On Inflation, Precious Metals and the Mayan Calendar

Many of us wonder if inflation is going to take off anytime soon. That, as well as the devaluation of the dollar has moved billions of dollars into precious metals ETFs like GLD and SLV.

Even the Central Fund of Canada (AMEX:CEF), which is selling for about a 10% premium above its net asset value (NAV), has a market cap of over $2.5 billion. It's a closed-end fund that actually buys, stores and insures the gold and silver it uses to establish the NAV for the shareholders.

ASA Ltd (NYSE:ASA), a relatively small closed-end fund which invests in many "things" related to precious metals as well as the metals themselves has seen their market cap rise to over one-half billion dollars, and since the lows of November 2008 its share price has more than doubled.

Folks usually buy precious metals for 3 reasons. First, as a hedge against inflation. Secondly, as a "substitute currency-buying power protector" when confidence in paper currencies are eroding. The third reason is as "insurance" against the unseen catastrophe, disaster or financial panic.

That brings us to the Mayan Calendar. There's a growing group of unique people who think that the Mayan Calendar, and a few other exotic symbols, predicts some enormous global changes in the year 2012. There are even some financial gurus who buy into that kind of thinking (remember Y2K).

Well, my crystal ball only predicts things slightly past the end of my nose, so that is why I tend to invest with 2 major criteria. First, I want to be buying or selling what the "Smart Money" and the "Exchange Specialists" are buying and selling. Secondly, I do like a hedge against uncertainty and those random "Black Swan events". With that second criterion in mind, I'd like that hedge to have historically intrinsic value and be very much in demand.

That's why I like to own precious metals and the proxies for precious metals. I even like the stocks and ETFs of the precious metals producers. That's why I own a small amount of GDX, Silver Wheaton (NYSE:SLW), Compania de Minas Buenaventura (NYSE:BVN), Freeport McMoRan Gold & Copper (NYSE:FCX) IAM Gold (NYSE:IAG) and I'm trying to buy a little Silver Standard Resources (Nasdaq:SSRI) below $20 a share.

Back to the subject of inflation, frankly I don't see much in the near-term. I see quite a bit of over-supply, whether we look at housing, natural gas or automobiles. There's a lot of oil stored out there too, and although the price of oil is high right now, it's hard to understand why it should stay this high. $70 a barrel ought to be the near-term average from the supply figures I'm reading.

Inflation is coming in the future and the monetary policies in the G-20 countries virtually assure it. Black Swan events and the rise and fall of the dollar will factor into the deflation versus inflation debate over the next few years as well. How soon inflation will be a major problem is a tough call.

My colleague Terry Coxon who is an editor for the Casey Report and who has a great deal of experience and insight on investing, put this whole topic into perspective Friday and I'll conclude this article with his words:

Investment Implications

The big plus about the Mayan calendar is that, right or wrong, it is very definite about things. Human civilization will come to an end, I'm told, on Dec. 21, 2012 – not on the 20th and not on the 22nd. There was no room for monetarists in those step-sided pyramids, but there still are few what-to-do implications from the monetarist findings.

1. When you hear would-be opinion leaders cite the current absence of rising prices at the supermarket as proof that all the new money isn't a source of inflation, don't believe them. It is much too early for the inflation bomb to be going off, even though the powder has been packed and the fuse has been lit.
2. If the large and growing federal deficits and the Federal Reserve's unprecedentedly easy policies tempt you to leverage up on inflation-sensitive assets, such as gold, give the idea a second thought. It likely will be a year or more until price inflation becomes obvious and undeniable (which is what it would take to bring the general public into the gold market). In the meantime, your inflation-sensitive assets could get paddled rudely as the deleveraging that began last year continues.
3. Read points 1 and 2 again to make sure they have sunk in.
   

For at least the next year, the simple, fire-and-forget strategy is 50-50 gold and cash – gold for what looks to be inevitable but on its own schedule, cash to be ready for the bargains that may show up while we're waiting for the inevitable to arrive.

DISCLOSURE: I own GLD, SLV, CEF, GDX,SLW, BVN, and IAG.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

Comments

[socrateaz:]

I tend to agree with your thinking. The inflation will come when and where there is shortages. There are few currently in needed items. I see No sign at present. Companies are trying to produce enough to get by. And i believe most think time will fix things. The stores have producers trained to produce more shortage items by overpaying for those items creating and excess. The when the excess is created, they attempt to push the price close to break even. Sometimes they do not understand where those points are. And sometimes the producer just wants to produce and let the price go where it may! Especially in produce there is a serious manipulation going on! If you produce know your breakeven point...Total cost - Total expenses. Also realize when you sell for a certain price, the stores will promise one level and pay less in produce. The choice is deal with it or lose the market. Know the average cut for your produce. I am in cherries $5 per box is about average. The stores pay their decision makers to save that cost. It is often figured in their ultimate cost even before they pay. This is an example and will not be accurate but it will be close. Let us say you are an efficient grower and your production cost bottom line is $5 per box Packing cost is $8 per box. Efficiency is 80% so $10 per harvested box. Harvest is $5 per box . Property taxes are $2 per box. A level of $22 per box should be adequate to cover costs right! You have $7 per box in the fruit so you think you can sell it at $15 and make some money back to cover growing the fruit. So you sold at $20 per box! A loss of $2 per box! Wait a minute! The store only pay $15 Per box, You have Just lost all you production cost for that year and the money for paying taxes. And probably will have to have an average of four years just to make that wealth back! What can you do? 90% of the stores are in six companies. If you force them to pay what they said they would, Can you sell to them again? And you have to sell now. Not next week . This is true monopolistic behavior. But growers trained them to act that way by allowing $5 reduction in price historically. The real fix is to add $5 to your breakeven point and act like it is your breakeven point because that is what the grower usually sees. Calculate your cost on that basis because the stores already think you figure in at least a $5 per box profit before you harvest. I got into a different area. I am a cherry grower. And I am wondering if I have not continued to operate until I have lost it all. I know I can not get a bank loan. I downsized 30% last year to continue. Would downsizing down to 20% the size I was at the turn of the last century Help? It seems like the best choice! But I can not seem to be able to figure out how to cover healthcare food and insurance with that small of income. I would not need to pay employees other than harvest though. If the country is not in depression, I have made it there. This is not because of Obamanomics...But I expect many more will experience such with his brilliant policies

Oct 25 02:51 PM

[mbkelly75:]

Last December, I increased my portfolio's holdings of CEF from 6% to 16% in reaction to the Fed's money printing and Obamanomics. I have not been sorry at all. CEF is my preferred way for PM investment simply because I can hold both Gold and Silver with just one investment instead of two (GLD and SLV). They are also MUCH more transparent in their policies and even pay a VERY small dividend. I just naturally gravitate towards dividend payers in my portfolios and their clear policies work for me.

Oct 25 04:29 PM

[doubleguns:]

The paddling of inflation sensitive assets would simply be a buying opportunity.

As far as the Mayan calendar is concerned how do we not know that they simply would have started a new calendar. At the end of 2009 I intend to toss out the calendar that ended and replace it with a 2010 calendar. I doubt the world is going to end because my 2009 calendar did.

Unfortunately the Mayans are gone and we can't ask them.

Oct 25 06:38 PM

[Doc 224899:]

Inflation is here, and it is beating us in the face with a jagged brick. We just don't have a bunch of numbers in an index that says so, but it is there.

Consider:

In 1972, when only one parent in a two-parent family had to work, the annual pre-tax income from only 1 to 2 years was enough to pay for a very nice house in a very nice neighborhood where the kids could go to an excellent public school where they were safe, didn't get mugged or raped, and graduated with almost none of the girls pregnant and almost all of the boys getting a diploma. No money had to be spent on pre-school, or private school, and it was safe for the kids to ride the school bus. Less than 10-20% of that annual income from only one parent working would pay for a year's tuition and expenses at an Ivy League university. 2 months' worth of salary and commissions from one parent's income would pay for a very, very nice Mercededs Benz, and nobody needed car loans. Car leasing? Not necessary. Kids didn't need play dates in neighborhoods like these, because they could hop on a bike and go where they wanted, safely.

In 2009, with both parents working their butts off, 50% to 75% of one parent's annual pre-tax income may pay for a year's tuition and expenses at an Ivy League university. Even if you live in a very, very nice neighborhood, you still spend money on pre-school and private school just to protect your children from the potentially life-ruining consequences of public schools, and private high school for our kids costs as much or more than the college tuition that paid for our own eductions. Kids are ferried around everywhere they go to keep them from being abducted, mugged, raped, murdered, and dragged off to child sex-slavery, and parents drive SUVs that are built like tanks, and cost almost as much as tanks, because that's the only thing they feel may provide adequate security in the event that they run into a diversity-enriched street situation on the way home from soccer practice.

So don't tell me we aren't being hammered by inflation. In many situations, an annual income of $50,000 in 1972 dollars bought more than an annual income of $2,000,000 would buy today in 2009

Oct 25 07:23 PM

[Mayascribe:]

Double: Mayans gone? Though they suffered years of genocide in the 1970's and 1980's, there are over 7 million Mayans alive today. For that matter, it took the Spanish under two years to conquer the Aztecs, but the Mayans were not "conquered" for ~ 179 years. It really wasn't a conquering so to speak, it was more of a forced melding of the catholic religion into theirs, because they were so spread out in the jungles and hinterlands. The Mayan religion the Catholics considered demonized. The Catholics burned hundreds, if not thousands of screenfold books, enslaved them, suppressed them, gave them syphilis, wiping out millions of Maya, but all this did not break their spirit.

Once the governments, especially Guatemala, realized the value of Maya-related tourism, was when the Maya became second class citizens, and left more or less to their own means.

In history, most Mayan cities were "out of business" by 900 AD. Before then, over time, the Mayans depopulated their cities, and as they did, their sophisticated culture and knowledge, including writing, starwatching and mathematics declined and eventually deteriorated to where writing, carving stelas and building of cities ceased altogether.

I've been in many tiny villages that were still 100% ethnic Maya.

####

Has the website changed for you? Only about three or four comments appear on the home page, way down on the bottom right. Much harder to chase my cyberpals down. Much harder to measure the community pulse. It's like I'm seeing with one foot.

Oct 25 07:29 PM

[Swashbuckler:]

Maya--The site has changed. But I've never used the home page to track comments. I've always hit Stocktalk , right between Portfolio and Instablog at the bottom of the page.


On Oct 25 07:29 PM Mayascribe wrote:

> Double: Mayans gone? Though they suffered years of genocide in the
> 1970's and 1980's, there are over 7 million Mayans alive today. For
> that matter, it took the Spanish under two years to conquer the Aztecs,
> but the Mayans were not "conquered" for ~ 179 years. It really wasn't
> a conquering so to speak, it was more of a forced melding of the
> catholic religion into theirs, because they were so spread out in
> the jungles and hinterlands. The Mayan religion the Catholics considered
> demonized. The Catholics burned hundreds, if not thousands of screenfold
> books, enslaved them, suppressed them, gave them syphilis, wiping
> out millions of Maya, but all this did not break their spirit.<br/>
>
> Once the governments, especially Guatemala, realized the value of
> Maya-related tourism, was when the Maya became second class citizens,
> and left more or less to their own means.
>
> In history, most Mayan cities were "out of business" by 900 AD. Before
> then, over time, the Mayans depopulated their cities, and as they
> did, their sophisticated culture and knowledge, including writing,
> starwatching and mathematics declined and eventually deteriorated
> to where writing, carving stelas and building of cities ceased altogether.
>
>
> I've been in many tiny villages that were still 100% ethnic Maya.
>
>
> ####
>
> Has the website changed for you? Only about three or four comments
> appear on the home page, way down on the bottom right. Much harder
> to chase my cyberpals down. Much harder to measure the community
> pulse. It's like I'm seeing with one foot.

Oct 25 07:35 PM

[doubleguns:]

Maya, so the mayans quit making calendars is the correct answer, not that they disappeared.

You have to go to stocktalk to see all of your cyberpals comments now.

Oct 25 07:35 PM

[Albertarocks:]

Maya, just a wee side-note that might interest you. When I was at my son's house helping him out, he'd actually invited a dozen friends over and we watched the MMA fighting together. I was telling them about you, and your book, your knowledge on the topic, and the fact that you've actually met modern day Mayans.

In short, they were shocked, happy about it, empressed and most of all, although they didn't believe in any of the "end of the world" bunk, they were all nonetheless somehow relieved that you say it's not at all about the "end of the world". Now they all want to meet you. How cool is that?

Oct 25 07:59 PM

[Albertarocks:]

And as far as "getting to" Hopan is concerned, my son and all his buddies are commercial pilots.

Sadly, no sooner had my son gotten his commercial pilot's license at age 21, the next year he developed an irreversible eye condition so that he'll never again have 20/20 vision. He won't be blind or anywhere nearly that bad, but he won't have the eyes of an eagle any more.

Oct 25 08:03 PM

[doubleguns:]

Rocks since everyone seems to think it is the end of the world a vision impaired pilot would be most appropriate don't ya think. YeeeeHawwww.. I just had an insta on that "Were going in.......

Oct 25 08:09 PM

[Albertarocks:]

On Oct 25 08:09 PM doubleguns wrote:

> Rocks since everyone seems to think it is the end of the world a
> vision impaired pilot would be most appropriate don't ya think. YeeeeHawwww..
> I just had an insta on that "Were going in.......<

LOL! Sure makes sense to me. And I assure you, if you want the pilot to be drunk, my boy could accommodate that request as well. lol

Oct 25 08:12 PM

[doubleguns:]

That would kinda be like blind drunk right?!!!

Whats he drink, I'll bring plenty for him and the rest of us. I never wanted to die sitting in front of the TV or laying in bed anyway.

Make it a good one, make it special, make it count, who wants a routine death!!!.

Oct 25 08:23 PM

[Mayascribe:]

Rocks: Glad I could add some comfort to your son and his cronies. I hope someday I get to meet them all! By the way, my last name in German means, "comforter," as in one who offers comfort.

Guns: ROFL!

I hope the Angels win tonight, and then the Yankees win game seven in the nineteenth inning.

Oct 25 08:25 PM

[Doc 224899:]

The current rationale for investing in gold is that people have lost faith in the monetary and financial policies of the US government's leaders.

The new, record high price of gold reflects the broadly shared impression of new, record highs of government stupidity.

Secondarily, there is lost faith in American corporate leadership, and in the American workforce in general. Our workforce is collectively less competitive than it used to be because competitive employment has been replaced with protected employment status for those who are unable to compete successfully. There still are a few American workers who are competitive, but they have to work around entitled losers who clog up the system and who are protected by Federal Judges who are opposed to competitive promotions (and who get promoted to the Supreme Court where they can do it with greater impunity).

US currency is losing value because US currency only has value derived from the strength of the American economy, and that economy is going down the tubes. Investors in many countries share that opinion, as do government leaders in many countries, and they all think gold is money much more convincingly than they think the US dollar is money. So do I.

As for The Mayans: The Mayans are gone because they designed cities with survival needs that vastly exceeded the life support capacity of the land where the cities were built and the life support capacity of the land around those cities. They also killed each other off, and wasted their energy on silly ornamentation and dramatic posturing that involved very little actual productivity. They just designed their calendars around the idea that their cities would last a whole lot longer than they actually lasted. Some of the carved stones are still piled up neatly, and there is still some Mayan bling to be found in the ruins, but the cities are dead and gone. The way Detroit is headed, you ask? Cinncinnatti? Baltimore?

Oct 25 08:27 PM

[Albertarocks:]

On Oct 25 08:25 PM Mayascribe wrote:

> Rocks: Glad I could add some comfort to your son and his cronies.
> I hope someday I get to meet them all! By the way, my last name in
> German means, "comforter," as in one who offers comfort.<

My last name in ancient gaelic means "poet or scribe to the king". (Ireland)

Oct 25 08:33 PM

[doubleguns:]

Hey doc. I live in Cincinnati.... well its close enough. To paraphrase Monte Python again... We ain't dead.....yet!

Oct 25 08:41 PM

[Econ Base:]

"......For at least the next year, the simple, fire-and-forget strategy is 50-50 gold and cash – gold for what looks to be inevitable but on its own schedule, cash to be ready for the bargains that may show up while we're waiting for the inevitable to arrive..."

Overall agree. I published an article today on seekingalpha on a similar topic. Good luck!

portfolioforlife.blogs...

Oct 26 12:21 AM

[secmaven:]

Until some big money interests demand delivery of gold and silver from the COMEX stores, JPM at the direction of the Fed will continue short selling these metals to shut off every advance and the price of PM's will go no where.

Oct 26 02:27 AM

[hwood007:]

The fact that some nuts destroyed much of their written history does not help to support or deny the truth of the 2012 end, perhaps someone very important dies on that date and we start over.


On Oct 25 06:38 PM doubleguns wrote:

> The paddling of inflation sensitive assets would simply be a buying
> opportunity.
>
> As far as the Mayan calendar is concerned how do we not know that
> they simply would have started a new calendar. At the end of 2009
> I intend to toss out the calendar that ended and replace it with
> a 2010 calendar. I doubt the world is going to end because my 2009
> calendar did.
>
> Unfortunately the Mayans are gone and we can't ask them.

Oct 26 12:16 PM

[hwood007:]

there is a local eye doctor (even teaches in China) that claims to have corrected a vision problem for a pilot and the pilot is flying again. " johnny l. gayton"


On Oct 25 08:03 PM Albertarocks wrote:

> And as far as "getting to" Hopan is concerned, my son and all his
> buddies are commercial pilots.
>
> Sadly, no sooner had my son gotten his commercial pilot's license
> at age 21, the next year he developed an irreversible eye condition
> so that he'll never again have 20/20 vision. He won't be blind or
> anywhere nearly that bad, but he won't have the eyes of an eagle
> any more.

Oct 26 12:24 PM

[437339:]

hwood007

i AGREE WITH YOU

Oct 28 11:17 PM

[Shannon Melton:]

You might find this entertaining...

seekingalpha.com/artic...

Nov 16 01:22 PM