Tuesday, June 16, 2009

Who are you going to trust?

As the debt collapse continues and bankers and governments become desperate to save the system that allows them to continue to lead the lifestyle to which they have become accustomed, trust will break down much further than it already has. Desperate men and women should not be trusted to do the right thing and yet most still look to the desperate to do something other than save their own skins.

Who do you trust to fix this problem and/or point you in the right direction as an investor:

Do you trust your government?
Do you trust the non-federal, for-profit, private federal reserve corporation?
Do you trust Wall Street?
Do you trust insurance companies and other 401k custodians?
Do you trust CNBC?

"You have to choose [as a voter] between trusting to the natural stability of [G]old and the natural stability and intelligence of the members of the government. And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for [G]old."

George Bernard Shaw

Once you accept that this is not a run-of-the-mill recession and that an economic depression just like the 1930s has begun, it is not hard to see what comes next. Leaving your money in a 401k stock mutual fund and hoping for the best is not a reasonable options. If you are not convinced, perhaps the new leg down in this vicious cyclical bear market, which has already begun, will convince you.

The primary goal in such a scenario for conservative investors is to try to maintain what you’ve earned/saved (i.e. not lose most of it) and to get out of debt. The best options to achieve these goals from an investment standpoint are cash and Gold. But as the 1933 government-decreed cash devaluation showed, your U.S. Dollar cash is not safe in the longer term. Gold, on the other hand, is the ultimate form of cash because it cannot be debased and requires no faith in the government to do the right thing. Gold is money and is a global currency, not a commodity.

Those who would sell you on the benefits of the stock market and “staying the course” are the same ones who claim they never saw this coming (and I unfortunately believe many of them). These are also the people who would sell you paper Gold and tell you that it is the same as holding physical Gold without all the hassle or risk. For example, JP Morgan and Goldman Sachs are a few of the banker custodians for the GLD ETF.

There are now confirmed reports that the Canadian Royal Mint is missing some of its Gold, for reasons currently unknown. I am happy to assume that this is an honest mistake, just as I am happy to assume Wall Street and the banking system didn’t know giving home loans to anyone with a pulse regardless of credit risk would not cause problems down the road. This doesn’t change the point that we are all responsible for our own financial security.

"If you don't trust [G]old, do you trust the logic of taking a beautiful pine tree, worth about $4,000 - $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?"

Kenneth J. Gerbino

Gold can protect your wealth but your wealth is not safe in the stock market, corporate bond market, or real estate. Commodities will do very poorly in a deflationary collapse, but will do well if the U.S. Dollar is dethroned as the world’s reserve currency. Though the U.S. Dollar will lose its reserve currency status at some point, it is not at all a certainty in the next year and the damage that will likely be done to commodity prices in the mean time will soon leave people hoping to get back to the November, 2008 lows.

Gold is the easy, no-brainer play for this environment. Most who study markets are familiar with the saying to the effect that “cash is king in a bear market” and “cash is king during deflation.” Gold is the best form of cash in the current environment and has a built in insurance policy against a significant U.S. Dollar currency devaluation.

Many who understand the potential for the Gold price to move higher don’t understand that by using paper proxies for actual physical Gold coins and bars, they are actually hurting the Gold bull. Bankers would like nothing more than for people to accept paper proxies for actual physical metal. How many paper claims per physical ounce of Gold are there in the world? Central banksters around the world hold more physical Gold than anyone and they will always prefer it remains that way. They know that he/she who holds the actual Gold makes the rules.

I don’t think people should plan on holding a significant amount of physical Gold forever, but in times like these, a portion of one’s savings belongs in actual physical pieces of Gold metal. Once the Dow to Gold ratio gets to 2 or less, this will be the time to consider trading most of one’s Gold for another opportunity. And for those who want to increase their wealth while others are having their wealth destroyed, Gold stocks will far outperform the price of Gold and a fresh buying opportunity is only a few months away.

Wikinvest Wire