Matterhorn Closes The Year In Style: "Hyperinflation Will Drive Gold To Unthinkable Heights"

Tyler Durden's picture

From Egon von Greyerz of Matterhorn Asset Management

Hyperinflation Will Drive Gold To Unthinkable Heights

We now live in a world where
governments print worthless pieces of paper to buy other worthless
pieces of paper that combined with worthless derivatives, finance assets
whose values are totally dependent on all these worthless debt
instruments.  Thus most of these assets are also worth-less.

So the world financial system is a house of cards where each
instrument’s false value is artificially supported by another
instrument’s false value. The fuse of the world financial market time
bomb has been lit.  There is no longer a question of IF it will happen
but only WHEN and HOW.  The world lives in blissful ignorance of this.
Stockmarkets remain strong and investors worldwide have piled into
government bonds in a perceived flight to safety. Due to a century of
money creation (and in particular since the 1970s) by governments and by
the fractal banking system, investors believe that stocks, bonds and
property can only go up. Understanding risk and sound investment
principles has not been necessary in these casino markets with
guaranteed payouts for anyone who plays the game. Maximum leverage and
derivatives have in the last 10-15 years driven markets to unfathomable
risk levels, with massive rewards for the participants.

In the meantime central banks are cranking up the printing presses
but as Bernanke recently said quantitative easing is an “inappropriate”
description of what should be called “securities purchases”!  Who is he
kidding? What the Fed is buying has nothing to do with “securities”.
There is no security whatsoever in the rubbish the Fed is purchasing.
They are buying worthless pieces of paper with worthless pieces of
paper. This is the Ponzi scheme of all Ponzi schemes.

Let us be very clear, this financial Shangri-La is now coming
to an end. The financial system is broke, many western sovereign states
are bankrupt and governments will continue to apply the only remedy
they know which is issuing debt that will never ever be repaid with
normal money.

So why does the world still believe that the financial system is sound?

  • Firstly, because this is what totally clueless governments are telling everyone and this is what investors want to hear.
  • Secondly, whether governments apply austerity like in parts of
    Europe or money printing as in the US, investors want to  believe that
    any action by government is good, however inept.
  • Thirdly, market participants are in a state of false security due to shortsightedness and limited understanding of history.
  • Fourthly, as long as they can benefit from inflated and false asset
    values, the market participants will continue to manipulate markets.
  • Fifthly, there has been a very skilful campaign by the US to divert
    the attention from their bankrupt economy and banks `to small European
    countries like Greece, Ireland or Portugal. These nations, albeit in
    real trouble, have problems which are miniscule compared to the combined
    difficulties of the US Federal Government, states, cities and
    municipalities.

Euro zone members can’t print money. Many EU countries are downgraded
by US rating agencies which don’t dare to touch the US rating. The AAA
rating of the US is an absolute sham and totally politically motivated.
True to form, rating agencies will only downgrade debt once it has
become worthless but never before.

Hyperinflation Watch

The result of massive money printing is a collapsing currency,
leading to escalating prices and eventually hyperinflation. This is in
simple terms how every hyperinflationary period in history has happened.
If in addition, there are world shortages of food, energy and other
commodities, this will accelerate the process.

There are currently a number of indicators all pointing to escalating
money printing and an imminent start of a hyperinflationary era. Here
are some of them:

  1. Fiscal Gap widening at alarming rates in many major economies.
  2. Commodity prices at all-time highs.
  3. Long term interest rates rising.
  4. Most Currencies falling.
  5. Precious Metals at all-time highs against most currencies.

Fiscal Gap

Tax receipts are collapsing and government expenditure soaring in
many major economies including virtually all southern European countries
as well as in the UK. James Turk has produced on his fgmr.com site two
excellent graphs for the USA and the UK showing the extreme severity of
these two countries’ deficits.

US & UK ON THEIR WAY TO BANKRUPTCY

The USA and the UK are the favourites to reach
hyperinflation first amongst major economies. Both these countries will
experience major problems in 2011.  Also many other nations have
unsustainable debt levels which will never be repaid with normal money.

GOVERNMENT DEBT WILL NEVER BE REPAID

Commodity Prices
Commodity prices have increased 26% in the last
12 months and 77% in the last 24 months based on the Continuous
Commodity Index (CCI). So whilst most economies publish inflation rates
of 1-3%, the real cost of food and energy is surging. The US government,
which doesn’t eat or use energy, recently published the adjusted 12
months’ Consumer Price Index (ex food and energy) of 0.8% per annum.
Whilst most people are struggling with a massive increase in their cost
of living, the US government is continuously adjusting and manipulating
the published figures.  There are lies damn lies and US government
statistics. Who are they fooling!

Long Term Interest Rates

In spite of US government debt being totally worthless, investors
have bought more than ever, with virtually no return, in a world
drowning in sovereign debt paper. We have for some time stated that the
US bond market is one of the biggest financial bubbles ever. As we
forecast back then, the market turned down (rates up) in January 2009.
 A 14 month correction ended in August 2010. Since then both the 10 year
and 30 year US Treasury bonds have moved up one full per cent. So
investors are finally waking up to the enormous risks in the financial
system by selling government debt. We expect both short and long
interest to surge in 2011 in many countries and to reach well into
double digits in the next few years.

INTEREST RATES WILL RISE STRONGLY

In spite of interest rates at minimal levels, both sovereign states
and individuals have major problems servicing current debt. With
interest rates likely to rise to at least 12-15% and probably higher, no
one will be able to service debt with “normal money”. Add to that the
fact that government debt will surge in most countries. The US debt is
currently $ 14 trillion. It is likely to rise to at least $20 trillion
in the next few years and probably a lot higher. The interest cost for
the US government at that stage is likely to be at least double the tax
revenue. One would assume that the US government is well aware of what
their ruinous actions are leading to. But in spite of this, they
continue to increase the deficit by reducing fiscal revenues and
increasing spending. What planet are they living on!  What is absolutely
self-evident is that they will not clear up their own mess, as the
present government will be a one term wonder!

Currencies Declining

Since 1971, the value of the US dollar (paper money) has gone down
97.5% against real money (gold). Since Nixon abolished gold backing of
the US dollar in 1971, both the dollar and most other currencies have
been totally destroyed by reckless government. Nixon should not have
been impeached for Watergate. Instead he should have been prosecuted and
jailed for destroying the world’s currency system. Concurrently,
banking developed into a fractal system whereby banks could lend massive
multiples of their deposits and capital. All of this has served to
drive up asset prices to totally unsustainable levels.

All currencies are declining against gold but some faster than
others. The US dollar for example is down 78% against the Swiss Francs
since 1972. During the same period the pound has declined a massive 85% against the Swiss Franc.
Both the dollar and the pound are now at all-time lows against the
Swiss currency. But the Swissy is only strong relative to weak paper
currencies because against real money/gold the Swiss Franc has declined
87% since 1972.

DOLLAR DECLINE WILL ACCELERATE IN 2011

As a consequence of accelerated money printing, all paper currencies
will fall precipitously against gold in the next few years. Therefore
all paper money should be avoided and especially the Dollar, the Pound
and the Euro.

Precious Metals to reach unthinkable heights

Gold has gone up 40 times against the Dollar in the last 40 years and
almost 6 times in the last 11 years. Very few investors have
participated in this rise since the 1999 low at $ 250. Less than 1% of world financial assets are invested in gold and gold stocks. Between 1920 and 1980 circa 25% of financial assets were invested in gold and gold stocks.

THERE WILL NOT BE ENOUGH GOLD

The major rise in gold in the last 11 years has been a stealth move
with very few investors participating. The dilemma is that there is not
enough gold to satisfy the coming increase in demand. We have in
previous articles forecasted the gold price to reach anywhere between $
6,000 and $ 10,000 in the next few years – see “Gold entering a virtuous circle”. As we explained at the time, these are totally realistic targets without the effect of hyperinflation.

GOLD WILL SURGE IN 2011

Bearing in mind that we are likely to see hyperinflation in the US,
the UK and many European countries, the $6-10,000 target for gold is
much too low. The dilemma is that it is absolutely impossible to predict
how much money will be printed by governments. In the Weimar republic
gold reached DM 100 trillion. But it is really irrelevant what level
gold and other precious metals will reach in hyperinflationary money.

What is much more important to understand is that physical gold
(and silver) will protect investors against losing virtually 100% of the
purchasing power of their money. Whatever real capital appreciation
gold will have in the next few years is of less importance. But what is
vital, is that physical gold (stored outside the banking system) is the
ultimate form of wealth protection both against a deflationary collapse
and a hyperinflationary destruction of paper money.

Throughout history gold has protected investors against various
calamities but this time, holding physical gold will be absolutely
critical to financial survival.

31st December

Gold Switzerland - Matterhorn Asset Management

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StychoKiller's picture

Gold and Gold mining shares in % of global assets is currently low because there's so much (purportedly) other assets in the measurement, most of it paper in nature.  A lot of so-called wealthy folks are gonna find out the hard way that paper is only worth around $85/ton, no matter how much pretty ink or authoritative "promises" are on the paper(s)!

UGrev's picture

-" no matter how much pretty ink or authoritative "promises" are on the paper(s)!"

..love it :)

SRV - ES339's picture

Good point SK... the explosion of derivatives to be sure.

IMHO, the miners underperform because they trade with a Comex paper bias, and reflect the games played with paper through the trading day. The "bullion" after hours trading ia a truer value of the metals, as the Comex banksters have crawled back in their caves by then... over time, this will correct.

bronzie's picture

from Richard Russell:

"Dear Friends,

December 27, 2010 — I have posted below the year-end price of gold starting with the year 2000, the first up-year of one of the greatest and least appreciated bull markets in history. Take in this series, you may never see it like again.

2000 — $273.60
2001 — $279.00
2002 — $348.20
2003 — $416.10
2004 — $438.40
2005 — $518.90
2006 — $638.00
2007 — $838.00
2008 — $889.00
2009 — $1118.40
2010 — ?

I’ve been around a long time, and I’ve studied many primary bull markets. And now I want to venture a few of my observations.

In markets, I have never seen a series like the above end with a whimper or a fizzle. The end or the wind-up of such a series usually arrives with an upside "explosion," as those who have failed to participate in the series finally rush in to join in the apparent endless advance. This is the wild and wooly speculative phase of a great bull market. Big bull markets don’t end with a sigh, they end in exhaustion.

(1) Most great primary bull markets last longer and carry farther than the majority of investors (even the bulls) expect.

(2) A great primary bull market is an expression of something changing in a very fundamental and meaningful way. Following a great bull market, the world is never quite the same."

~

what Richard is saying is that, yes, gold is going vertical - it happens in every financial bull market and gold will be no different

Richard also makes this point about bull markets: they have three phases - phase I is when the smart money gets in - phase II is when the institutional money gets in - phase III (he calls it the 'speculative phase' above) is when the man-on-the-street finally recognizes the "new" bull market and gets in

we are in phase II now and phase III is somewhere in front of us

and, as Richard says, "There is no fever like gold fever!"

~

"A great primary bull market is an expression of something changing in a very fundamental and meaningful way. Following a great bull market, the world is never quite the same."

what's changing IMO is that fiat currencies are dying

LeBalance's picture

That is certainly one perspective, but after the money printing and the destruction of the purchasing power of the fiat currencies, exactly how will the "worthless paper" relate in a meaningful way to gold?  It will not and therefore the financial system will need to be recapitalized with respect to an asset or asset class in which there is confidence, namely gold (FOFOA).

Richard is viewing the "gold bull" from the perspective of an asset.  Certainly it can be viewed from that perspective.

But I believe (as do others or should I say Anothers? :) ) that gold is changing its role in the financial system.  And its price in dollars?  Euro?  Yen?  There will not be one as these currencies will fail as you say.

So to reiterate Richard Russel is barking up the "investment wall of worry" and although that appears to be what gold is about, the larger financial system breakdown and its relationship to the "price" or "non-price" of gold is very very different from that perspective.

bronzie's picture

yes, Richard is viewing gold as a financial asset category and applying his 50 years of market knowledge to make projections as to how that asset category is likely to perform in the future

he is also hinting that there is a bigger picture to be aware of when he says, "A great primary bull market is an expression of something changing in a very fundamental and meaningful way."

this bigger picture, the fundamental change, is what you are referring to - ie, the current system is dying and will have to be replaced with something else

Sean7k's picture

Couldn't agree more and this point fails to be made. People will consider selling their gold and silver at a "market top". Unfortunately, when currencies collapse, they are created new and the new currency is revalued in gold or silver. 

All the old currency in the world will yield you little in value or the new currency. This is why gold and silver are not available at "any price" when hyperinflation begins. (see zimbabwe) Weimer coins changed from silver to zinc to lead. Gresham's law takes over.

When all the major global currencies are going ponzi, there will be no other means of making an exchange than by a gold or silver backed currency. Trade will continue, but will you have anything to exchange?

SRV - ES339's picture

This is why gold and silver are not available at "any price" when hyperinflation begins

Looks like Ag is starting down that road... I invested in the new Sprott Silver Bullion Trust a month ago and the it's appreciating in multiples of spot recently (Ag: up 1.5%  Trust: up 3.85% today)... very interesting.

Z's picture

Dammit! I knew I should have bought gold when I was 15. :/

By the way, anybody figure out a sequence formula for Gold in USD?

bronzie's picture

not sure about sequence formula but Jim Sinclair uses french curves to plot parabolic moves in the financial markets

THE DORK OF CORK's picture

Parabolic or hyperbolic ? - will it leave this solar system ?

Dr. Sandi's picture

Slingshot around the sun.

I'm hoping it will travel back in time and into my underwear drawer in 1981

antidisestablishmentarianismishness's picture

Is this the same Richard Russell who said back in May 2010, "Do your friends a favor, tell them to batten down the hatches because there's a hard rain coming....sell anything they can sell in order to get liquid....because by the end of this year they won't recognize the country."

pslater's picture

Mr. Russell has highlighted one of the biggest problems in investing: while his (your) analysis and conclusions may be spot on, WHEN they will prove to be correct is far more difficult.  To be sure, the Fed and the other CB's are formidable adversaries committed to maintaining the status quo.  The problem is as noted above "yup, the math always wins."  The game will continue until it doesn't.

 

In one respect Mr. Russell is right - at the end of this year, I hardly recognize this country.

chumbawamba's picture

There's still 13 hours to go from where I sit.

Downtown Manhattan went from recognizable at 8:46am on 2001-09-11 to unrecognizable by 10:29am.

I am Chumbawamba.

Confuchius's picture

Chumba;

Happy new year!

 

Amazing what a few tons of nano-thermate can do when the building's security is "taken care of" by the president's brother. At least up to the day of the demolition / coup.

 

!00+ assasinated each &  every day on the highways, zero EVER harmed in aircraft, but any air travellers must now be treated like prisoners headed for the gulag...

"Winston Smith"

 

RockyRacoon's picture

It's the end of this year -- and I don't recognize this country.

I guess he was spot on.  It's only a matter of degree.

trav7777's picture

ok, for the zillionth time, Gold production peaked in 2001.

Why the fuck does everyone look at EVERY "dollar price" as if it HAS to end up in a fucking parabolic bubble??

It's like these idiots WANT to drive mania so they can get a bubble

RockyRacoon's picture

We at the verge of peak champagne!   Cheers!

Confuchius's picture

Trav;

We really have very little idea when / if Gold "production" peaked. I f it has.

 

Gold's value never changes.

Only the quantity of worthless paper it takes to acquire it changes.

mikhail kalashnikov's picture

When made into hand chart form against Weimar Germany gold prices,

we appear to be at about february, 1922.

Remember that steel,brass,lead and copper are precious metals,too.

And don't forget tin.

alexwest's picture

good... most worring that despite  gov revenues stop falling

and grow a bit 2-3% y/y,, outlays still up and more than

reveneus.. so US stuck w/  1.5-1.7 trln per annum. deficit..

well  2-3 years and  rates will spike up,, then complete collapse  and chaos .. I doubt there will be next president elections in USA

most likey CIA/ARMY/FBI will shut down  gov/mass media/ useless parlament and install some kind of military regime...

take my word   on that

alx

 

 

bronzie's picture

from Jim Willie: "The Gold bull will continue as long as the cost of money is negative."

this is an important concept to understand for determining when it might be time to move back out of silver and gold

Google "negative real interest rates" and read some of the stuff you will find

the idea, as I understand it, is that "real" interest rates are the difference between the Fed's stated interest rates and inflation - right now stated interest rates are close to zero while actual inflation is about 6% (use John Williams' inflation numbers from shadowstats.com not the BS numbers published by govt) - that gives us a negative real interest rate of over 5%

to get back to positive real interest rates the Fed interest rate would have to be 6% or more - before you say that can't or won't happen, remember that Volker raised interest rates to 21.5% in 1981 which was one of the factors that stopped the gold bull market of that time

bottom line: until we get back to positive real interest rates, gold and silver will be the asset category to own

Azannoth's picture

They can't raise rates without blowing up the system, it's impossible

tmosley's picture

Yup, the math always wins.  If our interest rate went to 6%, interest on the national debt would consume more dollars than the Federal Government takes in taxes.  Might be twice as much or more.  

Also remember that gold and silver went parabolic in a high interest rate environment.  Raising rates to that level won't stop the rising prices, it would just turn it from a fundamentals driven rally into a bubble.

TheGoodDoctor's picture

Exactly Azannoth. This time it is different. If they do, it is game over. No way we can pay that debt off. If interest rates go that high isn't hyperinflation a guarantee? They will lie about the inflation numbers anyway - which will be higher than any interest rate paid. My guess is that is when the money at the banks (they aren't borrowing out) makes it out into the economy is when this inflation will hit. I may be wrong but overall it's end game. Willing to hear other scenarios.

How did this play out with Weimar? With interest rates?

bronzie's picture

Google "gold deep storage"

there has been some interesting changes in the verbiage that is used to categorize the US supply of gold

some people suspect that the 8000 tons of above-ground gold have been sold/leased/stolen and replaced with "deep storage" gold meaning gold that has yet to be mined

trav7777's picture

yes.  there is some evidence that sovereigns, whenever in possession of market-moving amounts of a commodity, have sold into a tightening market to attenuate price moves to the upside.

This is at least provably true in the case of Helium (USA), which peaked earlier this decade while the US was selling strategic Helium reserves into the market.  It's also true of Palladium, for which Russia holds significant stockpiles and has been selling them into the market.

This latter trend might be why Palladium trades for less than Platinum does, despite rough parity in terms of yearly ounces mined and the ability to substitute one for the other in catalytic applications.

It seems that in every case there have been large sovereign stockpiles, for whatever reason, these were sold into the market to attenuate upside price moves or to make up for sudden supply deficits caused by peak-related shortfalls or else plateauing of production curves.

LeBalance's picture

Very well put.

I only have super minor quibbles:

(1) Governments are not "clueless" as to what they are doing.  They are expertly run by men and women at higher levels of their organizations who know exactly what they are doing.

It is a matter of dispassionate viewpoint and the appropriate quote from the King James bible is: "Forgive them for they know not what they do."  That is the perspective that prevails today, due to that programming.  The pre-King James biblical quote (the same line) was: "Do not forgive them, for they know exactly what they do."

Nicht wahr? (you get it right?)

(2) Richard Nixon certainly is getting saddled with a great deal of responsibility for stuff that happened while he was president.  Well being as he was a "protege" of Prescott Bush and a made man of the Oligarchy that certainly puts the nickname "Tricky Dick" in a new light.  I wonder how he performed in the Tomb of the Skull and Bone(r)s?  Tricky was just following orders.  Sieg Heil!

2028's picture

This is pretty much the gospel. The next 10 years they will consolidate all currencies into one. Chances are it will not be paper. During this time yes Gold and Silver will soar against the failing paper currencies.  The powers behind the scenes put people like Bernacke out there to do their bidding and Bernacke is the shit magnet and nothing touches them. All countries will fall for their plan except maybe China with a 200 million man army. Again this is gospel. This new currency will be the only way you will be able to buy or sell. If you try to barter with anything else it will be under penalty of death if caught. So yes thru this time we can keep our buying power thru the metal. But when it becomes a police state and you realize that barter is too dangerous as with people betraying each other and rewards given for turning in people. You will be given the nice option to convert into their world currency. Probably not a favorable rate. This is when if you look to any organized church (Vatican and her daughters) on the planet they will guide you to convert.

This will be interesting times but will you have the spirtual strength to walk away from all this wealth you built up not to convert. You can still be spiritualy lost without converting but converting only cements it.

Spend some time getting ready spiritually also. That will be the real survival tool to get you thru this and come out on the proper side of eternity.

Smu the Wonderhorse's picture

Sounds about right to me.  I think Russia will be the holdout.  She is the great villain on the stage in the minds of the Western globalizers and not without reason.

Orthodox Christianity: accept no substitutes.  http://www.orthodoxinfo.com .

trav7777's picture

horseshit.  Our government is CHOCK FULL of diversity hires who have no fucking clue whatsoever.

Thanatos's picture

Its worse.

They think they have a clue and are willing to act on it.

Extreme FAIL is in our future.

mikhail kalashnikov's picture

Trav, I think our gubmint is full of Mossad agents, and this is exactly the plan.

The United States government stopped acting in the intrests of the citizens a long time ago, and the actions taken have consistently benefited one country, and it isn't ours.

 

hamurobby's picture

Doesnt everyone realise that Ben is smarter than those other guys in history who created money? He is putting it in a different pocket so it wont create hyperinflation.

LeBalance's picture

Bilbo sez: "What has I got in my pocket?"

"It was My Precious! You stole My Precious!"

Hamurobby, BB just prestoed more than $2T in the last year and you say its in a pocket that is isolated from investor eyes and market confidence?  These are the forces that cause political moves like hyperinflation.  Maybe you need to define exactly what you are talking about: "this isolated pocket."

hamurobby's picture

Sorry, I really was being sarcastic. Ben would like to believe that the market does not see his 2T as money printing, time will tell.

You should hear my gollum impression every time I get another gold coin.

LeBalance's picture

Thought you might be /sarcing/ but I couldn't hear the sound of your voice.

:)

Oh regional Indian's picture

Silver is missing from the roundup. Is Matterhorn assuming an implied correlation between gold and silver?

Silver, the new gold.

ORI

http://aadivaahan.wordpress.com

Gaston's picture

I'm a much bigger fan of silver then gold at this stage, I expect silver to outpreform all other PM's..... so much data supporting silver, historical silver to gold ratios, Industrial demand, JP Morgan short squeeze etc... But more or less, for the price of 2 ounces of small gold coins/bars, one can buy a brick of silver...

espirit's picture

Get it while you can, as the U.S. Mint appears to be experiencing a continued shortage of silver blanks for Eagles.

Demand has finally exceeded supply, perhaps indefinitely.

http://catalog.usmint.gov/webapp/wcs/stores/servlet/CategoryDisplay?cata...

trav7777's picture

As Russia winds down its reserve stockpiles of Pd, it should, based upon industrial usage and production levels, achieve rough price parity with platinum.

Compared to gold, Pd and Pt would appear to be severely undervalued.

RockyRacoon's picture

Silver is a market or fiat money play, whereas, gold is money.  Silver will look better and better as time goes on, but only gold will save one's bacon in the long run.   I am in NO way saying not to do the silver tango, but don't get left holding a ton (literally) of it when the music stops.   Cash in all your profits for real money, gold, at every opportunity.   I do buy and sell enough silver to know the tricks and traps of the coin markets, but I always try to keep my head above the clouds when up to my furry ass in Morgan dollars.

Oh regional Indian's picture

Thanks for the advice Rocky. 

Long long term, I can see what you are saying.

Best for this new year.

ORI

Gaston's picture

Last trading day of the year, Silver and Gold will end the year with a bang... DXY (dollar index) has taken a massive beating the last few days. I'm bullish on the dollar for the short term, but if we break below 78.50 its likely the downtrend resumes... Watch for silver and gold to break their highs for the year....