Your Government Is Betraying You

I spoke at a seminar recently. It's always fascinating to meet the people who go to these events, but this was the first time I'd been to one after the crash of last October.

Needless to say, the mood wasn't a happy one...

The speakers at this event were some of the best investment minds I know and the consensus was that inflation was in our future because of the government actions I've spoken about at length in this newsletter (a consensus always worries me though- more about this shortly).

The bottom line message to the audience: your government is betraying you by indirectly making YOU pay for all these handouts through stealth taxes and devaluing the dollars you hold with the printing press.

No surprises to readers of this newsletter there.

During the break, and elderly gentleman came and spoke to me. He wore a "Rangers" military pin and his name was Frank. Frank risked his life for his country in both Korea and Vietnam against Communist forces (forces we are now friends with and even pander to because they lend us so much money).

How do you think Frank felt to hear about this betrayal?

And as he spoke, I wondered: "How many Franks are there out there? Worse, how many don't even know about this betrayal? At least this fellow is warned now!"

Now, let's take a look at what's been going on...

The overall sentiment seems to be picking up. We can see this as the Dow gingerly edges upwards and the gold price sinks somewhat (the safe-haven appeal of gold is not so in demand).

Dow up, gold down is precisely the short term scenario I've outlined in recent weeks, each giving you a sell and buy opportunity respectively.

There's evidence to suggest a stabilization in house prices- another event I anticipated would occur in tandem with all this (see my 2009 forecast).

>From here I think the Dow bounces around between around 8 and 9000 unless sentiment solidifies more- still a lot of nerves out there and for this reason I can't say we're truly in a big bear market rally just yet. For now, my guard is up and all I like right now is gold, silver, oil, cash, mining stocks. There are many stocks I have my eye on, particularly in biotech, nanotech, oil equipment and geothermal energy, but ultimately this market is going lower than even 6500 and I will wait.

I imagine that right now you've seen your investments rise again BUT you're worried you could lose your gains?

This is an appropriate time to talk about 'gain-locks' with you...

Let's say you bought a stock for $100. It's now worth $200. Great! (And by the way, if you'd been reading this newsletter through winter you could have easily seen gains like this).

Okay, but remember, a profit is not a profit until you're out of that stock. As homeowners know, this is only a paper-profit.

A sensible thing to do is install a 'gain-lock' to lock in profits. We now say: "Okay. If that stock drops back to $170 I will sell and take profits. BUT, if it keeps going higher, I will raise this gain-lock accordingly."

This is the sensible move. Same goes for if you bought a stock and it's going down. Say you bought it for $100. What you should do is sell if it drops to $80 and live to fight another day. Don't let an acceptable loss turn into a catastrophic one.

You can also 'hedge' your positions. The 'Diamonds' are a proxy for the Dow. If you have a sell position on these (contact your broker) you make money if the market falls, thus protecting your bullish positions.

Anyway, back to that seminar. As a contrarian, it's truly worrying for me that almost the whole world is now saying parrot-fashion: "Fed is printing money so that means inflation. Buy gold.

I've re-examined my case as a result. I still think gold will ultimately rise but not for the reasons everyone thinks AND gold will scare all these people away from this thesis in the meantime...

There's absolutely no doubt that what the Fed is doing is going to have an undesirable outcome. Money is being created out of thin air to lend the government (by buying Treasury Bills). With this magical money, the government is throwing money at bailouts and other spending in an attempt to compensate for the estimated $50 TRILLION the world has lost.

Demand for goods is and will remain flat for some time though. And if that's the case, how can prices rise (inflation)?

It won't in the medium-term and interest in gold will die-off a bit (barring any more new unforeseen disasters). People are watching the gold price but they think they'll buy it as and when inflation and/or danger looms generally (gold is a safe-haven of wealth). But history shows inflation can sneak up on you and rise dramatically. I fear that when the time comes that people want to buy gold, they'll simply be shut out from the rush. Gold is a survivalist tool and one things survivalists know: when the time comes when something is needed in a crisis situation, you can't get it, so get it now, not then.

Other points...

Anyway, I mentioned Geothermal power earlier. This is where you drill a hole, channel steam up from the ground and use it to power a turbine. Simple, but virtually nobody has the skills to achieve this apart from giants like General Electric and small companies like Raser Technologies. It will take a while to catch on, but when it does...

G-20 summit. Obama was well received but meanwhile China and others are demanding an end to the Dollar as the world's reserve currency. Not content with that, they're bypassing the dollar mechanism anyway by doing currency swaps with other countries directly like Argentina. Anyone from MN? Your congressman is a moron- she is on record as saying we should pass a bill to stop the dollar being replaced as our currency. Nobody is saying the greenback is replaced by another currency you ignoramus, merely the status it has as the world's RESERVE currency! The proposal is the IMF have a super-currency which is backed by gold. The implications of this would be very bad for the US, but ultimately, good. The US has abused it's position of world reserve currency holder.

Leaders emerged from the summit "triumphant" about some "New World Order" declaring that banks should have stronger regulation. Isn't that like locking the stable door after the horse has bolted...?

They also gave over $1 trillion to the IMF for new bailouts of broke countries. Where did that money come from?? Taxpayers? Printing presses??

If anyone needs regulating, it's the politicians. Only fiscal responsibility through a return to some sort of gold standard can do that.

Meanwhile, sit tight. Sometimes, the best course of action can be no action and right now, the picture is just too muddy.

Best regards,

Mark Patricks