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Gold Up, Wall Street Down: Obama Doesn't Get it
By Mark Skousen - Feb 27, 2009 11:07AM

My friend and senior analyst for the Oxford Club, Louis Basenese has been making the case for a "relief rally" in Wall Street and collapse in gold. So far neither has happened.

Lou is taking a contrarian point of view here. Since everyone is extremely pessimistic on Wall Street, and super bullish on gold, he thinks the opposite.

He sees a "mania" in gold. "Investments in coins and bars increased 811% in the fourth quarter, according to the World Gold Council. Wannabe gold bugs are paying, willfully I might add, 20% premiums for coins and small bars. Massive inflows into the SPDR Gold ETF (GLD) just made it the world's second-largest ETF. At the very least, this safe-haven buying is a tad overdone."

Admittedly, the bull market in gold has lasted eight years, a long time in any bull market. The rest of the commodity sector has fallen out of bed. Shouldn't gold be next?

It's quite possible that we could see a correction in gold, but the long-term fundamentals are still strong.

Wall Street analysts never have understood gold. Gold is not just another commodity. It is true money, and the monetary demand for gold is often more important than its industrial value.

Right now, there is growing fear that Obama is taking America down the wrong road--toward more inflation, more regulation, more out of control spending. The Federal Reserve itself is mounting the largest monetary inflation in its history.

In short, stagflation is rearing its ugly head.

These headlines are non imaginary:

“The Obama budget is nothing less than an attempt to end the ideas of Ronald Reagan.” -- New York Times

"The Obama Revolution -- the largest tax increase in U. S. history....Federal outlays are higher as a share of the economy than any year since 1945, when the country was still mobilized for World War II." -- The Wall Street Journal

And there’s no better proof than the stock market’s reaction to Obamanomics, which is big-government Keynesianism at its worst. Since Obama took office, the Dow is down a whooping 15% -- and that’s after the huge sell off in the market in 2008 by more than 30%.

And the market has continued to drop precipitously since Obama addressed Congress and announced his obscene $3.6 trillion budget for fiscal year 2010.

Clearly Wall Street has spoken: Obama’s tax, spend and regulate policies are a disaster for the nation.

And sadly Obama doesn’t get it.

Adam Smith, the founder of free-market economics, once said, "There is much ruin in a nation." And Obama is out to prove it.

What should investors do? Play it conservative. Be well-diversified in global stocks. Maintain a high cash position, look for bargain opportunities, and keep squirreling away those gold and silver coins.

And do not despair. It is not time to head for the hills, although some wealthy friends are talking about moving to New Zealand, or the Bahamas. (One friend of mine has already taken the extreme step of renouncing his US citizenship!)

In writing “The Big Three in Economics”, I found that Adam Smith and his “system of natural liberty” have come under attack on many occasions by his sworn enemies Keynesians, Marxists and socialists, and has often been left for dead, but always makes a comeback.

As Adam Smith declared in his 1776 classic “The Wealth of Nations,”

“The uniform, constant, and uninterrupted effort of every man to better his condition . . . is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration.”

In sum, the ideas of Adam Smith, and his modern followers, including Ronald Reagan, are far from dead. They are only in hibernation. The free-market giant will soon be awakened by our dire situation.

Hopefully pro-market forces in Congress (both Republicans and Democrats) will filibuster the Obama tax increases and budget excesses. Charities and non-profits are already up in arms about the proposed limits on tax deductions for wealthy donations for good causes.

I’m doing my part by holding the world’s largest gathering of free-market investors at FreedomFest, July 9-11, 2009, in Las Vegas, the focal point of liberty. For details, go to www.freedomfest.com. I hope you will join us.

I know I’m a dreamer but I’m not the only one.

 


Gold Up, Wall Street Down: Obama Doesn't Get it


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