My predictions were right, now go get GOLD
Saturday, December 20, 2008 at 05:20PM In November 2007, I wrote we are in recession. It took economists and the government another year to figure out the recession started in January 2008.
Since 2005, I have been blogging (since 2006 at my own website) about the recession and stock market collapse that would come. It came and is here. I warned readers to get out of the stock market, and invest in inverse funds. Last year, I had a very nice positive return.
My only other prediction, that housing prices in San Diego will return to 1999 prices, is still playing out. Since 2005, I have been urging people to sell their homes. My friends keep telling me, how smart we were to sell our house in 2005. I don't think it was smart. It was common sense. How could they not see what was so obvious, that houses were a bubble which had started to show signs of weakness by late 2005? Every bubble corrects. I am not so smart, but just use common sense.
Here are a couple simple concepts, that not even the investors in Madoff's scheme seem to understand. First, everything reverts to the mean, it's a law of nature. Every bubble has reverted to the mean. Second, if it's too good to be true, it is. A corollary is that whenever someone offers you a rate of return greater than the risk-free rate on cash, you are taking on risk. The greater the difference in the rate, the greater the risk. I would *never* invest my money with someone promising they can get me 8 percentage points over cash, risk free. Yet many very smart people did that. Fools! With that said, Madoff should still go to jail, but folks, you have got to watch out for yourself!
What do I recommend now? The same as one year ago: cash and gold. James Grant, Stephanie Pomboy, Bill Fleckenstein, Eric Janszen, and many other highly respected analysts are recommending gold as well.
Why?
Because gold flourishes during times of inflation. The Fed is now printing money at unprecendent rates, by its own admission.
Please be careful in the stock market. It is going nowhere but down. Pay off your bills, save your cash so you can buy assets that others cannot afford or get credit to buy, and invest in gold and silver.
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Reader Comments (10)
"Because gold flourishes during times of inflation. The Fed is now printing money at unprecendent rates, by its own admission."
Despite the frantic printing activities of the FED, and the alarming growth of money supply, we are simply not going to experience inflation for some time. The rate at which credit and cash is being destroyed is far greater than the government's ability to "paper" over Wall St.'s losses. While the supply is increasing via the alphabet soup lending facilities of the FED, this capital is being used almost exclusively to repair the balance sheets of failed institutions, all of which are carrying off-balance sheet losses of nuclear proportions.
Consequently, we are observe hoarding of the freshly minted capital by these institutions, and the broader economy is not absorbing any of this capital. Dollar debasement is evidenced by higher consumer prices, and this simply will not happen while newly minted capital is not targeted to consumer spending. In other words, the inflation you speak of simply will not happen unless financial institutions take this capital and extend it as credit to the broader consumer economy. Fat chance of that happening anytime soon.
The reason gold is poised to rise in value is simply that gold is viewed as money. The implosion of cash and credit availability is the inevitable consequence of severe malinvestment of capital and credit spawned from previous episodes of inflation. It is mistaken to assume that the dollar will necessarily experience debasement due to the printing efforts of the FED, and for quite a while i expect the dollar to also experience a concerted rise in value.
Good arguments.
I believe gold will rise in value after these extra dollars find their way into the economy, and the Fed does not mop them all up. Perhaps it will take another year or two...in the meantime, gold can still benefit from those who seek safety from the printing presses.
I echo Ken's remarks and will add that it's the "velocity" of
money supply or transactions that matters most..it matters little
how much the Fed prints if consumers are unwilling or unable to borrow & spend..the recent retail numbers and Japanese export numbers
tell the story..people have stopped buying all manners of things; so
while I concur on owning some gold(since 82 actually) the hyper-inflation story for the moment is off the radar screen as is $2000
gold
oh, and I'll add this: should gold ever attempt to rise to epic
proportions central banks around the globe will release mega-tons
of the stuff on the market to squash the price appreciation..none
of the G7 governments want to see the fiat money system collapse; so for me having a little gold at best helps me at the margins and I would not bet the ranch on it going past $1000 in '09..then
again, I could be wrong! Look what '08 wrought
The central banks are scared to sell their gold, for it would be a sign of desperation, ie they need to sell gold for cash.
I really love iTulip.com for explaining the bigger theory around all this. Eric thinks that the money will find its way into higher commodity prices...this will come as the commodity supply is shrinking due to lower mining activity now. So producer prices will rise, even though people will have less money to pay for it.
But you guys make a good point - how can we have inflation, when wages are not rising?
The answer, according to Eric Janszen of iTulip.com, is we are going to have disinflation, then inflation. It's his KaPoom theory, developed in the late 1990's, which has played out so far by the book. Go check out his website, then tell me what you guys think.
He also says gold is the best performing asset class since 1998.
All the major stock indices measured in gold are lower than 1998..so this has been a lost decade for buy & holders..where gold goes from here is a bit of a puzzle..if we have an accelerated
rate of unemployment->more foreclosures->continued house price depreciation->lower asset/commodity/oil prices then it's hard to make too bullish a case for gold..deflation rules;the Obama stimulii plays may take years to catch hold so we may be at a place similar to either 1932 with the FDR New Deal
(worst case) or 1973-1980 stag-deflation instead of stagflationno matter what we're in for a recession not seen in my 62 years for depth and duration
Sorry a part of my last post is ambiguous..if one measures the Dow or S&P in GOLD vs the $USDollar, the gold based indices have outperformed a basically flat S&P since 1998
Your only other prediction? Are you serious? How about S&P 500 by Spring 2007?
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I'm with A Buyer. You are wishy-washy. Who do you think you are fooling? You called nothing. I call BS on the whole thing.
I come here for entertainment, so thank you for that.
A Buyer, you are right, I did miss on the prediction of S&P500 to 700 by spring of 2007, so I was early. I made a good return last year on shorting the stock market. But this is sheer luck on my part, because I thought the stock market would go down as investors priced in the recession. Instead, it was the financial crisis that hurt the stock market, and the recession is still not priced in. I totally misunderstood the bullishness of crowds.