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Trading Lessons

Gold and the $8.3 Trillion & Journey to OZ!

Commodities / Gold & Silver Dec 15, 2008 - 06:01 AM GMT

By: David_Vaughn

Commodities Best Financial Markets Analysis ArticleWell, it has finally happened. USA Today has raised the cost of their daily paper to one dollar. Knew the day was coming. The mining industry continues to suffer along with the rest of the stock market. Definitely a contrarian market now. The availability of credit is now zero and blessed be those companies who have previously stock piled huge wads of cash. They will have the best chance of surviving this market.


Cash is king.

The following material below comes from Bill Bonner 's Daily Reckoning. A daily email commentary on current events. Definitely worth subscribing to and it's free.

The Daily Reckoning, Bill Bonner , Dan Denning, 12-11-2008 - “More firms are going broke every day. And others are desperately trying to stay in business by cutting payrolls. Sony, for example, announced 16,000 job losses yesterday. We've done our part to help the airlines...but the industry is facing $5 billion in losses for 2008. And Paulson has only $15 billion left of the $350 billion first draw for his deflation-fighting campaign.”

How many of you out there remember Johnny Carson?

I know a lot of the newer generation will not know who the devil I am referring to. Almost 20 years since the show signed off the air but seems like yesterday. And now Jay Leno is reaching his final years as the late night host. History moves forward relentlessly leaving all of us racing to catch up.

Gold and resource stocks are way down. Many market caps are smaller than the company's cash in the bank. This is why they are called speculations. Gold remains insurance, but all else remains speculation. This is the true definition of a contrarian investor. You place your bet where you believe the future is heading. And who knows for sure? Many of these resource shares were trading earlier in the year for 5 or 10 dollars a share. Now, they are around a nickel or a couple of pennies. This market is volatile and cyclical.

Alan Greenspan has predicted that the US will have inflation for the next 25 years. And that he believes the US dollar will ultimately lose its position as reserve currency status. Right now the markets are still collapsing and seething in their own blood.

Do by all means hold onto a substantial portion of physical gold. Learn to live below your means and of course reduce your debt as much as you can. Risk. Debt. Risk Debt. The addition of those two have put us where we are today. If you are going to risk, that's ok, just get out of debt first. Let your risk be money you can afford to lose and not borrowed money. That is what drove the poor souls to jump off buildings in 1929. Don't mortgage the farm. Become a little more (actually a lot more) conservative in your expectations and life style.

The time to buy is when everyone else is selling. And the time to sell is when everyone else is buying. The time to buy is always when the blood is pouring in the streets and right now the streets are filling to over pouring.

“L. Frank Baum's The Wonderful Wizard of Oz has become popular as a teaching tool in economics. It has been argued that it was written as an allegory of Populist demands for a bimetallic monetary system in the late 19th century.” “One method of enhancing student learning in economics courses is to introduce economic concepts through literature…” “A well-known example in economics has been the incorporation of L. Frank Baum's The Wonderful Wizard of Oz into the teaching of monetary issues.” “The primary evidence in support of the allegorical interpretation is what appears to be an extraordinary number of similarities between characters and events in the book and the people and events of the 1896 presidential campaign (when the book was written).” indiana.edu/~econed/pdffiles/summer02/bhansen.pdf

Sounds a lot like the journey we have been on these past 20 years. The road to the beautiful emerald city of Oz.

“The Wonderful Wizard of Oz by L. Frank Baum ( Chicago , 1900) is a parable about Money Reform and the 1890s Midwestern political movement led by William Jennings Bryan …” “From 1891-1895 Bryan served in the House of Representatives, where he advocated the coinage of silver at a fixed ratio with gold, in order to break the bankers' monopoly and manipulation of the gold-backed currency.” prosperityuk.com/articles_and_reviews/articles/wizzoz.php

Wow! Manipulation of the gold market 100 years ago?

“Oz is short for ounce, the measure for gold and silver.” “…Dorothy sets out on the Yellow Brick Road (the gold standard) to the Emerald City (Washington), where they meet the Wizard (the President), who appears powerful, but is ultimately revealed as an illusion; the real Wizard being just a little man who pulls levers behind a curtain.” “This can be interpreted in two ways: Either, the President himself is really just a little man who pulls levers to sustain an illusion of power, or, the real power of the President rests with the little men behind the curtains who pull the levers and create the illusion.” prosperityuk.com/articles_and_reviews/articles/wizzoz.php

Is this true? Are presidents only puppets?

“…the world's small stock of gold was controlled by wicked bankers in New York and London .” “… Emerald City is only an optical illusion. (emerald-green paper money is likewise a delusion.)” prosperityuk.com/articles_and_reviews/articles/wizzoz.php

Is the world adapting to changing market conditions? Many remain in denial.

“To stand outside ones history, culture, and language and see what has happened with acciptrine scholarly vision is among the hardest of accomplishments, and the least valued by those who deal with the certainty of a set universe.” LE Modesitt, Jr.

Have you noticed how our republican form of government is being slowly eroded during this financial crisis with the appointment of “czars?” What is the true definition of a “czar?”

“A male monarch or emperor” “A person having great power; an autocrat” “An appointed official having special powers to regulate or supervise an activity” thefreedictionary.com/czar

We now have a financial “czar” and soon to have a car “czar?” Does this not alarm anyone? The stage is being set for a division of power held by non elected officials. Consider the enormous un-checked power that is being given to this position. And answerable to neither the constitution nor elected congressmen.

“…a government "car czar" will [be] given the task of handing out the taxpayers' cash…” foxnews.com/politics, 12-10-2008

And no commentator, analyst or even conservative talk show host is discussing the ramifications of this newly created government position with absolute power and authority over an entire industry? Well, who cares what is happening, right? Time to party. And that is what Americans do best.

“Wall St financiers party like there's no tomorrow – literally” “The hedge fund dealers partied at a New York nightclub like there was no tomorrow -- which for some was probably true.” “Swilling martinis and vodkas, they filled Manhattan 's white, tent-themed Nikki Beach to bursting. Waiters, trays of tapas held high in the air, became stranded, wedged into crowds swaying to music under pink lights.” “Yet with hedge funds in freefall, this was more funeral wake than celebration.” “Job losses across Wall Street are forecast by New York state accountants to hit 48,000 by the end of next year.” “…as clients run for the exits, growing numbers of hedge funds have imposed emergency blocks on the ability to withdraw money.” breitbart.com/article.php?, 12-5-2008

What's new as jobs continue to disappear and money is hoarded and credit disappears? As you can read bellow this “recession” continues to grow and build up steam. Like a boulder rolling down hill and growing in size.

“As bad as you think it is, it's worse,” said Diane Garnick, who helps oversee about $500 billion as an investment strategist at Invesco Ltd. in New York . “The chances of the economy turning around in the first half of 2009 are declining rapidly because unemployed people can't spur economic growth.” “There's a concern out there that this isn't a recession, it's the Great Depression II, or the Great Recession I,” said Kenneth Schapiro, president of Condor Capital Management, which oversees $500 million in Martinsville , New Jersey .” “Businesses are battening down the hatches,” Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, said in Bloomberg Television interview.” “Job losses are going to continue to accelerate.” bloomberg.com/apps/news?pid, 12-4-2008

The following text below is from an analyst very much worth listening to. Ken Gerbino knows the gold market and his speculations and longer term assessments are generally tight on the money.

Kenneth J.Gerbino, 11-11-2008 - “…the gold mining stocks have been beaten up badly for various reasons that are now basically played out. Concurrently, dollar strength has been based on two overriding circumstances and these are about finished as well. This means a very positive environment is about to affect the gold and silver mining stocks.” “These three reasons and the fact the dollar needed some sort of rest from the continuing multi-year down trend were why the dollar has been so strong while the Feds have been debasing it beyond belief in the last few months. As the dollar became in demand for the above reasons, gold which is denominated in dollars came down. The reasons above have most likely played out.

This means the dollar should resume it weakness because when the trillions of new dollars that are being created start circulating in the economy, inflation will return to the U.S. with a vengeance.” “If you own gold and silver and legitimate gold and silver mining companies, the above means you are in the right sector. You do not have to make things anymore complicated than that as your investment thesis.” “Commercial banks do not trust each others paper. That is why the credit and commercial paper market is currently effectively frozen. This is a crucial concept for gold. Commercial bankers and central bankers have the same ethos, many times come from the same schools, study the same bad economic text books, know and adhere to the same misguided economic concepts. They think alike.” “…bankers know the dollar is going to be debased dramatically in the future and gold cannot be debased.” “The greatest mistake one can make is to think a deflation is coming because houses and stock prices have collapsed. We are entering one of the greatest inflationary periods in our history.” kitco.com/ind/Gerbino/nov112008.html

What we just read above is really very powerful stuff from an astute financial guru. Let's repeat what I believe Ken Gerbino's most powerful statement from the above text.

“If you own…legitimate [quality] gold and silver mining companies, the above means you are in the right sector. You do not have to make things anymore complicated than that as your investment thesis.” Kenneth J.Gerbino, 11-11-2008

Inflation is coming. Lots of it.

The Daily Reckoning, Bill Bonner , Dan Denning, “…the quantity of money is increasing, but its velocity is not. That's because the new money isn't getting into the hands of people who are just itching to spend it. But it will soon enough. And when it does, look for bond yields to rise and the great inflation to begin.” “We think the Money Migration is the long-term transfer of the world's wealth from the debt-based consumption economies of the West to the world's savers and producers, roughly in the "East."

Again, I say…inflation is coming. A lot of inflation. And inflation is the best scenario for gold and silver mining stocks. But again, do not risk the milk money. Speculate only with money you can afford to lose. Hang in there with the gold stocks. Gold is still going to be around even when all this present economic mess settles down in ten or so years. Gold mining stocks just may be at the bottom of a life time. Opportunity is always about buying low. And the lower the better.

We've just completed an article recommending 4 gold stocks whose price has been driven to the basement. These are quality mining companies with the gold in the ground. And their market cap is less than the cash in the bank? These are the type of companies to buy that have the potential to make a lot of money. Find out who these 4 stocks are?

On Friday the bailout plan for the big 3 automakers began to fall apart.

All blame, of course, was shifted to the unions for making too much money. There aren't too many decent paying middle class jobs left out there. There are very soon going to be a lot less. A lot less. Maybe as a country we should start making a real attempt to make manufacturing competitive in the United States . Probably too late now any way.

The choice tomorrow is minimum wage or higher than average wage. There will be very, very few middle class jobs available to the majority. Actually, soon, there will not even be a middle class. Just the haves and have nots. No in between.

Click here to order Gold Letter

David Vaughn
David4054@charter.net

The future legacy of the United States will be the refined art of financial leverage.

© Copyright 2008, Gold Letter Inc.

“The Worldwatch Institute, an organization that focuses on environmental, social and economic trends, says the current rate of global demand for resources is unsustainable.”  

The publisher and its affiliates, officers, directors and owner may actively trade in investments discussed in this newsletter. They may have positions in the securities recommended and may increase or decrease such positions without notice. The publisher is not a registered investment advisor. Subscribers should not view this publication as offering personalized legal, tax, accounting or investment-related advice. The news and editorial viewpoints, and other information on the investments discussed herein are obtained from sources deemed reliable, but their accuracy is not guaranteed. © Copyright 2008, Gold Letter Inc.

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