A Positive Economic Lesson To Be Learned From Turkey This Thanksgiving

Includes: DIA, GLD, IAU, SPY
by: Richard Gunderson

Now that the election is over and Thanksgiving season is upon us, is there some good news we can be thankful for in these difficult times? Some would say that we still have the same old good, the bad, and the ugly. This article provides a recap of the current economic struggle, a view toward the future, suggestions for investors, and a positive economic example we can learn from the country of Turkey.

The Economic Struggle

Governments around the world are struggling with difficult economic conditions. In Spain we read about financially desperate people jumping to death from their balconies as police break into their homes to evict them. In Greece, youth unemployment has reached 57%. In the United we've seen record levels of debt, deficits, and energy costs. Unemployment is high and under-employment is a major problem. The cost of living has risen to levels that make it very difficult for low and middle income families to make ends meet. Now that the election is over, one would hope that the news would become more hopeful and bitter political debate would end.

In the days immediately following the election, we are hearing stories like:

  • The USDA released a report revealing that 47.1 million people in the United States are now on food stamps. This is a new all-time high and the largest monthly increase in one year.
  • An alarming number of companies announced layoffs. The Chairman of Murray Energy, an Ohio-based coal company was quoted as saying that "the re-election of President Obama was no cause for celebration. It was a time for prayer and layoffs".
  • The looming fiscal cliff is shaping into another battle between the President and Congress. Economic worries remain. The implications of going over a fiscal cliff are hard to comprehend.

The Future

What does this all mean for investors? The predictions for economic expansion have become subdued. Some compare our situation with the economic conditions in the U.S. back in the 1970s when inflation was very high. Interest rates to finance the purchase of a home ran as high as 15%. In the coming years, inflation may not get as high as the 70's, but it will likely be higher than our GDP growth.

One writer referred to the U.S. currency, the world's reserve currency, as confetti. It's become more like confetti ever since our currency moved away from the gold standard. Certainly the dollar, and most all currencies around the world, have been impacted by government spending beyond their means. Most economists will agree that we're likely to see a continued rise in the cost of living and inflation will likely continue to increase especially if Ben Bernanke follows through with his expressed intention to implement QE3. The dollar has lost a considerable amount of its purchasing power and will likely continue to lose purchasing power.

The prospects for rising stock prices are dim unless artificially buoyed up by the money printing of the Fed. Many investors have turned to gold as their safe haven. The gold price rose when QE3 was first announced. Since then, there has been virtually no change in the Fed balance sheet indicating that the money printing has yet to start. As a result, the gold price has retraced and so have the major stock market indices.

Gold mining companies are finding it more difficult to find gold deposits than in the past. Furthermore, mining production yield has diminished. The cost of producing an ounce of gold has increased. In addition, major mining companies have been unable to replace their reserves. They expected the junior mining companies would do the job of exploring for new deposits of gold, but the juniors haven't succeeded either.

It is inevitable that the Fed will resume, and potentially exceed, their plans for continued money printing. This fact combined with a drop in gold production will lead to a rise in the price of gold.

What Should Investors Do Now?

Here are some suggestions:

  1. Regardless of the dim forecasts for economic expansion, there will be opportunities to make money investing in stocks. The best opportunities will be short-term trades at times when the S&P 500 is trending upward and the stock or fund of interest is also trending upward.
  2. All short-term traders and long-term investors should have a Trading Plan that clearly defines their strategy regarding what they will buy, when they will buy, and when they will sell. Use good risk management techniques whereby each trade is evaluated for risk and reward before the trade is made. Pay attention to trends in the sector within which you choose to invest. Remember the old adage that the trend is your friend. With the right stock market data you'll be able to quickly check the trends of each sector.
  3. Most experts recommend that portfolios should include a minimum of 5% invested in physical gold and/or physical silver. American Silver Eagle 1 ounce bullion coins and 1 ounce American Gold Eagle coins from a reputable coin dealer are an excellent choice.

A Positive Lesson To Be Learned From Turkey

Recently, the leader of the country of Turkey suggested that gold should be considered when it comes to stabilizing the financial system. These weren't just empty words. They were coming from a leader that took a debt-ridden country and transformed it economically. Turkey is now about one year away from paying off all its debt. Maybe the leaders of the major countries of the world need to take a closer look at the leader of Turkey and the example he has demonstrated for economic recovery in his own country.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.