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The weekend after Thanksgiving is
often associated with holiday shopping, spending sprees, and an influx of
cash into the economy. In fact, consumers are often applauded for spending
money and "stimulating" the economy. More often than not, Wall
Street pundits will look at consumer spending during this holiday season to
gauge how our economy is fairing. This season is no different. According to
a recent survey by the National Retail Federation, after Thanksgiving sales
are up 22% from last year. It is projected that the average person will
spend $738.11 this holiday season. As a result, Wall Street seems to think
that our economy is getting stronger. In addition, they quickly point out
that the money they spend will provide the additional stimulus to propel
continual economic growth. What these pundits fail to realize, however, is
that most Americans are not spending money from their savings; rather, they
are spending borrowed money (whether they are tapping into credit cards or
their home equity). Consequently, this irrational consumer spending serves
more as a temporal form of "shock therapy", rather than as a true
economic stimulus.
Learning From My Dad
Growing up, my dad would often state,
"Money does not grow on trees". As he uttered the phrase, he
would hope to make a point about the value of money. Specifically, he would
make that statement when I wanted something that was out of my means, or
when I would foolishly spend my money. Because of this, I was able to grasp
the idea of savings. Even at an early age, I understood that the
accumulation of wealth was not defined by how many toys I could buy, but by
how much money I could save.
Unfortunately, most Americans have not
grasped this simple truth as is clearly demonstrated by the after
Thanksgiving spending. Even more unfortunate, is that our own government is
modeling the idea that it is ok to spend money
and to go into debt. From our continual record trade deficits to Alan
Greenspan's encouragement of Adjustable Rate Mortgages, it seems that the
concept of saving is no longer encouraged. Statistically, the personal
savings rate has declined substantially over the last several years. In
fact, as the chart below shows, we now have a negative savings rate!
How can the average American spend
$738.11 this holiday season, when the average American has no savings? The
numbers just don't add up. As I stated earlier, consumers are most likely
tapping into their home equity or charging expenses to their credit cards. Although
this might serve as a short term stimulus for the economy, it will
ultimately put consumers further into debt.
Why Gold is a must in this Economic
Environment
I am more and more convinced that Gold
is the best way to survive in this economic environment. Why would anyone
put their wealth in anything else? The Real Estate market is overvalued,
the stock market has been pushed up by artificial consumer spending, and
the purchasing power of the dollar (via cash) is steadily decreasing. The
smartest thing to do is to position your wealth towards Gold. It is mined,
traded, and used as currency worldwide. Gold is an international phenomenon.
It always has been. From biblical times to present day, people have always
flocked towards Gold as a means of stability and a chaotic economic
environment. Are we headed towards a chaotic economic environment? Most
likely. When I look at the record trade deficit, the overvalued real estate
market, the negative savings rate, and the inevitable rise of interest
rates, I can only imagine what will happen. The time to protect your wealth
is now.
In my last article, I stated that
Gold's pull back to $460 would likely propel it to $500 by the end of the
year. Since then, Gold futures had a strong rally and are currently at
$497. I still see it heading higher. From a technical perspective, Gold
futures have had one of the best long term trends in the last several
years. If you take the inflation adjusted price of Gold, this chart looks
even better.
In 1980, Gold futures hit an all time
high of $850/ounce. However, what could you buy with $850 in 1980? A lot
more. So if you take the inflation adjusted all time high for Gold
($2,158), Gold is still extremely cheap! Going forward, I see Gold breaking
through this $500 psychological barrier and having a relatively quick move
to $600 before the end of 2006. This Gold bull market definitely has legs!
I am offering a free report on Gold Futures to anyone who asks. You can
request one by clicking here: http://www.wisdomfinancialinc.com/brokers/emanuel.html.
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