Saturday, February 28, 2009
Playing in the casino
is very different than building a core base of wealth. The era we are in is one of financial destruction where paper promises are revealed for the fraud they have become. I try to time markets for short-term profits only so I can turn those paper dollars into physical gold. The casino is rigged and many of the counterparties involved are now insolvent and desperate.
If you have not yet turned 10-50% of your liquid net worth into physical gold, you better get going and stop worrying about exact timing. Yes, the U.S. Dollar has held up well and will continue to do so for a time as the deflationary wave intensifies. However, this is an opportunity to diversify out of the dollar into the only asset class in a sustainable bull market - gold.
Gold will outperform the U.S. Dollar over the longer run (years), because the U.S. Dollar is in trouble over the long run. You can argue all day about the dollar versus the yen or euro, etc., but this is a fool's debate in the long-run. All paper promises are sinking relative to real money. Short-term trading is playing in the casino and those who are good at it can make some extra paper to be turned into something of longer term value.
As I have said before, investing is a relative value game. If the debate is between stocks, real estate, commodities or cash for longer term (3-5 years) investors, that's an easy debate. Cash will outperform the other asset classes, but only if you are in the right form of cash. Gold is still the best form of cash and the only reliable one on a long-term basis.
People who dislike gold are those who have fallen for the bullshit conventional wisdom that comes from JP Morgan, Goldman Sachs, and every central bank and government in the world. These behemoths are the people who profit the most from a fiat paper money system and need the sheeple to remain ignorant so their con game can continue. If we are talking 3-6 months, sure old Uncle Buck may outperform gold, but if we are talking the next 5 years, gold will trounce the dollar and the dollar may not even exist in 5 years.
Holding physical gold is not the same as holding the GLD ETF. Mark my words: before this secular bear market is over, the GLD (gold) and SLV (silver) ETFs will be exposed for the fraud that they are. They do not hold the gold or silver they say they do and these ETFs are destined for failure, as are many ETFs. I use ETFs as short-term trading vehicles for now, but there will come a time soon when it won't be worth the counterparty risk for many ETFs other than for intraday trading.
Yes, of course the capital markets will survive, but Madoff-like scandals will wipe out whole ETFs and zero out their holders in one fell swoop. The government will probably step in and make the investors involved whole, but this is not guaranteed. Bank failures and market maker failures are absolutely an important part of this bear market and we ain't seen nothin' yet.
So, while I play in the casino for paper profits, I know that paper profits are fleeting and temporary. The more I make, the more physical gold I can buy. And until the Dow to Gold ratio gets back to 1 (or lower), this bear market in stocks is NOT over.
For those who think gold is primarily an inflation hedge, you are largely incorrect. Gold is a better deflation hedge than inflation hedge. Gold performs better as money than as a commodity. We had plenty of inflation in the 1990s and 2000s, but gold didn't do well. Inflation moves around from asset class to asset class, and gold moves in and out of favor during inflationary periods. During deflationary credit contractions, gold is one of the only places to hide to preserve wealth and eliminate counter-party risk.
If you think the U.S. government and international banks don't present a counter-party risk at this stage of the game, I don't think anything I say in this blog can change your mind. You have drank too much of the Kool Aid and I wish you only the best, though I fear the worst when it comes to your long-term financial health. Just don't say you were never warned...