Worried about the Dollar? "Gold is also cash, highly liquid, and with terrific speculative upside..."
AT A RECENT Casey Research editors' meeting, the team took on the question of whether the somewhat steady recovery since last February's washout bottom in the broader markets had any of us thinking that the recession might be over, writes Louis James, senior analyst and editor for Casey's International Speculator.
The gathering of minds included Doug Casey, managing director David Galland, CEO Olivier Garret, Casey chief economist Bud Conrad, senior energy analyst Marin Katusa (my counterpart on the energy side), myself heading the metals division, and several other editors.
Doug's guru-vision remains locked on the disaster channel. The US economic problems, he says, remain so profound and, if anything, have been worsened by the government's actions, that Americans are headed for a significant lowering of their standard of living.
As this reality unfolds, it will send out shock waves that will impact much of the world: the Greater Depression. And the next step, Doug believes, will be a change in interest rates.
The Bright Boys in DC will resist doing this, but while they seem willing to let the Dollar slide to ease their mounting debts, they don't want it to crash. They may soon be forced to raise interest rates. When that happens, Wall Street usually moves in the opposite direction – which could be the end of the "Things Aren't as Bad as We Thought" rally of 2009.
Bud Conrad – in proper, responsible chief economist-style – considered the question carefully and conceded that there do indeed seem to be many "green shoots" now, but still concluded that conditions will continue deteriorating. He sees the government deficits in the driver's seat, the main variable to keep a watch on.
As the US government persists with its spending spree, valiantly dousing the deficit fire with more debt-gasoline, it will continue destroying the Dollar, and that will push ever more people into gold.
A year ago, Bud predicted that gold would top $1,150 by year-end 2009. His call was bolder than most forecasters' – but he was right. Looking at the numbers today, Bud's new baseline 2010 forecast is for gold to top $1,450. He sees a "possibility of further international instability or currency debasement as adding to that baseline." In plain language, Bud's confident that resource stocks of all sorts will, on average, benefit greatly from the demise of the US Dollar.
Somehow, I can't shake the image of Bud singing Don't Fear the Reaper with Blue Öyster Cult for back-up...but that's really more like something Marin would do.
Speaking of Marin Katusa, he commented that there is money to be made in the current rebound environment, but speculators should be extremely cautious: "You should know you're dancing with the devil in the pale moonlight. You need to make sure you know the dance steps: get in early and exit before you get the dip by the devil at the end of the song." (Marin not only has made huge amounts of money for our subscribers, he sings in a rock band, so he knows what he's talking about.)
My own thinking has evolved into seeing 2009 as being like the eye of a monstrous storm.
The sky has cleared substantially, and the sea looks amazingly calm, given what we've just been through. But it's not over yet; the trailing edge of the storm always delivers the most damage, and that's yet to come. Anyone fooled into abandoning shelter is taking a terrible risk.
This doesn't mean we should stay huddled in our huts, however – it makes more sense to go out, restock supplies, repair what damage we can, and get ready for the deluge to come. The renewed fury of the storm will sink many more ships, but it will also make vast fortunes for those who invest in the ships that survive and even thrive in the tumult.
Essential strategy: For the near term, buy only an initial "tranche" (portion of your desired position) in the most storm-proof (cash-rich) companies you can find – ideally with great discovery or development stories that will deliver exciting news regardless of market conditions – and hold a good chunk of cash in reserve for the next big buying opportunity.
Nothing goes up in a straight line, as share prices over the last month have amply demonstrated. There are some great picks that have been heading up all year that are now paused in their advances. Any more correction in precious metals could put them on sale, temporarily, offering great buying opportunities with a lot of the technical (e.g., discovery) risk removed from the plays. You'll kick yourself if you don't have any cash on hand to take advantage of them – and kick twice as hard if you paid too much for a large whack of something that goes on sale.
Worried about sitting on cash with the US Dollar in a death spiral? Remember: Gold is also cash, highly liquid, and with terrific speculative upside to boot.
With gold having just corrected sharply (as I predicted it would in Casey's International Speculator), gold is unquestionably the best investment we can recommend right now – fluctuations aside, it has nowhere to go but up for quite some time. Perhaps as long as a decade.
That, plus our essential "eye of the storm" strategy as above is what we're recommending to all our subscribers – and indeed to all investors around the world who want to not only survive the trailing edge of the financial storm still to come, but thrive because of it.
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