November 16, 2012
Many investors do not remember October 19th 1987.
That was the day the stock market crashed. The Dow fell over 500 points/23% in one day. The crash was a culmination of a decline that had started in August.
It is important to note that gold served as the best source of liquidity during that crisis and increased in price between October and the end of 1987.
We bring this up because there is an important article on Marketwatch that points out distinct parallels between the conditions that existed in 1987 and today:
Current drop echoes 1987 crash prelude
By Jon D. Markman
The Dow Jones Industrials have fallen 450 points over the past two days, and a lot of the blame has been placed on the re-election of the president. But anyone paying attention to the market over the past three months recognizes that the peak was actually made the week that the Federal Reserve announced a third round of quantitative easing. That was expected to be a positive event, but in retrospect, it ushered in a rolling thunder of value-eroding news events.
Soon after began a very underwhelming earnings reporting season, word of a deepening industrial slump in China, a broadening recession in Europe and the martyrdom of Spain. And then this week it suddenly dawned on people that if U.S. lawmakers can’t stop acting like stuck-up brats, then $1.2 trillion worth of ham-handed spending cuts and tax increases are about toplotz on red states and blue states alike in the coming year.
Independent estimates suggest that would shave four percentage points off GDP faster than you can say “sequestration,” or “defenestration” for that matter, and lead to millions of lost jobs. It looks like the president would be OK with that, since he booked a tour of Myanmar for next week.
In short, the election put an exclamation mark on a parade of indignities, but it is far from the only proximate cause. Investors have liquidated U.S. assets for a while; it’s just more noticeable this week.
November 5, 2012
Over the years, a great deal of attention has been focused on the dollar and its troubles born of feckless fiscal and monetary policies in the US.
Less attention has been paid to the euro–that common European currency started in the late 1990s. The euro is very nearly as significant to the global economy and financial system as the dollar. That’s because the combined economies that make up the European Union are on a par with the US economy in terms of size. And if you look at Europe, you see clearly that their fiscal and monetary policies are very similar to those of the US.
What all this boils down to is that both the dollar and the euro are built on shifting sands. Neither can be considered a long-term viable alternative to the other. Each may benefit in the short-term from trouble in the other, but, over the long-term both of these currencies are shackled by much more fundamental problems.
This is especially significant in view of a recent article published by The Telegraph in the UK which describes the euro’s troubles in detail and proclaims that the euro is entering an era of permanent depression:
Investors must not put their trust in man-made paper currencies. Man has the tendency to grossly overproduce when it comes to money. That is happening in the dollar and the euro right now and has been for some time. But men and governments cannot print any more gold. Gold is the ultimate form of real money and has been for 5000 years. Investors need gold to balance a portfolio overweight in paper to provide the diversification and performance potential that only gold can provide when governments undermine the value of their national currencies…
October 29, 2012
The markets closed early today due to Hurricane Sandy and trading in gold was subdued due to so many New York traders and investment houses hunkering down for the storm.
So, rather than review today’s inconsequential market results, we decided to look in our archives for articles that we might have overlooked that are particularly relevant to hard asset investors.
We think we found two from just under two weeks ago that everyone should stop and take a closer look at.
First, recently, Pimco, the parent company of the largest bond fund in the world, warned that a further downgrade of America‘s sovereign credit rating is in the cards. They think it’s inevitable and will probably happen just after the first of the year…
Second, Mark Hulbert, esteemed editor of the Hulbert Financial Digest, one of the oldest and most respected investment newsletters out there, has pointed out that extensive academic research indicates that a 1987-like stock market crash is “inevitable.”
Both of these articles are relevant for investors because they should both serve as warnings that paper assets that might seem secure today, may not actually be so secure tomorrow. If US Treasuries are no longer rock solid and the stock market crashes, gold investments will likely be the most secure assets that an investor can own.
October 29, 2012
One of Wall Street’s true all-stars, who correctly forecast the subprime mortgage debacle back in 2007-2008 is now forecasting sharply higher gold prices over the next two years.
Peter Schiff, head of Euro Pacific Capital, thinks that the combination of runaway government spending and loose monetary policies will cause the price of an ounce of gold to climb to $5,000 per ounce over the next two years.
Note that Schiff sees this eventuality regardless of who wins the presidential election next week…
Here is a video of Schiff’s statement on CNBC–TV last week:
September 27, 2012
The price of gold surged higher by over $25 per ounce to just under $1,780 on a double dose of news that the market regarded as bullish.
First came the news that China was further embarking on a monetary stimulus plan of its own to try to jump-start its slowing economy. With Europe, the US, China and Japan all printing money at the same time, traders are very bullish on the outlook for gold.
At the same time, Spain announced that it would meet budget deficit targets, an indication that perhaps the worst is over for the Spanish depression.
September 13, 2012
Against a backdrop of turmoil and violence in the Middle East, the Federal Reserve today announced a new round of monetary stimulus to jump start the stagnant US economy.
As a result of this announcement the price of gold shot up $37 per ounce to a six-month high, closing at just under $1,770 per ounce.
Stocks also soared in response to the announcement in hopes that the new Fed policy would succeed better than QE and QE2 in getting the US economy humming along again. The Dow finished higher by over 206 points.
The nature of QE3 amounts to the Fed going out in the open market and buying $40 billion worth of Treasury bonds every month, thus increasing demand for US Treasury securities and injecting more dollars into circulation.
We are not at all sure that this will result in a healthier US economy, but we are sure that it will result in a weaker dollar and higher inflation. Because of that, we expect that the current bullishness in stocks will eventually expire and the bullishness in gold investments will continue. A weaker dollar and higher inflation have historically been bearish for the stock market and bullish for gold.
Flooding the world with more dollars can only mean a weaker dollar and such stimulative monetary policies have historically led to higher inflation. We expect that inflation will make itself felt in the form of higher oil and gasoline prices in the short term and in other areas down the road.
All of this should prompt investors to buy gold investments now because it appears that gold has a ways to run. And the best way to take advantage of higher gold prices is to buy rare gold coins, which have added profit potential due to their scarcity.