Gold coins and quantitative easing
Our goal every day in these Daily Reckonings is to give you your money鈥檚 worth.
That鈥檚 not hard to do, since this service is free. But our daily commentaries take time to read. And it can be very annoying 鈥� with starkly unpopular points of view鈥ong, rambling, philosophical perambulations鈥ersonal notes of no particular interest to anyone except the author鈥nd aggravating reflections of no interest to no one at all, including the author.
So, what makes it worthwhile?
Well, occasionally we have an insight鈥 little soupcon鈥 suspicion that turns out to be right.
Do we have one now? Don鈥檛 know. But after much thought, light meditation, praying and heavy drinking鈥e at least have a hunch.
Here it is: these clowns are going to screw up big time鈥�
We鈥檙e talking about the world鈥檚 central planners and central bankers and central financial authorities. They are laying the track鈥hey are building the train鈥hey are about to take off鈥ight over a cliff!
There鈥檚 a 鈥済rowing consensus on the need for a new round of buying assets,鈥� says a report in The Financial Times. The idea behind this 鈥渃onsensus鈥� is breathtakingly absurd:
The economy is weak. So you print money. The money pushes up asset prices.
People think they are wealthier. They think there鈥檚 a real boom going on.
They invest. They hire. They spend.
Then, there is a real boom!
Do you believe it works like that, dear reader? If you do, you should be an economist. Or a doorstop.
There鈥檚 no doubt that printing money can create a boom. But it鈥檚 a phony boom, not a real one. And when it blows up鈥hich it inevitably does鈥eople are worse off than they were before.
It鈥檚 one thing to introduce small amounts of extra 鈥渕oney鈥� into a growing, prosperous economy. It鈥檚 a fraud. It鈥檚 a mistake. But it doesn鈥檛 blow-up the system. It鈥檚 petty larceny; nobody cares.
It鈥檚 another thing to introduce large amounts of new currency into a funky, struggling economy.
But that鈥檚 what the markets seem to be reacting to 鈥� at least, the anticipation of QE 鈥� quantitative easing.
Some investors have bought stocks. Some have bought gold. Some have bought Treasury bonds. Those buying stocks and gold are focusing on the inflationary effects of QE. Those buying bonds are focusing on the Fed鈥檚 asset purchases themselves; after all, they鈥檙e going to be the biggest, flushest, most inebriated buyer at the auction.
But they can鈥檛 all be right. Gold buyers expect the dollar to crash. Bond buyers expect it to hold up. It can鈥檛 do both.
So who鈥檚 right?
Ah鈥f we knew that鈥e鈥檇 have to charge you for your Daily Reckoning subscription. Nobody knows the answer. But we鈥檒l take a guess.
Stocks headed down yesterday. The Dow lost a modest 19 points. But gold lost $12. Gold is overbought, in our opinion. The dollar is oversold. And the idea of a 鈥渞ecovery鈥� is oversubscribed.
We expect a correction. A great correction.
The economy is weaker and more vulnerable than people think. It is not going to bounce back. So, stock market P/Es are too high. They should sell off. The Fed鈥檚 new money will be too timid, at first, to turn it around.
As stocks fall, Treasury prices should go up. Yes, buying bonds 鈥� that is, lending to the world鈥檚 biggest debtor, who is printing money to buy his own IOUs 鈥� seems like a crazy thing to do with your money. But our guess is that crazy will get even crazier before it goes completely mad.
Gold, meanwhile, is probably not going to enter its final rocket stage until this correction is further advanced. Puffing up asset prices alone probably won鈥檛 do it.
That said, we confess鈥e鈥檙e no good at short-term timing. So, you want to buy gold now? Go right ahead.
Our suggestion: buy coins. Not ETFs. Not gold stocks.
Why coins? Because then you won鈥檛 be tempted to sell them when the price of gold goes down. Analysts are talking about a 10% decline over several months. It could be much worse鈥ay 20% over several years.
Ten years ago, we urged dear readers to buy gold. The yellow metal was low-hanging fruit at $290 an ounce. But now it鈥檚 $1,335. It鈥檚 higher up on the tree. You鈥檝e got to get on a ladder to get it. Ladders always mean risk.
Is gold going higher? Probably. Much higher. But not necessarily tomorrow, next week, or even next year.
Best advice. If you want to buy more gold, buy coins. Bury them. Forget about them.
Just don鈥檛 forget where you buried them!
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