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The Safest Bet During Uncertain Markets
With six consecutive intraday triple digit swings from high
to low in the DJIA index, here's the safest bet during these uncertain times.
Beginning last Thursday, volatility has returned to US markets with a vengeance.
So who’s going to win the battle between the bulls and bears now? With the loss
in confidence in global markets and the further exposure of the rigging games
of markets precipitated by the 700 point drop in the DJIA in ten minutes last
Thursday, sustained volatility and further corrections are likely in our near
future. If so, then where’s the
safest place to be now? The same place it has been for the past five years –
precious metals.
Listen to the propaganda of western commercial firms,
however, and you may not even know PMs are an investment asset. Consider the
following story reported by the Los Angeles Times in April 5, 2010:
At least one-third of Kimberly Sterling's clients have
sought advice in the last year about investing in gold. The Orlando financial
planner has successfully discouraged all but one from doing so. That one
investor insisted on having some gold in his portfolio, she said, despite her
warnings. Eventually she referred him to a gold-commodities exchange-traded
fund that has done well during the metal's decade-long run-up in price. But her
firm, Resource Consulting Group, still wouldn't buy in. "Our bottom line
is this: Gold is a bubble now, and it is too late to get in," she said
recently. "It is like someone who bought real estate in 2006, at the
height of that bubble. You could get hurt really badly."
Since the time that article ran, gold has since returned
10.08% and silver 10.17%. The S&P 500? - Negative 2.5%. Terrible advice like the above is typical from advisors that
work for large commercial investment firms because (1) most are willing
participants in the massive fraud inherent in the world’s stock markets today;
and (2) they fail to understand the mechanisms of our monetary system. If they
truly understood the mechanisms of financial markets today, they would
understand that all the commercial investment advice about gold being a risky
asset is pure propaganda along with 90% of the other advice they dole out to
their clients.
If you understand how the global monetary system and financial
markets truly operate, then your vision will expand from the tunnel vision of most
commercial investment firm advisers to a much wider perspective that would
recognize the importance of owning gold and silver.
Almost four years ago, in this article I printed on my investment blog, the Underground Investor, on August 16, 2006, I
stated the following:
“Over 7-½ years, if your portfolio has tracked the S&P
500’s index as some 97% of professional money managers aim to do, you have
about the same amount of money you had 7-½ years ago. Only with the rapid
devaluation of the dollar, your same amount of dollars buys much less today,
so...tracking the index has lost you money...And that’s the good news. The bad
news is, as of 2006, the US stock market’s performance will likely become even
worse for the rest of the decade.”
Though it’s hard to remember the sentiment surrounding US stock
markets four years ago, I can assure you that at the time I delivered my above
predictions, the general consensus was that I was crazy. So how did my above
prediction pan out? On August 16, 2006, the S&P 500 closed at 1,295.43.
Today, it stands at 1,157.43 for a loss of 10.65%. Consider the devaluation of the dollar and your losses
amount to a much more significant amount than 10.65%. And what about gold
during this time period? On August 16th, gold was selling for $629.75 an ounce.
Since then, at $1,236.80 an ounce, gold has risen 96.40% (less the inflation of
the dollar during this time). But even back on August 16, 2006, thousands of
advisors that work for global commercial investment firms were dispensing terrible
advice similar to Kimberly Sterling’s even as I was outlining, in this article,
the reasons why “Gold’s Speculative Stigma is Unwarranted”.
How do I know this? Because when gold was trading at $500 an
ounce, I recall reading analyst reports by precious metal “experts” at top
“prestigious” firms that warned their clients of a massive gold bubble and a
pending crash of gold from $500 an ounce back to the $250-$300 an ounce range.
How can these experts have been so wrong?
Three reasons.
ONE: Commercial investment firms do not earn fees from their
clients buying gold and silver. Thus, the reason they perpetually discourage
it. Precious metals are the enemy
of all fraudulent fiat money including the SDRs of the IMF and the financial
derivative products of Wall Street. Consider this story in which HSBC ordered
their clients to remove their gold from their vaults, all at their own expense.
TWO: Commercial investment firms do not educate their
financial consultants regarding precious metals. Most of their consultants probably
could not even properly explain something as basic as the difference between
ounces of metals classified as resources and those classified as reserves and the
significance of the different categories among these classifications. Having no
basic understanding of precious metals leaves their consultants woefully unprepared
to provide any type of meaningful guidance regarding PMs. For example, when the
aforementioned Kimberly Sterling finally gave in to her one client that
insisted on owning gold, she steered him into a paper gold ETF. But here’s why even
that advice will most likely turn out to be a huge mistake.
THREE: Most
commercial investment firms rely on the naïve trust their clients place in them
and their client’s lack of understanding about how they reap their profits to
exploit them. They manipulate their clients’ fear about volatility and
misunderstanding about diversification to ensure that their clients don’t
invest in PMs and instead, invest in financial instruments likely to return
less but generate more fees.
Yes, gold and silver are volatile, and have historically
been volatile due to the price suppression schemes against them engineered by
Central Banks to discourage investors from investing in gold and silver. However, if one understands how the global
monetary system operates, one can use this knowledge to predict the effects of
these price suppression schemes in advance. Commercial investment firms always
tell their clients that volatility is terrible and to fear volatility, but the
only reason to fear volatility is if you don’t understand what causes it. Of
course, whenever volatility occurs in the stock markets, they inform you not to
be shaken out of the stock market, because the stock market always goes higher
in the long run (a myth we have also deconstructed in this article, unless your
investment time frame is 50 to 100 years). When volatility strikes the PM
markets, however, they seize this opportunity to label PMs as risky. As long as Central Banks and
their governments scheme against PMs, gold and silver will continue to have sharp,
scary drops in the future. If, however, one understands what causes the
volatility in the gold and silver markets, one can actually leverage volatility
to one’s advantage.
The myth about volatility in gold/silver being bad while
volatility in stock markets is okay is equivalent, on a propaganda level, to
the myth about the “safety” of diversification. In this video here, I explain
why diversification is more Wall Street propaganda as well.
In conclusion, one should know that ulterior motives and
ignorance drive commercial investment firms to misinform you that precious
metals are a risky investment while stock markets are the safe place to be.
Unless you figure out that Wall Street has flipped this equation upside down,
you’re liable to be hurt very badly in the coming years. Furthermore, the 30, 40, 50-year time frame that commercial investment firms' gold analysts utilize to belittle gold's performance is also bogus. When Alan Greenspan was Chairman of the US Federal Reserve, one of his stated missions was to get the world to view the dollar as if it were backed by gold even when it was backed by nothing, and for a while, he succeeded in selling the world the lie of a strong dollar. However, now that this deceit has been revealed to the world, one needs to assess gold as an investment asset under a much more narrow time frame. Of course, if you're from Germany, Argentina, Thailand, South Korea, Zimbabwe, or any other country that has undergone a severe monetary crisis that produced bank holidays, runaway inflation, and government pleas to their citizens to hand over their gold, then you don't need me to tell you this.
About the author: JS Kim is the Chief Investment Strategist
and Managing Director of SmartKnowledgeU, LLC, a fiercely independent wealth
consultancy company that guides investors in the best ways to build wealth
through the progression of this global financial crisis. His investment newsletter,
Crisis Investment Opportunities, has significantly beat all major developed
stock market indexes since its launch in 2007, outperforming the Australian ASX 200, the UK FTSE
100 & the US S&P 500 each by more than 140% to 150% (in a
tax-deferred account, cumulative returns for the investment period, June 15,
2007 to May 12, 2010).
»
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Well, that really is the bottom line, isn't it?
Personally, I figure I'll be using my PM to bribe the border guard so I can get the hell outta dodge if I need to. That is one practical use...
If gold drops below 800 again though, it's going to be pretty tough to sit on my hands and do nothing. I guess that is why I'm poor...
"you can always tell from the upper middle class, they're always saving receipts, even other people's receipts..."
-(paraphrasing; forgot who said that, lil' help?)
Spoken like someone who is already invested and has an interest in seeing such assets perform well. Nevertheless I do agree that hard physical assets are a proportion of any strong portfolio, the recent re-obsession with gold/silver is entirely unwarranted beyond the physical properties of such materials in value-added production.
Diversification this, diversification that - it is all meaningless when placed in speculative equity as you are not truly diversifying by buying cosmopolitan securities traded on worldwide markets that are subject to the same winds of change as everything else. Diversification must span true asset classes which are selected judiciously for a strong i correlation of increasing in notional value independent of changes in currency bases, political climates, social expectations, etc.
Even if you "lose money" in the short term, investment is a time derivative and must be examined from the long term. Unless you are a day trader for some nondescript corporation or PE firm, you can only protect your purchasing power through a wide mix of very conservative and reliable assets which compound according to schedule. Chasing 7-8-10% returns in this market over any short or medium term is likely suicidal.
Some will get rich, yes. Most will lose their livelihoods, but at the end of the day value is not created by the judicious actions of the fiancnial markets, so you will always realize a loss.
Gold in particular is unattractive due specifically to the obsession with it, which makes any reasonable efforts at true valuation an act of futility. It will likely go up over the long term, as sovereigns invent ever more creative ways to mitigate budget deficits through postponement of principal reduction, but at what esoteric costs? It is worthless in real time as a currency, lacks a process for price discovery, is subjected to the speculative herd mentality, few have the electrical skills to turn it into a value producing asset, and the stress of participating in volatile asset classes led by media and market manipulation lends to a significant sunken cost to overcome over any given interval.
When you look at assets such as physical jewelry, precious metals used in manufacturing, government and non government debt, tax incentives for physical property, low interest rates, compounding, and the time value of money, etc. - it makes complete sense to invest in expanding an individuals skills and understanding, reducing liabilities, preserving cash flow, and expanding one's network of connected individual than it does investing $1000 in an ounce of a rare malleable yellow metal. All is relative, and gold is relatively expensive to the expectation of it's current value, whereas lending a neighbor $1000 to cover his/her child's college books probably is not.
When the alarms sound, everyone fears for the big bad inflation wolf to blowe their houses down, and the world is frantically searching for a stable asset class, perhaps we will realize that such an object only has value if someone else is willing to exchange goods, services, or labor for it.
I for one would prefer to rely on ingenuity.
I am looking for convertible bonds issued by gold miners. Does anyone have recommendations? Also I am looking for gold bonds.
Here ya go: http://pics.drugstore.com/prodimg/14164/200.jpg
Can somebody in the 'gold is a bubble' crowd explain to me what happens when all of those people who have bought paper gold figure out they can't actually ever take physical possession of it (because that same oz. of gold they are claiming as theirs has also been sold to X number of other people as well)?
That is one argument I've heard for a price explosion in gold.
heh my wife is from thailand and doesn´t know anything about finance.
one thing she knew thou without me telling her, that gold is money...
Nobita. I feel sorry for you, this is your logic?
"heh my wife is from thailand and doesn´t know anything about finance."
She definitely knows then? OMG. There is a better site for you it's called. CNBC.com
You can't be serious? Please tell me you left off the /sarcasm tag
Or are you another troll?
smells like yahoo finance 'round here at the moment...
Troll? One of the top 3. His crappy $37K is pocket change.
silly 3-digit captcha...
3 character captcha is broken have to hit submit twice, as you found out.
ZH: yo captcha is and has been broken for a long time.
PMs are not an investment. They are a store of wealth, with expected small negative return. I have a reasonable allocation but lightened up this week after the spike. Good to diversify against crisis scenarios, worth having a small percentage of ones wealth.
Mostly a long term play unless you are a successful nimble trader. Short term risks are huge - one never knows when liquidity problems will force a sale from a large holder, pushing prices down. If a price decline is obviously due to liquidity, though, it's a buying opportunity.
If this link below isn't signaling a top in Gold NOTHING WILL!!!! WAKE UP GOLD FOOLS.
http://www.newser.com/story/88750/gold-vending-machine-debuts-in-abu-dha...
Wait is that loaf of bread one gold piece? No here is a metal cutter, cut in into fours. LOL. You people are DELUSIONAL!!! ahahaha.
Where is Rocky Raccoon the 'gold salesman'?
Wait I think my mom is calling...You fing idiots. Booked 37k in the last week trading, hold on to that gold though worms!
Yeah.
Because the appearance of the soda vending machine was a clear sign of the impending collapse of the soda-pop bubble, right? I mean, whoever heard of Coke or Pepsi after they became widely available for purchase through vending machines at times that were convenient for the purchaser and didn't require an actual store to be open?
And, of course, the appearance of the ATM was a sure sign of the demise of non-redeemable paper ticket currencies right?
Go back to your PS3. The adults are talking.
You rang? I'm not playing. Last time you did this you clogged up the whole post.
I won't reply to your goofy rants.
What was your signal to sell your fictional Au @ 1000 you 16 year old?
Gold and Silver safe? No! That's why it needs to travel in the company of its good friend, lead and brass (as in bullets). If you believe that fiat currency is or will be worthless, the PMs are for you. Period. The end.... and it will not end well!
From an old-timer: A bit of advice...
Really smart money has the discipline to stay out of markets that have little or no high percentage predicatbility of success. Only rookies and idiots feel they have to play this game every day.
Be disciplined. Sometimes your best trade is the one that tells you to do nothing. Pick high pecentage trades and investments -- period. These markets are some of the most unpredictable that we've ever experienced in 30+ years.
Good luck everyone...
Hey 'old timer'... Maybe you should retire. I've made 37k in the last week trading so what am I to take of your advice?
Opinions are like a$$holes my friend. Keep your wide generalizations to yourself, you look foolish and prove that age doesn't beget wisdom.
Son... when you can take $370K, 30+ years ago, and parlay that original investment into a $180MM family, private office wealth fund, then you can let everyone know your tiny little $37K is nothing more than a small pimple, on a big elephant's ass. Your condensending arrogant youthfulness, clearly shows your immaturity,
The MORAL: It's smart-ass kids like you, that we have been energetically taking money away from for over 3 decades. Keep up the arrogance because one of our well disciplined in-house traders, will soon come and take your measly $37K back away from you. Simply stated, you've lost without even knowing guys and families like us are out there. In addition, all the good folks gifted enough to share their well-healed thoughts and experience on ZH, together, as a forward thinking, proactive community, are refreshing in a market fraught with arrogance, stupidity, and irresponsibility. In closing, kids like you should better mind your manners. Shut your mouth and open your eyes and ears, and you actually might learn something. Good luck everyone. Finally, sorry to Tyler and the ZH community for stepping out a bit here in our response. I believe the old-timers understand my message.
I understood your first message, but your second just makes you sound like an older, richer version of little Yippie.
To me it doesn't sound like either of you have added much value to the world. Get real jobs. Professional investor = professional gambler.
Yeah, but it's still fun to see somebody else get a bitch slap for a change.
Now thats what I call a smackdown!
+1
And you think that getting lucky entitles you to share yours and suppress others, no matter how ignorant and ill-informed and rude it may be.
Getting lucky? Share yours and suppress others? Maybe you should proof read. How do you know if I am lucky or just good? You don't. I do this for a living and haven't had a down year since 2005. This guy made a ridiculous comment and I gave him a smack down. His comment is absurd. Just because you're losing today(most likely) because you 'buy on dips' and listen to the mass media don't blame it on me. I also assume you're an old foggie too. Get lost. Go buy some gold sucker.
"Since the time that article ran, gold has since returned 10.08% and silver 10.17%. The S&P 500? - Negative 2.5%. Terrible advice like the above.... "
This is terrible logic.
All those who predicted the crash of the dot com bubble back in the ninties were proven correct in the end, despite markets going up another 10%-20% in the short run...
So your logic is the terrible one and flawed, and I proved it empirically.
Do not forget that in order to buy gold you need money, and fiat money is hard to get your hands on these days. Why? because fiat money is debt and debt is contracting. We will have debt deflation in the next years because banks don't lend new money. All those printed money by the fed is monetary base held by banks, but those money do not reach main street.
Well put - if that silly, worthless , paper money that is being recklessly printed by benny is indeed so copious - I would be much obliged if someone would send me a stck of that worthless stuff!
I too am a fan of Gold and Silver. However, my investments are in PMs are exclusively in GDX and Hecla which may do me no good in the case of a breakdown in social order or if other countries adopt taxes similar to Australia's 40% mining tax.
These investments have done well for me over the last couple years (though volatile) but I don't know what to do now. Hold? Sell, pay the long-term capital gains and buy physical? Buy guns, ammo and non-perishables? Hookers and blow?
Could some other fans of the barbarous relic do me a solid and provide opinions on this strategy?
Can't comment on your investment strategy, but I can dispel one misconception: John Maynard Keynes did not say that gold is a barbarous relic. He said that the Gold Standard was a barbarous relic. Big difference. Not to pic nits, but...
http://news.goldseek.com/JamesTurk/1126711755.php
In those countries with prevelant gold shops owning gold is like carrying your bank around with you. A number of country Thais regularly cash in gold chains to 'withdraw' cash and buy chains when they have cash to 'save'.
I think the safest place to be is in Rental Real Estate. Rents will give you about a 5% yearly return and if values start to recover you will get another 3 to 5% on the value of your Property. You also get the Tax advantages of Mortgage, Property Tax,Ins, Repair Deductions. Plus, you get to depreciate the Property which is totally deducted from your earned income.
For Retirement all Rental Income is considered unearned income and does not go against Social Security payments.
Biggest advantage is that Wall Street cannot play with your Investment and income.
@Waterfall
Be careful here.
For 25 years up to 07 my due diligence proformas projected rents increasing faster than expenses. Not any more.
Expenses are going to increase a minimum of 3%. Think taxes, government fees,water, electricity, workers comp. Yes I can chisel my plumbers etc. but overall minimum 3%
And to believe that rents are increasing you have to believe that we are coming out of this mess in good shape. Effective collectible apartment rents are falling in most US markets.
Good luck!
"Biggest advantage is that Wall Street cannot play with your Investment and income."
Waterfall,
Wall Street just hammered the real estate industry and it's not over. It's only halftime. Where have you been? The only rental investments that are probably still performing are properties purchased prior to about 1990 to maybe 1995.
Or those in economically stable areas, or those which were purchased outright.
Right, just up to the point where your local government decides that "affordable housing" is a right and therefore institutes rent controls.
I like gold - have since 2001. But please - to call it "Safe" is just not safe. It is a fetish item. A deep fetish - but a fetish nevertheless. You still need that crazy Fiat Currency to pay taxes ( or they might put you in jail), pay for the basics of life. So gold is not really a currency. It is viewed as a store of value by millions of peasants in India and china, thousands of europeans etc. It has a long history - and one has to respect anything in human culture that lasts centuries. At least , it is arrogant to dismiss it ( like academics do). But it is not safe - in the sense if you need money to pay the rent - gold may not help you there.
tnx, jsk. great read.
the only reason i agree with the assertion that "safety through diversification is a myth" is that my usual execution of it is with cross-correlated vehicles that compliment each other and temper risk (and often profits).
i don't know of any of those historic correlations that still hold, so diversification is currently a double gamble for me, not a hedge.
the only correlations i believe in:
- the MSM is probably lying
- the banks are probably lying
- the government folks are probably lying
- most people are not getting smarter about any of this, so i don't expect much less lying.
my better interests don't seem to have a positive correlation with any of theirs, as i just want to be left alone to do what i want, with the consequences of those actions - good or bad - applied appropriately.
Probably lying? That in itself is a kind of hedge.
MSM,banks, government ALL lying. No ifs, ands or butts.
Article that should please many around.