Lear Capital: All Paths Lead to Gold

2010_01_05_17_53_260001As we all travel through this economy, directions are being shouted to us at every turn.  Unemployment is down!  The markets have corrected and are heading higher!  It’s the weather stupid!  Interest rates will stay low!  Don’t listen to the CBO!  Don’t buy gold!.

Surely, if we heeded these directions, we would all be racing down the stock market path to find our retirement fortunes. [Sarcasm added]  It’s a path riddled with blockades and blinking yellow lights that tell us, ROAD CLOSED!  Yet, many choose to ignore the yellow lights and blast through the blockades as though they do not exist.

The first blockade says, “There’s No Jobs – Go BACK!”  And, if you look at the map (that being the National Debt Clock Site) you plainly see the warning.  The “Official” number of unemployed is 9,935,448.  The “Actual” unemployed, however, is 19,356,380.  What on earth makes one think the path to prosperity is lined with more jobs?  Can an economy really recover when 14% of the working people do not have jobs?

The second blockade says, “Big Bubble Ahead!”  All you have to do is tune into the travel advisory channel and you would hear that one of the world’s richest most savvy investors, has shorted the S&P 500 to the tune of $1.3 billion.  That investor is George Soros.  Tell me he’s an idiot.

The next blockade says, “Watch For Falling Houses!”  Even AAA could tell you the reason new home sales are plummeting has nothing to do with the weather and everything to do with rising interest rates and high unemployment.  Since July 2012, rates on the 10 year bond have doubled and while rates may still be below “normal,” the new normal tells us if rates go higher home sales will go lower.  Were it not so, why did they lower rates to begin with if it was not to spur housing sales and sales of other durable goods?  Think about that.

And this is my favorite.  “Dead End Ahead – No U Turn.”  Acting as our GPS navigator, the CBO has issued an alert. The Affordable Care Act will cost our economy 2.5 million jobs by 2024.  The White House says the report is wrong.  Funny isn’t it?  Government saying government is wrong.

So, when it comes to investing where do we turn?  Since the pre-crash peak, in 2007, the markets have risen about 9%.  That’s 9% over more than 6 years for an annualized return of about 1.5%.  Assuming you survived the crash and were not forced off the path and out of the markets by massive margin calls, the return has been mediocre, at best, and not as meteoric as the talking heads would have us believe.

During the same period, between October 2007 and today, gold is up over 80%.  That’s a great return.  Making it even greater is the fact that gold is up over 80% after a correction greater than 30%.  Gold prices are still 30% off their record highs.  Stocks, on the other hand are just a few percentage points off all-time highs.  In hindsight they call the 2007 stock market a bubble that burst.  Now, $7 trillion of added debt later, they say stocks are not in a bubble and are headed higher.

With all roads to higher stock prices clearly marked as treacherous, the path to retirement fortune appears to be the golden path.  To own gold now is to own it post-correction.  To own another share of stock would be to own a pin that could prick another stock bubble.

Over the last half century, gold has corrected 15 times an average of 32%.  And each correction was followed by an average increase of 90%.

So, which seems the more logical path to retirement fortune from here?  Stocks now back to bubble levels? – or – Gold, after a 33% correction?

Before you turn down a path clearly marked with warning signs and blinking yellow lights, head to the next exit.  It’s likely paved with gold.  Travel it for awhile and see if you don’t feel just a little bit safer.

As always, this is just my opinion.  It’s up to you to decide whether or not to agree with it.  But if you do agree, I would be honored to have you follow me @DaveTheGoldDr.  Safe travels everyone.

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