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Thursday, September 6, 2012

Easy Money Ahead, Invest in Precious metals

Let me repeat for readers who are not long term followers.  I am NOT a Gold Bug.  I do not believe Gold is money, or that the federal reserve bank printing of cash is entirely responsible for rising resource prices.

With that said, today the ECB will announce details around a new save the Euro plan, which is being hinted at to include bond buying.  Once the ECB institutionalizes buying boys (aka Quantitative easing), the euro may be on a path to stability.  For all issues can be simply responded to by buying bonds issued to prevent risk rates to rise.

In effect, simply print money.

In principle, I think this is a good thing, in practice it will likely lead to some very unexpected adverse effects.

One of the effects is the western (and to some degree eastern) economies have now established.

1) Large companies are not permitted to go bankrupt
2) Fix income based on risk assessment will be short-circuited for governments and companies that politics deem safe havens.
3) Governments are not permitted to go bankrupt (until it costs more to prevent then let it happen)

These will have repercussions, one of which is net "easy money".   The only question is can easy money over-come credit deflation.  It may not now, but some day (month, year, decade) it will, and when it does, it isn't going to be pretty.  Look how long the ECB has taken to get to the point of agreeing to buy bonds and "save" the euro.  Can you imagine when easy money has to stop? Lag times of years will be devastating.

So onto investing.  We may be at another "bottom" for gold miners.  Then again today the investment world may rally on easy money, and collapse next week.

UPDATE 9-7-12: ECB Unlimited Bond buying announced.  Friday gold and assets rally.  Will this be a new bounce or a head fake?

Now isn't this fun?  I am still in GDX & GDXJ 33%

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