Some Thoughts…

One looks at the market day-to-day and tries to make sense of a reckless hoard of individuals who speculate today to end up in the poorhouse by nightfall.

Well, well. Pennsylvania Avenue has pledged allegiance to Wall Street at the expense of Main Street. $700B and that’s just for starters. Why is it that every seemingly bad event is followed by another more disastrous one? Could it be that the system has a lot more crap intertwined into it than most investors can imagine?

Here are a few thoughts that I just can’t help but ponder.

On the Bailout
$700B. Where in heaven’s name is that going to come from? I bet it’s not all sitting quietly in a bank account at one of our nations largest banks.

This “Mother of All Bailouts” may take months to years to unfold. As one analyst put it, what makes Paulson and Bernanke so sure that investors have half that amount of patience?

Does it exist at all? If it doesn’t, wouldn’t 700,000,000,000 in U.S. Dollars create any sense of worry with regard to hyperinflation for the currency? Are we about to witness the greatest devaluing of the American currency since the Continentals during the Civil War? (Don’t answer that).

Now the U.S. Government has mentioned that it will also offer capital to foreign banks that do business within the United States. Is this not the epitome of hubris in the highest degree? Does our government really believe that it has the immortal abilities to bailout, not only its only country but the entire world? Is there anything that can not be conquered between Iraq, terrorism and financial stability?

On Gold
The precious metals have plummeted on credit concerns, as insurance from an inflation hedge has become seemingly irrelevant, or at least, secondary importance. If so Gold’s pump rally should get even stronger over the next few months.

If the long-term trend was based on negative interest rates, then why would it have fallen? We must conclude that there are many buyers with many, many motives. Inflation hedge, deflation hedge, Dollar collapse, wealth preservation, the list goes on.

Gold critics constantly lambaste gold investors by claiming “No matter what happens it always seems to be good for gold!”. This is true critics. The same way that whatever happened to the economy between 1980 and 2000 was good for stocks!

So we buy and hold, inflation, deflation, come what may. Because until they find someway to “print” 700 Billion Bullion of “species” (preferably in gold and silver) I must weigh my investment alternatives which at the moment don’t seem all that attractive.

I know my gold. I know its qualities and all its inefficiencies. I know its intrinsic value, (cost of production), its market value (no yield vs. negative yield) and it physical factors (at least it has some). Conversely, many Level 3 assets, those that cannot be valued in any way, are currently on most banks and investors books, and in large volume with nowhere to go.

Gold is Au on the chart of the elements an can be found in a distinct, you guessed it, “gold” color. It is liquid, easily tradable and transportable due to its high value to weight ratio. It has a low spread between the prices to buy and sell, as is common when an item is fungible.

It is a good unit of account, as it is divisible into small units without destroying its value, it is fungible, with each unit equivalent to another. It has 79 protons and 118 neutrons, and comes in at 196.96 in standard atomic weight. It melts at 1947 Fahrenheit and boils at 5173.

As a store of value it is long lasting and durable, not subject to decay. It has a stable value and an intrinsic value, as supply is strictly limited. It is difficult to counterfeit, and its genuineness is easily recognizable.

I know my money. I can touch it, trade it and sell it on eBay whenever I want. What’s yours?

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