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Inflation? Gold goes up. Deflation? Gold goes up. Stocks up or down? Gold up…

CAN YOU STILL buy a sports car for $10,000? wonders Bill Bonner in his Daily Reckoning.

We bought our first real automobile for $78. It was a ‘37 Plymouth. Beautiful car. All original. And it ran well…for a while. We were only 16. We didn’t have a driver’s license yet, but we were getting ready.

Then, the first real, roadworthy automobile we bought – at 17 years old – was a ‘61 MGA. Remember those? A little British sports car. A two-seater. What fun we had with that! We would play hooky from school, for example, and drive down to Chesapeake Beach. Or, we drove into Washington, DC, where we claimed to be over the legal drinking age and nobody asked questions anyway. Or, sometimes we just drove around with the top down.

Back in those days there was very little traffic on the roads of Southern Maryland. You could drive where you wanted. Then, you could stop by the side of the road and explore the woods…or drive to some empty beach along the Chesapeake…

Why are we reminiscing? Well, that little sports car only cost us $200. Too bad we didn’t put it in a barn somewhere and hold onto it. Today, it would be worth thousands.

You can’t buy an MGA for $200 Dollars today, partly because they are collectors’ items and partly because the Dollar ain’t what it used to be. And why ain’t the Dollar what it used to be?

Don’t ask silly questions. You know perfectly well.

The Dollar is just paper. And in The Wall Street Journal yesterday was the harbinger of something big. A guest editorial suggested that the US return to the Gold Standard! And meantime, gold now goes up on ‘good’ news and on ‘bad’ news, too.

Inflation? Gold goes up. Deflation? Gold goes up. When stocks go up…gold goes up more. When stocks go down, gold goes up anyway.

Why? The gold market is anticipating a blow-up in the world’s monetary system. We see it coming too. We’ve already seen what happens when a small country runs up too much debt. Investors get worried. Interest rates rise. The country can no longer borrow to cover its deficits…or to pay its past loans. Disaster.

But the Greek situation is not very different from the situation in dozens of other countries – including Portugal, Spain, Italy, Britain and the USA.

America is unique…and just the same. It is already so deep in debt that even if you taxed 100% of Americans’ income, the resulting take wouldn’t be enough to cover the deficit (people would earn less). And if you cut the Pentagon budget by 100%…you’d still have a deficit too.

It would take a remarkable act of political courage and discipline to put the US back on the path towards sound public finances. Do you see that happening? We don’t.

Instead, what we see are more deficits – from here to kingdom come.

Already, the US national debt (to say nothing about the unfunded liabilities and future debts already in the pipeline) is approaching 100% of GDP. (Greece is at 120% of GDP…soon to be 150%.)

At 100% of GDP, the economy must grow at least at the same rate as the interest charge on the debt – or the debt will get larger and larger. In other words, if you paid 5% on the debt…and the rate of GDP growth were 5%…then, if you devoted all the additional growth to paying the interest on the debt, you’d stay in the same place!

The last measure of growth in the US was 3.2%…probably declining. (We’ll set aside the important question as to whether this growth is real or fiction.) But long-term borrowing costs for the feds are headed to 5%. And as investors lose confidence in America’s ability to pay…or its willingness (or ability) to keep the Dollar from falling in value…the carrying cost on debt grows.

It is probably too late already. We are probably past the point of no return, as economists Rogoff and Reinhart insist.

In our view, the US could still save itself IF it could make an extraordinary commitment to budget cutting. But we won’t hold our breath.

Instead, we’ll buy more gold.

Ready to Buy Gold today…?

Source:Buying More Gold

What if the 25-year bull market in US stocks was an aberration…?

TWELVE MONTHS AGO I was getting calls from old friends saying that they were scared to be in stocks any longer, writes Chris Weber in Daily Wealth.

These were people who just had bought and held for decades. In fact, a year ago was the right time to start buying stocks, not selling them.

Nowadays, I see the opposite comments. People are proud to own stocks. Of course they are…since they’ve risen 60% in the past year.

As one reader put it in a Feb. 24th review of my Weber Opportunities Report:

"I am a traditional market investor, dividing my investments primarily between stocks and mutual funds."

Now, I’m no Sherlock Holmes, but a sentence like this tells me that this reader is middle-aged at the youngest. And it all makes perfect sense, really.

Take a person who started investing in 1982. From then until 2007, he’d had a full quarter-century of gains. If the market fell, as it did in 1987 and again from 2000-2002, it always snapped back.

The fact that a 25-year bull market for stocks had never happened before in history that probably means little to him. After all, it happened to him. It was the experience of his entire life.

But what if a 25-year bull market was an anomaly…a once in a lifetime event?

For someone who, say, turned 30 around 1982 and is now nearly 60, this is a hard thing to contemplate. All your life things have been a certain way. You’ve come to accept them as normal. Any change is thus temporary. That is, until it isn’t, and you are left holding on to past dreams.

I’ve seen this happen several times over my life. As a kid in the late 1960s, I listened to investors who had ridden the great stock bull market from 1949 to 1966. The Dow soared from about 150 to 1000 points during those 17 years, a great rise of over 550%. They thought it would last forever, and when the Dow briefly touched new highs of over 1000 in early 1973, they all thought they were back to the races.

In fact, they were in for hard times. By mid-1982, the Dow was well below where it had been in 1966.

Then came the people who had gotten rich in the precious metals markets during the 1970s. Silver soared from $1.29 to nearly $50 an ounce…a rise of over 6000%. Gold rose by 2300% from 1971 to 1980. And for many people, all through the 1980s, they waited for what they thought was a temporary correction to turn into a 20-year bear market. Many held all during this period with only hopes and memories to sustain them.

I believe we are seeing the same thing now with those who hold stock-market shares as a huge portion of their total investments. Getting back to the reader quoted above, his use of the term "mutual funds" already dates him from the time when these were every investor’s dream. Younger investors well understand that with mutual funds, you are paying managers a fee that is too high for what they give back. Exchange traded funds, or ETFs, accomplish the same thing at a much lower cost.

And to say that you are diversified between stocks and mutual funds is to say that you are not truly diversified at all. A recent letter to me from another reader shows he understands this. A new reader, he comes on with 2% in cash and 98% in stocks, and he knows he has too much in stocks.

In my way of thinking, the stock market has given a rare reprieve to those who hold most of their money in it. This is a time to be moving out. You don’t even have to abandon the stock market entirely (though I myself very nearly have). You can just lower the percent you hold in stocks to 33% or so.

Cash and physical metals such as Gold Bullion and silver could make up the other two-thirds. You can have some precious metals miner stocks, but try to arrange things so that you own them with as little risk as possible, and have patience. A new leg down in the general market could take down all stocks, even the Gold Mining stocks.

I know it can be hard for people to visualize what they grew up with completely being turned on its head. But investment history teaches us that this is exactly what happens, time and time again.

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Source:Once in a Lifetime

Trading above $1000 an ounce, how high will gold go from here…?

MONEY THAT HAS been sat on the sidelines is driving the market, says TraderTracks editor Roger Wiegand in this exclusive interview with The Gold Report.

Devoted intensive research time to the precious metals, currency, energy and financial markets for more than 17 years, "TraderRog" is a regular essay contributor to popular websites addressing the commodities markets, and he is frequently interviewed on radio in the United States and Canada.

Roger Wiegand now see the makings of some "pretty exciting" action in precious metals, forecasting that the Gold Price could go beyond $2,960 with the next big drop in the stock market…

The Gold Report: Roger, when we last spoke, at the end of August, you expected the stock market to have a pretty good fall after Labor Day. So, the market didn’t collapse. What’s your view on why it keeps appreciating?

Roger Wiegand: Well, part of it has to do with manipulation and part of it has to do with an awful lot of money that has been on the sidelines. A couple of months ago I heard there was around $8.5 trillion in cash that was not invested. I couldn’t believe it. A lot of the money is starting to come back because investors are persuaded things are going to really pick up.

Typically, what happens in the cycles is November 1st is the time to buy, after the September-October event sell-off is over. And, if you buy on November 1st forward, you usually do pretty well. This year it was delayed a little bit, and some of those charts look a little bit sloppy and choppy, and that’s what got everybody confused, including me. As of November 24, 2009, the news is reporting smaller investors are running to the bear funds for security. If the correction is now imminent, it is off-cycle and late by at least three to four weeks.

TGR: Are you saying that you’re expecting the markets to go up now that it’s late November?

Roger Wiegand: We could go either way. I really believe that. We’ve got some interesting charts. There’s the S&P chart, which has a double top on it right now, indicative of a selling point, obviously. I don’t think there’s going to be that much of a selling event. I think it’s going to stay propped-up. Last week we saw a gravitational pull from the smaller cap stocks into the larger ones. Usually, when they go into the S&P 100 and they get out of the trading 500, it’s because they’re looking for security and safety, and they’re looking to buy those consumer cyclical stocks, like household goods and toothpaste. There’s a heavy load in that regard right now in the market, but I think they’re going to get out – the people in the funds are going to get their bonuses, and they’re going to get out of town with some pretty big money. But I don’t think there’s going to be very much selling right now. I really don’t. The selling is coming but it is delayed until the funds exit and close the books for bonuses at year end next week.

A big part of this has to do with inflation, too. I know a lot of people say, "Well, there’s no inflation now; it’s all deflation." We disagree; we say that the inflation is now 7% and rising more quickly.

Unemployment is a lot higher than people are discussing, and others are saying, "Well, this is a jobless recovery." Well, it may be a jobless situation, but it’s certainly no recovery. What’s happened here is a lot of corporations have laid-off so many people and run down their inventory so much that their overhead was cut back tremendously and they’re showing profits, at least where we are right now. And those profits are going to be a one-off deal, I think. They’re going to last for maybe a few months but come spring again, we’re back to the same old problems. We’re overloaded on debt. The bond market in Japan is looking absolutely horrifying right now; it’s really scary. The government is selling bonds to pay pensioners and I don’t think they’ve ever been in that position before. The amount of paper that is out there in Japan relative to GDP and the currency is way beyond where it is in the US. And I thought ours was bad!

So, in all likelihood, something is going to snap here pretty soon; it’s got to. But it’s confusing a lot of people because several good reports continue to be reported.

TGR: If you go back a year ago, everyone was looking at the balance sheets of the gold juniors, looking for those who weren’t overloaded with debt who could survive the downturn in the capital markets. And so we’ve had a shake-out, and we’re back to having free markets determine and who’s going to make it…

Roger Wiegand: Absolutely. I think your example with the Gold Mining juniors is perfect. A lot of the ones who shouldn’t have been in the business anyway are shaken out and gone because they didn’t have capital; they didn’t have the proper reserves; they didn’t have any good partnerships. A lot of those projected mines were located in spots where they shouldn’t have been politically. So, what have we got now? I don’t know how many there were – I heard numbers like there were 5,000 of them (I don’t think there were that many), and I hear now that there’s something like 1,500. I have watched the charts and trading activity of these juniors that we like and those we dislike. We’ve thrown out the dislikes.

The experience we’ve been through is going to helps us with what’s coming next. The thing that’s really interesting is that a lot of these stock buyers who focus on the juniors are not really educated in the industry – they don’t understand, especially in America; as they do in Canada – how much further we’ve got to go on this thing. I just wrote in my letter this morning that some of the people that are involved in silver are thinking that because we are up to $22 and fell back to $9 that that’s the end of the game. I think if you look at where we are in gold and silver right now we’re basically on page two of a ten-page story. I believe that’s how much longer we’ve got to go.

TGR: You’ve previously mentioned all currencies are devaluing almost simultaneously. Other than currency devaluation, what’s driving the price of gold and silver?

Roger Wiegand: Well, a lot of it is fear; gold is now basically considered to be money in many of the foreign countries, partially in the US, more overseas. I think a perfect example is Vietnam. It looked like they were going to have some things that would work out in their economy, and unfortunately for them, a lot of it’s coming apart. And they know from experience that if they can get into gold and hang on, they’re going to be a lot better off.

And, China is the number-two gold producer now, we’ve been told. They’re not selling any and not only that, they’re buying it. Further, they’re encouraging gold sales to consumers. And Japan has been doing the same thing. The supply of gold is not going to be able to meet what people are after here, and that’s the reason for this breakout we’re looking at right now. We felt gold shares would separate from the regular stock market. I saw early glimmers of that this fall, a little bit of that in late summer. And now I am more convinced than ever that with the next big drop in the stock market, the gold and silver shares could really depart from the rest of the mainstream market, especially with the Dollar being so weak.

TGR: You’ve said that you see a lot of money moving from the smaller cap stocks to the larger cap stocks. Is the smart money moving to the seniors in the Gold Mining equity plays?

Roger Wiegand: Well, two things happen when you get into a market where the gold really starts to take off. Before, the Gold Price was in a long, slow climb from $200 up to $850 – that was one marker. And then we got up to a $1000 and hung around there for quite awhile, and it looked like it was going to sell-off, and did, and then came right back. But we are now in the next price range, which is beyond $1000, and Mark Faber of the Gloom, Boom & Doom Report says if gold will stay above $1000, it’s never going under $1000 again. I agree with him; I really don’t think it’s going to.
 
Again, getting back to the senior versus junior, keep in mind when these markets get so crazy and convoluted like they are there’s so much money looking for a place to go, that when a sector like gold takes off, where does the money go? It’s going to go to NYSE gold companies.

TGR: So, as an investor, are you through shifting your funds to the seniors or are you still investing in the juniors?

Roger Wiegand: I don’t trade shares personally; I trade the futures because they’re faster and that’s the business I started in. That’s my preference – futures and commodity trading. I can’t buy a stock and then go promote it. That’s not fair. So, it’s easier for me if I don’t buy the stocks for me, but there’s a lot of people who read our newsletter and that’s all they do. They prefer shares, and they’ve made a lot of money on it.

TGR: Roger, can we wrap up with your thoughts on where you think the price of gold is headed? Or investing in precious metals?

Roger Wiegand: I forecast that gold is going to go beyond $2,960, which is my highest number right now. You’re getting to the point in the gold market where some of the really strong, big players – by that, I’m saying commodity funds with hundreds of millions of Dollars – are saying gold is should easily be rising to $2,000.

And as far as investing, I think people are going to have to take more of a trading stance, rather than buy and hold. After what happened at Lehman; and what happened this year with prices mushing around, I suspect people understand they’re going to have goals; they’re going to have to trade a minimum of two times a year with these shares, and use other available trading vehicles, too. Volatility is increasing and is demanding more trade management than ever before. Opportunities are wider and larger than ever.

TGR: Thanks, Roger. Enlightening as always.

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Source:Strong Hands Buying Gold