Leif Peterson

Gold and Silver: The Only Attractive Investment Option

>"That is why gold and silver look to be the only attractive investments out there now."

It would not be to the advantage of investors to *totally* jump into the foray of gold and silver. During March 2008, the gold ETF (GLD) mysteriously dropped -9% over the three-day period March 17 to 20 (99 to 90) and then dropped to 87 by April 1st. The cause was attributed to "big money" owners of GLD, who own so much they can essentially write tomorrow's headline. Hence, the volatility of GLD on any given day can be similar to behavior of the inverse financial ETF (SKF) during the Sept-Oct 2008 crash.

Everyone understands the value of gold for asset preservation and hedging against inflation; however, saying that gold and silver are the only attractive investments now is not wholly true.

Portfolio Diversification Is Key: Consider These ETFs

>Right now investors should be loading up on US equities

The above refers to companies whose earnings have steadily increased over the last several years, increased during Sept-Oct '08, Q1, Q2 of this year, and have projected earnings growth. Why would anyone invest in companies with decreased earnings. Finding such companies involves work, and when done, the list won't include equities with large PE ratios.

Portfolio Diversification Is Key: Consider These ETFs

GLD is based on gold, which is a commodity. The price of any commodity is based on what it can be sold for. For diversification, it would be better to construct a portfolio with less volatile index and currency ETFs, whose pairwise correlations range from -1 to 1. GLD and SPY price returns are quite volatile and driven by the combination of fear, emotion, market sentiment, corporate earnings, and economic reports.

Right now investors should be loading up on US equities, while preserving assets with 10-15% GLD (or gold mutual funds), 10-15% short-term treasuries(not cash reserves), 10-15% municipal bonds (e.g. PIMCO real return bond fund). Everything is pointing to devaluation of the dollar and inflation. The one currency that has done well over the subprime mortgage crisis (market crashes last Sept'08) is the Japanese Yen (FXY). You could also invest in some dollar bear ETFs [seekingalpha.com/artic...].

Why I'm Bullish on Gold, But Still Waiting

Great article! Indeed gold has many advantages over fiat currencies -- and it will be important to see what the Gov't will do to spoil the party. For safety, get some yellow metal offshore -- a little Perth Mint bullion may be helpful when the scenery gets real bad (5-10 years).

Why You Should Stick With the Dollar and the U.S.

Thanks for the comments. The intent of the article was to contrast the current crises in the US economy with recent history for country with a high literacy rate whose economy acutely dissolved (i.e., "dissolution of the USSR"). By acutely, I mean short-term rather that chronic (long-term) loss of a currency base.

In 2007, data reported by the UN (hdr.undp.org/en/report.../) suggest the literacy rate for the Russian Federation was 99.4% (ranked 11), while for the largest countries in the world the literacy rates were China 90% (ranked 85), India 61% (ranked 147), US 99% (ranked 17), Indonesia 90.4 (ranked 87), Brazil 88.6% (ranked 95). Pakistan 49.9% (ranked 160), and so on.

Because this article is about the US, the only other large country in the world with a similar literacy rate whose economy recently acutely dissolved is the USSR. Japan ranks 10 in the world population and has a 99% literacy rate, but I don't see that the "lost decade" compares to the dissolution of the USSR. Readers may not understand the implications of this. What's interesting is that the economy quickly dissolved in a country (USSR) whose literacy rate was one of the greatest in the world.

Looking at the Human Development Index (DHI, hdr.undp.org/en/statis.../ ), which combines life expectancy, literacy, and standard of living, Japan's ranks 8 in the world, while the US ranks 15, RF ranks 73, China ranks 94, and India ranks 132. Again, in terms of HDI, it's more appropriate to contrast the US with RF(USSR) before China and India if you need to use an example of an economy that quickly dissolved.

As a totally relevant aside, I have been the principal on many joint US-Russian nuclear research projects with Moscow-trained scientists, and have been doing nuclear research in several CIS countries over the last 20 years. Thus, I never really never *compare* the US. vs. RF. If you contrast economies of the US and RF, however, they are fundamentally different. I only used the historical case of the dissolution of the USSR as an example of rapid devaluation of a currency base in a highly literate country.

Metals Charts: Inflationary Forces at Work?

In 3-5 years, you will want to be in PM quite heavily because of inflationary pressure from monetary policy(printing money). At that point, Peter Schiff will be doing quite well. As a fundamental gold bug myself, I have been burned before in PM because of the speculative nature -- i.e., it is *assumed* the value will increase, vs. earnings translated into dividends by well-managed under-leveraged corporations. I think, however, that Shiff's argument for the impending West to East transition of both fiat currency and wealth (economic "governance") implies that owning PM may be the only way to hedge from the collapse of the dollar and the US economy.

China Stirs a Pot of Gold

Since hedging against inflation with gold is a form of asset preservation, how does this relate to the next bull market and its ensuing bubble? Will the increasing dividends of "depression-proof" companies with strong earnings over the last 2-3 quarters stop? Trying to understand how this relates to investing and staying ahead of inflation with high yielding dividends.

Four Ingredients to Create the Ultimate Gold Portfolio

These are good comments. "Printing Press" Ben will soon start dropping money from helicopters -- so get ready for a large pop in the price of gold and other precious metals (PM's). Historically, almost all of the bull markets for gold have lasted 10-14 years -- and we are in about midway in the current growth cycle.

With the lowering of the Fed lending rate to 1% this week, it now costs less to borrow money. Any time money costs less to borrow, the value of the dollar goes down. Unemployment is also rising quite quickly, so there is a stronger need to start hoarding. The inflation vs. deflation effects on gold is chaotic at present; however, this should stabilize in next few weeks.

Also important is the fact that China is not overleveraged to the extent the US/EU are, and in fact has less gold in its central banks than Germany! If China starts buying gold in gangbusters, you wouldn't want to be on the sidelines watching. You can purchase bullion and certificates online at the (offshore) Perth Mint (Perth Australia). Happy investing.

Gold ETFs: What Went Wrong With Conventional Wisdom?

It's the gold carry trade, which keeps the price of gold down.

Here, multiple tonnes of gold are loaned daily by central banks which artificially show up as supply via bullion banks via the London bullion market -- while on the same day other central banks have paperwork showing that they own the gold that's listed for sale (simultaneously). This is not transparent - and IMF is supposed to be going public the end of the year. Getting this trickery out in the public is part of the $2000/oz that goldbugs are hedging on.

The Amazing Dollar - Gold Correlation

What about the gold carry trade, which keeps the price of gold down. Here, multiple tonnes of gold are loaned daily by central banks which artificially show up as supply via bullion banks via the London bullion market -- while on the same day other central banks have paperwork showing that they own the gold that's listed as being for sale (simultaneously). This is not transparent - and IMF is supposed to be going public the end of the year. Getting this trickery out in the public is part of the $2000/oz that goldbugs are hedging on.

The Merits of Staying in Cash

Most of the companies mentioned are US companies: Dow, Dupont, Home Depot. Try looking at foreign stocks with large dividends which are far-removed from the dollar. Also, don't assume everyone is going to jump to GLD and SLV, for example, since we are in a deflationary period where money is being pulled back. Sure these PMs (precious metals) may go up, and I suspect I will get back into them as heavily as I was before the sharp correction over the last 3 weeks. Nevertheless, good article, since it points out equities that will poison a portfolio.

Bob Moriarty: Gold is Safe Haven for Looming Crash

You would probably be a fool not to buy gold right now. With regard to technicals -- look at the MACD and ultimate oscillator of GLD. The on balance volume (OBV) is not at a 1-year low, however, (probably because you will never see gold at extreme oversold levels). For fundamentals, you really don't have to do any homework. As an alternative, if you start playing the S&P500- or DJIA-associated equities, or BRIC-type plays, you will likely get burned.

How the U.S. Financial Crisis Resembles Japan’s 'Lost Decade' - And How to Play It, Part II

This is wholly true. However, there is really no safe haven for hedging and being *totally* removed from the ever-reaching tentacles of the dollar. Worst case is that having a cache of gold at home would be confiscated (remember, I said "worst case"). In the 1930's, the US monopolized the gold price and set it at something like $23/Oz. Certainly, if you think you are fully hedged in gold and the price will sky rocket, and 2-3 years from now you can cash in and will be on "easy street," you are probably making bad assumptions. If things get really bad, there will be frag everywhere, and you will need to be able to side-step a lot of landmines. Developing a good strategy for gaining financial and economic intel (self-study) will go a long way, and in spite of the above being in gold now at the 20-30% level is a very good idea.

Investing in European equities (e.g. growth stocks) will be profitable, as well as in Brazil and/or Japan. It is possible that telecom companies (cellular providers) in Japan (DCM, NTT) and EU (DT, TEF, ERIC, NOK, VOD) will do well due to explosive population growth, popularity of cell phone usage, and little dependence on oil. (For example, it is not expected that Verizon has huge transportation costs requiring gas/oil expenses, of for buying construction/building materials -- all of which are hinged to commodities whose prices are up 50-78% in the last year).

Regarding a free economy (free commerce), it would be logical that the markets operate perfectly like a well-greased machine. In addition, you would expect that each new day, on average, brings growth to a variety of sectors. But we now find ourselves amidst a system where there is lost trust where there are players who care and those who just don't care. The Fed is almost at the point of saying "uncle," so you need to do you own due diligence on what to play next.

For gold, you can always purchase bullion on line with a credit card from the Perth Mint, in Australia -- if you don't have a way to purchase via your brokerage account or transfer funds electronically . Perth is owned and backed up 100% by the Australian government, and gold owned there can't be confiscated. (I actually have never purchased at Perth -- but it is a hip-pocket move that I know of if I see things going poorly). There are risks with owning bullion through etf's or at home, so be aware of the Perth route. Don't store gold in a bank safety deposit box, since the banks took ownership of boxes when gold was confiscated by Presidential Act in 1933 (www.the-privateer.com/...). You can own gold in the form of historical coins (Eagles, Canadian Maple Leafs, Austrian Philharminics) and these *likely* would survive , but watch out for Krueggerands, since I believe they're not protected. Last, there is no law that states you can own gold bullion in the US, since owning gold is a privilege, not a right. You can gain some extra insurance by owning pre-1964 silver coins ("poor-mans gold") if you need to barter for something using US currency. At this point, paper dollars wouldn't be worth much. All of the above regarding gold and the extreme doom & gloom is anyone's guess on what might happen in the future. As you retire, and bring your off-shore profits back into the US, you will be supporting your local economy -- so *anything* you do for asset protection will be meritorious service.

Is Gold a Good Investment During the Credit Crunch?

This is a good historical article, which unfortunately selects e.g. the LIBOR 30-day MA and then shows how gold correlates with it. Thus, the intent is similar to a research question such as: how does gold correlate with the 30-day MA for LIBOR? Well, it looks like it doesn't. Now, how about going back to the drawing board and getting moving averages for say 100 sector indices, and in fact, start lagging the data, and while you're at it use something other than visual correlation. In research, especially statistics, we don't write articles about things that don't correlate -- so find something that correlates with gold, and then come back. (besides, wouldn't your boss kick you out of his/her office for writing something like this?).

GLD "Tonnes in the Trust" Increases by 46 Tonnes

This is an interesting observation and is most likely explained by a combination of FNM, FRE, unobserved but known write downs still to come after the housing credit burst, dollar devaluation, oil, and Iran. As the new global fiat currency shifts from the West to East, gold and other precious metals (PM) may become stronger parameters in the equation. However, until gold changes from being a commodity, there will always be high risk from profit taking. Just look at what happened mid-March 2008 this year when gold reached $1000 per Troy ounce, and the big movers decided to take some (significant) profit. A word to the unwise: Be careful, and never have more than 20-30% gold(silver) in your portfolio gold/silver. It's price can come down in gangbusters within 15 minutes. For technical analysis, I have learned that if the ultimate oscillator exceeds 70, then dump your gold. This would have saved a lot of people during the March profit taking.