Saturday, December 13, 2008


I have had people ask me about GLD and SLV, which are ETFs that track the price of gold and silver, respectively. My answer is simple - stay away! If you want to play in the paper world, which most of us do, buy GDX (a gold stock ETF) or a gold stock. Gold (and to a much lesser extent silver) is portfolio insurance because it is guaranteed to pay off if/when the poop really hits the fan. GLD and SLV are paper claims on the insurance potential of physical metal. In other words, you are a hen buying insurance from a fox. The GLD and SLV derivative instruments are backed by the foxes who caused the current Greater Depression/Great Depression II that is now upon us.

Gold and silver are a vote of no confidence in the paper system. My advice is simple. If you agree there is a reason to be concerned about the paper system, buy some physical gold, hold it in your possession, and forget about it for several years. The worst case scenario is that you maintain purchasing power and don't make any significant percentage gains in paper terms. That's the worst case scenario - no losses.

In the early 1930s, did you know that the U.S. government made it illegal for its citizens to own/possess gold? Did you know that after the government confiscated everyone's gold that the price of gold was raised by government decree from $20.67/ounce up to $35/ounce, netting the government a profit of 70% on the assets it stole from its citizens? The corporations who "back" the paper promises of GLD and SLV are the corporations who the government will turn to when it wants citizens' gold again. I say fuck 'em (excuse my French).

Hold physical gold outside the system, avoid counterparty risk, and don't surrender it to tyrannical governments that refuse to exercise prudence or restraint. Did you know that Hoover, who presided over the early stages of Great Depression I, villianized the "hoarders" of physical cash (no one trusted banks) and gold and called them unpatriotic? Did you know that governments of the world are the largest "hoarders" (rational people would substitute the word "savers" but rhetoric is required to demonize the prudent, eh?) of gold in the world and were during Hoover's time as well? Did you know that those who decided to be unpatriotic and ignore Hoover's message were some of the only people who retained their wealth during Great Depression I?

Great Depression II will be worse for the U.S., because we have gone from a creditor nation to a debtor nation. Hold 10-50% of your wealth (depending on your individual risk tolerance and investment goals) in physical gold coins and bars and sleep well at night. If you have the desire to speculate, like me, go long/bull on gold stocks as your core holding and get ready to short the hell out of general stocks come April for obscene profits.

By the way, did you know that Hoover went after the "evil" short sellers in 1932 and contributed to one of the worst legs of the bear market for the entire Great Depression? Gee, where have I recently heard about those damn short sellers? I think the markets went up significantly when short sellers were banned a few months ago if I remember correctly (peeing myself from laughter!)...

The mistakes are the same, the consequences will be the same, and the only investments that make sense will be the same.

Wikinvest Wire