Friday, August 19, 2011

Mike Maloney Presents "Debt Collapse"

Let me just start by saying that I'm a Mike Maloney (MM) fan. I do agree with a lot of what he has to say.

To some degree I am riding this precious metals bull market as I believe (cyclically) it's time for the metals to shine (as MM is always keen to point out, he is not a gold bug, but a cycles guy), however I also stack physical metals as I believe there is a strong possibility of monetary changes that may require a transitionary asset which will allow a shift of wealth through to whatever system comes next (perhaps a monetary system in which some way is partially backed or measured with Gold).

I do however have concerns about the way in which Mike presents some of his arguments and the people that he is putting across his arguments to.

If you aren't going to watch the entire presentation then just for my sake, skip to minute 55:00. At this point MM asks the crowd "how many here know what a P/E ratio is?", in a crowd of probably 100-200 people there are barely a few (maybe 5-10) that raise their hand and the next question is "how many do not?" gets a much larger show of hands (probably at least half the audience). It's at this point that I realised that MM is not speaking to a group of seasoned investors...

At minute 5:35 into the clip MM says "My company has a mission to get as much Gold and Silver into the hands of the middle class as quickly as possible". Given the response to the P/E question and the type of event that he is presenting at (Wealth Masters International M2 Conference) it looks very much like he is talking to his targeted audience.

There is nothing wrong with the middle class buying precious metals. I would be considered middle class. However, it will be late comers in this class that will likely drive the mania phase of this bull market and get burned if they don't exit before any collapse that could come following the peak.

Whether MM would like to admit it or not he is probably speaking in front of a crowd, some of which will leave, think about buying metals, but not actively purchase them until they are in a run away move at which point they will chase the price all the way to the top.

MM talks about trying to stop people from being slaughtered because we are about to see a huge transfer of wealth, his famous quote being:
This is the greatest wealth transfer in history. Therefore it is the greatest opportunity in history.
But what he fails to point out on most occasions is that we are already well into and possibly coming near to the end of this wealth transfer.

Those getting into the precious metals ahead of the trend where those buying in 2001-2003, not those that started buying in 2009, not those that started buying in April 2011. I started buying/investing in precious metals through 2008 and while I was ahead of some, I was certainly not early to the bull market.

The investor who was ahead of the trend, who was aware of cycles and moved all their wealth from stocks or real estate into Gold back around US$250-300oz is now sitting on a huge profit. Infact speaking of which those investors (specifically in the US) may want to consider moving some of their assets back into real estate (even if simply to purchase their own home to live in) as the ratio (HOME:GOLD) is currently the lowest it's been since the 1980 peak in Gold (as reported by Zero Hedge):

Those who traded out of the Dow into Gold back in 2001 have multiplied their income by 6-7 times (where someone that stuck with the Dow over the same period is barely break even). Sure there is still the potential for them to make a lot more if we do get the much anticipated 1:1 (Dow:Gold), however it's likely that those early to the Gold trade will also make an early (smart) exit.

Most of the wealth transfer that Mike Maloney talks about has already occurred.

Time wise we are probably at least 3/4 of the way through this bull market with only a few short years left to play out (maybe even less).

Any middle class investors getting on the Gold gravy train at this point should be very wary that they are entering the trade so late. If you are getting on now thinking it's the road to riches based on a 'wealth cycle' you need to understand that we are entering the final stage of the precious metal cycle and it's going to be hard to exit when parabola truly sets in. In the final 24 months of the last Gold cycle/bubble Gold rose a factor of 5 times (from $170 to $850) with most of the gains made in the last few months leading into the January 1980 peak.

Gold has risen roughly $450 over the past 5 months (US$1400 to $1850). A move this large (in dollar terms) in such a short time is unprecedented in the bull market to date. Clearly things are heating up. I am still of the belief that we recently entered the 3rd phase of this bull market (as I originally suggested 8 months ago: Gold/Silver entering the 3rd phase of the bullmarket?) so further fireworks should be expected.

Just keep in mind when watching material like Mike Maloney's presentations that we are well into the bull market. There are still fortunes that will be made, but also potentially fortunes will be lost if you leave your exit too late.


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