To be, or not to be, a gold (and silver) bug

Looking at the monetary system we have at present through the lens of the Austrian perspective, one tends to want to invest in precious metals and hold them for a long time. For example, since the inception of the Federal Reserve in  1913, the dollar lost 98% of its value. This is compared to an ounce of gold. Most people don't realize it, but this is a direct outcome of inflation. In 1913, a dollar and an ounce of gold would buy you a nice suit. Today, an ounce of gold will still buy you a nice suit, but a dollar will buy you a candy bar. Inflation makes it very difficult for a middle class family to save money for their retirement. We have to stay ahead of inflation, which means we have to invest our savings instead of just saving it for a rainy day. It means we have to be speculators exposing our personal wealth to the risk of loss. Personally, I think it is the main reason people do not save. They know they had better spend it now before it loses value than to save it. Behavior like this over a long period for a family or nation eventually leads to a lower quality of life. Understanding this, I took on the strategy of buying silver every month to accumulate my "savings". I figure that both gold and silver will maintain their value relative to the dollar or other fiat currencies over time. I assumed that this is a way to save my capital against inflation without the risk of investing. However, I could be wrong. Yesterday I read an article by technical investor that has made money by shorting silver and believes that being a gold or silver bug is not a good strategy. He also expects silver to go down much farther yet as well.

His article is here.    

Admittedly, this article concerned me. Maybe I am taking the wrong strategy. Maybe I should be more aggressive and use options and short term trading to get ahead. I really do not want to do this, because I would rather focus on my core business (my fitness studio), than to spend time on studying the markets. Ironically, I read another article today that expresses my views and the rationale behind my strategy. It put me a bit back at ease.

Here is this article.

I am sticking to my original strategy. I don't feel comfortable investing in this climate. I feel the stock markets are too manipulated, bonds are too dangerous (too much debt-investors sooner or later will take a haircut), and real estate needs to correct another 20 to 25% before I would even consider getting back in the game. As per Bill Bonner, I think we are in the midst of a "great Correction" that may take years (decades?) to get back on track.

What do you think? 

What about a collapse?

    What if the Sovereign debt levels are too high? What if a collapse eventually is the only thing that can happen? Will it all be bad? Or can there be some good to it?
    Politicians, bankers, and everybody else for that matter are afraid of collapse or default. We all think life will be awful, that we would go back to pre-industrial age living.
   I don't think so. Not any more. Actually, I think it would be better. Debt would be forgiven, "zombie" institutions would be eliminated (no money or credit to support them), a new monetary (hopefully sound money) would be introduced, and the world can get back to producing wealth. Would there be financial pain? Yes. Things are out of balance and people would suffer. The problem now is, these same people are suffering anyway, albeit at a slower, more drawn out way. Inflation is eating away at savings for retirees and Social Security recipients, along with the middle and lower class having a harder time saving and paying bills with devalued money. Clearly things will get worse for them over time.
  We have hard times one way or another. I say let's "reboot" the system and turn things around. Bill Bonner wrote about that recently. His ideas make sense to me.

  Here is his article.  


Feel free to comment.
   

Will the dollar (and other fiat currencies) die?

I am concerned with the prospect of not only inflation, but hyperinflation. Ever since the sub prime crisis in 2008 and the remedy by the government of bailing out the big banks, to the tune of trillions of dollars, I wondered how it will play out for us, the little guys. I wanted to know how I can prepare, and what to expect.
Doug Casey is a highly renowned investor and speculator. He has plenty to say on the subject. He has a remarkable insight on not only economics and markets, but philosophy and history as well. Whenever I can read or watch anything from him, I make it a priority to do so.
In this interview, he says that the dollar will die, and how to prepare for it. He also thinks we are in a depression that started in 2007. He calls it "The Greater Depression", and for good reason. The dollar collapse will have a big impact not only in the U.S., but throughout the world because the dollar is the world's primary currency. How can nations conduct trade without it? What will happen?


Here is the link to his interview.

Feel free to comment.  

Are we in a depression?

The last post I did was on an article written by James Altucher who feels the economy is not going into a depression. He says that we should not operate in fear. Today I am going to feature an article written by Bill Bonner. As an investor an author, he takes the Austrian perspective on the economy. He thinks we are in a depression. He calls it the "Great Correction", meaning that the fiscal and monetary policies followed by the Federal Reserve and the U.S. government is so far removed from sound economic principles that it will take a long, long time to get healthy. Part of the reason that it will take so long is because the debt is so bad, and the governmental policies that made the mess are still being done. An example is the continual printing (or these days of striking a key board) of money and credit. To the tune of Trillions of dollars!!! The other point he always eludes to is the government debt. There is no accountability from the president and congress to keep spending under control. These actions make things go from bad to worse. This is consistent with my view. As mentioned before, I feel the Austrian perspective best sums up how a healthy economy works and what happens when we veer from these principles.

Without further ado, here is one of his recent articles. I think you will find his insights fascinating. 


Feel free to comment.  

Dow 7,000 or 20,000?

Bulls and bears always go back and forth about what is happening in the economy. Their views depend in large part on their ideology. These days, investors who subscribe to the Austrian school of thought (an economic study founded in large part by Ludwig Von Mises) think things are looking bad for the next few years. They generally expect a continuing recession or depression. Those that follow the views of Keynes (an economist during the great depression), who believes that more government debt, money creation, and "stimulus" is what it takes to get the economy out of the doldrums and back on track, believe that the economy can be turned around by adding more money.
The Austrian investors I follow think that the stock market will go down, along with consumer spending and higher unemployment. Some thinking the stock will go down as low as 7,000, or more. James Altucher, on the other hand, thinks otherwise. He sees a boom coming and is more worried about a bubble in 2013. James has an interesting point of view. He is an entrepreneur who started several businesses and has worked for a hedge fund. If anybody would have a good perspective, he would be a good one. He thinks we will see the Dow at 20,000 in the next 12 to 18 months.  

Here is his article in full.

He cites factors such as QE2 filtering through the system by the end of 2011, along with big stock buy backs from the big corporations. He also talks about the multiplier effect (when you buy something, that person is able to turn around and buy something else, etc..), and that large companies are hiring temp workers at a good pace. He says this usually means that companies will soon start hiring full time workers.
He has a few other points as well. I encourage you to read the article.
This is good. Maybe things will get better soon. I do have my concerns though:
Any time more money is introduced through the system, it lowers the value of other dollars. This leads to inflation. People who don't get that stimulus first have to pay higher prices for items with the same amount of pay. It puts a real squeeze on most workers and retirees. It also makes it harder for the middle class to accumulate savings, and when they do, it has lower purchasing power later.
Is it good to have the Dow at 20,000? It seems to me that it may go to 20,000, but if it is due to more money in the system, it does not mean there is more value to them. It would be a wash.
If there is excess money and credit in the system, productivity will certainly increase to meet demand. But too much credit means extra debt. Sooner or later that needs to be paid off. When people concentrate on paying that down, it would lead to a contraction. Less buying of stuff. This would fit in with his concern about a bubble in 2013. If so, there would certainly be a contraction then.
This is interesting to see. I am going to watch and see what comes to fruition.
Dow 7,000, or Dow 20,000. What do you think? 

About me

My name is Gregg Hoffman. As of this moment, I consider myself to be a free market, anarcho-libertarian. This blog is set up as an outlet for me to express my political and economic views. I will link to other articles, you tube videos, and other sources related to such topics. As time goes on and I become better versed on these subjects, I will also write articles and blog my thoughts.
Up until 9/11 happened, I really did not pay much attention to politics, nor did I do any serious study of economics or monetary policy. I devoted my energy to my career as a personal trainer. When 9/11 happened, I owned a personal training studio that was cash flowing over $30,000.00 a month. Literally money coming in hand over fist with this type of business. I had plans of expansion as well. After 9/11, business slowed down. It dropped 50%. Still thinking about "growth" and building other cash flow businesses, I opened another studio and trained a couple of trainers to manage the locations. I also started buying rental properties and houses for fix and flips (all with 100% financing). I also started a real estate business with my future wife. I never felt on top of the world while juggling all of these enterprises. I had to take from "Paul to pay for Peter" to keep things going. I also finagled up to $200,000.00 of credit from many different banks in an effort to keep the balls up in the air. 2008 came along and the sub prime crisis hit. I knew I was in trouble. I still was not cash flowing from my personal training studios, and my rental properties all were negative cash flowing. To pour salt on the wound, I lost $20,00 on my first fix and flip. I knew I had to learn some lessons. I did better on my second (profiting $1,800.00. Not a lot, but at least going the right direction...or so I thought). Things went from bad to worse. The negative cash flow and accumulating debt crushed me. I filed for bankruptcy. Even though I was depressed, I still had high aspirations for building wealth. I devoted time to studying economics in general. Of all the schools of economic thought available, I found Austrian economics to best tell the story of what works, what doesn't, and why.
Through studying Austrian economics, my political beliefs went through a transformation as well. When I wasn't paying much attention, I leaned toward a more liberal/progressive outlook (needles to say, I voted Democrat). While building my business, I shifted to a more Republican view. But as I learned more about how free markets really worked, I realized that an anarcho-libertarian philosophy and form of governance leads to the best prosperity and freedom for all.
This is my journey. This is what I will share.