Just as a herd of cattle can be spurred into a chaotic stampede by a simple gust of wind, humans, too, are susceptible to collective behavior driven by sudden stimuli or perceived threats. This phenomenon, often triggered by a minor disturbance, leads to a frenzy that can overcome rationality, leaving destruction in its wake.
For ranchers, the only hope in controlling a stampede lies in making a loud noise, hoping to redirect the herd back towards itself. If successful, the animals may circle around; if not, they may plunge headlong into danger.
Modern humans, with our intricate social structures, share a similar inclination towards herd mentality. Be it religious gatherings, sporting events, or political rallies, we have seen tragic examples of mass panic leading to disastrous stampedes. A stark reminder of this occurred last year when over 2,400 people tragically lost their lives during the Hajj Stampede in Saudi Arabia.
In today’s fast-paced world, various channels amplify this mob behavior. Financial markets, fueled by the dual forces of fear and greed, create a breeding ground for irrational decision-making. Episodes of mania, panic, and market crashes are a recurring theme.
When a significant accumulation of speculation builds on one side of a trade, a reversal is inevitable, leading to a sudden shift in direction. The timing of such shifts is often unpredictable, leaving those at the back of the pack with nearly worthless financial instruments.
Key Lessons from the Past
Historical cycles of social sentiment and mass movement often yield clear lessons only in retrospect. The axiom holds that high prices often generate solutions in the form of even higher prices. Yet, the wisdom gleaned from past events may not always serve as a reliable guide for future actions.
Take, for example, the lessons drawn from the turbulent 1930s: avoid debt, save cash outside of banks, and keep a vegetable garden stocked with essentials. Yet, those who embraced these lessons and hoarded cash through the 1970s were rewarded with a stark decline in purchasing power as inflation eroded their savings.
In contrast, the 1970s ushered in a new perspective: borrowing became a preferred strategy, and holding cash was seen as a risk. Those who leveraged debt to buy homes found their burdens significantly reduced as property values surged over the decades.
For instance, the median home price in 1960 was $11,900, skyrocketing to $79,100 by 1990. Investors who purchased homes in 1960 enjoyed drastically lower monthly payments, while inflation rendered their dollars significantly less valuable.
Consequently, generational attitudes toward credit have swung dramatically, with some shunning it and others embracing it enthusiastically. What lessons from yesterday should we apply in anticipating tomorrow?
As IHS economist Chris Christopher recently pointed out, memories of past recessions linger. “Millennials, if they have anything left after student loans, do set aside money.”
Christopher was reflecting on a recent Gallup Poll, which indicated a growing preference for saving over spending among Americans in the post-2008 landscape. This is reflected in rising savings rates, which climbed from 1.9 percent in 2005 to a current rate of 5 percent.
Gold Stampede Imminent
Yet, while we may draw insights from the 2008 crisis, these may not present the appropriate guidance for the future. Recently, the Federal Reserve acknowledged a stall in their efforts to normalize interest rates. A paltry 0.5 percent growth in first-quarter GDP highlights the issue.
The Fed’s radical monetary policies aimed at stimulating economic growth over the past eight years have yielded little success; instead, the economy remains stagnant while the stock market hovers near record highs.
This precarious state of affairs is unsustainable. When the stock market experiences its inevitable drop, where will the herd flee? Historically, wealth has sought refuge in U.S. Treasuries, often regarded as the world’s safest investment. However, since 2008, confidence in government debt securities has diminished. The next financial crisis may not only manifest as a financial collapse but as a crisis of faith in monetary policy.
In such a scenario, the onset of a crisis will likely be swift and unforeseen, prompting wealth to exit financial markets in a panic-stricken dash akin to cattle fleeing from danger. Individuals may soon realize that rushing into U.S. Treasuries is tantamount to barreling off a cliff. The more favorable refuge may very well be gold.
Therefore, if you haven’t already, consider obtaining some physical gold and assigning it a modest portion within your overall investment strategy. Waiting until the crisis emerges may be too late.
Acquiring physical gold is quite simple—akin to buying a new pair of shoes. Save some money, visit a local coin shop, and trade your cash for bullion coins. If you’re unsure or low on funds, starting with silver bullion coins is another accessible option. You will likely find the experience rewarding.
Sincerely,
MN Gordon
for Economic Prism
