For some scary nighttime reading I would recommend Paul Mylchreest’s latest Thunder Road report – Part 1.  Once one gets by some of the popular music and U.K. football references which may be obscure to non-Brit readers (and even to many Brits) and into the nitty-gritty of Mylchreest’ s latest irregular report, everything makes a huge amount of sense – and in the words of Hollywood hype -‘be afraid – be very afraid’.  Or perhaps even more apposite might be one of the recurring catch phrases from excellent British TV comedy Dad’s Army (about the Home Guard during World War 2) – ‘We’re doomed, we’re all doomed!’

One cannot dismiss Mylchreest’s views as just scaremongering.  As an analyst he has nearly always been correct in his views on what is going on in the world’s economic system, not that that is too difficult to define, and in its potential consequences.  Some may not have actually come about yet but we do seem to be inexorably heading in the direction he propounds.  And this, as a number of other commentators have also suggested, is effectively total collapse of the economic system as we know it brought on by huge unsustainable sovereign and bank debt and the huge bubble in MONEY through it being printed by the central banks in a seemingly vain attempt to drag the global economy out of the quagmire the debt situation has left us in.  Solving the debt problem by the creation of ever more debt does not seem to be the most sensible solution.

Mylchreest  thus believes we are heading into a truly mega-financial crisis –   He foresees the financial decimation of the middle class and reckons the crisis is going to result in the transition to a new financial system as the current one implodes. His best guess is that it will be either happening, or perfectly obvious that it’s going to happen, within 6-12 months.  He hopes he is wrong but…!

He also concludes that gold, has been in ‘lockdown’ (undefined but presumably kept down by key central banks and banking allies who feel that this control helps make the world feel that the ‘idiots’ running it know what they are doing) since it reached its $1952 peak at the beginning of September last year.  “The only reason the ‘idiots’ are worth listening to, reckons Mylchreest,  is to gauge the speed at which they will destroy the financial system… A new system is coming with a bigger role for gold.” he says and this does perhaps offer one of the only ways out of the current crisis.

Mylchreest does put his money where his mouth is in this respect.  His investment strategy is in gold and silver, and equities in terms of Maslow’s Hierarchy of Needs (see Wikipedia for an explanation – http://en.wikipedia.org/wiki/Maslow’s_hierarchy_of_needs )

One of the likely moves, as Mylchreest implies, is the devaluation of the U.S. dollar, which is currently holding a position as perhaps the ultimate safe haven – not something Mylchreest believes in nor would recommend.  He feels that the two remaining “sacred cows” preserving the US dollar as the world’s reserve currency are:

1. The belief that the Chinese will continue to buy US Treasuries; and

2. The US dollar will maintain its monopoly on world trade.

“Regarding number one”, Mylchreest says “the Chinese have been sellers since the end of July 2011 (note the date). With regard to number two, have you noticed how China has set up currency swaps with nearly all of its trading partners? Have you noticed how Iran has been excluded from the SWIFT system and has begun selling oil to some countries in currencies other than dollars?”

“China has been preparing for dollar devaluation for nearly a year now,” he comments “but hardly anybody has noticed. While everybody frets about the Euro, the dismantling of the US dollar’s reserve currency status is occurring within plain sight. I think a deal was done between the US and China in late Summer or early Autumn of last year. Have you also noticed how Ben Bernanke has used just about every unconventional method of monetary policy he’d discussed in his earlier writings on preventing deflation…bar one big one? Dollar devaluation. Let me repeat that, dollar devaluation.”

He ends this preliminary note (a full note is due to follow which will only be made available, initially at least, to institutional investors who are clients via commission votes/direct payment) with a long listing (23) of factors which point, he reckons, to what lies ahead, with each of these to be analysed in more detail in his full report.   The listing of what he says are the dots are all to be joined up his final analysis is as follows:

  • Loss of US AAA credit rating in August 2011.
  • China lashes out at US “addiction to debt”
  • Peak in Chinese holdings of US Treasuries
  • China starts selling US Treasuries
  • Surge in the gold price in August 2011 followed by steep decline
  • Lock down of the gold price (using “paper gold”) ever since
  • Movement of large quantities of physical gold from London to Asia (notably China)
  • Collapse of MF Global
  • Radio silence on China being a currency manipulator
  • Exter’s Pyramid playing out in front of our eyes
  • Iran excluded from SWIFT system
  • BRICS countries signed the Master Agreement on Extending Credit Facility in Local Currency and the Multilateral Letter of Credit Confirmation Facility Agreement
  • US granted China a 6-month extension on sanctions for buying Iranian oil (India already had one)
  • Revisiting Bernanke’s old speeches on deflation
  • Operation Twist
  • Comments by World Bank President, Robert Zoellick
  • BIS proposal to upgrade gold to a zero risk weighted asset in line with sovereign debt as part of Basel III
  • Comments by Robert Rubin (“consigliere” to the elite)
  • Recent meeting between Kissinger and Wen Jiabao
  • Why debt deflation now would paradoxically precipitate hyper-inflation
  • Demise of the middle class (theme)
  • Putting all of the above in the context of the fourth (and ongoing) price upwave of the last 1,000 years
  • How each of the three earlier price upwaves came to an end.

Reports on what will be included in Mylchreest’s full analysis, or a copy thereof, are awaited with interest.

iPad Version: Picture – Gold and silver bars are pictured in front of a safe door at the Austrian Gold and Silver Separating Plant ‘Oegussa’ : Lisi Niesner / Reuters