Why Gold, Hard Money Types Are Wrong
Stock-Markets / Financial Markets 2014 Nov 10, 2014 - 05:06 PM GMTBy: Investment_U
Alexander Green writes: Listen to the typical perma-bear - if you must - and you'll find that they are generally wrong five ways at once.
They are wrong on the economy, wrong on the dollar, wrong on inflation, wrong on the stock market and wrong on gold.
Elmer Fudd had a better track record.
What surprises me are all the people who still listen to them. Apparently, they are either unaware that most of these folks have been peddling the same stories of gloom for decades or - like their gurus - they find it impossible to revise their apocalyptic views.
"House of Cards"
The reason is simple. They sincerely believe that the capitalist system is rotten at its core. They point out that we use fiat currency, dollars that are nothing more than paper and ink. Ergo, the game is rigged.
They claim that unless you're keeping score with hard currency - gold, silver, some other tangible commodity, or a paper currency that can be exchanged for these things - the entire financial system is a house of cards. And when a strong enough wind comes along, it will all fall down.
Except for gold. Gold will soar higher and higher... to unimaginable heights!
(About this time, their wives gently prod them and say, "Honey, turn over. You're snoring.")
Hard-money types are invariably bearish on the dollar, bearish on the economy, bearish on inflation, bearish on the stock market and bullish on beautiful, lustrous, tangible gold.
Don't get me wrong. I'm fond of gold myself. I collect one-ounce gold bullion coins from around the world. Sometimes I even take them out and look at them.
But I don't plow a significant portion of my investment capital into them. And I'm certainly not fantasizing that the U.S. will go back on the gold standard and the metal will shoot up to $10,000 an ounce.
Of course, gold did have a significant run a few years ago, finally peaking at $1,921.50 on September 6, 2011. But even at that lofty perch, gold didn't come close to holding its value in inflation-adjusted terms over the previous 32 years.
Some hedge.
And since the 2011 peak, the gold chart bears an uncanny resemblance to the last flight of the Hindenburg.
Last week, gold and silver prices sank to their lowest point in more than 4 1/2 years, weighed down by low inflation, a recovering economy, a soaring stock market and (ahem) a stronger U.S. dollar.
To top it off, the Fed is widely expected to begin raising short-term rates sometime next year. That is also bad news for inflation hawks and gold bugs.
Hate the Fed
This makes them the angriest of all. Gold bugs detest the Fed.
They'll tell you it's an unelected body with virtually limitless powers to artificially manipulate interest rates, the financial markets and the economy.
And you know what? They're absolutely right.
I'm not particularly fond of the unelected and intrusive Fed either. But here's the difference. I prefer to live in the world we have... not the perfect one I can imagine. And the Fed isn't going anywhere in my lifetime.
Meanwhile, the perma-bears are dead wrong on all five hard-money counts:
1.For years (decades), they've been warning us about the coming "Greater Depression." But the economy is growing at better than 4%.
2.They've warned that deficit spending will lead to hyperinflation. But the annual deficit is getting smaller, not bigger, and inflation is MIA. (Even in Japan, a country whose debt as a percentage of GDP is twice as great as our own.)
3.They've predicted that the stock market will crash. And they were right in 2008 - just as they were in every other serious bear market. But they are broken clocks. No matter how low the market goes, it's always "just the beginning. Things will get far worse." Yet the stock market is hitting new all-time highs.
4.They've insisted that a lower dollar is a no-brainer. But the greenback recently hit a four-year high against the euro and a seven-year high against the yen.
5.And, of course, they've been wrong on gold itself, which is not only down 17% since March but is hitting fresh multiyear lows.
Baseball players get three strikes. But these folks whiff on five.
So the real question is this. If you wouldn't go to an accountant whose clients generally get indicted for fraud or a surgeon whose patients routinely die on the table, why would anyone take investment advice from these guys?
Good investing,
Alex
Editor's Note: The world's most successful investors are optimists at heart. That's why they recognize "first movers" - companies that offer investors the most astounding returns - before anyone else. Alex discussed the concept in a recent roundtable with several of our Editors. This is an important discussion, so if you haven't yet seen it, click here.
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