Monday, November 23, 2009

Help! America Needs Financial Advice!

Question from Reader:

>"Do not trust the socialists in power. Get out of the dollar. Buy commodities (GLD, HUI, DBA, the Euro via Everbank or UDN)."

>Dear Mitchell,

I have been hearing about collapse for over a year now. I am VERY worried. Next year when the commercial "adjustable" mortgages start re-adjusting, many claim we will spiral out of control, and at that point, nothing may be able to stop it......

>I have a bit of money from my Mom.....Lord KNOWS how hard she and Dad worked for all ten of us to have the best they could provide. I have the money in two savings accounts. Should I convert all of it to gold or euros do you think? I do not want to lose what little is left. Our retirement funds were decimated.......and I am STILL out of work with no prospects in sight. I am hoping to start a small community based business with a neighbor....but this has not been the greatest year for me....and things health wise are NOT looking any better.

>I have debated "buying down" our mortgage so that payments on the house would be much lower. We were VERY lucky to get a fixed rate mortgage some years ago at 5.5%. But the payments with taxes are high, and I don't know when I will have an income again......

>I am really worried about the dollar's collapse. I appreciate any advice you may have......GOD Bless you,

Dear Reader: Do not panic. I would advise you not to pay off your house but rather, if necessary, get on the sub-prime bandwagon and borrow up to your eyeballs. In inflation debtors win. People with cash lose, so get rid of it. Get rid of your bank accounts.

I'm sorry that you lost in the market. All investments are risky. I would advise you to purchase a range of the things in the list you clipped: GLD, HUI, DBA, UDN. I would not put all my eggs in one basket.

Some commentators are afraid of bankruptcy of commercial banks. Hence, buying Euros through a CD has that risk. But otherwise, diversifying out of the dollar and possibly shorting the stock market is a good idea.

GLD is a gold ETF and it is taxed as a collectible, at 28% rather than at the lower capital gains rate. Gold stocks, are volatile and risky. They can go up alot more than gold, but they can also be affected by a stock market collapse. I lost money in 08 because of that very problem. The gold stocks can easily go down 70%. Gold is volatile but less so than the stocks.

If you put your money in gold, you need to be able to live with a 40% decline without panicking. IF you put your money into gold stocks, the variability is larger.

There is a stock, SH, which is the short-sale equivalent of the S&P 500. It goes in direct opposite to the S&P 500. You and I wish we had bought that in summer 08. You might consider this:

30% GLD
10% UDN
10% HUI
10% DBA
10% SH
20% SPY
10% SLV

These are:

GLD= gold exchange traded fund;
UDN = dollar short exchange traded fund;
HUI=gold stock index exchange traded fund;
DBA = agricultural commodities excahnge traded fund;
SH = S&P 500 short fund;
SPY = S&P 500 exchange traded fund;
SLV = silver exchange traded fund.

Alternatively, you could try this:

Cash: 50%
GLD: 50%


Cash 30%
UDN 20%
Gld 50%


GLD 100%


SH 90%
GLD 10%

Shorting the market now is of course risky. It could continue to go up because of the monetary infusion last year. But it has had a good run; Americans are heavily in debt; the Chinese are ticked; and the national socialists are in power. I would not be optimistic.

You might also look at international stocks but I would wait. If there is a stock market decline in the near future it will infect the international stocks too.

I am not a prophet and cannot foretell with any certainty what the markets will do. I do think gold is going up and if you put 100% in GLD you would not be crazy in my opinion. If you are bullish and put your money in the S&P 500 you could do well from hereon in, but there is a risk of stock market collapse. I would not be an unrepentant bull at this point.

The reason for a possible market collapse is this. The stock market is going up because of a large infusion of money last year. That can continue for a while. However, it is also inflationary. As inflation starts (dollar declines) the Federal Reserve Bank is subjected to pressure to withdraw some of the dollars. This will cause interest rates to rise. When interest rates rise, the stock market falls.

But let's say the Fed doesn't withdraw the dollars. Then, inflation escalates. Interest rates then will rise because bond investors want higher returns. It seems like there's a good chance for a market decline at some point either way.

It is easy to know what will happen, difficult to know when. The rising SPY could continue for another year. The stock market could double before the collapse. No one could know this. Unless you had inside information about the banking world last year, it would have been difficult to predict that the collapse of their balance sheets would have occurred.

So I don't know what to tell you. In an inflation, borrowers benefit. The St. Louis Fed tracks money statistics, and they are scary. I cannot say for certainty that the gold market will go up.

If you want to take a risk, buy gold stocks. Check out the Kitco site each week. No one knows for sure what will happen, least of all me.

Where I am heading right now, but I'm taking my time, changing a little each week:

SPY 10%
GLD 50%
HUI 10%
SH 5%
SLV 5%
Euros CD 20%

1 comment:

Anonymous said...

vab банк
vab банк
[url=]vab банк[/url] - vab банк