Gold? ZOOM! Silver? ZOOM-ZOOM! Both are heading higher today, making the timin
g of my new MoneyandMarkets.com column all the better…
There are some great charts in my MoneyandMarkets.com column today, so I highly recommend it, and not just because I wrote it. And there are new developments. In the column, I talk about how Europe is in even worse shape than the U.S. Sure enough, this morning, Credit Suisse reported a $5.2 billion net loss.
While soaring gold prices may make some gold bugs jump for joy like an old prospector and shout “Gold! Go-o-o-o-o-old!”, I highly recommend you keep one thing in mind: This is the fear trade. People aren’t buying gold because they especially love it. They are buying it because other investments are rapidly turning into fertilizer (a notable exception – fertilizer stocks (TNH: 111.66 -1.2381 -1.10%) ).
The positions in Red-Hot Commodity ETFs are exceptionally well positioned for this market. The new additions we made to Red-Hot Global Small-Caps couldn’t have been timed better. I only wish I’d recommended more, and you hate to chase them now — fear and greed in action.
This should still be a very wild ride — with big DOWNS as well as ups. So sit tight and stay cool. Borrowing a quote from one of my favorite cheesy movies: “Gentlemen, we have a date with destiny, and it looks like she’s ordered the lobster.”
In other news you can use
While the mainstream media is trumpeting the fact that the U.S. trade defict has narrowed to the smallest gap since 2003, look beyond the headlines. U.S trade is on a slippery slope. Both exports and imports declined sharply. How sharply, you ask?
Source: http://www.calculatedriskblog.com/
Is that sharp enough for ya? We aren’t alone, though. China’s exports fell by the most in almost 13 years. Maybe it’s due to China’s just-finished holiday season. We’ll see. Also, Chinese consumer confidence dropped for the fifth straight month in December on concerns over the weakening economic outlook. If you really want to worry about Asia’s economic outlook, read this.
Naked Capitalism seems to cover the bases on how bad Geithner’s bailout plan was. Over at The Automatic Earth, Ilargi writes:
“On top of the $2 trillion plan today, we already know that Fannie and Freddie will need another $200 billion, the GSE’s that exist only so that Americans keep overpaying for their homes. What a mess we see today. Nowhere bigger than in the bond markets. Even more than in the Dow Jones numbers, that’s where the vote of no confidence increasingly looks to be coming from.”
I agree with Nouriel Roubini: Let’s grit our teeth, get it over with and nationalize the insolvent banks already. And yet on CNBC, one talking head after another parrots the same point: “Well, of course we aren’t going to nationalize the banks.” And so prompted, I keep yelling at my TV: “Why not? Why the hell not?” We’ve already given the banks enough money that we should own them. And I think I can find someone to run those banks who can lose us LESS money for a salary capped at less than $500,000 a year.
Related posts:
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- Chart Showing How Relationship Between Gold and Greenback Changed We know that the relationship between gold and the dollar has changed. It used to be that gold moved opposite...
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{ 6 comments… read them below or add one }
Before we get too excited about gold (though 10% of my portfolio is in GLD or related instruments), let’s remember what FDR did in 1933:
“On March 9, the Senate passed the Emergency Banking Act after very little debate. This gave the Secretary of the Treasury the power to compel every person and business in the country to relinquish their gold and accept paper currency in exchange.
The next day, Friday March 10, Roosevelt issued Executive Order No. 6073, forbidding people from sending gold overseas and forbidding banks from paying out gold.
On April 5, Roosevelt issued Executive Order No. 6102. This was the order to confiscate everybody’s gold. It commanded everybody to deliver their gold and gold certificates to the Federal Reserve bank, where they would be paid in paper money. You could keep up to $100.00 in gold, but anything above that was illegal. Gold had become a controlled substance. Possession was punishable by a fine of up to $10,000 and imprisonment for up to 10 years.
Now the only people with a claim to gold in the Treasury were foreigners holding dollars. Since he was on such a roll, Roosevelt decided to rip them off too. On January 31, 1934, Roosevelt issued another Executive Order. Here he declared that the dollar was now only 59.06% of its former gold quantum of 23.22 grains. Now the dollar was only worth 13.71 grains of gold.
Look at it from the point of view of one of these hapless foreigners. It used to cost you only $20.67 to get a troy ounce of gold. Now it cost you $35.00. The U.S. government, under the dictatorship of Roosevelt, had just stolen 40% of your money.”
This is from http://www.strike-the-root.com/columns/Chkoreff/chkoreff1.html - an admittedly anti-FDR site. But, regardless of whether you think FDR was justified in essentially outlawing the holding of gold, you have to consider the possibility it might happen again. Just a hint of such a thing would be enough to crater the gold market, of course. What are your thoughts?
Sean Brodrick Reply:
February 11th, 2009 at 10:33 AM
Hi, Scott.
Wow, you’re actually famous. I mean, you’re the author of “Akiiwan”, and since I’m a huge sci-fi geek, I hear that book referenced by other people. I haven’t gotten around to reading it yet, but I’ll put it on on my “Summer in Maine” reading list.
Anyway, to answer your question — whether you agreed with him or not, Roosevelt had guts and was willing to take on the established powers of his day. He would be totally out of place in modern American politics.
The theme of modern American politics (since at least the Reagan administration) is avoidance of pain. Both parties want to inflict as little pain as possible on American voters, or at least give the appearance that they are concerned about us and care about the country’s well-being. Confiscation of gold would set up howls of protest from one coast to the other. I don’t think Obama has the stomach to administer that kind of pain, even if he thought for some reason that it was the right thing to do.
Eventually, if our economic situation continues to spiral downward, we may get to the kind of leader willing to inflict pain on the American people. But we should have a ways to go. So don’t bury your gold yet.
Hi, I would like to know what you think about gold and silver manipulation. I would also like to know if you read Ted Butler’s piece yesterday about the report he had from the comex on contracts and short selling? If Goldman Sachs and JP Morgan chase have 60.1% of the contracts that they are short selling, and the commercial and private investor has the other 40% or less contracts, how can this not be manipulating the spot price of gold and silver? Why does not the CFTC and the SEC do something? Will the comex fall and if it does what happens to the people owning ETFs. I have no confidence in ETFs. What happens if the comex goes belly-up?
Sean Brodrick Reply:
February 11th, 2009 at 1:14 PM
I generally don’t read Ted Butler’s stuff (sorry, Ted). I have listened to him at conferences, and time will prove if he’s right. I think we face a more immediate problem — the big banks are insolvent, the global financial system is at risk, and if things go the wrong way, the fertilizer could hit the fan pretty quickly. Let’s hope things work out for the best.
With the US unable to pay 3 trilion T BONDS back they will either default or inflate.
Either way silver and gold should go to the moon. Why not be 100 % in gold and silver ?
Looks like a slam dunk to me ?
IF they do skyrocket how can you sell it ? For what, that garbage dollar. Seems you have to hold until dollar is redeemable in gold again.
Your thoughts
Thanks
Sean- with regard to Gold and Silver stocks, what do you see happening with this group if the DOW continues to descend below 8000? They have done well since November after the first wave of “deleveraging”. Would you expect them to reverse the upward trend if the DOW plummets or would you expect them to buck the trend? Seems that Homestead Mining did very well in the 1930’s depression…