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.