30 April 2011

Anarchist Pig- All That Glitters is Silver

Back in January I made some comments regarding gold, silver and the wisdom of holding some precious metals as a hedge against inflation, currency devaluation and the plain stupidity of the people running this country. Since I wrote that article, gold has rocketed to over $ 1,500 an ounce and its cheaper cousin silver is within striking distance of doubling in price. Recent comments by Fed Chairman Ben Bernanke and our seemingly clueless President have merely confirmed my belief that holding some physical metal is probably a good idea.

There are times when I wonder if Barak Obama rubs his hands together and does his best Simpson's impersonation of Montgomery Burns when the cameras switch off- "Excellent" he mutters to Bernanke filling in for Waylon Smithers, "our plans to drive the U.S. economy into the ditch are working better than expected." My suspicions about the Community Organizer in Chief were confirmed when he came out swinging against oil traders, speculators and other malcontents who were artificially driving up the price of oil- all while completely ignoring (conveniently) the fact that the U.S. dollar is dropping like a rock causing the prices of commodities (gold, silver, oil among others) to march steadily higher. I'm not a Harvard educated economist but even my rudimentary understanding of finance tells me that when you are printing dollars by the truck load, you are undercutting your own currency and prompting inflation.

Besides a weakening dollar, metal prices are driven by fear. I think there is now a real disconnect between those within the Washington Beltway and the other 99.99 % of the country that have the uneasy feeling that no matter how we rearrange the deck chairs, the Titanic is about to roll over and sink. While the government crows that inflation is barely noticeable, a loud buzzer went off in the back of my head when I recently paid $ 7.00 for two uncooked chicken breasts and $ 15.00 for a small/medium bottle of laundry soap. I walked out of the store with $ 67.00 worth of groceries that I swore would have cost half of that a year or two ago. The politicians just don't get it and the same can be said for the establishment media that labels all of this a speculative bubble. When silver last spiked it truly was for speculative reasons as the Hunt brothers attempted to corner the entire market. This time around, I see more than enough fundamental problems with the U.S. economy to justify the price appreciation.

So what's a hard working American supposed to do ? I do recommend picking up some physical metals, especially on price dips, but not betting the family farm on it. I've been telling family that anyone with cash in the bank needs to be highly tuned to what is happening to the dollar and fully prepared to move those dollars into other assets if the devaluation accelerates. Real estate if you can afford it, or maybe just the new fridge or washer/dryer that you've had an eye on. If the drop in the dollar accelerates, you might as well spend it while you can get something for it. Call me unpatriotic, but one move I made was to invest in a bear dollar inverse ETF (it appreciates as the dollar falls) which has given me a nice return- perhaps I should send a thank you note to Mr. Obama.

I have done some research into opening overseas accounts denominated in foreign currencies but the account minimums and accompanying red tape make this a far more daunting exercise than I expected. Over the past couple of years, our dear government has quietly made it far more difficult for foreign banks to accept us a depositors. I never considered this course of action because I wanted to avoid paying taxes, only because I wanted to protect the money that I have worked very hard to earn. Only an idiot would screw with the IRS- I read all of the IRS statues on reporting foreign interest accounts etc. but it was all a moot point when you can't open a foreign account in the first place. I would avoid dabbling in Forex accounts (you would do better at the dog track) but converting dollars into hard currencies through banks might not be a bad idea. I would stick with currencies from nations with strong current accounts- Norway, Australia and Canada all look good based on their strong raw material and commodity production.

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