Precious Metal's Bailout Bonus By Byron King - Howestreet.com
October 2, 2008
Editors Note: Over
75% of the Senate thinks the $700 billion bailout is a good
idea. We now wait to see what the House does this time around.
Either way, Byron knows where the smart money is going. Heres
a hint: Its shiny, yellow, and very rare. Enjoy...
Weve been witnessing utter political bumbling in Washington,
D.C. beyond the scale of a mere $400 million Bridge
to Nowhere. Heres the central fact: Congress spent
years enabling the crooked dealings of Fannie Mae, Freddie
Mac and the like. Now some of the key political perps are
writing the alleged solution to the problems they
With so much at stake, the politicians just have to
as the saying goes do something. So they
are cobbling together a program to spend $700 billion that
the nation does not have. (More on that below.) But dont
be fooled. Much of the Potomac sound and fury is just a smoke
screen to hide the malfeasance and corruption of Americas
political class from the light of day. And this political
spectacle comes on top of the long-term investment incompetence
on Wall Street. Really, should we be bailing some people?
Or jailing them?
The bottom line is that the U.S. is now at the edge of an
economic Tsushima, if you will forgive my mixing a couple
of metaphors. Tsushima, as you may know, was the epic battle
fought at sea in May 1905, when the Japanese navy annihilated
a Russian fleet off the shores of Korea. It was a defining
moment of the last century, when the rest of the world realized
that Europeans and their weapons and policies could be defeated.
Many of the liberation movements of the 20th century
(from Indochina and the Philippines to Persia and Egypt) trace
their roots to the symbolism of Tsushima.
And now we see the U.S. and, more generally, Western
models of monetary governance and investment going
down the tubes. People are talking about a Greater Depression.
The usually sober Steve Forbes claims that the U.S. economy
is in cardiac arrest.
The Chinese no fools, they are looking for
a way out of their ties to the U.S. dollar. The oil-exporting
nations of the world are searching for alternatives to the
dollar. Even the Russians are talking about setting up a gold-backed
ruble. Ask a Russian about Tsushima, by the way.
What if youve never tried options
Please dont think that means they have to be complicated.
In fact, making them less complicated for people new to options
is exactly why Ive written to you today. Because I personally
believe that options strategies do not have to be complicated
or high risk, if you let someone like me explain what to do
We began this week with investment carnage. On Monday, the
stock market crashed a record-setting 777 points. It was
to use another Russian battle analogy a stock market
Stalingrad on a global scale. It seemed that every kind of
stock in every kind of market across the world tumbled.
Yes, the prices of gold and silver rose on Monday. But gold
mining shares declined along with all the other stocks. What
was that all about? In my view, it was panic selling. In the
wake of the failed bailout story out of Washington, D.C.,
big shareholders dumped everything over the side. Even the
good stuff went into Davy Joness locker.
Also, Monday was Sept. 29, the next-to-last day of the third
quarter. So some last-minute actors were cleaning house. Better
late than never? They sold anything that could show a profit
(or get rid of a loss).
But sell the gold and silver? Lets think this through.
Have you tried to buy physical metal lately? Good luck. The
U.S. Mint is all but sold out of coins. Indeed, the U.S. Mint
has placed its dealers on allocation. The Royal Canadian Mint
is working flat out to meet the demand for Maple Leafs. And
South Africas Rand Refinery which supplies the
worlds most popular gold coin, the Krugerrand
is now running at full capacity seven days a week. Got gold?
Many gold and coin dealers are having trouble keeping bullion
materials in stock. For example, I've had about 20 or so telephone
calls in the past week from old friends. These
are people from my past (and a few total strangers) who know
that I write about gold, energy and resources. The common
question is, Byron, what do I do with my dollars?
On a purely private basis, Ive been referring some
of my friends to a couple of metal and coin dealers that Ive
used in the past (sorry, no plugs in Penny Sleuth today).
I contacted the manager of one firm just to say that I was
referring people. He said, Byron, I appreciate the referrals.
But Im almost out of gold to sell. Ive got high-end
numismatics. But those are gold coins with a serious markup.
Further down the price level, I just cant keep bullion
coins or metal ingots in stock.
So whats the story for physical gold? Theres
strong demand for real metal. According to todays Financial
Times, Investors in gold are demanding unprecedented
physical levels of bullion bars and coins and moving them
into their own vaults as fears about the global financial
What do these gold investors know? Evidently, the posted
price for gold is low. Its another way of saying that
gold is underpriced relative to true demand. In fact, the
posted price is clearing the market like a vacuum cleaner.
Suddenly, everyones talking about GOLD. But what they
dont know about are Vancouver LEAPERS.
Heres how to use Vancouver
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of the gold rally
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Now lets look at the precious metals situation from
a different angle. If Congress passes any sort of bailout
plan allegedly to re-energize the worlds credit
markets it will rapidly inject about $700 billion into
the world financial system. It looks like almost all of these
bailout bucks will be new money. Why? Its
not as if Congress is going to tax the American people $700
billion. (Gasoline taxes, anyone?)
And who will loan the U.S. that kind of money? The rest of
the world is ready to shut us off. The European and Asian
media are just dripping with poison when they discuss the
U.S. economic mess.
So $700 billion of new money will dilute the buying power
of every other dollar already in circulation. Its basic
economics. And its almost the textbook definition of
So thats why people are buying gold. And thats
also why in a volatile market its probably
a safe long-term bet to pick up precious metal mining shares
now. Could the shares still go lower? Sure, anything can happen.
But will the U.S. dollar keep on losing purchasing power?
As surely as night follows day.
Until we meet again
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