Put 10% of your assets in gold and pray it doesn't work.
It has been over two decades since gold was widely referred to as an asset
class by Wall Street and the media. It would probably be generous to say that
even 1% of American investors have an adequate understanding of why at least
a 10% portion of their assets should be safeguarded in gold and silver,
primarily in bullion. An even smaller percentage understands that they must
have physical possession or a custodian that can prove that they are holding
their purchased gold in a segregated account.
When our forefathers founded this country, it was for good reason that
they demanded that money only be backed by precious metals. They understood
well that putting the wealth of the nation in the hands of politicians and
private bankers was equal to handing an automatic weapon to an assassin. The
United States Constitution specifically states that the act of attempting to
change the backing of money by precious metal is punishable by death. Why
would they demand such a harsh punishment for such an act? In the years ahead
we are about to find out why, and when we do, the raped public will be
looking for some heads to roll.
Shockingly, it becomes apparent that national heroes such as Abraham
Lincoln and Franklin Roosevelt were key figures in setting the US on a path
to economic ruin. In fact, no figure in history has been more responsible for
catapulting us toward the day of reckoning than current Federal Reserve
Chairman, Alan Greenspan. In the cases of Lincoln and Roosevelt; when Lincoln
printed paper money to fight the Civil War without gold backing, and
Roosevelt made it illegal for individuals to hold gold; their level of
economic training and knowledge can be open to question. In the case of
Greenspan, however, there is indisputable evidence that he has full awareness
of the consequences of his actions. In his own words, "In absence of
the gold standard, there is no way to protect savings from confiscation of
wealth. There is no safe store of value. Deficit spending is simply a scheme
for confiscation of wealth." There it is. No one can say it better
than the man himself, even if he said it 40 years ago. Well, this is exactly
what is transpiring today. It is probably a good thing that Greenspan is of
an advanced age; for when the masses understand what he has done, they may
well call for his neck as has happened in ancient times to a central banker.
Clearly, Greenspan has assisted the banks and the Government in confiscating
the wealth and savings of the people.
The average person is blind to what is happening. Most believe there is
not the slightest of problems with our financial policies and economy. They
are being bribed by unlimited consumer goods with no money down or payments
for several years; and below market interest rates to purchase homes that are
in the midst of an unprecedented bubble. Although homeowners in the US are at
record levels, they own the smallest percent of equity in their homes of all
time while foreclosures are at record levels. They are encouraged to continue
to draw equity out of their homes to spend, weakening their ownership
position. In actuality, banks wield control over home ownership, especially
in consideration of the state and local deficits that will require continuous
increases in property taxes. With only the slightest of increases in interest
rates, banks will own more and more foreclosed homes over time. Even
homeowners with 100% equity in their homes could face hardships to pay
increased property taxes in the future as the true unemployment rate already
approaches 10%. Real wages are down since year 2000 while home prices have
soared, a key factor in housing affordability. The reality is banks lend to
anyone now and care little whether they will be paid back or not in the
long-run. They know the dollar is being devalued to worthlessness so as
repayment they will seek out your possessions, particularly your home
instead. People have been lulled into a false sense of security because they
have been led to believe that their assets such as real estate have no where
to go but up. You would think that sheer common sense alone would alert
enough of the population that borrowing and spending beyond one's production,
both individually and nationally, is an unsound policy that will entail
repercussions.
The belief of endless upside in asset bubbles is perpetrated by a
subterfuge of economic statistics that border on comical. Among the more
obvious are: the Consumer Price Index, Producer Price Index, unemployment
numbers, and GDP statistics. It is unlikely that professional observers
really believe that the CPI releases have any relationship to the real world
after the substitutions, manipulations, and statistical maneuverings that are
performed to make the outcome digestible to the market. For example, new cars
are moved with 0% financing, weakening used car prices where such financing
is not offered, so, the Government tracks used car prices for the CPI. The
Federal Bureau of Labor Statistics (BLS) decreased their estimate of
households even though population was rising steadily in early 2004, with the
effect of making the unemployment rate decrease despite employment decreasing
from mid-2004. Such statistics are readily accepted by the market as long as
the long-only bias of the market is satisfied.
The corporate world has followed the Government's poor example with an
incredible amount of financial engineering that makes a mockery of financial
statements and results. The more financially oriented that companies become,
(e.g., GE, GM, JP Morgan, AIG), the less confidence you can have in reported
earnings. The January 31st issue of "Barron's"
reported on the inappropriate use of finite-risk reinsurance which borders on
criminally fraudulent misrepresentation of financial results. In effect, they
were selling "insurance" to companies to retroactively
"insure" away incurred losses to remove them from the latest
quarter. This is the type of accounting trickery that leads to sudden
bankruptcies with little advance warning such as in the cases of Enron and
Worldcom. The Government in an effort to make it look like they are doing
something and that they don't condone such widespread behavior, throw the
book at an insignificant character such as Martha Stewart to make headlines.
Meanwhile, at many of the old line corporations mentioned above that work
closely with the US Government, far greater crimes and misrepresentations are
allowed as the Government looks the other way. Recent headlines regarding
Fannie Mae and AIG are shocking with huge implications, yet the stocks
magically rally shortly after such revelations leading investors to shrug off
the news with claims that "it was already discounted by the
market".
You simply can not make the masses recognize what is right before their
eyes until they are ready to see. If you can recognize the importance of
these events and the implications for the future you probably already have a
healthy allocation in gold, silver, and related equities. Unfortunately, we
have found that the vast majority that has moved to protect their portfolios
with investments in the precious metal sector are foreigners. Americans are
woefully under protected with a gaping whole in their portfolios. Also, we
find the majority that invest in the sector since the gold bull market
started in 2001, are mostly just looking to jump on a hot sector rather than
taking advantage of the overall portfolio protection aspects of precious
metals which are so desperately necessary today. This is apparent in that we
see more interest after strong runs when you should be lightening up than
during sharp sell-offs which should be looked at as fantastic buying
opportunities. The really sad part is investors from China, Japan, the Middle
East, and India are taking advantage of any pullback to keep adding to their
gold and silver holdings. India has regularly paid up to $10 per ounce and
more in premiums to get enough gold in the country to satisfy demand. At the
current pace, the high physical demand for gold will not take long to
overwhelm efforts by the Gold Cartel to cap prices which they do to
legitimize their inflationary economic and monetary policies. The keepers of
the fiat money system have gone forward with acceleration in money creation
that borders on insanity. Greenspan recently claimed he manages the fiat
money system similar to a gold standard. Nothing could be further from the
truth; you can't manufacture gold from thin air and that will eventually be
the undoing of the fiat money system as it always has in the past.
Among the major reasons why gold should be an important part of all
portfolios are:
- Out of control government spending with budget and trade
deficits;
- Negative real interest rates;
- Tremendous leverage coupled with misallocated capital;
- Continual importation of deflation, killing pricing
power and jobs;
- Demand is rising while production is declining;
- Gold has a negative beta which should offset times when
stocks decline;
- We are in a war environment which has historically been
very inflationary;
- Financial derivatives are out of control and hiding huge
financial failures;
- Energy prices are hitting all time highs as well as many
other commodities;
- The relative size of the gold market is tiny with the
bulk of inflows yet to come;
- The biggest growers and savers (Asians) are already
moving into gold;
- Huge short positions in gold and silver that may not be
possible to cover; and
- Foreign buying of US debt is waning which should
exacerbate money printing.
Monetary inflation in excess of real production is theft. Alan Greenspan
admitted his understanding of this concept many years ago which is probably
why gold was his favorite indicator for many years, until recent times.
Protect yourself. The fundamentals for gold get better every single day as
money expansion continues. Use declines in the prices of metals and the
stocks to build a position as part of your portfolio. It could well protect
everything else you own.