Tuesday, December 7, 2010

To infinity and beyond...

In a move that comes as a surprise to some, President Obama announced a tentative deal with Congressional Republicans on Monday to extend the Bush-era tax cuts at all income levels for two years as part of a package that would also keep benefits flowing to the long-term unemployed, cut payroll taxes for all workers for a year and take other steps to bolster the economy.

This extension will cost $900 Billion - equal to QE2. In essence we have just seen QE3. But how does cutting back on government revenue deal with the massive looming debt problem the United States faces?

It doesn't of course.

And as people like Jim Sinclair have been saying for years, the political realities both in taxation and quantitative easing make prediction here all too easy.

America (and Europe) have no practical way out of the debt problem – none.

They are going to inflate and spend continuously as the problem is kicked further down the road.

QE4, 5 and 6 are all but assured.

Which is why I believe you will see a rush into Gold and Silver in the foreseeable future. And faithful readers know I favour silver over gold.

Eric Sprott sees it too. The Toronto-based money manager whose Sprott Hedge Fund returned about 496% in the past nine years, outlines his thoughts in an article in the Globe and Mail:

  • Why did you become bearish just before the Nasdaq stock market imploded in 2000?

    We had an 18-year bull market from 1982 to 2000. This is about the average length. You could tell from the almost insanity of the market at the time that it had to be over … We were valuing stocks at 100 times sales in the Internet boom. It was ridiculous.

    How long do you expect a bear market will last?

    I have always thought it would be a long bear market – about 15 to 18 years. It started in 2000, but it might even be longer this time because the powers-that-be keep manipulating the financial market. Having a zero interest rate policy is manipulation. Having quantitative easing is manipulation of what the market would otherwise do. …They are delaying the liquidation phase of a bear market. Almost all governments keep bailing out their financial systems.

    You have been a bull on gold from the get-go. Is its price over $1,350 (U.S.) unfolding as you expected?

    It’s been the investment of the decade. When I bought gold, I was buying gold to hold [as a long-term investment]. As it turned out, it quintupled. I didn’t think it would go that far because no none would have imagined that the central banks and governments would get themselves in a position where they are printing money.

    The printing of money makes gold more valuable. You don’t have to be a genius to figure this out. The Johnny-come-latelies – the Paulsons, Einhorns and Soros – all figured out, when [the Fed announced the first round of quantitative easing], that they should own gold. It becomes more obvious every day as you see these financial challenges that we have in Europe.

    How high will gold go?

    I think gold is the reserve currency today. There is not a currency in the world that it hasn’t appreciated against by at least 300 per cent. And it has beaten every stock market. You can’t even rent a safety deposit box in Germany because they are all full of gold and silver … I am pretty convinced that gold will go a lot higher because it is under-owned as only 1 per cent of people’s money is in it. It could go to $2,000 an ounce. I could imagine it at $5,000. I am not giving a time frame on that, but I could certainly see that happening. But the real story now is silver.

    Why are you more bullish on that metal?

    Gold has traded at a ratio of 16-to-1 to silver in terms of price, but today it trades in the range of 50 to 1. I think the gold-to-silver ratio is going to go back to 16 to 1 given the passage of time, say three to five years. And I bet you that silver overshoots. The gold-to-silver ratio may even get down to 10 to 1. I believe that the price of silver has been suppressed.

    How much of your wealth outside of Sprott Inc. shares are in bullion and precious metals stocks?

    I only own funds and gold and silver. I am probably 90 per cent in precious metals personally. And I don’t lose sleep over it.

As I have been saying for almost 2 years now, a huge opportunity lies ahead.

Seize it.


Email: village_whisperer@live.ca

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