I’ve been asked to clarify a few things and this will serve as a good 2008 review/2009 best-guess estimate. Remember: these are only best-guesses. Nobody could predict Madoff with any certainty so there are always wildcards out there. These events I believe are relatively certain to occur, the tricky part is putting timelines to them. Plus, if and when the FACTS change, so do these guesses- and the facts are changing daily…
Stocks. I’m not buying stocks at this point as I believe more bad news is due in 2009 even though we may see occasional rallies to tempt us back in. As this happens, the good will fall with the bad and will ultimately present brilliant opportunities. Stay tuned.
Gold. Gold is the only currency according to the Constitution. You don’t so much buy gold as a profit trade. You don’t keep looking at the daily price and look for when to ‘get out’ once you’ve bought. And contrary to popular belief, gold is not purchased as a safe haven (although it is). Gold is a defense against government mischief and blatant stupidity. More specifically, a hedge against inflation specifically caused by the weakening and destruction of paper (fiat) currencies. Gold lets you sleep at night.
2009 best guess: gold flounders/drops first half of 2009 then soars later in the year. I won’t be surprised to see the price double within 12-18 months.
When many people I speak to hear about gold, their eyes glaze over. It seems beyond them. It feels dark and risky to them. Even subversive. What a great job governments have done of brainwashing people.
Don’t forget though, governments don’t just mint gold, they also hold stockpiles of it. The hype they band about of how gold is pointless isn’t backed up by their actions…
Responding to growing concern about the quality of the Federal Reserve System’s assets, former Federal Reserve Governor Lyle Gramley told reporters last week that “You have to reckon with the fact that one of the Fed’s assets is gold certificates, which are priced, as I remember, at US$42 an ounce, and if we were to price them at market prices, the Fed’s leverage would look a lot less than it is now.”
The Fed has THOUSANDS of tonnes of gold.
“But gold doesn’t pay you any interest!”
Neither do Treasury Bills really and yet the whole world and their dog have flooded into them. It’s starting to smell like a bubble. Though it may have further to go, this, like all bubbles will probably implode. What will cause this is unknown, but it will have to do with an exodus over fears about the dollar devaluing or a renewed appetite for risk. Treasury bills can be ‘shorted’ (making money by it falling) through selling a fund like the iShares Lehman 20+ (ticker code: TLT). The dollar is weakening- you simply CANNOT have a weak dollar and strong Treasury Bills- it doesn’t compute and something must give.
Conventional wisdom says cash is safe. That WAS the case when cash (fiat paper currency) was backed by gold, but now it isn’t. Ask anyone who lived in Germany in the thirties if cash is safe (they would burn cash instead of coal for warmth it became so worthless), or for that matter, ask the population of Iceland TODAY!
You can’t live by old rules in a New Order.
Looking ahead, you simply MUST get good information and stay ahead of the curve. If recent events haven’t been enough to convince you, you can’t trust Wall Street and the government.
In this climate, it’s good to hold something tangible. Something you know will always be in demand, can’t be manipulated and can’t run off with your money. That’s why I like commodities; wheat, gold, silver, oil.
There’s talk these days about how the commodities boom has ended. If you hear such broad statements as this, you’re being exposed to a moron. Why? Because commodities are a basket of things. Cocoa is a commodity and it just hit a 23 year high! So WHICH commodities are you talking about? And longer term of course, all commodities should rise in value. By the way, the cocoa rise is just about overdone in my view and you can cash in as it drops in 2009 using options.
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Who’s the next Madoff??
I sense a trap. Investing is rarely an easy task. What often seems the ‘obvious’ course of events is proven otherwise. The market is perverse.
“When everybody is thinking the same thing, nobody is thinking.”
And the markets like to enforce this old adage regularly by punishing herd behavior.
So with that in mind, what’s the herd thinking? Simply this…
“Deflation is obvious. Falling prices are everywhere including asset destruction. In a deflationary environment, cash is king, so I’ll stick my money in government bonds (Treasury Bills). However, the government will no doubt win their war on deflation by bringing back inflation through the printing of money. When that becomes clear, I’ll shift my money back to equities or even gold.”
That’s what the herd is doing and that’s why Treasury bills are in a bubble and yielding virtually nothing.
So one has to wonder how the herd will be punished, especially when on the surface of it, it’s hard to argue with them currently. The only way I can see the herd being punished is that inflation sneaks up on them too fast (history shows this is often the case) and they will be too late to switch out of cash. Either that, or the whole process takes so long they forget about the inflation side of the equation.
Or maybe somehow, inflation is already under way and they’re plain wrong! Maybe we’re mis-reading the deflation signals. The price of gold is often a good indicator or deflation/inflation (it rises in inflation and vice versa for deflation) and gold has been edging higher. The Treasury Bills (cash) market says deflation and gold says inflation. Someone is wrong. Someone will win and someone will lose. When reality presents itself, the stampede from one to the other could be epic.
My bet? Well, the media are constantly telling us not to fight the Fed and the Fed wants inflation. History shows a government can create inflation at will. The timing and speed of this event is the big question. Holders of gold could expect some pain in the short term but these would also be buying opportunities for the inevitable.
Uncertainty rules that’s for sure. Nobody knows who the next Madoff will be and cash and gold protect against that. Or do they…?
Maybe, just maybe, the next Madoff is the Fed! Isn’t paper money printing a big Ponzi scheme?? At least Madoff came clean. The Fed’s scheme is way more insidious.
My 2009 financial goal in a nutshell? Capital preservation.
Until next time,
P.S. I think it’s worth stating something here regarding the various products we recommend. The core focus of The League of Power is this completely UNBIASED and FREE newsletter you’re reading now.