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I’ve been out of
town.
I travel fairly often between Australia and
the USA and it never ceases to amaze me that you can sit
on a plane for 20 hours (that’s right!) and arrive
in an ALTERNATIVE REALITY.
To say that Australia is far from the US is
a MAJOR understatement. However the differences don’t
stop at Geography. The US is a nation of consumers. The
public is focused on Property, Gas Prices and War. The US
never ever sleeps!
Australia on the other hand is about lifestyle.
The beach, leisure and spending time with family comes first.
Australia is also at War but it doesn’t seem to affect
the psyche as much. Property prices are no longer the talk
they used to be – it’s now the stock market.
Gas prices though are also a worry.
ATLANTA INVESTMENT EXPO
As far as expos go the Atlanta Investment
Expo was very small. That was great for me because it allowed
me to have one-on-one discussions with some Heavy Weights
in the Resource Industry and Stock Market Bears.
I was lucky enough to have a close friend
accompany me to the expo. It would be fair to say that his
attitude and focus towards Commodities changed quite a bit
as a result.
I consider my friend a ‘Thinking Mainstream
Investor’ so I felt I could extrapolate his views
to those of the Investing Public at large. Here’s
what I came away with:
• For all the Noise and Chatter about
metals and oil making decade highs, we are still very early
in this Commodity Bull Market. I’d say we’ve
got at least 10 years to go but probably more. It’s
going to be a long game so pace yourself for a marathon
and not a sprint.
• The public is still shocked when a
speaker talks about the Demise of the American Empire and
the “Death of the Dollar”. 5 years ago such
talk would have been nothing short of treasonous. You gotta
love America for Free Speech!
• Energy is the pivotal factor affecting
prosperity. Gold and Inflation are a complete unknown.
• The American Investor better realize
there is a World outside the USA - especially when it comes
to money matters. Americans should travel more and consider
implementing what James Turk calls the Last Plane Ticket
(LPT). The LPT is a plan to have some assets outside of
the USA in case of Government confiscation or exchange controls.
The LPT can be used to live off if you have to leave the
country. To even contemplate such a thing comes as an UNBELIEVABLE
shock.
• The internet is the main source of
information for Resource Based investors. The mainstream
media have failed miserably in reporting the TRUE story.
My personal view is that in 2 to 5 years time
these kinds of expos are going to be Full Houses. You won’t
even get close to any of the guest speakers.
THE MAIN STORY
The talk right now is about Gold pushing through
the $700 line.
Consider that it took Gold rising to $850
before Paul Volcker was able to break the back of inflation
in the early 80’s. Now were
at $700 and nobody even acknowledges that there is inflation!
Therefore Gold is going to go a LOT higher before the dust
settles. In fact adjusted for inflation Gold will have to
exceed $2,000 just to match its peak of $850 in 80’s!
Long time readers know that I’ve been
reluctant to call this current Monetary phenomenon by name.
Is it Inflation, Deflation, Stagflation or what? The reason
being, a convincing case could be made for investing in
Gold and Energy in almost any monetary climate.
However, I now feal reasonably comfortable
in calling this Beast.
For the foreseeable future I believe
we are looking directly at Stagflation.
Stagflation is an Inflationary environment
coupled with very low rates of growth.
Here’s why I believe we are facing Stagflation:
The US economy is a paper tiger. Almost everyone
I know in the US is involved someway or another in Real
Estate. And that means Debt!
Now Debt is ok provided the assets behind
the debt don’t Fall in price and precipitate a massive
Liquidation.
So the Fed’s job is easy. Print money
‘til the Cows come Home but don’t ever allow
asset prices to drop.
There’s one problem ofcourse –
Gold.
That pesky metal is so sensitive to an increase
in the money supply. Whenever it rises it scares the Dickens
out of the public into believing that Price inflation will
break out any moment.
To maintain credibility the Fed bangs its
fist on the table and says they’ll raise interest
rates to snuff out any sign of inflation.
Aaah therein lies the Catch. How to keep the
Ocean of liquidity flowing (and asset prices rising) whilst
keeping a lid on the Gold Price (by raising interest rates)?
The answer the Fed has come up with is to
Raise Short Term interest rates very very slowly. Much slower
than the rate of inflation but enough to convince the public
that they are Fighting the menace tooth and nail.
But alas inflation is here and must emerge
under that situation and it does so in the form of rising
Long Term Interest Rates and a steepening yield curve.
Chart 1 - Gold Stocks are
hypersensitive to an increase in liquidity
Gold Stocks are discounting a continued steepening
of the yield curve.
See how sensitive Gold Stocks are? The yield
curve bounces off it’s 50-day moving average and hints
that it will move higher (steeper) and Gold Stocks breaks
out to new highs.
Well ok Greg, that’s the inflation side
but what about the growth? I mean where I’m at the
economy is booming!
Is it?
I submit to you that what you see as growth
is merely the result of too much Monetary Printing. If we
accept the fact that Gold is the Ultimate store of Value
then Real growth is a measure of how an item performs against
Gold. In the case of economic growth, the best barometer
is the stock market. A cursory look at Chart 2 below shows
that the Dow Jones Industrial Average is still firmly entrenched
in a Bear Market in Gold terms.
Chart 2 - Economic Growth is a Paper
Mirage
From the Fed’s perspective this is the
best approach because it is all but invisible to the public.
The problem arises when the public increases it’s
inflation expectations (because of rising gas and gold prices).
Then the Fed’s machinations become less effective.
As the ‘medicine’ wears off Real Estate and
Stocks will undergo WILD and FRIGHTENING corrections. I
think we are close to that now. Then the ancient King of
Metals will emerge as the ultimate Victor. Make
sure you’ve got GOLD!
More commentary and stock picks follow for
subscribers…
Greg Silberman CA(SA), CFA
****
I am an investor and newsletter
writer specializing in Junior Mining and Energy Stocks.
Please visit my website for more free articles
and analysis. Click here: http://goldandoil.blogspot.com/
This article is intended
solely for information purposes. The opinions are those
of the author only. Please conduct further research and
consult your financial advisor before making any investment/trading
decision. No responsibility can be accepted for losses that
may result as a consequence of trading on the basis of this
analysis. | 
