January 23, 2012 – With news of the European sovereign debt crisis inundating both the newspapers and the markets, the prices of gold and silver are rising partially on an anticipation of the debt crisis check coming due. As Kyle Bass, known as hedge fund extraordinaire, points out, investors have good reason because the European debt is reaching unrecoverable levels compared to GDP of the countries involved. Mathematically, it is then impossible for those economies to recover.
Bass, a longtime buyer of gold and silver who famously took delivery on the University of Texas’ gold investments, has made quite a reputation betting against the grain and winning big. He’s one of the few who made a killing during the 2008 economic crisis and he profitably bet against the housing bubble which burst in 2007. He has also made several unpopular, yet accurate bets against the debt of sovereign countries, including Greece and currently Japan.
Of the current crisis in Europe, Bass recently had this to say: “Debt has grown in the last 9 years at a 12 percent annual growth rate. GDP has grown at 4 percent. So what do you expect when you have a pillar of the world community, the European Union, entering a prolonged stage of deleveraging. The rest of the world in the absence of private credit demand isn’t going to grow.”
During this stage of perpetual stagnancy, the inherent value of gold and silver makes the precious metals the only asset independent of the deleveraging in the markets. In the scenario Bass outlines, and he is making his projections based solely on the math of the balance sheets, any form of paper asset will quickly become completely worthless, especially those special investment vehicles we all know called derivatives. Tangible commodities, in particular gold and silver, will perform quite well.
Furthering his comment on Greece, Bass said, “I’ve never seen an orderly default process, I think it’s going to be a forest fire…it’s not the end of the world, it just means a lot of people are going to lose a lot of money.”
While a lot of people are losing a lot of money, Bass’s Hayman Capital is making money hand over fist, particularly because of their strategies with gold and silver. The paper burns. Gold and silver will last.
During the forest fire that Bass is talking about, which is already beginning with the recent announcement by the European Central Bank that they plan to inject 100 trillion Euros into the banking system next month, gold and silver will be the best assets to own and the only assets left standing.
Senior Staff Writer – GoldSilver.org