As I thought about what to discuss first as a contributor to this site, I decided to take on the form of Mac Slavo’s opposite; his “Luke Skywalker” fighting against the evil heaving breath of a dark outlook that is our economy.Â
That being said, I think our current economy is a writhing heap of shit coming out of American’s asses. Indefensible mortgage standards, leading to rising foreclosures, leading to credit crunches, leading to decreased spending, leading to slowed production, leading to job loss. Yep it’s pretty shitty. It’s impossible for me to argue what is so plainly occurring around each one of us. But I can argue this: Don’t panic, play.Â
What I have discovered in our economy is that there is never a time when one cannot take advantage of other people’s misconceptions and mistakes. I happen to love bear markets, because essentially everything is cheap. If you have even a small amount of cash and income, you are king. And as long as anything you choose to buy into or invest in does not collapse completely, you are almost sure to enjoy a future gain.Â
Do I consider myself to be more on the risky side? Yes, but not to the extent of a chain smoking day trader or someone who still praises credit default swaps. I am, however, buying a new home. Every day I am on the hunt for undervalued stocks. I have not touched my 401k. And the last thing I want to buy into, is gold.Â
There are many strong arguments for gold. People view it as stable, physical, everlasting, and safe. Although I agree with these perceptions, negative realizations cause me to veer away from its potential pros.Â
Number One: Gold is still a commodity. Just like oil, corn, steel, and orange juice, gold has its own market where its value change every second of the day. And just like any other commodity market, countless variables effect how it will perform. You may very well make a good buck by purchasing gold, but to say it is a stable investment is like saying oil will always be an increasing and marginally static commodity… May heating oil futures rest in peace…
Number Two: Gold is useless. Look at it; just a yellow bar…sitting there. You can’t eat it, you can’t live in it, and you can’t make it grow. It simply has value because we say it does. You could argue that stocks are the same thing; that a stock is only as valuable as we say it is. But a stock is an investment into an entity that is…producing something.
Number Three: I am not a cow. I don’t like traveling in herds that flock to something they view as safe and valuable, only to find that very value already inflated. Truly, gold is in high demand. But anything with a beginning will also have an end, and I do not want to end up with overvalued yellow metal when a recovered economy begins.Â
Number Four: Gold helps no one in the end. Although gold can be a good investment in your portfolio, it’s important to invest in it because you are confident in its future performance, not because you predict anarchy. To turn your back on “golden” opportunities in our financial market only spurs the current climate. Rather than help our economic demise, look for those little treasures that other people have ignored because of their own panic based fear. We as a nation have wonderfully productive people who work for innovative and value producing companies. These companies, however undervalued, create products that we will never not have a need. And it is these companies that I believe we shall see enormous gains in the future.Â
In the end, who knows what will happen. In our current economic and monetary systems, many must incur losses for other people to gain. And it is these complicated topics that I always discover can be solved simply by looking to Hollywood, and Luke Skywalker chopped that bastard’s hand off.
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Visit Chaser’s blog at http://chaserhutch.wordpress.com  to read more on the economy, world news, personal opinions and pretty much anything else I can think of.
-CAH
OK so you’re against buying gold. What do you think would be a good investment Mr. Risky?
“don’t Panic. Play” I totally agree!
As Peter Schiff likes to say, there’s a bull market somewhere!
Unfortunately, I don’t think our market, as a whole is going bull anytime soon.
Mac On Equities:
My personal feeling is, that if you plan on playing domestically, you’ve got to be very careful. contrary to what many main stream analysts suggest, I don’t believe we have seen a bottom as of yet. 2009 is going to be a rough year for millions of people. Let’s remember that the American economy is based on one thing and on thing only – Spending. Millions of consumers in America have lost two jobs, 1) traditional employment 2) their line of credit. If consumers can’t spend, then producers can’t manufacture and retailers can’t sell. This is a negative feedback loop that will continue to vaporize jobs and businesses globally for the next several years, but we will see much of the damage focused right here, in the good old USA. So, I am going to stay away from most domestic stocks. I said most — I WILL be looking for deals in the energy and agriculture sectors. These areas have gotten hit extremely hard in the last 6 months, and could be near a bottom. Companies that produce essential goods or services will more than likely pull through in this environment; companies in hard assets like oil, gas, natural gas, agriculture, water, and infrastructure. Yes, I like raw commodities like corn, wheat, oil, and natural gas too. these are essentials, that people will need. And there will always be demand. Corn will never go to zero. Ever.
I wouldn’t touch financials like banks with a ten foot pole right now. Pawn shop operators and short-term loan operators, maybe. But none of the ‘majors’. The fact is, most of these businesses, like the auto industry, are insolvent. Why throw good money after bad?
Go with what has survived the test of time, especially in recessionary and depressionary economic cycles. there will be a time to buy the DJIA again, but that time is not now. We will see Dow 6000 and S&P500 at 600 before we are even near a bottom.
If the DJIA pops to 10,500 in the coming months, I’d nuke the whole 401K and stay in cash. This will be a FALSE move and the DJIA will tank to 6000 shortly thereafter. If you wanna play, PLAY SHORT, heck, play ultra-short the NASDQA or DJIA! this is a big money play and i hope it pans out!
On Real Estate:
I am also on the real estate band wagon right now. Sure, we may see price declines of another 5% – 10% or even higher in the coming years.. but when the Fed has to ramp up interest rates to fight deflation with inflation, we’re going to see 1) high inflation rates, which will devalue the dollar’s purchasing power and 2) higher interest rates for home loans. 5.5% or so right now is a great rate to lock in and guarnatee a fixed payment for thirty years. In 10 years, that $1200 a month mortage payment you’re making now will be a steal! so, if you believe the dollar will inevitably inflate in the longer term, then real estate is a great place to be looking right now.
On Precious Metals
1) I agree that right now, Gold is acting much like a commodity. In fact, as of this post, I feel it is overvalued at $900. Marc Faber is indicating the same. compare gold to the CRB commodities index and it is the most overvalued “commodity” when compared to say, oil or corn. If you believe in a SHTF scenario, I’d say, dollar-cost-average into gold and hope for a price dip to $650 – $700. Then buy the heck out of it. 🙂
2)Yes, I agree. Gold is a yellow bar. And we as a global society assign it value. The difference between gold and a stock is that no stock can claim to have a 5000 year old record of being valued higher than ZERO. Gold is not an investment to be made if you want to make year-over-year 10% returns for 30 years. Gold should be used as a wealth preservation tool. In difficult times, gold generally retains its purchasing power.
3) “I do not want to end up with overvalued yellow metal when a recovered economy begins.”
this is EXACTLY what i want to happen! I want to have a yellow metal that is so overvalued, with a bubble SO BIG that I can unload it at a 300% – 400% profit for immediate investment capital for a recovering market. If the theory holds, gold will retain it’s value whether in a deflationary or inflationary cycle. Hopefully, the SHTF is so bad, that people actually panic buy it and drive the price through the roof. Isn’t that the point of playing? buy low when there is no excitement, sell high when everyone wants what you got?
4) In the end, gold helps the one person that needs to be helped. You! No, the world will probably not fall into anarchy… but… what if it does? Can societal breakdown like World War II happen again? Would gold have been valuable had you been a Jew in Germany and you needed to get out and to a new country to escape the Nazis? Would it have helped you if you needed to buy food when paper money was worthless? Is gold valuable in Zimbabwe today, where inflation is 1 million percent?
“We as a nation have wonderfully productive people who work for innovative and value producing companies.” Other than the sectors I mentioned above, and perhaps alternative energy, what companies produce anything in this country that is valuable? What companies produce goods that the rest of the world considers ‘valuable’ and irreplaceable? We as a country don’t produce anything of value anymore. All we do is consume. How is this a viable economic model? We need more companies to go under, we need to feel the pain. This will kick our asses into gear again so that we become a producer of goods, not a consumer. Only then will i be ready to buy back in to the domestic markets as a whole.
Mac