Thursday, January 29, 2009

Dear friends,

Larry Edelson has written a story on Money & Markets in which he newly discovers the advantage of investing in gold.

The full article is here -->

I like what this guy has to say, but I want to correct a few possible misconceptions that Larry might be presenting to his readers.

His conclusion begins half way through the article like this...

So I repeat my warnings: Steer completely clear of the bond markets!


In addition to all of the above, the real estate market is still in shambles ... and stocks are not yet out of the woods either. So what's left? Cash and Gold


My opinion: Everyone should have most (at least 75%) of their liquid net worth in cash, tucked away in short-term Treasury-bill only funds.

What? Why 75%?

But, remember, your cash is at risk of losing its purchasing power. That's true whether we're talking about the dollar, the British pound, the euro, or any other currency.

Right, the currencies are all going to hell. So why the large amount in cash?

So I suggest you hold some gold "the ultimate currency." I suggest an allocation of up to 25% of your liquid net worth.

Wait a minute... cash is devaluing and gold is the "ultimate currency" and it is set to boom... so why put 75% into the crash and 25% into the boom?

More on that in a moment. First, I want to show you what gold looks like when a currency is collapsing... (snip) ...Gold has now closed above the important $879 level. Its next important level is $929.

Once gold closes above $929 new record highs will be forthcoming.

Now I ask you again, "What's not to like about gold?!"


Is that it? What about Larry's idiotic reasoning regarding the 75-25 gold to cash?

P.S. For my latest core gold and natural resource recommendations, including how to invest the recommended 25% gold allocation ... see my gala 2009 Real Wealth Report Forecast issue. And note: With an annual membership to Real Wealth Report , you get monthly hard-hitting, unbiased analysis ... all of my buy and sell signals ... and flash alerts. Click here to join!... (snip)

OK, I see... Larry wants to sell his recommendation with a membership to Well that is fine if he is actually helping someone make sense of this crash. But for such a prominent analyst, his advice seems pretty simpleton to me.

I will assume that Larry will say that you need 75% cash because firstly, cash won't be available and secondly, a lot of bargains will start showing up on the market as the USA has one giant garage sale.

If you have 10,000 liquid assets and if your expenses are 2k per month, this idea may make some sense to put 7,500 away for the bank run. I don't know exactly how to plan for this event because of all the uncertainties.

What if you have 10 million? I wouldn't keep 7.5 million in cash.

What if you have 100? Hey times are tough and many people will have only 100 dollars to their name. Should they keep 75 dollars and put 25 dollars into a gold flake?

I don't want to be too hard on him because there are so few people speaking the truth these days. Larry comes to the right general conclusion and the first half of his article is spot on. The second half is simpleton but still has some value. However, here is the thing... gold and especially silver are about to EXPLODE in valuation now. They have been artificially manipulated downwards for 30 years. Their boom won't happen in a one-time spike. It will be huge. I predict a 4+ year boom event that never returns to anywhere close to today's low valuation for a number of reasons that I won't go into here. The gold boom will be bigger than the housing boom, bigger than the internet boom. Why? Because the precious metals market is so small in comparison and demand is so much bigger by comparison.

Which of these two are more relevant to the regular guy?:
1) A stock certificate for an IT company or
2) a one ounce silver coin?

Which has the greater global appeal to the guy driving a taxi in Budapest or Bangkok? Obviously, the metal with a 6,000 year record of never losing value is the winner over the paper valued instrument that always loses value every time among thousands of examples throughout history that never held value even once over the long term.

Best of all, you don't get taxed on the stuff. Just sell and walk away with liquidity for getting necessities or whatever you need, when you need it.

So I would advise to get as deep as possible as soon as possible and be ready to hold on for at least 2 years, maybe 5. Within that time period, we will be in precious metals boom city. And cash will be going towards the Weimar-Argentina-Zimbabwe model.


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