Gold is an evergreen haven

Mar 9, 2011

Baltimore, Maryland

First, stocks rose yesterday, with the Dow up 124 points.

-------------------------------------------- Free Guide -------------------------------------------- The Definitive Guide To Financial Planning

Claim Your FREE Copy Now! Click here!.


Gold fell $7 from a record high set on Monday. Here was the headline from Tuesday's Financial Times:

"Gold surges to record high as investor search for haven."

A haven from what? Ah...a haven from central bankers' errors. A haven from inflation. A haven from revolutions and civil wars. A haven from defaults and bankruptcies.

Gold is an all-purpose, evergreen haven. Got a personal problem? Have a drink. Relax. Talk to your priest or your bartender. Got a financial problem? Buy gold.

And here's Bill Gross of PIMCO, commenting on one of the things gold is a haven from. Reported on Yahoo Finance:

No Way Out of Debt Trap, Gross Says
US Living Standards Doomed to Fall

In this U.S., states across the country face a collective $125 billion shortfall for fiscal 2012, while Congress is facing a budget gap nearly 10 times that size.

PIMCO founder Bill Gross -- one of the world's largest mutual funds managers, who focuses mostly on bonds -- has previously said that if the United States were a corporation, no one in their right mind would lend us money. For the last decade, we've been "relying on the kindness of strangers" to help cover our debts...

By "strangers" he is referring to our foreign counterparts, like China for example. Basically, for years Americans have spent their hard-earned dollars on less-expensive Chinese made goods. With great gratitude, China turned around and used all those dollars to buy up U.S. Treasuries and other dollar-denominated assets.

But now after years of reckless spending, America's debt level is nearing a breaking point and can no longer rely on foreign capital as a last resort. "When a country reaches a certain debt level, confidence in that country's ability to repay that debt becomes jeopardized," says Gross, citing the work of Ken Rogoff and Carmen Reinhart in This Time Is Different.

"There is really no way out of this trap and this conundrum at this point," says Gross. From an investment perspective his advice is to stay clear of "bonds in dollar denominated terms" and to be "wary of higher interest rates going forward."

Meanwhile, the debt trap hole gets deeper and deeper. Here's the Washington Times with the latest:
The federal government posted its largest monthly deficit in history in February, a $223 billion shortfall that put a sharp point on the current fight on Capitol Hill about how deeply to cut this year's spending.

That one-month figure, which came in a preliminary report from the Congressional Budget Office , dwarfs even the most robust cuts being talked about on the Hill, and underscores just how much work lawmakers have to do to get the government's finances in balance again.

The Senate plans to vote Tuesday on competing proposals to cut spending, but Democrats have rejected GOP -backed cuts of more than $50 billion, and Republicans have ruled out Democrats' cuts of less than $10 billion, meaning neither plan will draw the 60 votes needed to overcome a filibuster and pass.

The two sides are facing a March 18 deadline, which is when the current stopgap funding bill expires. Without a new spending agreement by then, the government would shut down.

Let's see. A shut down? Yes, seems like a good idea. Close the doors. Turn out the lights. Send the zombies home.

But wait...the FBI and Homeland Security would shut down too. And the IRS.

Well, great...what an opportunity! Want to cheat on your taxes, murder someone, rob a bank, or blow up a federal building? Get ready...the coast will be clear.

But why bother? The feds are going to cause enough mayhem on their own. The feds spent $223 billion more than they took in last month. Multiply by 12. Hey wait. We don't even need a calculator. That's more than $2 trillion. Come to think of it, a shut down may be the only way to save us.

*** Yes, $2 trillion annual budget deficits can't be far away. Because tax revenues are depressed by the Great Correction in the private sector, while the feds try to goose up the economy with hot money.

As usual the road to Hell is the best paved highway on the map.

Hot money has already toppled 2 governments and put one more, Libya, in grave jeopardy. In addition to record-breaking gold prices, it has put up food prices to all-time highs. And it has investors speculating on $200 oil. Check this out, from Bloomberg:

March 7 (Bloomberg) -- Options traders are betting more than ever that crude oil is heading to $200 a barrel as some websites call for a "Day of Rage" in Saudi Arabia and anti- government protests spread in the Middle East and North Africa.

Saudi Arabia produced 9.71 million barrels a day in 2009, one-third of OPEC output and almost six times as much as Libya, according to BP Plc's Statistical Review of World Energy. Websites have called for a nationwide "Day of Rage" on March 11 and March 20, Human Rights Watch said Feb 28. Protests in five of the kingdom's eight immediate neighbors have prompted King Abdullah to boost spending on housing, social welfare and education to curb unrest in his country.

"The price of oil is going to go up, whether you like it to or don't," said Juerg Kiener, chief investment officer at Swiss Asia Capital Ltd. in Singapore. "If Saudi Arabia fails, then I say you have a fire in the house. They gave out $30 billion of money so maybe they'll buy time. But I don't see the problems disappearing."

*** Higher oil...higher food - ouch! -- middle and lower classes are pinched badly.

Food stamps are setting records too. They're now being sent to more than 44 million people. And another 15 million qualify - one out of every 5 Americans.

But living on food stamps is not exactly like eating at the Prime Rib. The average allowance is only $130 per month per person. Not enough to buy a good bottle of wine at the Tour d'Argent.

Daily Reckoning readers are urged to raise chickens. And plant gardens. For those who want to be fed by at government expense will soon want bread.

*** What's the matter with old people? Are they egotistical? Are they selfish? We're still thinking about it. Stay tuned...

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

A New Infrastructure Boom March 26, 2019
Selva Freigedo talks about the potential in 5G network and how it could transform the way we communicate.
A 40 Somethings Guide to YouTube Hits March 20, 2019
Vivek dwells into a new YouTube phenomenon.
As the Economy Slows Down, Maruti and Two-Wheeler Companies Cut Production March 19, 2019
The country's largest car maker has cut production by more than a fourth.
In Supporting Demonetisation, RBI Behaved Like an Old Uncle Not Willing to Take a Stand March 13, 2019
The minutes of the meeting of the RBI Board which happened before demonetisation have been released.

Equitymaster requests your view! Post a comment on "Gold is an evergreen haven". Click here!

1 Responses to "Gold is an evergreen haven"


Mar 9, 2011

The best alternative is triggering a war starting with
Libya... Oil could be easily $140-$150 in near term.
Historically, war serves to be good idea to push the present financial mess in the background and to win
political points for Obama Administration. Libya is an
Opportunity to that end, and perhaps we are already heading to the said direction.

Equitymaster requests your view! Post a comment on "Gold is an evergreen haven". Click here!