NFTRH; The deflation scare

We should call it what it is. This morning the markets are getting sucked down in a mass hysteria that in its compact intensity is in some ways even more impressive (or depressive) than Q4 2008. Everything is getting sold, including gold (-3% to 1470) and silver (-13% to 12.58) for an incredible Gold/Silver ratio (GSR) over 116. Yet with the Fed’s actions, the US dollar is down hard in favor of Euro and Yen.

It is a different deflation scare in its trigger (exogenous event vs. internal financial meltdown) than 2008. The dollar may just be knee-jerking down on the policy moves before firming again on the rush to liquidity from the panic, joining the GSR. But the US is strenuously trying to weaken its currency.

I have heard from several subscribers noting physical gold dealers’ inability to keep up with demand as price spreads rise. When a market of paper and digital assets liquidates so too do the claims on paper and digital gold like futures, ETFs and mining stock certificates. If the world is ending then this is the final deflation.

But… if the world is not ending (and man, it’s a flu, it’s killing a relative few people, its grinding world commerce to a halt and it will eventually pass) in a real deflation to end the system as we know it, the post-panic landscape will see many ruined and others intact. Still others will have found the right areas and time to be positioned. With the silver belly flop and GSR spike I am tempted to think today could be the day. But that is my over eager side speaking. It’s defense first, leading to offense much like the most solidly built hockey teams do it in the playoffs.

So we may have to keep playing defense for a while and if we are not going to a full frontal Mad Max post-apocalyptic landscape intact players are going to be rewarded… eventually.

Watch the Trade Log’s in-day notes for additional input on the here and now (if applicable, I may just tweak the risk management and not do much after that) as notified at Twitter (@NFTRHgt). As a participant trying to execute, I don’t know how to play this any better than the next guy on any given day of a market panic in process. But my instinct is to realize that panicked herds are never right with the passage of time. It’s a deflation scare triggered by an outside event. Policy makers are going full bore inflation in response. They are cheapening money, spraying the funny munny fire hoses as they did in 2008-2009.

At some point real assets vs. paper are going to matter and claims on real assets (the best gold exploration and mining companies, first and foremost in my opinion) are going to matter. But right now the hysteria – across all asset markets – wins. It’s what panic feels like.