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Messy, Ugly and Very Painful

Folks, the bottoming-out process is messy. It’s ugly. And it can be very painful. For Exhibit A, take a look at what we’re going through right now. But if you’re a long-term investor with strong nerves who can be cerebral in times where emotion has clearly taken over, these are the times that can end up making you a lot of money.

This story with European banks has really been worked up into a frenzy. There are a lot of people out there calling this Armageddon, but I’m here to tell you they’re wrong. Yes, there is a lot going on over there and yes, they’re going to have to feel their way through this. But folks, this is not 2008.

There will be a resolution to this European banking crisis, and it will come in the form of inflation. Eventually, Sarkozy and Merkel will realize that the only way to fix the problem is to print more money, so they’ll create something akin to our own Federal Reserve that has the power and capacity to print Euros. It’s either that or break apart the Eurozone—and that’s just not going to happen.

Once QEE (Quantitative Easing Europe) finds its way into the picture, I think we’ll see a run on stocks and commodities across the board very similar to the one that’s been happening with gold. Remember, we’ve got QEI going on here in the U.S., too. As fiat currencies are debased, putting money into risk assets will be the only way to maintain purchasing power parity down the road. Keep an eye on this and the opportunities that could present themselves.

And speaking of gold—the type of movement we’re seeing in that market right now, quite frankly, worries me. I’ve been bullish on gold since it was back below 1000 and remain bullish long-term, but the price action we’re seeing these last few days is signaling a blow-off top. These are the times when you might want to lighten your position—not sell, but put on some protection to the downside like we did with silver back in May. If I’m right and we see a correction, hopefully we can once again make more on the hedge than we lose on the underlying position.

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