Bush carte blanche to use US military might in any manner he chooses. The UN weapons inspectors, who were originally expected to go into Iraq on October 19, have "delayed" until the Security Council decides on whether or not to accept the new and more stringent US resolution. There are many people looking past this war, a war which looks almost inevitable, but few if any of them are in the Bush Administration. And with very few and honorable exceptions, no one on either side of US politics is raising any questions about the costs of this Middle East adventure.
The other source of "white knuckles", one which is now breaking through even the distraction of imminent war, is the desperate situation on US and world markets. As of October 4, here are the annual falls to date of some of the major world stock markets:
To top it off, there is the Japanese Nikkei. The Nikkei is down "only" 14.4% in 2002, but on Thursday, October 3, the index closed below 9000 points for the first time since mid 1983 - more than nineteen years ago. To put this in perspective, in mid-1983, the Dow was trading between 1100 and 1200.
Even worse than the general carnage on world stock markets is the specific carnage taking place in bank stocks. When the Nikkei closed below 9000 on October 3, the biggest bank in Japan (and the world) lost 15% on that single day. On October 4, while the Dow was falling by 2.5%, JP Morgan Chase (JPM) was falling by 6.1% to $US 16.54. JPM holds more than $US 26 TRILLION in derivatives contracts. Its viability as a "counter party" in these contracts is coming under EXTREME pressure.
And if you think world bankers (and holders of bank stocks) are "white knuckled" now, wait till you see what happens when Brazil holds its election on October 6. The front-runner, Mr Lula, is NOT the favorite candidate of the banks to which Brazil owes what has been estimated to be about $US 265 Billion. By the way, new estimates are now leaking out which put the REAL size of Brazilian debt almost twice as high as what has been admitted to in the past. These estimates are between $US 510 and 520 Billion.
Then there is the US economy, which is imploding. US manufacturing has been falling since the start of the year. Now, with the strike at West Coast ports costing a VERY conservatively estimated $US 1 Billion per day, there is a spectre that US factories may soon be faced with actual closure due to lack of parts. This, in turn, would cause devastation in Asia as US exports dry up.
On September 30, all Treasury debt maturities except the no longer issued 30 year bond saw their yields drop to 2002 lows. The Fed is a sea of "white knuckles" as Mr Greenspan and Co wonder how much longer they can keep interest rates at their present levels - unchanged since December 2001. A rate lowering would broadcast the true desperation of the Fed to the world. A rate rise would spell disaster for the US economy, for US markets, and ESPECIALLY for the last tenuous avenue for Americans to "get rich" - US real estate.
Yes, the world is truly in "white knuckle" territory. Those who still have the stomach to calculate the value of their stock portfolio or to look at the state of their pension funds are breaking out in a cold sweat. Most people are trying not to look at all, hoping that it will all either go away or miraculously "get fixed".
Through all this, Gold stands out like a beacon of light. Admittedly, Gold did almost nothing in $US terms this week. But Gold is still up 15.5% in $US terms this year. Compare that with the stock markets listed above. At its October 4 close of $US 322.10, spot future Comex Gold remains only $US 5.70 or 1.7% below its 2002 high (close) of $US 327.80 set on June 4. Compare that with the Dow, whose 2002 high (close) was 10635 set on March 19. On October 4, the Dow closed at 7528 - that's a fall of 29.2%.
Episodes of "white knuckles" while facing mere physical danger are usually short-lived and quite bracing experiences. But when facing the kind of slow torture that investors have faced over the past two plus years, they are debilitating in the extreme. They can only be supported so long, and then one either "climbs up", "climbs down", or lets go and falls in a heap.
The suspense has been maintained for too long. Gold has been "suspended" for too long. We are now in October, the historical month of (paper market) crashes. If you own Gold, if you are either debt free, or have debt that you are confident you can service/repay under ANY conceivable circumstances, and if you are content to maintain your capital rather than desperate to either add to it or to get it back, you will not be subject to "white knuckles". You will also be in the tiny minority.
How much longer that minority will be so tiny is the thing we are all waiting for now. We don't think it will be for much longer.