This Chart Is the Simplest, Best Reason to Own Gold
By Porter Stansberry
Thursday, June 25, 2009
For anyone who has to explain to his broker, spouse, or friends why he's been hoarding gold or buying gold stocks, the chart below may help you...
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Our Exploding Money Supply
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This chart accompanied a recent article written by economist Art Laffer. Please make sure you read it. The article is the best analysis of our money supply problem I've seen anywhere. And this amazing chart shows just how much money the government created in the past year... it's a visual everyone can understand.
Says Laffer about the massive expansion of the country's monetary base:
The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10. It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless...
To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5%...
No matter what your political persuasion, no matter how little you may know about money or finance, Laffer makes crystal clear what is happening right now to the value of our money.
The more dollars are printed, the less each one is worth. You don't really need to know what role the monetary base plays in our system. You don't even need to know that an increase to the monetary base of this magnitude could be catastrophic. All you need to know is the government has created over 100% more of it than existed a year ago – the fastest increase of all time, by a huge amount.
I saw this beginning last fall... and warned readers of my investment advisory it would lead to what I call The End of America.
The coming great inflation will destroy America's economic leadership. It will lead – eventually – to the return of settling international obligations in gold instead of paper dollars. And this will happen much faster than anyone expects.
By the time Obama leaves office, you will not be able to exchange dollars for any sound currency in the world without permission from the U.S. government. The price of gold will be well over $2,500 per ounce.
We are the first nation in history to enjoy unrivaled control of a global, paper-backed reserve currency. This allowed us a nearly unlimited financial privilege: We could effectively pay for all of our debts with money that we simply printed. This power led our politicians to believe deficits don't matter and our consumers to believe they could never go broke... Some bank would endlessly refinance their mortgages.
The lack of market discipline led to too much money and credit. Debts expanded at a far faster clip than savings, resulting in an inevitable credit collapse. Now, the second part of the crisis is beginning: the paper deluge.
Most people understand intuitively that when inflation increases, the price of gold increases, too. The reason is simple: It's much easier to print money than to mine gold. The supply of gold grows at about 1% a year and almost never any faster. Gold is unique. It has few industrial applications. Almost all of the gold that has ever been mined is still in use, as jewelry or in coins or bars. Thus, the total supply doesn't change much.
But here's the big question for investors right now: How long will it be until this ocean of paper causes a severe decline in the dollar and a massive run-up in gold?
We can't know for certain. Nobody has seen anything like this, ever. But I believe it will take at least two years before the inflation that's been put into the system starts to roil the real economy. (Of course, it might not take that long... oil prices have already nearly doubled from their lows.)
As I've said before, I'm not happy to be the one to tell you all of this. I hope I'm dead wrong. But, while I don't believe we're in immediate danger of inflation, it's paramount you own some gold to protect yourself from what today's chart shows.
Good investing,
Porter Stansberry
P.S. I just told readers of my Investment Advisory about a stock that will outpace gold bullion in this next economic phase. It's a perfect inflation hedge: The more money that exists, the more money this company will make. To learn more about a subscription, click here. |
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A GIANT RALLY FOR THE WORLD'S GREATEST GROWTH STORY
You've got to hand it to the Chinese. They invented paper and gunpowder... and they can really put together a stock market rally.
China is the greatest economic growth story on the planet... and a marketer's dream: One billion hard-working Chinese people coming on line in the global economy. This enormous potential draws in enormous amounts of hot money from traders... which causes Chinese stocks to boom and bust like crazy.
We're pretty fair China hands at DailyWealth. We called the 2007 boom... then flip-flopped and called the bust with commentary on China's big airline stock, China Southern.
And as we predicted four months ago, you can now put Chinese stocks back in the "boom" category. Since bottoming in November, the benchmark Chinese stock index has enjoyed an amazing 70% run higher. It's one of the few assets sitting near a one-year high.
How much longer will this new run last? Nobody knows. Most China watchers consider the market overvalued. But this is China folks... And as you can see from the huge gain in 2007, when Chinese stocks run, they like to run a long way.
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Market manipulators will find a way around whatever new government regulations are passed, says famed short-seller Jim Chanos.
The reason? Financial regulation failed previously because it was formulated by government officials not in touch with the internal machinations of the marketplace.
"We still have by-and-large academics and lawyers who are trying to regulate an industry in which they've never run a fund, they've never bought and sold stocks professionally, they've never cold-called a client," Chanos told CNBC.
"It's a little tough because the guys who are the bad guys are one step ahead of the cops on the beat every single time."
– Newsmax
Shares in Taipei rose almost 3 per cent on Monday to lead a broad rally in Asian stock markets after the island's government said it would send cabinet members to Beijing to discuss cross-strait financial ties.
In Shanghai, the Composite index closed 1 per cent higher at a one-year closing peak of 2,922.30.
The benchmark index has gained 60 per cent this year but is still more than 50 per cent down from the record high above 6,000 reached in October 2007.
– Financial Times
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