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JJ Butler
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JJ Butler (pseudonym) spends his days doing research for investment and writing. As a teen he was inspired by two biographies on Warren Buffet and subscribed to the Wall Street Journal. Today Jeff reads 10-Q filings and takes notes while listening to company conference calls. Jeff resides near... More
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  • Gold And Central Banks: Path And Destination 5 comments
    Sep 13, 2012 11:08 AM | about stocks: GDX, SLV, TLT, GLD

    With the Fed meeting Wednesday and Thursday, discussion regarding Federal Reserve policy have become ubiquitous. Every talking head and blogger has opined whether policy action will occur and as to the effectiveness. Today's meeting is important in the short term; in the long run it's irrelivant.

    Investors can speculate on the exact path. The destination, however, is clear. In the years ahead massive currency debasement should be expected.

    Even in today's benign economic environment, loose policy is being demanded. A leading Senator exhorted the independent central bank to 'get to work.' Paul Krugman continues to encourage "the central bank to credibly promise to be irresponsible." Felix Salmon notes 57 hyperinflations -currency collapses- and is unable to connect the dots. When economic softness returns, money printing will be demand and will occur.

    Meanwhile, the fundamentals continue to balloon. Unfunded U.S. government liabilities grew by $11 trillion in 2011. Clearly these commitments will not be met in kind. Human nature does not change. History illustrates massive debasement can be expected.

    Earlier this week George Soros endorsed a 5% nominal GDP. Savers are already being robbed in a negative real interest rate environment. Soros is advocating much higher level of negative interest rates to ease 'excessive indebtedness.' While a bond (NYSEARCA:TLT) holders nightmare, this environment would be a precious metal panacea. The thought process is still a monetary frontier, but so was quantitative easing in 2008. In short, it's coming at the first hint of meaningful economic softness.

    This week's Federal Reserve meeting and the ECB bond plans are attempts to continue credit expansion. Suppressed interest rates, ballooned fiscal deficits and quantitative easing halted the 2008 financial crisis collapse. Continued money printing must occur at soon enough to prevent mass default.

    "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. If there were, the government would have to make its holding illegal, as was done in the case of gold." ~Alan Greenspan in 1966.

    Fortunately, owning gold was made legal again in 1974. When penning these words in "Gold and Economic Freedom" no one could have known Greenspan himself would decades later help facilitate the current credit bubble.

    "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." ~Ludwig von Mises

    A thriving internet community of gold bugs continually weigh precious metal investments. Gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) are at the foreground, while gold stocks (NYSEARCA:GDX) receive much attention too.

    Voltaire said "Paper money eventually returns to its intrinsic value - zero." In November of 2002 Ben Bernanke presented the investment world with the central banker playbook. Join me as I monitor developments.

    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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Stocks: GDX, SLV, TLT, GLD
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Comments (5)
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  • mlbex
    , contributor
    Comments (209) | Send Message
    "Place your bets ladies and gentlemen. Ben will spin the wheel today; place your bets on red or black before he does."


    Doing nothing is also a bet. No matter what you do, the value of your portfolio will change today based on what one man says.


    Am I alone in believing that this is absurd?
    13 Sep 2012, 12:13 PM Reply Like
  • mlbex
    , contributor
    Comments (209) | Send Message
    Ding Ding Ding. All bets are closed. The answer is: BLACK!


    Sorry, if you bet on red, you lose.


    gld just went up $2.00. He must have decided on QE3 even though I can't find it on Google. Maybe something else happened, but I doubt it.


    OK, I made a bit. But I'd rather have stable value; who's to say I'll do as well next time.
    13 Sep 2012, 12:39 PM Reply Like
  • JJ Butler
    , contributor
    Comments (276) | Send Message
    Author’s reply » The essay was meant to tease those looking at trees to the exclusion of the forest. Unofficially, but permanent money printing...
    13 Sep 2012, 01:19 PM Reply Like
  • mlbex
    , contributor
    Comments (209) | Send Message
    I bet on the trees knowing I can't do a thing about the forest :=(. BTW I agree with your long-term assessments. My commentary was intended to enhance yours.
    13 Sep 2012, 01:36 PM Reply Like
  • JJ Butler
    , contributor
    Comments (276) | Send Message
    Author’s reply » Unofficially, today money printing become permanent: http://bit.ly/RUC4uC
    13 Sep 2012, 02:10 PM Reply Like
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