Occams Razor and Delta V

By: Warren Pollock | Fri, Jul 8, 2005
Print Email

The drama of London's terror attack yesterday was clearly evident. The event itself factually illustrates that relationships between people and governments are in a state of radical change. Thus and presently, gold is significantly undervalued.

In considering this event, as it pertains to gold, I will use Occam's Razor.

In times of instability, gold becomes more desirable as a store of value. The mechanism of denial presently constrains the value of gold from appreciating. The majority of market participants are intentionally short of fact. Over time, facts will prevail. Because facts are not prevailing, gold is undervalued.

The majority will reach a point where dissonance to fact can no longer prevail. At such a time, the illusion of wealth will be lost. Gold needs to be purchased before reality sets in. It's still possible to buy it at a significant under-valuation.

The Overcomplexity of the Deflation-Inflation Argument

Individuals allocating monies to physical gold need not be at all concerned with the inflation-deflation debate. It is generally agreed that gold will perform well under the "best worst case", which is inflation.

In the worst case (deflation), gold will likely find value through its inverse relationship to instability. Stability, and the good faith and credit of nation states, are synergistic and inseparable.

Fiat money currency can hold value only under stable military, political, economic, legal and social conditions. Change is taking place and will continue to do so. Stability has been lost.

Hard and Soft Currencies

During my lifetime I have visited "third world" and Soviet bloc countries, where fiat money paper can lose (or does not have) international convertibility against hard currency. In such places, hard and soft currencies coexist.

Most people in the US have no working experience with two currency systems, bimetallic currencies included. In such systems, small units of hard currency are horded while larger amounts of the soft currency circulate. Perhaps, Gold could be horded hard currency vs. Silver or paper as soft currency.

When the dust settles after a deflationary period, fiat money paper may be accepted locally and may have value, because purchasing and earnings power are scarce. It is most likely that local paper monies will hold value to purchase labor.

However, I doubt that fiat money will be accepted for international trade and for shortfall necessities such as food and energy. For hard goods, real money or purchasing power will be required. Necessity goods are subject to international competition and sourcing.



Author: Warren Pollock

Warren Pollock
The Macroeconomic Newsletter

This generalized publication seeks to discuss macroeconomics, technical analysis, investing theory, politics, news, and markets. This newsletter does not provide specific advice to any individual. Its our recommendation and opinion that individuals should seek the counsel of a licensed financial adviser who can design a plan appropriate to specific financial conditions, objectives, and risk tolerance. The publishers of this letter may purchase, hold, and dispose of positions in financial instruments discussed herein at will. The newsletter is published to its subscribers on a regular basis. unattainability of expectation?

Institutional-professional subscriptions are billed at USD $1,450 per calendar year (CAD $1,800). Subscribers will be mailed at least 26 issues per year. Newsletters are published to the tempo of events.

Subscriptions for individual investors and high net worth individuals are set at a rate of $450 per year.

Payment can be made to the publisher by check made out and mailed to:
Warren Pollock
POB 413,
Garrison, NY 10524

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com