A 1987 CRASH IN STOCKS WITH A GOLDEN DAWN FOR OIL AND GOLD

By Egon von Greyerz

Founder and Chairman

October 16, 2023

What a bloody mess! Well, economic collapses and wars always are.

But sadly it will become a lot messier!

We now have two dangerous wars, maybe we will have a global war. We have a coming collapse of stock markets and debt markets and a banking system which probably will not survive in its present form. 

But there is always another side of the coin.

There will be opportunities of a lifetime not just to preserve your wealth but also to amass an incredible fortune. More later. 

WHERE BLACK GOLD GOES YELLOW GOLD WILL FOLLOW

Oil and gold are best friends. As the chart of the Gold – Oil ratio for 50 years shows, below, gold and oil move very much in tandem within a narrow range. So if oil now goes up due to the Middle East crisis, gold will follow. 

AS IF CLIMATE CHANGE, VACCINES, LOCKDOWNS, WOKENESS, STOLEN ELECTIONS, CBDC, DEBT etc WASN’T ENOUGH

As if all the above wasn’t bad enough, adding a Middle East war to this makes the crisis properly global and the step toward a Global or World War is very short even dangerously short. 

We thought we had enough trouble with climate change, ESG (Environmental, Social, Governance), wokeness with 27 genders and canceling history, forced vaccines and lockdowns, high taxes, high inflation and debt that can never be repaid. 

Hard to understand what happened to the world since I was born 78 years ago. 

Add to that incompetent governments in the entire Western World and not a single statesman around. All of that is more than most people can cope with. 

The US government and Biden have no policy, no ideology. They have also lost their manufacturing base and their military power is declining rapidly. 

On top of that, the US is also spending money like a drunken sailor who will never sober up but only spend or drink more to drown his ever increasing debts and sorrows. 

And then we started to get used to the “local” war in Ukraine which the poor Ukrainians could never win against a superpower. 

We are now talking about the greatest uncertainties in my 78 year lifetime which started at the end of WWII 1945. 

No one can predict where the current two wars will lead, although our worst fears can sadly be realised sooner than anyone could believe. 

At this stage we cannot say if these crises will lead to a major destruction of the fabric of the world and the death of many, many people. 

But what we can say with much greater certainty is that economic and financial risk is now at a level which is likely to lead to the destruction of wealth on a level never before seen in history. 

I was born right in between the end of WWII in Europe and before it ended in the Far East. So I naturally don’t remember anything from that era. My father was an officer in the Swedish army at the time and Sweden unofficially assisted Norway which was occupied by the Germans.

But I can well remember my early life in Sweden which was a prosperous and stable country with a homogenous population. The 1950s were a period when church doors were open and the church silver could be left unprotected. Today, the copper roof, the gates and anything of value is long gone. Obviously the silver is either locked in or stolen. Police and teachers were greatly respected with ethical and moral values very high. Now people swear and spit at them.

But the stability of the early 1950s (except for the Korean War) soon led to wars in Vietnam, Middle East etc with the invasion of Hungary and Czechoslovakia and Yom Kippur in 1973 being the first Palestine conflict I can remember. Petrol prices in the UK where I lived at the time were 7.5 pence per litre. 

That was the first major oil crisis I experienced. Today petrol in the UK is £1.90 per litre and unlikely to stay that low for long. But a 26X increase in the last 50 years of petrol (US gasoline) is probably going to be seen as a bargain in a few years time. 

let’s start with your most important decision which you need to take toDAY 

Buy as much physical gold as you can afford and then buy much more.

We have warned investors for some time that the Everything Bubble will turn into the Everything Collapse. 

Well that time is now coming very soon. 

The current pattern of the Dow looks very similar to October 1987. If that is correct, a stock market crash could be imminent. 

Stocks will be down 70-90% or more, in real terms, before this crisis ends.

Most bonds will become worthless, even Sovereign bonds. 

Higher rates and defaults will see to that. 

So get out of all general stock and all bond investments if you want to have any money left at the end of the coming calamity. 

Interest rates will continue the long term, 20-30 year uptrend, obviously with corrections. No one will want to lend to a drunken sailor who can never get sober. Defaults and a banking crisis will lead to higher debts and higher rates. But the US with record borrowings can’t afford the rising interest costs. The dollar will be sacrificed. 

So in all a perfect but vicious debt and currency cycle leading to guaranteed perdition. 

The only question is how long it takes. 

GOLD WILL BE YOUR SAVIOUR

We have been advising investors to hold important amounts of physical gold for wealth preservation purposes since the beginning of 2002. Since that time gold is up 6-8 times in most major currencies and much more in weaker currencies. 

But as I keep telling colleagues and investors, gold’s real journey hasn’t started yet. 

What I often tell our clients is that they mustn’t wish for gold to go up substantially.

Because when gold goes to the levels which I now feel certain it will, the quality of our lives will be considerably worse than today. 

The factors that will fuel gold’s rapid rise to new substantially higher levels are obvious:

WARS

It is both fascinating and frightening to follow how regional disputes lead to superpowers quickly taking sides and lobbying or forcing its allies to follow suit. 

There are always two sides to a dispute. One of my very important principles is that before you judge someone, you must walk three moon laps in his moccasins. (An old American Indian saying).  But sadly most people including superpowers totally ignore such advice. The Russian argument is that the Minsk agreement was meant to avoid a deepening of the dispute and should have been followed. The US side is that Russia must be stopped at any price and Germany separated from a dangerous rapprochement with Russia. And Europe was given no choice but to follow the US. 

As Bush Jr said to congress in 2001: 

“Either you are with us, or you are with the terrorists!”

The sanctions are severely affecting Germany and most of Europe but the worst consequences are still to come this winter. The Middle East conflict is likely to make the consequences exponentially greater. 

Like with all wars, ordinary people on either side don’t want it.  And democracy doesn’t exist when a nation goes to war. Both Ukraine and the US went to war without the consent of either the people or their parliaments. 

THAT IS HOW WARS AND WORLD WARS START – Idiosyncratic leaders with sycophantic lieutenants take erratic decisions without understanding the consequences. 

WHO IS ACTUALLY RUNNING THE US?

And when the leader is past his sell by date it makes the whole process utterly dangerous. 

Everybody gets old and I am no spring chicken either. But if for whatever reason I don’t have the wits to resign when I should, I hope that my wife and my team will tell me so.

IT IS EXTREMELY DANGEROUS FOR A SUPERPOWER TO BE LEAD BY SOMEONE WHO IS NOT CAPABLE OF LEADING.

Even more dangerous when an unaccountable and unidentifiable group takes all the decisions. 

UKRAINE AND PALESTINE – REGIONS UNDER CONSTANT STATE OF CHANGE

As Heraclitus, the greek philosopher said 2,500 years ago:

“Change is the only constant in life.”

Modern Ukraine was occupied by a number of different people throughout history like the Scythians, Greeks, Romans, Goths, Huns and the Slavs as well as the Mongols. Later Poland and Lithuania and the Ottomans were involved. In 1709 the Swedish King Charles the XII lost against Peter the Great of Russia due to the Great Frost (the coldest winter in 500 years) which weakened the Swedish Army just like during the Napoleon and Hitler invasions. 

So Ukraine is hardly a stable country with deep roots and a homogenous people.

The same with Palestine, the Land of Israel, the birthplace of Judaism and Christianity which has been controlled by, among all, Ancient Egypt, the Persian Empire, Alexander the Great, the Roman Empire, Muslim Caliphates, the Crusaders, the Ottoman Empire and the British Empire after WWI. In 1948, Britain divided the region into Israel, the West Bank and Gaza. 

The history is too long and complex to delve into the details here but suffice it to say that the modern split of the region has created a constant period of dispute (constant change again), misery, wars and deaths. 

No one is prepared to wear the other side’s moccasins and the situation could now escalate to a world war between the Muslim world and the West. This is likely to result not just in a major war but also terrorism around the world. 

Just like in Ukraine, the US and the West are more likely to send money and weapons to the Middle East rather than to peace makers. 

It is unfathomable that the West chooses war over peace. This certainly does not bode well for a peaceful solution to the two conflicts.

OIL

Since most wars in modern times involve oil, the current ones are no exception. 

There are two major camps controlling the global oil supply.

Around 22 million barrels of oil go through the Strait of Hormuz between Dubai and Iran. 

It would be virtually impossible to prevent Iran from blocking this area off, stopping all shipments of oil and gas, if necessary with the help of Russia. 

That would turn off 22 million barrels of oil or 23% of global supply. Enough to make the oil price go to $500 – $1,000 and paralyse the world. 

DEBT AND CURRENCY COLLAPSE

I have since the 1990s been certain that the world economy would end in a debt and currency collapse. That is a very obvious projection since history always repeats itself, or rhymes, and every economic period in history ends this way. 

The difficulty is to time the cycle but as I often stress, exact timing is less important. The key is to prepare early and buy the fire insurance or protection well before the fire starts. 

So whether we call it a Fourth Turning like Neil Howe or a debt and currency collapse like von Mises, the end result is the same and devastating. 

When I discuss my economic scenario most people (but obviously not our clients) call me  pessimist or a prophet of doom and gloom. 

But I am an optimist and consider life to be a wonderful journey. The key is to help other people, family, friends, and clients. Real happiness is making other people happy. It clearly doesn’t always work with people who believe you are a prophet of doom and gloom. But it does work extremely well for people who need help. 

So enjoy life with family, friends, nature, music, books etc for as long as you can. Remember that the quality of your life is determined by how you deal with adversity. 

JIM SINCLAIR – MR GOLD

Our good friend Jim Sinclair died last week of a heart attack. Since the 1970s he has been one of the foremost gold experts in the world. He traded the whole run from $35 in the early 70s to $850 in 1980 where he got out making substantial returns.

Above all Jim was Mr Gold with a superb understanding of the world economy, markets, politics, wealth preservation and of course gold. 

Many people around the world followed his wisdom through his website JS Mineset.

I had the privilege of meeting Jim many times around the world. He was always gracious with his advice and support. He often told investors to “Go to Egon” and posted both my mobile number and private email on his site. At times we were totally inundated with potential clients. He had a tremendous following.

We will miss you greatly, Jim. I know that you wanted to experience the coming surge in gold that took longer than many of us expected. But you always knew that this move was inevitable. Still, your legacy will certainly be with the whole gold community and we will send you thankful thoughts regularly as gold continues to move up.