Sunday, August 15, 2010

Mainstream Mis- or Dis-Information Campaign Intensifying?

Now that Rupert Murdoch and team own the WSJ and Marketwatch, they speak for the mainstream. A "Marketwatch" bylined article from late in the week, allegedly on gold, has so much incorrect information that I suspect provides truly contrarian investors who see matters as I do with some strategies to conserve wealth and potentially increase it. The article is titled Gold rises as world spirals toward deflation.

While I am tactically bullish over the intermediate term on long bonds for a modest portion of my portfolio, I do not expect either price deflation or "Austrian" deflation to occur in a major way.

Here is some of this apparently mainstream opinion:

Most serious economists believe the real risk facing the U.S. and other Western economies is deflation, not inflation. Unless the Fed, joined by the government, really steps up to the plate to stimulate the economy, no matter which way you cut it, deflation can't be too good for gold either, especially not compared with bonds. . .

It (not well defined in the article exactly to what that word refers) will be a mere, if classic, safe-haven bet, but no doubt gold bugs of all stripes will continue to present it in many other ways.

For some reason, with soup line photos no longer in vogue in this season of a "weakening recovery", the Establishment wants us to believe that undocumented "serious" economists--as opposed to unserious ones, one must infer--suddenly agree that the "real" risk is deflation (which we are to take as price decreases rather than direct credit shrinkage). The implied message is to buy allegedly high-quality bonds.

The obvious response is to hold onto your wallets and prepare for price increases. When? It would be a bit obvious for this to occur, say, tomorrow. The long bond may well be a good trade for the next months or even years, just as the NASDAQ was in the later 1990s. But unless you are a "paper bug", the relative valuations and chart structures suggest to me that gold has a more secure intermediate term future as a wealth preserver and even enhancer.

In 100 and 200 years, which would you rather your descendants inherit from you: Federal Reserve notes, perhaps earning interest through correlated bond issues, or gold?

Everyone needs to make their own choice, which I believe is the key investment choice. For now I am playing both sides of that trade, but while my heart is with my government, my mind makes a persuasive argument otherwise.

The more the mainstream media continues to tar gold investors as "bugs" (meaning "nuts"), the more secure I feel that there is no gold bubble, just a gold bull market. The gold bull may rest or reverse, just as stock bull markets have done, but patient money can ride those out. The bubble is in cash yielding nothing while prices rise apace; at any time, as in the WW II and Korean War eras, consumer prices may soar while allegedly safe long Treasuries yield far less than the rate of price increases. If and when that happens, the one-decision asset that never changes--gold--may finally garner the respect from the media that it has had for, oh, five thousand years or more.

The fad does not (yet) involve gold; it is actually believing in "deflation" in an era of fiat money, especially when the issuing government has always been at war with Eastasia. (Or is it the Horn of Africa? See linked NYT article about the Nobel Peace Prize winner's expansion of secret wars.)

In any case, there's far too much hype about "deflation" to suit me. I am embracing it warily, as I did the tech bubble ten and more years ago; and my long bond holdings are in my mind speculative. Strange, unfortunate times, but so it goes when governments dominate markets.

Copyright (C) Long Lake LLC 2010

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