Tuesday, April 21, 2009

The Failure of the Conventional Investment Universe

There are only a few bloggers out there seeing the imminent doom and gloom. Unfortunately I am one of them. The rest of the bloggers and the main stream media are applauding the messengers of green shoots and the emperor without clothes.

It is difficult to see a solution to the problems in the US. The Obama administration is too involved with Wall street to really fix things and kickstart the economy. "How to spin a positive story" will be part of their ongoing discussions.

Perhaps it is time for nuclear options, like a devaluation of the US$ with 30-50%. Or the creation of a new currency. The latter won't change anything; the former will.

What about initiating hyperinflation? Looks already like a done deal! Good for the US of A as debt will disappear quickly.
Bad for savers, but you know, they weren't part of the consumer herd anyway and therefore anti-patriotic, so why protect them?

Ever thought about initiating a war? That's a scary option. But this would deflect the attention quickly from economic hardship to a common enemy. The media would support this; they are "in the pocket" anyway. In front of me on the table I see a book called: "The Shock Doctrine" of Naomi Klein. In short: You just disaster-shock the hell out the population and afterward they will swallow every unpopular economic measure you present to them.

Whatever the Obama administration decides to do: gold will shoot to the moon.

There is not a lot of time left.

Gold Set for Huge Rally

Seeking Alpha
Peter Cooper; April 21st 2009

The gold price is poised to break through $1,000 an ounce this week and could reach $1,500 before a price consolidation. On Monday gold and silver closed higher while global stock markets fell as the five-week rally ended.

This is an important trend reversal and marks a shift by investors to safe haven assets in advance of another plunge in equity values.

The US dollar also strengthened across the board and bond prices rose. It is unusual to see both gold and the dollar rising together but again this normally signals an important trend reversal.

Money supply growth

The fundamental case for investment in precious metals has also become overpowering. Global bank bailout and stimulus packages have resulted in a huge increase in global money supply that has never had any effect except inflation in all history.

The gold supply by contrast is relatively fixed and production is actually falling. Supply is even tighter for silver – where stock levels are a hundredth of gold – and that is reason enough to expect the established pattern of silver outperforming gold will be repeated again.

As investors rotate their assets out of stocks and into alternative asset classes the best returns are therefore likely in precious metals, and such information tends to be self-fulfilling.

There are all sorts of minor trends supporting this basic trend, and like any true bull market there will be a compounding of supporting evidence: from a shortage of gold available for bank leasing to UK Prime Minister Gordon Brown’s call for IMF sales, often seen as a contrary indicator as his previous calls boosted gold prices.

Trend is your friend

However, in all investment markets it is the trend that is really your friend. The next dilemma will be how to best leverage the upside to the gold price.

This will start with a debate about silver as a better alternative. But then gold and silver stocks will come under the microscope, and the value of the bombed-out junior stocks brought into focus.

It can be little consolation that great days lie ahead for gold for this signals the failure of the conventional investment universe, and that means further horrors ahead for currencies, stocks, bonds and real estate.

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