by Egon Von Greyerz, Gold Switzerland:

There will in the next couple of years be a real Eureka moment in markets. But it is unlikely to be of the same satisfactory nature as in the case of Archimedes. The Greek mathematician and scientist reportedly said “Eureka, Eureka” (I found it) when he discovered that the volume of water displaced in his bath was equal to his body’s volume.

Interestingly, Archimedes applied this principle to assess the gold content of the crown of King Hiero of Syracuse. A goldsmith had tried to cheat the king by replacing the gold in the crown with the same weight of silver. But since gold has twice the density of silver and therefore weighs considerably more for the same volume, the goldsmith’s deceit was revealed. More about the coming Eureka moment in markets later.

Around the world, there are millions of investors who every year spend billions of hours trying to achieve a decent return on investments. The number of areas people can invest in today is mind boggling. But when it comes to financial markets, the great majority invests in stocks. And of those, very few outperform the various stock market indices.

INVESTMENT MANAGEMENT – A SYSTEM OF MEDIOCRITY

So around the world millions of investors, billions of hours, and $ billions worth of computer programs achieve a return which is inferior to an index fund. What a waste of time and resources. Even worse, the individual managers earn a massive amount of money from their investment bank or wealth management business. But instead, a computer could have done all the work and all these big-headed investment managers would be redundant.

Most of the investment industry is just a massive system of mediocrity, self-interest and navel-gazing. And this is done at the expense of ordinary people and pensioners who lose a major part of their potential return or pension by paying massive fees to an inefficient and poorly performing industry.

So we have a mediocre asset management industry achieving poor returns on average at a time when all asset markets are setting records. What will then happen when stock markets turn down. Even worse, what happens when markets crash which is extremely likely to happen this year or at the latest in early 2020.

BUYING THE DIPS WILL FAIL IN THE COMING BEAR MARKET

And what happens to the asset management industry when we have had a secular bear market for a few years and stocks around the world lose on average 75-95% in real terms? Because, that is the most likely scenario in the next few years. In the first year or two, all investors will buy the dips. This has worked for years or even decades so why wouldn’t it work this time? Well, it will work for a very limited time when central banks around the world print additional 10s of trillions or maybe even 100s of trillions as the derivate bubble implodes.

EUREKA – THE PRINTED MONEY HAS NO VALUE AFTER ALL!

But what will be different this time is that the market, will call the tricksters’ bluff. The Eureka moment for the world will be when the coming “unlimited-money-creation-out-of-nowhere” trick will not work. For decades the central bankers have got away with printing money that they told the world has real value. Gold has of course always revealed the deceit of central bankers by destroying the value of paper money. But since virtually nobody owns gold (less than 0.5% of global financial assets), very few understand that their paper money has against gold lost around 98-99% since 1971 and 75%-85% since 2000. And governments are doing their utmost to conceal this incompetence in managing a country’s finances.

This time, it won’t be someone shouting Eureka. Instead it will be an event that the world will experience in the most unpleasant way. Because it is likely that the sheer weight of the debt will totally crush the global financial system. This is the Eureka moment when people will realise that all the money printed, including all debt, actually has zero value. Because when you issue debt out of thin air, it must have zero value. For some reason no one has ever questioned this for the last few decades. I am sure that Archimedes, the brilliant mathematician would have proven that in a few minutes.(see picture)

IF PRINTED MONEY IS WORTHLESS SO ARE THE ASSETS FINANCED BY DEBT

But the problem is much deeper. If the debt and the money printed have no value, neither do the assets that the debt has financed. If you attach a false value to debt or printed money, all the assets that were bought with this debt like stocks, bonds, and property will also have a false value. It is pretty straightforward really. If you print money at zero cost, it must have zero value. And even worse, if you lend it out at zero cost, the assets that this money is invested in must also have zero value. The equation is simple: 0 value IN = 0 value OUT.

As long as the value attributed to the debt is positive, the assets financed by the debt will have a positive value. But when the Eureka moment arrives and the debt implodes due to the sheer volume of worthless credit issued, then the debt becoming worthless will also lead to the assets financed by the debt being worthless.

IN AN ILLUSIVE WORLD MOST VALUES ARE FALSE

This is such a self-evident concept that everybody should see it. But in a world with illusive debt and illusive assets, people live under the illusion that it is all for real. How disillusioned they will become in the next few years when there will the most massive destruction of asset values and wealth. Only future historians will see this clearly. But it is of course easy when you have the benefit of hindsight.

It is really incredible that so few people can see clearly today what is happening. All they need to do is to measure assets using gold as the yardstick. Gold is the only money which has survived in history and the only money which has maintained its purchasing power for thousands of years. This means that gold is a truth teller and consequently reveals governments’ and central banks’ deceitful actions in creating false money.

I showed above how paper money lost 98-99% of its value since 1971. It is the same with stock markets. We measure stocks in fake or printed money which has illusory value. If we instead measure stocks in gold, we find the truth. And the truth is that stocks look very different if you measure the performance in real money or gold.

No yardstick is perfect, not even gold. Especially since gold is manipulated by the BIS in Basel (Bank of International Settlement) together with the bullion banks. Nevertheless, it is the best measure we have to gauge the performance of most assets including stocks.

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