Everything is green and heading up: stocks across the board and metals (especially metals: gold hit $1,300 and silver $21.50). But unemployment and housing aren’t improving. More Friday afternoon bad news (always announced on Fridays). What’s up? Precisely this: talk. Bernanke talk. Talk about low interest rates indefinitely, talk about quantitative easing 2. Talk, in short, about easy money. The market has responded. Something like 85% of investors are bullish on the stock market. To me, that signals it’s time to get out. The market isn’t responding to economic reality. It’s just responding to Bernanke talk, and I suspect he’s just trying to keep the markets propped up until mid-November so the Democrats don’t suffer a complete blood-letting. What happens after the elections? That’s when you’ll see the crash. See. * * * * * * * But maybe not. Bernanke has shown that he’ll walk the inflation route. He’ll throw an unprecedented amount of dollars into the economy, so when he talks about pumping in trillions, he’s like E.F. Hutton. That, to me, is interesting: Is Bernanke a master manipulator? He has shown that he’ll do it, so all he has to do now is threaten to do it, like the tough guy who never has to throw a punch since he beat up a few guys in the past? If that’s the case, it’s a good thing for the economy: we get the benefit of quantitative easing without printing all the extra money. Sooner or later, there must be a reckoning, but tricks like this may allow us to escape the worst scenarios for the next couple of years until things straighten/bottom out. * * * * * * * I, quite frankly, am in a quandary about what to do. The specters of inflation and deflation flail away at each other, while we wait to see which will win. Schiff says there’s no way deflation can win, because Bernanke will pump whatever it takes into the monetary stream. Many others aren’t so sure it’s even possible to pump that much money into the stream. I have no clue, so I finally took a chunk of cash that I had on the sidelines and put it into the hands of a foreign currency fund. Merk pays a small dividend, holds a little gold, and isn’t holding stocks or metals that could be terribly over-priced if deflation is, indeed, around the corner. * * * * * * * Merk also holds almost 10% in Swiss Francs, which hit an all-time high against the dollar this week. * * * * * * * A relative emailed me earlier this week about silver investing. I typed an extensive analysis. While typing, it suddenly dawned on me why I like silver so much. I wrote to him, “Silver is a risky investment, but I like it because it’s kinda not risky: If currencies collapse, I have a great investment. Not as good as gold, but very, very good. If the economy recovers, I have an investment that will probably go down, but not as hard as gold. Because of its dual-status (industrial metal and precious metal) it has a hedge built into it. And if the economy continues to recover, silver could skyrocket in value eventually anyway as the world runs out of it (though that event would probably be 20-100 years in the future).” * * * * * * * Bill Bonner likes gold, but he’s a bit uncomfortable with it right now.
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There’s something all together too obvious and too easy about the gold market now. It just goes up. Year after year. Maybe it’s a trap.
In 2000, there was a crash in dot.coms. The whole magic of the tech bubble suddenly disappeared. And guess what? Gold went up.
In 2001, the War on Terror began. And guess what? Gold went up again.
And again in 2002. And 2003. And 2004.
By 2005, the world economy was in the throes of a massive financial bubble. Everything was going up. Gold went up too.
In 2006, the US had a major housing bubble on its hands. Gold went up.
In 2007, the housing bubble started to lose air. Gold went up.
In 2008, Wall Street stared into the abyss. Lehman Bros. went broke. The feds took over housing finance, auto-making, insurance, commercial lending…and gold went up.
In 2009, the feds went all out to try to engineer a recovery. The Fed ballooned its balance sheet by $1.2 trillion. The federal budget went into deficit by nearly one and a half trillion. Still, gold went up.
And what’s this? The recession officially ended more than a year ago. Housing and unemployment are still limping. De-leveraging is still underway (David Rosenberg calls it a “depression”)…and go figure. Gold is still going up.
Is there anything that can stop gold from going up?
We don’t know. But many smart people are coming to the conclusion that they can’t lose with gold. If the economy recovers…gold is a cinch to go up along with inflation. If the economy falters…gold will go up when the Fed comes to the rescue with more printing press money.
And then, there are the Chinese. God knows they like gold. And they don’t have much of it. If they’re behind this gold market it could last for another 20 years.
So gold is a “can’t lose” investment.
We like gold. But we don’t like “can’t lose” investments. What to do?