Silver, Gold, and What Could Go Wrong

By: GE Christenson | Tue, Apr 15, 2014
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Richard Russell is almost 90 years old and has seen it all. He recently stated:

"My advice, as it has been, is to move to the sidelines while holding large positions in physical silver and gold. Regardless of what the markets do, silver and gold represent eternal wealth, and the bid to sleep undisturbed at night. No amount of money is worth the loss of peace of mind. The power of gold opened the American West and populated Alaska. Men have spent their lives searching for gold. You can own gold by the simple action of swapping Federal Reserve notes for the yellow metal. I advise you to do it." ~ Richard Russell - April 10, 2014

He stated on March 31, 2014:

"Here's what I did last week. I took some unbacked junk currency called Federal Reserve Notes, and with them bought some constitutional money, known as silver. I consider gold and silver, now being manipulated, as on the bargain table."

Richard Russell thinks the stock market is currently dangerous and that silver and gold are safe. He understands that gold and silver are eternal wealth with NO counter-party risk. What is counter-party risk? It is the risk that paper wealth is not real, that debts will not be paid, that dollars, yen, and euros will decline in purchasing power, that your employer will declare bankruptcy and your pension will be cut in half, that your brokerage account will be hypothecated by management, that your bank will declare bankruptcy and your deposits in that bank are unsecured liabilities of the bank and may not be paid either timely or in full. In short, there is counter-party risk in almost everything.

Examine the following graph of the S&P500 Index for the past 20 years. Does that graph inspire confidence in further gains in that index, or does it cause you to think about corrections and crashes?

S&P 500 Index Chart
Larger Image

Yes, the Bernanke/Yellen "put" may support the market as the Fed does not want a market crash. But what happened to the power of the "put" in 1987, 2000, and 2007?

Now look at the following 20 year graph of silver. Instead of being at all-time highs, like the S&P, it is off nearly 60% from its high. Silver looks like a better place to park, as Richard Russell says, unbacked junk currency called Federal Reserve Notes, instead of in the S&P.

Silver Comex Chart
Larger Image

What do we know for certain?

So what could go wrong? Let me count the ways.

What else could go wrong? Sarcasm alert!

Bottom line: There is an abundance of risk in the world that involves other parties, other countries, derivatives, debt, debt, and lots more debt. Gold and silver have no counter-party risk and will retain their value regardless of whether the debts are paid, regardless of political promises, regardless of monetary and fiscal policy, and regardless of the Bernanke/Yellen put.

Your cheerful but sarcastic blogger,

 


 

GE Christenson

Author: GE Christenson

GE Christenson aka Deviant Investor
www.deviantinvestor.com

GE Christenson

I am a retired accountant and business manager who has 30 years of experience studying markets, investing, and trading futures and stocks. I have made and lost money during my investing career, and those successes and losses have taught me about timing markets, risk management, government created inflation, and market crashes. I currently invest for the long term, and I swing trade (in a trade from one to four weeks) stocks and ETFs using both fundamental and technical analysis. I offer opinions and commentary, but not investment advice.

Years ago I did graduate work in physics (all but dissertation) so I strongly believe in analysis, objective facts, and rational decisions based on hard data. I currently live in Texas with my wife. Previously, I spent 20 years in Barrow, Alaska, the northernmost community in the United States, 330 miles north of the Arctic Circle.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/