Greyerz:  “Eric, as we approach 2014 this will be a year of major change, and the tide will begin to turn in the world economy.  Since we are talking about the end of a major era, and the tide that will hit us all will be very powerful....

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“So I’ve thought about some things that investors must not do in 2014, or don’ts as I call them:  Don’t hold major amounts of cash.  Either your bank will not survive, or there will be a bail-in so investors will lose a major part of their funds.  Don’t think that certain banks are superior.  It’s correct that all banks won’t go under simultaneously, but some of the most exposed banks will last longer than others because governments won’t let them fail.

Take the examples of Deutsche Bank, Barclays, and Bank of America:  Even if their balance sheets are very weak, the governments won’t let those go under until the very end -- they are just too-big-too-fail.  So there will be bail-ins, but these big banks will be the last to fall.  But the smaller, more marginal banks will not be saved.

Remember that the whole banking system is interconnected and therefore all banks are exposed.  A bank in Singapore or Hong Kong will have dollars in a US bank and in a forex transaction with a US bank, so the whole system is interconnected.

Another don’t is don’t hold bonds, and especially US Treasuries.  Why?  Because the US government is bankrupt.  The last 32 years the US debt has gone up 17 times, and tax revenues have only gone up 2.5 times.  And for these 32 years there has never been a surplus.  Not one time.

So how can anyone believe that the US debt can be repaid with real money?  Let me tell you, it can’t.  There is a hyperinflationary depression scenario in which the dollar is totally destroyed, and the other option is to let the banks collapse.  This means major defaults and the end of the whole financial system as we know it.  The reality is that central banks will print as much money as they can, but in both cases gold will function as the only reliable money or medium of exchange.

The next don’t is don’t hold paper money, and especially not US dollars.  The reign of the US dollar as the world’s reserve currency is coming to an end.  That’s the end of a 100 year experiment of government and central bank interference in the economy, an interference which has been a total failure.

We know the dollar has lost 98% of its purchasing power since 1913.  Since 1971, when Nixon made the desperate move not to back the dollar with gold, the dollar collapse has greatly accelerated.  The dollar has also lost 80% of its value against the Swiss franc since 1971.  The Dow is up 18 times measured in dollars since 1971, but if you measure the Dow in Swiss francs, it’s only up 4 times since 1971.

Another don’t is don’t hold stocks.  The US stock market and most other markets are now at the end of a major long-term bull market, and this will end in a massive bear market.  The debt-induced bubble in stocks is coming to an end.  We might get one final move higher, but after that it’s finished for a very long time.

There are many warning signals regarding stocks.  Right now there are 4 times more bulls than bears in the US stock market.  There are only 14% bears.  The last time we saw this was in 1987, right before the crash.  Also, margin debt in the US is at a record 2.5 times GDP.

If you look at the Schiller P/E Index, that is at the same level it was in 1973, right before the stock market collapsed by 50%.  So stocks will be a very bad investment in 2014 and onwards.  The only exception to that will be precious metals mining stocks, which are massively oversold and likely to have a spectacular run.

Another don’t is don’t have debts or be highly leveraged.  In a hyperinflationary scenario interest rates will soar and debt servicing will be very onerous.  Also, there is a risk that banks will index debts so debtors will not benefit from the inflation.  This has happened in many countries in the past.

Finally, don’t have counterparty risk.  A lot of counterparties will fail.  Therefore, counterparties must be eliminated.  Obviously there are lots of other ‘don’ts,’ but if investors just follow the ones I have just outlined they will save themselves from ruin.

What about do’s?  Well, precious metals is at the top of that list.  What’s happening now is commercials are turning to the long side.  Recently, bullion banks have added 100 tons of gold to their holdings.  The 4 big US banks are now long 180 tons of gold.  Producers are also long 37 tons.  These are incredibly significant amounts.  Just last week 54 tons of gold was delivered to the Shanghai Exchange.  That’s around $2 billion of gold.  If you annualize that it’s 2,800 tons, which of course exceeds the annual production of gold.

So in my view the gold and silver correction is finished as I indicated last week.  The choppy action we have seen this week is typical of a major turn.  I see new highs for both gold and silver in 2014, with gold about $2,000, and silver well above $50.”

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© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The audio interviews with Rick Rule, Gerald Celente, Dr. Marc Faber, Bill Fleckenstein, Eric Sprott, Grant Williams, Egon von Greyerz, Dr. Paul Craig Roberts, William Kaye, Andrew Maguire, David Stockman and Art Cashin are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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