In Search of the Perfect Investment

A weak dollar helps exports and hence jobs. Low interest rates help the banks get fiscally sound. Washington will do whatever’s necessary to protect the precious financial system — including printing oodles of dollars. If you print dollars, you will encourage today’s rampant inflation (except in housing) — which Washington ignores by measuring those goods, commodities and services whose prices aren’t skyrocketing.

The investment implications remain threefold: gold, silver and stocks with big international exposure. Silver is in a little bubble. But gold is on its way to $2,000 an ounce. This chart shows gold and silver on the last three years.

Many of our stocks — see right hand column — have done well, and are continuing to do well. I’m not worried. Now for some weekend reading:

From Richard Russell:

April 28, 2011 — A friend asked me, “Russell, what’s the most frustrating thing you can do when dealing with the markets?” I thought for a few minutes and then came up with my best answer: “The most frustrating thing you can do when dealing with markets is trying to call the final top or even the beginning of a secondary reaction in a primary bull market.”

In the 62 years that I’ve struggled with the markets, I’ve been able to call the bottom of primary bear markets a few times, but I’ve never hit the top of a bull market or the beginning of a secondary reaction on the button. I’ve been “close” (1959 and 1962) but close is about as good as I’ve been able to do.

But I’m a learner. What I’ve learned (the hard way) is that you ride a primary bull market until the market becomes absolutely outrageous (hysterical) or until you’re stomach tells you that you’ve “had enough.” Then you take your chips and cash them in. Once you exit a bull market, STAY OUT. Ironically, once you’re out, a bull market will do everything it can to try to lure you back in. But don’t do it. Jumping back in can be very costly to your bank account.

The reason I’m on this kick is because of silver. Suddenly, “everybody” is talking about and buying silver. Day traders are in silver, people who have never looked at commodities are buying silver. The media broadcasts the latest (eye-popping) price for silver. Silver experts are almost guaranteeing fifty-dollar silver ahead. And with all the damn cheering, silver keeps rising.

“The numerous silver shorts are getting killed” shout the silver-lovers. “There’s a squeeze on, and the poor bastards have shorted more silver than is available.”

And my reaction — There’s too much blabbering about silver. Too many amateurs are hopping on the silver bandwagon. I don’t like it, and it bothers me.

Personally, I’ve held a big silver position for years. So should I cash in my chips and call it a day? That’s what my emotions tell me, but my experience with bull markets tells me to sit tight. Silver is in a primary bull market, Russell, so don’t be in such a blasted hurry to take your profits.

Is this the “insanity” that I expect to see when the precious metals bull market blows its top. Is this the tsunami I expect when almost everybody wants to get out of fiat currency and into something safer like the precious metals?

Somehow, I don’t think so. Americans still covet US dollars. People are still running to dollar-denominated stocks and bonds as safe haven islands.

In essence, fiat money, irredeemable money, is a fraud, and it always has been. The end of the tale lies ahead. Fiat money is money created out of “thin air,” and out of a computer. Ultimately, all fiat money is fated to be seen as a fraudulent, man-made scheme. The vast majority of Americans are still “dollar-bugs.” The poor misguided devils are actually trading in their gold and silver for Federal Reserve Notes. They abide by the government’s edict that Federal Reserve Notes are the ONLY legal tender. Man creates something and pronounces it to be money. The mere idea of that goes against logic, experience and yes, morality.

Morality?? If I work my whole life for Federal Reserve Notes, and some damn Fed employee can with a flick of a computer create billions of so-called dollars, then I know that something is terribly wrong. Therefore, I’m betting against the Fed’s fraudulent products with the help of real, Constitutional money — silver and gold.

Ultimately, the truth will win, and the Fed will lose. As Mary Baker Eddy (creator of Christian Science) put it, “The only power that evil has is the power to destroy itself.” As I write, the Fed is on its way to destroying itself and its prize product, the Federal Reserve Note.

And from today’s Bloomberg:

Gold Luring Central-Bank Buyers May Extend Record Rally
By Pham-Duy Nguyen – Apr 29, 2011

Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices.

As developing countries accelerate purchases, gold may reach $2,000 an ounce this year, compared with a record of $1,538.80 yesterday in New York, said Robert McEwen, the chief executive officer of producer U.S. Gold Corp. Euro Pacific Capital’s Michael Pento, who correctly predicted gold’s highs for the past two years, forecast a 2011 high of $1,600.

Prices reached a record 14 times this month on demand from investors seeking an alternative to the dollar after the currency slumped to the lowest since 2009, U.S. debt widened, and the Federal Reserve signaled April 27 that borrowing costs will remain near zero percent for an extended period. The economy in China, the biggest foreign holder of U.S. Treasuries, grew 9.7 percent in the first quarter.

“China is out to have more gold than America, and Russia is aspiring to the same,” McEwen said yesterday in an interview in New York. “When you have debt, you don’t have a lot of flexibility. China wants to show its currency has more backing than the U.S.”

In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in official-sector purchases by countries including Bolivia, Sri Lanka and Mauritius, according to World Gold Council data. China, with more than $3 trillion in foreign-currency reserves, plans to set up new funds to invest in precious metals, Century Weekly reported this week. Russia purchased 8 tons of gold in the first quarter.

China, which has just 1.6 percent of its reserves in gold, may invest more than $1 trillion in bullion, Pento said. “China wants to be an international player, and they need to own more gold than they currently have.”

The U.S. Treasury Department projects the government could reach its debt ceiling of $14.3 trillion as soon as mid-May and run out of options for avoiding default by early July. The Fed has kept its benchmark rate between zero percent and 0.25 percent since December 2008 to help stimulate the economy, driving the dollar down 11 percent against a basket of six major currencies during the past year.

“Until monetary policy changes, you’re going to continue to see gold go up,” said Michael Cuggino, who helps manage $12 billion at Permanent Portfolio Funds in San Francisco.

“Ultimately the best thing we can do to create strong fundamentals for the dollar in the medium term is first, keep inflation low, which maintains the buying power of the dollar, and second, create a stronger economy,” Fed Chairman Ben S. Bernanke said on April 27.

As of April, China was the sixth-largest official holder of gold, with 1,054.1 tons, according to World Gold Council estimates. The U.S. has the most, with 8,133.5 tons, or 74.8 percent of the nation’s currency reserves, council data show.

Central-bank buying may have the same impact on gold as the introduction of exchange-traded funds, Cuggino said. Prices have more than tripled since the SPDR Gold Trust, the biggest ETF backed by bullion, was introduced in November 2004.

Central banks in emerging markets may aim to hold 2 percent to 8 percent of their foreign-currency reserves in gold, Francisco Blanch, the head of commodities research at Bank of America Merrill Lynch in New York, said in an interview.

Gold is “close to” its cyclical high, said Blanch, who expects the metal to average $1,500 this year.
Gold’s Enemies

“The enemies of gold are rising interest rates and a balanced budget,” said Pento of Euro Pacific Capital in New York. “I look for a summer swoon once Bernanke exits the bond market. You’re going to have a temporary rise in real interest rates.”

The Fed said it would buy $600 billion in U.S. Treasuries through June.

The Federal Funds rate would have to rise to “Volcker” levels before gold enters a bear market, said Gold Corp.’s McEwen, who expects the metal to rise to $5,000 over three to four years.

Prices have advanced 7.7 percent this year, extending a decade of gains in which gold jumped sixfold from a low in 1999. The all-time inflation adjusted record is $2,338.92, based on the value on Jan. 21, 1980, according to a calculator on the Web site of the Federal Reserve Bank of Minneapolis.

Former Fed Chairman Paul Volcker ended gold’s rally to a then-record $873 by raising borrowing costs to 20 percent in March 1980.

Susan buys a Thunderbolt. I get to use its hotspot.

Promotions work. Verizon offered Susan a new Thunderbolt cell phone for $199.95. Get rid of her old BlackBerry. Buy a new, faster, sexier Thunderbolt. The phone is big and clunky, but has one huge plus. It runs on Verizon’s new, ultra-fast 4G/LTE network. And we can all use it as a WiFi hotspot for our laptops, our iPads and my iPhone. The speed is stunning. I was getting speeds faster than broadband landlines — including cable.

This morning I measured a 10.85 megabit download and a 2.10 megabit upload. But it felt much faster last night — I guess when congestion on the network was less.

The only downside to this awesome phone is that its battery life is short — especially when it’s servicing a bunch of laptops and iPads.

I don’t quite understand Verizon’s obsession with speed. Their FiOS fiber service is also awesome. I measured mine this morning — an awesome 43.63 megs down and 20.41 up.  Verizon must think speed is a major marketing plus. And the customers, once they figure it all out, will come. Yet they make little mention of it in their marketing. Verizon’s stock is not even back to where it was three years ago.

This chart does not include Verizon’s nice 5.1% dividend yield. That’s a nice bonus. I don’t own their stock, though I love their speedy products.

Donkey Story 1.
A man, a boy and a donkey were going to town. The boy rode on the donkey & the old man walked.

As they went along they passed some people who remarked “What a shame the old man is walking and the boy is riding.”

The man and boy thought maybe the critics were right, so they changed positions.

Later they passed some people who remarked “What a shame…. he makes that little boy walk.” So they then decided they’d both walk!

Soon they passed some more people who remarked “They’re really stupid to walk when they have a decent donkey to ride.”

So, they both rode the donkey. Now they passed some people who shamed them by saying “How awful to put such a load on a poor donkey.”

The boy and man figured they were probably right, so they decided to carry the donkey.

As they crossed the bridge, they lost their grip on the animal and he fell into the river and drowned.

There is a moral to this story.

If you try to please everyone, you might as well… kiss your ass goodbye!

Donkey Story 2.
A fifty-ish woman was at home happily jumping on her bed and squealing with delight.

Her husband watches her for a while and asks, “Do you have any idea how ridiculous you look?, What’s the matter with you?”

The woman continues to bounce on the bed and says, “I don’t care, I just came from having a mammogram and the doctor says I have the breasts of an 18 year-old”.

The husband said, “What did he say about your 60 year old ass?”

“Your name never came up,” she replied.

Harry Newton who cried all morning as he watched the Royal Wedding on TV. I didn’t get an invitation. Shucks. They got more gold on their uniforms than Carter had liver pills. And they do have some seriously insane hats — on the men and the women.