Time to Buy and Hold Gold 25 comments
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Before making today's observations, I'd like to point you all to a great Seeking Alpha article written by Mike Stathis.
I'm not sure why I was not able to leave a comment on this article, but let me say now: right on Mike! Excellent analysis and commentary.
I recently spent some time in Colorado fly-fishing, hiking, and camping. I always meet some interesting characters whenever I take my summer trips to CO, and this year was no different. In particular, when it comes to economics and investing, two of these characters stand out in my mind.
The first person I met while fishing in the Arkansas River near Salida, CO. I was wading up the river, and noticed that the low growl I had been hearing was the result of gasoline powered pump. A couple guys had about a 4 inch rubber hose in the river, and were pumping water up the bank and running it through some kind of contraption in order to separate gold from sediment. This was on BLM land. I thought to myself, wow, they must actually be finding some gold in order to rationalize running a pump powered by $4/gallon gasoline.
Later that same morning, I saw an old man in the willow bushes next to the bank leaning out into the river. I thought he might be fishing. Not wanting to step on his toes, I politely asked him if he minded that I go around and upstream of him. He says, "Oh, you are fishing? No problem, go right ahead." He seemed relieved. As I walked by, I noticed he had a pan and he too was mining for gold - the old-fashioned way. So, I asked him, are you really finding any gold here? He eyed me suspiciously and stroked his long grey beard. He didn't want to talk, so I told him hey, I am a fly-fisherman taking a vacation here and I am not interested in panning for gold, I am just curious.
We chatted a bit longer and I made some jokes about fool's gold, and he finally told me that he does indeed find gold there, and averages anywhere from 3/4 oz to 1 oz a day. Sometimes, he says he finds a nugget or two and those can increases his haul to 2-4 oz in a day. Not too bad at $930/oz. So what do you do with the gold I ask, sell it? "Hell no!" he said dramatically. "And get what, paper bills worth less and less every day?" He was very emphatic, and there was something serious behind his amusing facial expressions. This old guy was straight out of the old wild west and could have been a character on Bonanza or Gunsmoke.
The second character that I remember well was an 86-year-old man that was camping at one of the campgrounds. He would take a stroll every evening for exercise and one day asked me about my little teardrop trailer. As we began chatting he told me he had been a history professor for 50 years and asked me if I liked history. Sure I said, I find it fascinating, informative, and very much predictive of the future. He asked me what I thought about the United States today in the context of history, and I told him, honestly, I thought the US was in steep decline and that our economic and foreign policies of the last few years would have disastrous consequences for the US middle class. He smiled, and said he was very happy to hear a "young person" say that.
He went on to explain that he had been in WW2 as a young man, was "ignorant" went he went into the service, but thanks to the GI bill was able to go to college on his return to the states. He said he immediately began reading everything he could on Germany in order to understand what led to WW2. He began with post WW1 Germany, and read everything he could get his hands on up to and including the end of WW2. He told me that what concerns him today is that the US appears to be following the path of pre WW2 Germany. I was surprised to hear this and asked him to explain this to me.
He said first, we have industrialists creating government policies (I supposed he is referring to the paid lobbyists). Secondly, you have a minority being used as a scapegoat to take away our freedoms, privacies, and liberties (I supposed he is referring to the "terrorist" threat). Next, you have the taking over of the financial system by the government (obviously what is happening with the Fed takeover of Bear Stearns, the current socialistic nationalization of the US mortgage market, and the recent comments out of the Paulsen and Bernake to rationalize increasing Fed and Treasury control). He also mentioned the increasing militarism of the American government and its policies of external expansion.
Lastly, and most worrisome (to him) was the increasing use of propaganda in American media. I asked him what he meant by that. He said the government is reporting inflation is 4% and his eyes got wide in astonishment as if to say "who on earth would believe that?" He said the commentators on CNBC and Fox were paid off to tell us that the economy was fine and and assure us that everything was ok. He specifically mentioned the term "goldilocks" economy, which was a jab a Larry Kudlow who has been saying this for years while the S&P500 has gone nowhere and is indeed negative for the last 10 years if one takes into account the devaluation of the US currency and the effects of inflation. He talked for two hours, focusing on how current policies never are crafted to keep the middle class strong. Then, abruptly, he said he was very very tired and needed to lay down for a nap. We shook hands, and he slowly strolled away.
These two men, although with very different backgrounds, both had some things in common. They were both old enough to have an historical perspective on today's economy and politics. They both said to buy and hold gold. They also both mentioned the value of having your own garden and growing your own produce. Interesting times, and interesting characters. And Mike Stathis, I think both of these men would have enjoyed your recent Seeking Alpha article tremendously.
Disclosure: The author is long gold.
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This article has 25 comments:
I think the "war on drugs" has done far more to remove our liberties than the "war on terrorism". And to far less effect. Over half the people in federal prison are there because of drug offenses. And it was the "war on drugs" that allowed the feds to sieze property merely on suspicion of a crime. It has been a disaster for civil liberty, and the principal accomplishment has been to support prices so that drug gangs can make money, thus increasing crime and violence throughout America. Any impact on drug availability has been negligible. At least we haven't had an attack on the US since the "war on terror" began. Though that could just be coincidence, I think it has something to do with all the Islamic nut cases our troops have killed in Iraq and Afghanistan. The fanatics went there and got killed instead of coming here and killing us.
In my opinion, the main driver of the world wars was population pressure. Today in the developed world, where population growth rates are low, that has ceased to be a driver. In the third world, where people have yet to discover birth control and family planning as the path to wealth, there are all sorts of wars and civil unrest. If the entire world had stable or falling population, the impetus to war would be greatly reduced and in fact would probably disappear. Productivity increases would guarantee that almost everyone would have more over time. The almost is because there will always be losers, people who sabotage themselves.
redbaron: agree with gold. you must have been where, durango area? pagosa springs? i usually have a day or two at the springs toward the end of my trip to take a good soak in those springs, which i love, and the mexican restaurant right across the river is great. didn't make it this year (sigh). also, a little known secret is that there are some real big trout in the river just upstream of the springs. hope u had a nice trip. i am missing CO already...
mdmrjsds: war on drugs is a big problem, mainly because it is a huge transfer of wealth from the US taxpayer to certain well-connected government and private groups that profit from the war on drugs. the taxpayer gets nothing, but negatives. high prices for marijuana just transfers more US dollars out of the country to drug gangs. the war in afghan has not been "won", nor prosecuted, because the poppy output has skyrocketed since the "war" started and the well connected people are making billions on increased heroin production (some of which comes to the US and rush limbaugh).
Suppose you won the lottery for $400,000 TODAY and your choice on the winnings would be a lump sum payout of 60% OR you could have a monthly payment of about $4000 per month for life (and you're in your late 50's). Which would YOU take??
Personally, give me the lump sum payment as I agree with the 2 fellers you talked to in your article in that, this country is in trouble (with inflation running what? 10 to 12% a year??) and if you think the dollar is stable enough for you to do well on a up to say, a 30 year pay-off on your winnings, I have a bridge I'd like to sell you. What most seem to have forgotten about gold and silver besides being REAL money, is that they have proven since time immemorial to be the only true store of value that these idiots and their paper money have so hard tried to be, BUT CAN'T. With dollars and all other paper money currencies losing value by the day, gold and silver WILL preserve your wealth and to say otherwise is to be in serious denial imho...
There's not an unbacked currency, the dollar included, that has not collapsed in the entire history of the world or otherwise has stood the test of time. Not once, not ever and not now. A gold bug I'm NOT. But I also know history and I KNOW which side of the gold trade I want to be on!! Especially in these times...
I almost bailed on the "what I did on my summer vacation" theme, but I'm glad I didn't. Good read.
Alan Greenspan - “Gold and Economic Freedom” 1967
"An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other. . . . This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."
John Maynard Keynes
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency - "By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some....The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose."
Thomas Jefferson
"If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered."
"The condition upon which God hath given liberty to man is eternal vigilance; which condition if he breaks, servitude is at once the consequence of his crime, and the punishment of his guilt."
H.L. Mencken
The urge to save humanity is almost always only a false-face for the urge to rule it.
Voltaire
In general the art of government consists in taking as much money as possible from one class of citizens to give to the other.
Ludwig von Mises
"The cyclical fluctuations of business are not an occurrence originating in the sphere of the unhampered (free) market, but a product of government interference with business conditions designed to lower the rate of interest below the height at which the free market would have fixed it."
mark: thanks, funny too.
marxbites: wow, those are some powerful quotes and quite a collection. thanks for this contribution, especially the lenin quote. this is exactly what is happening now. the old guy said what is so scary is that it seems most americans don't even seem to realize what is happening. you, on the other hand, seem to be very well read on the subject! thanks.
Milton Friedman said that " If you put the government in charge of the Sahara, there would soon be a shortage of sand". I can not say that I know whether it is attributable more to incompetence or by deliberate design. I tend to believe it is deliberate.
wrt options on currencies...that's over my head..i have a hard enough time getting the general trends right...put a timeline on me, and i just know i would screw it up.
wrt friedman, we put the gov. in charge of the treasury and we definitely have a shortage there...oh, but wait! just print more money! grrrr....
Gold will surely go down at some point, but probably not for a while.
Again, If you don't have any, get some; if you have some, keep it. I can't express strongly enough that one shouldn't let someone else (ETFs and unallocated investment pools) hold it for you. It doesn't make sense to accept a piece of paper in lieu of taking possession of your gold. DON'T TRUST ANYONE WITH YOUR GOLD.
Regarding the above drug posts:
I've always questioned why our government just doesn't buy up all the drugs and destroy them. It's got to be less expensive than "fighting the war on drugs" and paying corrupt foreign governments to help in this futile effort.
istartedi: "History also tells us that gold can't even ensure against you being shot or hauled off to a concentration camp. In fact, it might make you a target. The SS and/or thugs are likely to end up with all your gold."-- Imagine coming to Texas to haul anyone off to a concentration camp or confiscate gold (or anything else for that matter). Methinks you assume too much.
regarding the war on drugs: business... strictly business. Afghanistan grows 90% of world's poppy crop. To industrialize it, tax it, and sell it on the open market would make Afghanistan the 'Saudi Arabia of narcotics' and send narco-manufacturers around the world into bankruptcy. Same for cocaine, a necessary evil for the GDP of South American states to pay back loans to US banks and to keep the friends of those banks in the power loop.
If I may suggest for your consideration: Its not what the price is (that your going to buy to make a profit) , its that you will have bought a stopper for your bathtub so your hard earned money doesn't swirl down the drain. Gold (and silver) will do that for you. And, as a bonus, its decoupling (VERY soon) from oil, dollar, etc., will begin to push it to heights only (us gold bugs) can imagine....
The picture of the trout in last article was a ' nugget'.
Will Rogers and H.L. Menken had politics nailed many years ago . Nothing has changed,except the size of the numbers.
One of H.L .Menken's quips i will never forget: If a politician had cannibals for constituents ,he would promise them Missionaries for dinner.
Appears there two different tribes of cannibals in America . Heads of Wall Street ,high finance and those that receive welfare.
Off the post subject but, Americas problem with oil could be solved in 1 year if not for the bureaucratic morass that has developed , by government and the greenie freaks. For about 1000 dollars almost any Diesel or gasoline engine could be converted to Natural Gas . They do it here in Thailand , so don't tell it can't be done. Thailand is about size of California and has over 300 fuel stations that have Natural Gas and installing more every day.
As you probably know , Propane and Natural Gas has been used for years and gives off less particulates than Diesel or Gasoline even with without pollution controls .
So, what is the problem . First is the Government and no fueling stations which is caused by the government .
If the government said ; put in fueling stations and we will subsidize to the break even point till half the vehicles in a given area are converted . Both could be accomplished in one year.
Sure, the price of Natural Gas would leap but it would only be temporary as drillers would punch holes like swiss cheese looking for Gas.
Dempse Ross
Regards.
jt: oh yeah, they were real human beings alright. the only thing i have a slight disagreement with you about is the term "socialist" as an adjective describing our government. i'd replace if with "fascist" as there is a difference. regardless, i do agree with the thrust of your post.
User179505: what i was wondering while i watched these guys was how to they decide where to take their shovels of earth from. they would walk around looking and looking, then all of a sudden take a shovel or two of earth. i guess it's just experience.
larry: yup, yup
User30121: thank you
kurt: perhaps. you must have alot of confidence in the US dollar at this point? not me...i want a golden insurance policy. bush has put the US and its economy behind the proverbial 8-ball.
lonie: thanks. nat gas for autos is ok, but i still believe the EV1 and the story of the electric car is very telling. have you seen the documentary "Who Killed the Electric Car"? if not, please rent it. I just submitted a post to SA on this subject...hopefully they will publish it.
options: ok, thanks.
We do live in scary times. We could learn a lot from the past.
I think US policy was right on the mark after World War 2. The Marshall plan to rebuild the economies of its former enemies, which seems counterintuitive at first glance, turned them into great allies and has created lasting peace. The US learned a valuable lesson from the mistake of the victors of WWI. The bitter reparations imposed on Germany were totally responsible for the rise of Hitler and World War 2.
With Obama’s “Leave Iraq in 18 months policy”, a worse scenario will come into play. With no “Marshall plan” in place in Iraq, anarchy will ensue and Iran will step in and take over the region (much like Syria did with Lebanon). Then Iran will be poised to threaten others like Saudi Arabia, Kuwait, etc and this will escalate into a global conflict. McCain’s plan for gradual withdrawal is better in comparison with Obama’s plan; at least McCain grasps the concept that “You can’t just invade a country and then leave”. The lack of a Marshall plan in the Middle East has already given rise to the Hezbollah in Lebanon and the Taliban in Afghanistan.
Obama and McCain are certainly no Roosevelt nor Eisenhower.
Speaking of statesmen, perhaps, but if people had listened to Obama instead of people like Bush in McCain PRIOR to invading, we wouldn't be in the schtank that we are in now. that war took millions of barrels of oil off the market right at the same time china was ramping up its demand. oil took off like a raped ape (hmm...think bush's oil buddies profited from that?), the US dollar crashed, and now, so are are markets and economy. so, who do i have more faith in being "statesmen-like" going forward? obama. that said, he's having to change alot to navigate through the nomination and campaign process with the "press" on his rump. anyone who has read mccain's words or listened to him sing "bomb, bomb, bomb, bomb, bomb iran" knows he's just another war-monger who will drive our debt higher, our currency lower, oil prices and inflation higher, and continue the fascist consolidation of our financial systems into the hands of the "uber-controlling" bush faction.
I do give Obama credit for voting against Iraq as well as his good will tour in Europe to rebuild old bridges. I do like his collabrative attitude.
However, Obama is naive in many ways. Yes, McCain would be probably be a Bush III, but he does experienced view of the world. I give him credit for a proper withdrawal from Iraq as well as backing NAFTA. Obama is against NAFTA only to pander for votes. McCain is smart to see NAFTA has a clause in it that guarantee 60% of all oil and gas from Canada goes to the US. You scrap NAFTA, Canada sells to China and India instead. NAFTA also minimizes illegal immigration from Mexico, by keeping low paying jobs there. If you want to keep good relationships with your neighbours, you need to give and take. McCain sees that, Obama does not.
In regards to energy policy I give both failing grades. You would think with all the experts they have at their disposal, they could come up with a serious energy plan. My theory is they that are both afraid to do so since it would cost then the election. Look what happened to Jimmy Carter who had the courage to tell people what they needed to hear, as opposed to what they wanted to hear. Imagine what could have been accomplished in the last 30 yrs with a serious energy policy in place.