No one said the markets aren’t tricky huh? Stocks and gold are staging a rally today after falling substantially yesterday. I still would not be pushing the long side here in either asset; the risk/reward simply isn’t there.
The dollar is currently getting hammered, which is something I want to focus on. I expect the dollar to eventually fall in sustained fashion some time in the next 5 years. However, if the major paradigm-shifting decline in the dollar is occurring now, then all bets are off. Stocks will continue to shoot higher, as will gold. This is why it is so critical to have built up a large core position in precious metals in times of weakness and consolidation. You must always attempt to look to the future. Looking at trend-lines and moving averages only takes you so far.
The funny thing about trends is that I can give you long-term forecasts with a higher degree of confidence than short-term forecasts. This may seem like a paradox, but it’s true. I know from history that all governments eventually default on their debt. I know that governments respond to declining revenues by raising taxes. I know that such efforts always fail. I know that the population always ends up losing confidence in their government, and that this results in some serious paradigm shifts. I also know most people are in oblivion as the finances of their country collapse.
If you don’t open up history book after history book, you are living in ignorance. Our scope of knowledge and possibility is limited by our experiences. Why could so few see the financial crisis coming? Simple- they never directly experienced something of that magnitude. In the same way, why were children of the Great Depression always living in perpetual fear? Because that’s the way their experiences forced them to behave. If people just learned from history, they would know that financial panics are followed by monumental booms. They would know that these are normal cyclical events.
You must take it upon yourself to learn from history. Do you really expect your government to give you a history lesson on how debt has been the downfall of nations? Do you think they will tell you the current tax system is more confiscatory than most in history? Do you think they will tell you that most of the massive money-spending projects they have implemented have utterly failed? (see: Department of Education). Nope. Our leaders have lost the capability to objectively analyze their actions without rationalizing away like immature schoolchildren. Unfortunately, our futures are at the line.
Make no mistake about it- a weaker dollar is in the cards. Timothy Geithner may give lip service to a strong dollar, but realize that a stronger dollar will increase the real value of our debt. If you want to talk about economic and political suicide, this is it. No matter how much we hope for a strong dollar, let me tell you, it just isn’t going to happen. Our leaders are trying to create a controlled decline in the dollar. But let me tell you, the market rarely allows your plans to go smoothly. Once it becomes clear that a weak dollar is a matter of national policy, investors and large speculators will jump in front of trends in the dollar and sell. I hate to break the truth to you, but there is no such thing as “patriotism” when it comes to capital, just self-interest.
I will continue to keep an open mind about developing trends. But as it currently stands, it appears we are on the road to disaster. The solutions to our problems are obvious, but pride amongst our government officials is clouding judgment. I am convinced that given such incompetence in leadership, you should have capital on hand to buy on every dip in gold. Do you still hear the cries of gold bubble experts predicting the collapse of gold? If you do, know that this bull market is still going strong. When it’s all said and done, these skeptics will be trampled over by the gold bull run.
