Buy Gold, Hunker Down And Wait It Out

The last time I remember seeing economic conditions this bad was back when I was in high school and Jimmy Carter was the President of the United States. Back then as stocks fell and interest rates climbed to previously unheard of levels, an old timer told me once that the best thing to do was to 'buy Gold, hunker down and wait it out'. As a kid, I thought that old guy was suffering from some kind of old age illness when he said that. However, today as the price of Gold soars and stocks continue to slide – that old man seems much smarter today than he did 35 years ago. During good economic times, Gold merchants are always trying to get the average investor in invest in that precious metal, with few takers.

However, with world economic conditions showing weak signs of growth and as the US dollar continues to tank against other world currencies – most long term investors would have been wise to have bought some Gold back when it was trading around $300 per ounce. That said, investing in Gold is very boring most of the time. The past few months Gold has been setting new records, but for decades the price of Gold stood at about $300 per ounce and moved little from day to day. Right now Gold investments are exciting because the price fluctuates wildly every day and Gold's overall market trend has been heading higher in recent months. That said, I would not be a buyer of Gold at $800 per ounce even though the worldwide economy and markets might go through several more months of pain before things start to turn around.

Like most other people, I wish I would have bought some Gold back when the price was around $300 per ounce. However, if I had owned Gold for several years and it did not move up I would have probably sold my stake in Gold when it hit $400 per ounce and missed this tremendous increase, anyway. Investments in Gold are the longest of long term investments and act nothing like world markets of stocks and bonds. Only people with the most patience investment horizon will ever profit from investments in Gold. Right now most of the money being made and lost by Gold investors is in the futures market. While I have never been fond of futures trading, some people have done quite well with these types of investments and for the short term trader that wants to take advantage of the current volatility in Gold, futures are probably the best way to go. Just remember that futures trading is very dangerous and should only be conducted by market professionals.

Read more about the Economy:

Bear Market Out Of Hibernation, Big Bull Sleeps
Federal Reserve Stops Price Plunge For Now
BOA Joins Citibank With Huge Quarterly Loss
Fed Acting Like Enron In Some Ways
It's The Economy, Stupid All Over Again

January 23, 2008 Archives

Bear Market Out Of Hibernation, Big Bull Sleeps

While the word is not officially out yet, it is becoming more clear everyday that US stocks have entered a 'Bear Market'. For many people under the age of 30, they have not seen a Bear Market in their adult lifetime and more than anything else the current Bear Market on Wall Street will be a valuable learning lesson about capitalism for young people. In addition to younger people that have never witnessed a Bear Market, older people that got caught up in the easy money hysteria of the past few decades are going to remember some of the lessons they already knew as their stock portfolios and mutual fund monthly statements start to decrease.

There has been so much credit based spending in the United States over the past 20 years that the downward pressure on the stock market was bound to catch up with everyone, soon. Just yesterday, I saw a television commercial for a local furniture retailer that invited customers in with the promise of no payments for over a year. Credit based spending has been driving the US economy higher over the past five years with few stops to rest. However, the upcoming Bear Market will put a stop to many of the easy credit offerings that now litter newspaper ads across the world. Bear stock markets begin when the raging Bull of economic capitalism gets out of control and easy money via credit is available to all whether they have earned it or not.

Much to my surprise, a few years ago even people with poor credit and/or employment history were being offered home loans by some large and reputable lenders. Actually, when that practice started happening – that was when the real Bear Market started, even though few people could see it at the time. Bear Markets are a successful mechanism to ring out bad business decisions and unchecked greed from the markets. Any time huge businesses start making loans to anyone and everyone that applies, a Bear Market is just around the corner. It is fun to run with the Bulls, but eventually even the strongest Bull gets tired. Right now a well rested Bear is ready to come out of hibernation and rule the markets for awhile. Considering how long that Bear has been asleep, it might be quite some time before it goes back to sleep again.

During Bear stock market declines there will be every type of get rich quick scam available showing up to try and separate people from their money. However, if a person has invested in good companies and their time horizon is greater than 10 years before needing to sell. Then staying in the market is probably the best move and making a choice to stop watching financial television shows would probably help the long term stock investor sleep better at night.

Read more about the Economy:

Federal Reserve Stops Price Plunge For Now
BOA Joins Citibank With Huge Quarterly Loss
Fed Acting Like Enron In Some Ways
It's The Economy, Stupid All Over Again
Stock Markets Crash As US Recession Fears Increase

Federal Reserve Stops Price Plunge For Now

After a tough day yesterday and at the opening this morning, US stocks on both the NASDAQ and Dow are starting to appear more stable. This stability is the direct result of the US Federal Reserve lowing a key interest rate by 75 Basis Points (¾ percent) before yesterday's opening bell. Financial experts from around the world are challenging the wisdom of this massive interest rate cut in light of what is really happening in the US economy. The United States prides itself on free markets where strong companies, with sound business plans, succeed and weak companies fail and go out of business. This act of removing weak companies must be allowed to happen or the entire US system will fail to work properly.

The free market has a way of fixing itself when excesses cause it either to surge too high or fall too low. Too much government interference with a free market could cause that market to stop working properly and it could damage it in the future. While most people do not enjoy the prospect of a Bear Market, they do help the overall free market system correct itself from Bull Market excesses. If the US Federal Reserve steps into the markets too often in order to stop or delay a Bear Market, the whole system could eventually collapse. Hopefully, members of the US Federal Reserve are making judgments based on long term financial models and not on political concerns because 2008 is an American presidential election year.

Company stocks that make up stock markets around the world must be allowed to correct or the entire system will eventually fail. In my view, the less any government interferes with the private sector through stock manipulation, the better. Unfortunately, millions of people around the world have bought stocks without studying how equity investment works. Many of these uneducated investors wrongly believe that stocks should only go in one direction, upward and they get very impatient when stocks or mutual funds they own start to lose value. Just like the seasons of the year change from hot to cold, so does the interest in any one company or market sector. The world is changing so fast right now that it is difficult to know which way ever changing technology will move in the future.

Fast paced world changes will create even more volatility in stock markets which is a good thing. Volatility is very effective at removing uneducated investors from the market and replacing them with people that better understand how equity markets work.

Read more about the Economy:

BOA Joins Citibank With Huge Quarterly Loss
Fed Acting Like Enron In Some Ways
It's The Economy, Stupid All Over Again
Stock Markets Crash As US Recession Fears Increase
Tuesday Could Bring Big Trouble For US Stock Prices