Wednesday, May 12, 2010

Gold at an all time high

"The first desire of politicians is to be re-elected. What's so damn attractive (and profitable) about political office that makes grown men and women obsessed with holdong or remaining in office? Something is terribly wrong."

So while the public is losing money in the stock market, they are missing out in one of the greatest bull markets in history -- the gold bull market, which is now heating up. The smart money of the world is fleeing fiat currencies and loading up on gold -- as well they should.

The US has come to the crossroads. Unless we take drastic steps to reduce our deficits, we will face a crisis that will end US prosperity and turn the US into a weak and floundering has-been state (I should say a has-been empire).

There are three options available.

(1) Raise taxes, but taxes cannot be raised enough to wipe out the deficit.

(2) Cut spending, but Congress does not appear to have the "guts" to follow this strategy, nor would they cut enough even if Congress was actually ready to cut spending.

(3) Reform or cut the entitlement plans, and this includes such "third rail" programs such as Social Security, Medicare, Medicaid, all of which are driving our unsustainable deficits. And now add Obama-care, which will prove to be another super-expensive entitlement.

Wait, there is a fourth alternative, one that would diminish the debts of the US, and "sterilize" all debts. The fourth alternative is called INFLATION, and it is always the first choice of politicians.

As I review the first three alternatives, it's obvious that each of the three would cause PAIN to the American electorate, and therefore place US politicians in danger of not being re-elected.

So what's the path that Congress is most likely to follow? My own bet is that the path Congress is most likely to follow is to -- do nothing, and wait for a crisis to move them.

If nothing is done, I believe the US will almost automatically follow the path of inflation. Spending will continue as before, entitlements will continue and Congress will be too frightened and cowardly to do what the must.

The Obama crowd will continue to dream up stimulus and make-work programs and taxes, and the Fed will continue to create fiat currency to pay the bills. Thus, the debt crisis will be addressed with more debt.

I always turn to the markets to test my "scenarios." Gold is now at a new record high. Silver is now over 19 dollars an ounce and appear to be closing in on $20. Bonds, which hate inflation, appear to have topped out, and in my opinion are in a long-term bear market.

The central banks of the world along with the IMF has created or raised almost one trillion dollars in a desperate effort to keep Greece afloat and more important -- to avoid the collapse of the euro.

When gold rises, you must ask "rising against what?" I see rising gold as the enemy or alternative to all fiat non-intrinsic currencies. When nations create too much debt, their currencies come into question. We are now entering the era where sovereign currencies are being questioned. Can a nation go bankrupt? The unthinkable has suddenly become thinkable, and the world is thinking in terms of Greece, Spain, Portugal, Italy, and Ireland.

Yes, it's a new world, and it's a world choking on debt. It's a new world where the viability of sovereign money is actually being questioned. You can now speculate in derivatives that will allow you to "bet" on sovereign currencies. You can even place a bet on the viability of the once-great Yankee dollar.

Seasoned investors are now buying the one currency that needs no backing or guarantees from politicians. That currency is gold.

Gold is our only defense and protection against stupid and greedy politicians and governments.

If there is one investor and one stock that investors respect it's Warren Buffett and Berkshire Hathaway. Berkshire had a bad time last year, but now BRKA is making billions. Really, then why does the daily chart look like so bad? The answer is that Berkshire (owned mostly by the smart money and the institutions) is being unloaded in the face of the current improving economy. Forget the news, and follow the money. The (smart) money is saying "bye" to the stock market -- under the cover of the rising Dow. Ah, Wall Street should be renamed "cruel street."

June gold closed at an all-time record high, up 22.80 to 1242.70.

July silver up 0.369 to 19.66. July platinum up a huge 46.50 to 1747.30. Precious metals turning just a bit speculative. Germans with the great fear of inflation are leading buyers of gold.

Tuesday, May 04, 2010

May 4, 2010 -- "I deny the power of the government to make paper money or anything else as legal tender." -- Thomas Jefferson.

The power and tyranny of government is blamed as the cause of many of our problems. But, in the end, we (the voters) must take the blame for what happens to us. Democracy depends on the intelligence of the people. There is nothing as powerful for the preservation of freedom as an informed electorate.

Now the newspaper industry is in deep trouble (the San Diego Union has just been sold). Fewer and fewer Americans read newspapers. And many newspapers across America are dying. This is depressing, but all is not lost. Electronic communication is taking the place of newspapers -- I think. Today we have cell phones, search engines, TV, the Internet, all new and exciting sources of information.

When dictators attempt to take over and brainwash a nation, they concentrate on three areas.

(1) They close the newspapers and take over the radio and TV stations and ban all sources of free information (China has in effect, banned Google).

(2) They outlaw all weapons, so the population cannot rise and overthrow the dictators.

(3) They ban gold, so that those who want to cross the borders and escape cannot do so.

Electronic information brought down the Soviet Union and Communism. Cell phones are now the enemy of the dictatorial government of North Korea.

But in the end, it's up to the people to bring about the kind of government they want. "We give you a republic," challenged Benjamin Franklin -- if you can keep it." Every voting American should post those words on his wall, as a wake-up call and as a warning.

The best guarantor of freedom is an educated populace. The greatest enemy of every dictator is an informed and armed populace.

Saturday, May 01, 2010

Government debt to GDP - yikes

These ratios show general government debt to GDP.

Ireland 40% UK 45% Spain 55% US 60% Germany 65% Portugal 70% France 70%
Greece 110% Italy 120% Japan 160%.

Studying these ratios, I have to think that almost fiat currencies are at risk. There's only one currency that is risk less since it needs no country to back it. That currency possesses one unique character. On it's own it IS intrinsic wealth. That currency is gold.

In the years ahead, fortunes will be made by those holding large commitments in gold. But forget profits, fortunes will be SAVED (preserved) by those who hold quantities of gold.

The other irony is that the US public owns no gold at all. Most Americans have never even seen a gold coin. As the price of gold rises, Americans are frustrated or puzzled as to what is happening. Remember, Americans have been brain washed for decades into thinking that gold is a "worthless relic." And now suddenly the world wants gold, and will pay a higher price for it every day. "Have we been swindled again?" Americans wonder as they watch the price of gold rise in dollar terms.

I want to repeat that in my rather lengthy experience, one of the most difficult feats to accomplish in this business is to enter a bull market and then have the guts, the tenacity and the foresight to ride that bull market over the length of its existence and to stay with it to somewhere near the top. What makes this so difficult is that all the while, the bull will try to shake you off its back.

I've been advising buying and accumulating gold for about ten years. I have no idea how many of my subscribers bought gold when it was below 400 and have held on to their gold ever since. From e-mails received, I estimate that hundreds of my subscribers did so. The higher gold goes, the more nervous and itchy these old-timers become. Many have never experienced the kind of profits (paper profits, or course) they now have, and they wonder if by staying with gold they are pushing their luck and becoming greedy. Every bull market I've been through ends up in wild speculation and frenzied buying. Somewhere ahead we're going to see that in this gold bull market. My advice: Stay with your gold and gold mining stock positions. The frenzy lies somewhere ahead. If I had to guess, I believe we'll see it before the year 2013.