The System is Broken

Or is it? Look around and think. Two of the largest mortgage lenders on the planet to ever exist, that held over 5 trillion of the nations $12 trillion in mortgages have just gone bust. The Dow seems ready to just burst at the seems as earnings that have somehow held up over the past few months are ready to give.

The “rainy day” funds have all dried up it seems and any more pressure will usher in what analysts like to call a “Kitchen Sink” quarter, when all companies write down as much as they can in one shot and blame it on the economy. This hasn’t happened yet and if we are due for recession it will come in time.

So the system isn’t broken after all. This is the normal way markets work. Gold never goes straight up, and silver is known by all to be volatile.

But don’t be fooled by the day-to-day noise. Don’t forget the big picture and the basic fundamentals of investing.

Precious Metals. A friend of mine asked me what I thought. “Gold’s below 750, and silver is at 10.30!”. First of all I feel privileged to have actually bought my first bullion below those prices. Secondly, I’d love to ask, do you think the banks own no gold? If you were desperate to sell assets wouldn’t it be the first thing on your list? Moreover, in a recession everything falls. But here’s the kicker I told him. What would you rather own? Show me an asset, debt or equity that offers me a decent return after inflation and I’d throw away my gold any time.

Stocks. The Stock Market is down and out. Don’t get me wrong stock offer the best opportunities to make money. So does Real Estate, and Bonds offering 17%, and even gold – If… (and that’s a big if) you buy them at the right time. Anyone who bought stocks immediately after the crash of 1987 was celebrating come the late 90s. Anyone who bought in January of 2000 may not be so fortunate. Bought gold in 2001, still sitting on gains of over 167% (without any dividends or interest – and you could probably sell it for more on eBay). Back to stocks, companies do offer great deals, when they are down and out selling for less than book.

Bonds. There was a time when simply saying the words “I just bought a bond” could have been the most wealth generating words of your life. That was on January 1982 where you could have purchased a U.S. Treasury Bond that yielded above 15 percent! You’d have made 66 times your money at maturity (2012) with the only risk being that the United States goes bankrupt or defaults on its debt (we do still have time). The point is that everything is both risky and profitable at some point in time.

Real Estate. One word my man – Financing. If not for it we probably wouldn’t be in the mess we are today. Then again we wouldn’t be as wealthy either. Financing means debt and it a double-edge sword and these days we’re getting the other side. It can go on for months especially as loans and capital have dried up and inventory is sure to continue selling off.

So what would you rather own? Everything is down (except for Wal-Mart and the Yen but I digress). The question is what will be up soon, and what will take months, if not years to regain its footing.

I’ll stick with physical gold and silver. Its cash and its the only currency I trust right now. After all, as long as you didn’t buy all in at $1000 an ounce you’re still ok.

Hang tight though, it’s going to be a wild ride!

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