Letter Re: The Correlation Curse

May I recommend the article titled The Correlation Curse by Howard Hill? Mr. Hill explains in very simple terms why, during a meltdown itself, it is critical to not be in debt. His thesis is simple – during a collapse, the primary asset at the center of the collapse simply cannot be sold so people begin selling everything else to cover their debts. This includes gold, silver and precious metals and is precisely why precious metals will ultimately fall when the final collapse comes. Now the good point is that precious metals will rapidly regain their value on the other side of that crash so you are only in trouble if you must sell gold or silver during the downturn. And you only have to sell if you are in debt and need to cover those debts. Hence the reasoning becomes clear – get out of debt!

I highly recommend Mr. Hill’s article as a brief explanation of why prices of everything fall when a deflationary collapse ultimately hits. Note that you can still have a hyperinflationary blowoff after a deflationary collapse and in fact might have that if the politicians panic in their typical fashion. The key, though, is not being forced to sell to cover debts when everything is falling in price. Afterward is when you see the real value of your precious metals so it is vital to hold them through the collapse.

Thanks for a great blog! – David R.