The World According to Gold
Source: James West, Midas Letter (12/28/09)
As 2009 lurches to a close, the Christmas break, and for whatever duration it lasts for you, generally provides an ideal opportunity to contemplate sundry performances of the past year in preparation for the development of the generally futile New Year's Resolution. . .
As 2009 lurches to a close, the Christmas break, and for whatever duration it lasts for you, generally provides an ideal opportunity to contemplate sundry performances of the past year in preparation for the development of the generally futile New Year's Resolution.
The performance most relevant to the formulation of new financial resolutions in my universe is that of the price of gold, and its assorted related asset classes. All have performed well, and the smart money (which is not quoted in the Wall Street Journal, The New York Times, or any mainstream publication that I've ever read) seems to concur that the long term strengthening of the gold price will continue in its now consistent see-saw ascent.
Apart from the superficial significance of this track record, which is that gold is going up and profits in the metal are there to be had for discipline and patience (neither of which I possess, sad to have to admit). But from the ultimate altitude and from a centurial time perspective, it's the future that is highly predictable thanks to the barometric reading of this most relevant expression of value. The writing is on the wall, it appears, for the U.S. dollar, and its attendant band of sister whores who have leveraged their national budgets beyond redemption and must now print money with abandon to suppress for as long as possible, the inevitable inflation that threatens the entire human food chain.
Note: Inflation means a) expansion of the monetary supply of any given currency, thus engendering a reduction in its value through dilution, which in turn forces b) price inflation, where the prices of goods must increase due to the reduction in relative value of the price thanks to monetary inflation….at least, that's my definition. Like "globalization" and "free markets," the definitions of these words are warped to serve the requirements of interest group messaging.
I've been trying to convince my brother and his wife that the United States with its disintegrating middle class, is about to become a third world cess pit, economically. Well really, it already is, but the new toys and homes still in the process of foreclosure is held up by the banks who now realize that if they foreclose on everything underwater they've financed, they'll probably have to go bankrupt. This has had the effect of the coyote in the Roadrunner realizing in suspended animation that he is about to plummet to oblivion and has time only to brandish his small "Help!" sign before gravity takes over. The economy is only now preparing its own help sign to coincide with the disappointing conclusion of the Obama presidency. But his reign was designed to fail, I suspect, but that is another subject matter altogether.
At this point, the ubiquitous detractors of gold who perennially and it seems willfully ignore the fact that gold is THE standard by which the value of pretty much everything can most reliably be measured, have diminished dramatically, and the only song now equally irrelevant is the chorus of all the band-wagoners proclaiming $2,000 an ounce gold. (Another admission: I was previously one of these, but I grew weary of my own voice, so had to stop). Reading the perspectives of others is useful in formulating a financial strategy, but all viewpoints have their windows of applicability, and so on the cusp of the new decade, it's time to discern the relevant message for the years upcoming.
First and foremost, embrace the idea that gold is the standard of measurement. Start there, and form your perspective and strategy accordingly. If you can't accept that concept, you may as well stop reading and delete Midas Letter from your list of read sites.
From this point, we can clearly see the list of currencies depreciating relative to the price of gold in contrast to those appreciating. This list of the former is full, while the latter remains empty. There is no currency in which the price of gold is going down. The great lesson here is that despite differing national origins, the global supply of currency remains interrelated. Just because Australia is not printing currency with abandon doesn't mean the global valuation of its currency in terms of gold will be any stronger than any others, because it's the demand for currency versus its supply that is diminishing in favour of gold around the world. Nobody trusts the 'legal tender' status the paper purports to represent.
And no wonder. Throughout history, no single currency has enjoyed much more than a 100 year life in an unadulterated or unmodified form. According to this reckoning, it's time to say goodbye to the U.S. dollar and the English pound. And we are in fact seeing this manifested in the reduced demand for bonds issued by these countries in support of the faltering currencies. In the absence of the bond sales that at least superficially support the math justifying the issuance of endless paper debt, the printing continues with abandon.
So, if you are a recently impoverished middle-class American seeking to salvage the remaining net worth you do have, I advocate moving out of the United States, where the excesses of the most recent presidential administrations will be visited upon upcoming generations of Americans through decrepit health care, diminished natural resources and limited opportunities due to extreme prejudice among hiring professionals towards top tier schools.
But education is another topic which we will revisit a little further along in this issue. The point is, there are many locales throughout the world that are 'emerging', and as such, have relatively cheap real estate and lots of investment opportunity—particularly in South America.
The economies of Chile, Argentina, Peru, and Colombia offer the best standards of living combined with the most investment opportunity. Buenos Aires, in particular for me, stands out as the most attractive major city in South America, as it has a booming real estate market that is still growing, a robust cultural identity and events calendar that easily satisfies the most effusive bon vivant, a relatively high level of domestic security (in most areas of the city—opportunistic robbery is still a municipal sport in others), and a benign climate. Outside of Buenos Aires, the provinces of Argentina harbor diverse geographies and landscapes, reachable by a well developed road and air infrastructure.
And the best thing about Argentina is that day-to-day living is really cheap. Electricity is currently subsidized for residential consumers to the point where most average about 4 Argentinean pesos per kilowatt hour—among the cheapest rates in the world.
Food, too is remarkably inexpensive. While you can find locations to blow ridiculous numbers on expensive wines and overpriced steaks, prices for the most part are low in restaurants. A 400 gram tenderloin with vegetables and salad will cost in the neighborhood of 60 pesos, equivalent to US$15. On average, I've found that it costs about half as much to eat here as it does in North America, and the diversity of food options is good.
The newly developed Puerto Madero area of the city is an area of wide streets and new buildings built along the ecological preserved marshlands lining the Rio Plata. A great trail system provides fantastic hiking, running and biking among beautiful and varied vegetation and great wildlife viewing.
The city's older areas are characterized typically by outstanding examples of Italian and Spanish turn-of-the-century architecture that now house countless museums, upscale shops, and restaurants.
One of the things that makes Buenos Aires such a beautiful city is the population's evident appreciation for trees and gardens. It's almost impossible to find a street that isn't shaded by healthy mature trees, and most balconies are festooned with flowers, vines and shrubs that makes it feel at times like you're walking through a jungle more than a city.
And of course, the option to South America is Canada. Its resource to population ratio virtually guarantees the preservation of its superb living standard. The weather can be oppressive in the winter months, but he summers generally more than compensate. Dual summers between the northern and southern hemispheres is the way to go, if you can finesse it. Most families can't. Retirees can and should, if they can afford it. I think you'll live longer.
Negative Net Worth Strategies
If however, your net worth, like so many Americans now, is negative due to debt, I advocate walking out on your debt, mailing the bank the keys to the house you paid too much for, parking that new SUV in front of the dealership that is or soon will be out of business, and starting all over. Irresponsible? Sure. But since the government of the last 10 years and more has aided and abetted the wholesale fleecing of Americans throughout mainstream America to the benefit of that top percentile of rich banksters, and since that is the example set by the so-called pillars of our society and the institutions they've evolved, one cannot be expected to play by rules ignored by the institutions that promulgate them.
"Too big to fail" is one those Orwellian doublespeak falsehoods that we are expected to swallow without question. The truth is, institutions like banks and insurance companies that grow too big are doomed to fail, and so we should be collectively preventing the evolution of such massive corporations that have the potential to disrupt global commerce. "Globalization" is word with so many potential definitions, that, like many words that used to mean one thing, but have been co-opted to serve the linguistic requirements of banking and government propaganda and disinformation campaigns, it is impossible to say whether it is good or bad, because it depends what you mean when you say it.
So swallow your foolish pride, and walk away from all debts. Commit to a zero credit policy, and you'll find yourself liberated in a way you'll likely never have experienced. Once you get used to the austerity enforced by the absence of credit, the naturally resulting discipline will provide a revelation, in that you will grow to view your past enslavement to credit institutions as exactly that.
The modern world we live in as depicted in newspapers, magazines, television and movies is "best-case-scenario" living with all of the misery that is part of human existence obscured, ignored, or deleted. Immersion in these mediums creates the desire within us to obtain the carefree living glorified in our favorite shows and movies, and we gladly sacrifice our autonomy to obtain the drop-by-drop credit that allows to buy now and pay later, only to realize down the road that this addiction, like many substance addictions, can be maintained for years before a critical mass is reached and destruction results.
I've been living without credit for almost a decade now. I haven't paid interest on anything in that same time frame. My wealth, such as it is, is stored in gold, and my investments are exclusively emerging companies in sectors I understand thoroughly, and generally, I'm in and out of an investment within 12 months. I'm not going to divulge my performance in terms of percentage of capital invested because the number is staggering, and therefore, unbelievable.
But by making small investments in emerging precious metals juniors, 2009 was a banner year for me. My strategy remains largely unchanged for 2010, with the exception that certain green technologies are likely to benefit from government subsidies and tax incentives, and therefore enjoy something of a boom. In Argentina, I am working with local investment banking groups to finance wind power generation facilities. In Peru, the Amazon's first World Wildlife Foundation and Rainforest Alliance certified timber harvesting company is being organized into a public vehicle to permit its expansion. Revenue will come from the sale of tropical hardwood forest products, as well as the sale of Verified Emissions Reductions credits, better known by their media name as "Carbon Credits."
We are also planning to work with the government of Peru to remediate the tailings sites of old mining operations that still contain economic quantities of residual precious metals, and that are currently environmental disasters because they are leaching arsenic and mercury into the environment, threatening Peru's export food markets.
So the opportunities for 2010 are abundant. The path to financial rehabilitation is available and plain to see for those willing to submit to the discipline of a zero credit lifestyle. And gold, now and forever, remains the monetary standard for the human race.
SOURCE: Midas Letter