March 5, 2011

 

Bear forecasters are notoriously sought out for interviews.  Doom and gloom books sell.  How many books on economic growth have you heard make the Best Seller's list?  The status quo is boring, while "The end of the world as we know it" is exciting.

 

Notice how quiet it is when good things, like a bull market or the US winning the war in Iraq, happen?  It's like when pain goes away.  During the pain you hear loud statements of complaints, and plenty of moaning and groaning. But as soon as the pain is gone, it's like it never happened.  We don’t go around during normal healthy periods saying "I feel fine!"  Why?  Thankfully pain is the abnormal and health is the norm.  The reaction to wars and bad economic times are similar.  As the pain increases we scream and shout.  As soon as it is gone, we fall silent.  No one even cares to look back.  We win the war or come out of crisis, and we forget about it.

 

Iraq is now a hustling bustling country getting rich off oil which is almost back to pre-war production levels. No one seems to care that Iraq went from brutal domination by a dictator to semi-freedom. Also ignored by most is the possibility that Egypt toppled their dictator only after seeing their neighbors succeeding in a freer society. 

 

Is anyone out there being bombarded with news about the freedom being won by Egypt, or Iraq?  How many e-mails have you received about our over 18 months of increasing GDP? Is anyone screaming about being out of recession for twice as long as we were in recession?  Who is yelling each time we make a new post recession high in the stock market? Nobody. With all the e-mails and news we receive regarding how bad the US economy is, you would think the dire conditions we faced had never stopped.  How many predictions of collapse do you receive versus the ones you get mentioning how things have improved?

 

I like to compare perma-bears, people who are permanently bearish, with those who live life as if they were in the waiting room of an emergency hospital.  They see only ailments, wounds and pain walk through the door.  They worry about all the potential operations, physical maiming, and even the possible death of the sick and injured who disappear behind closed doors.  What they don’t see is the majority of the patients walking out the back door cured! Their whole world view is limited to the next problem walking through the front door.

 

What keeps perma-bears going is that bad things do happen--sometimes terrible things. It’s a fact, every once in a while, tragedy hits.  The perma-bear is able to point to tragedy and claim that he predicted something like this would happen, and he blames these hard times on the stupidity or evil of people. To perma-bears, evil and stupidity are more potent than goodness and rationality.  The perma-bear bets on this. Even worse, they believe that the negative is more powerful than the positive, and this is why they spend most of their years being wrong

 

Perma-bears think in terms of “society,” not individuals. They believe in majority rule. Yet hasn’t it always been the minority—individuals—who have lifted society, not the majority? Even more to the point, the perma-bear makes the mistake of thinking in terms of the condition of government rather than the individual.  

 

I covered this a couple of weeks back when I made the point that it is the US government that is broke, not the individuals in this country.  We are constantly being told that China has all the money.  We as individuals probably have more money in foreign banks than all the surpluses held by China. Corporations alone hold about 2 trillion dollars in banks abroad. 

 

We are told that China's educational system is much better than America's. Yet most of the innovation in the world still comes from America.  Ninety percent of all new patents come out of the United States.  America supplies new innovations and inventions; China steals them. The perma-bear does not care. For them economic progress always trump political freedom.

 

In the US innovation is the norm.  Success is the norm. But this is also unimportant to the perma-bear who choose to see only the exceptions to the norm.  America leads in technology.  Other nations apply our technology.  Some rob us of it like China, others buy it like Japan.  We create the chips, they put them into things.  We create software and they put them into boxes called computers. Others find oil and we get it out of the ground or ocean's floor for them with our latest technology.  A couple of kids invent Facebook and Twitter and unleash a technology capable of kicking out a dictator who held his people captive for 30 years. America still moves the world.


Look only at the finances and actions of government and even you would probably turn into a perma-bear.  But focus on what we are creating here in America, follow the progress we are making which is being employed around the world, and you start to feel bullish.  The Tech Show recently held in Vegas showed us the face of the future.  There were hundreds of new inventions. Many of the new inventions and technologies presented there were not even dreamed of just a few years ago. Some of the innovations even surprised the creators and inventors themselves. One such surprise was a pair of glasses embedded with a chip that automatically adjusts to your vision, both far and near. America is the fountainhead of creativity and innovation.  Without the US, the rest of the world would never have achieved a fraction of its current standard of living.

 

There is nothing wrong with being bearish—at times.  I turn bearish when warranted. I am always aware of the negatives and possible downsides.  But I don't live there.  Down is the temporary--not the permanent--and that is why I am not permanently bearish. You would think that after the worst financial crisis in a hundred years, the perma-bears would appreciate the fact that we are now on the mend.  But that is not their nature. They expect more pain, more destruction, more misery, and more downside. Nothing less than the complete collapse of civilization as we know it, is their “end of the road.”

 

More often than you might imagine, I get e-mails from readers who believe the United States will become a third world nation.  They describe a future where Americans are riding bikes and fixing up old cars, like in Cuba. A future where few Americans can afford a TV, computer, or cell phone, and where we all make a living hosting garage sales.  This makes sense to perma-bears who believe "we are a people who don't produce anything.”

 

If I dare write anything the least bit optimistic I get complaints. I am told I am a "cheerleader" for America. I am a “Polly Anna.” I am not realistic. I am even told that I am doing a disservice to my readers by not warning them of the imminent threat to the economic and monetary system.  Don’t I realize that I am wasting my time trying to change the world, that "there are no solutions," that the only inevitability ahead of us is pain? Get me a rope!

 

Let me remind all of you who hold a bearish view of the future, that Germany was once destroyed by Adolf Hitler.  Their money was destroyed, their economy was destroyed, their markets were eliminated and replaced by a command economy. After WWII they lived in rubble…bombed out buildings and homes without infrastructure. 

 

Germany emerged from this annihilation only a few years later as a major industrial society with a stable and sound money and economy.  People called it the "German Economic Miracle.”  A miracle owed to Germanys return to free market policies and commitment to greater freedom.  From 1950 on, Germany became the strongest economy in Europe. Even the worst case scenario is only temporary, so long as the mistakes of the past are corrected.  "Correcting mistakes" is a concept perma-bears refuse to accept as possible.

 

When a government steps aside and allows individual freedom, as was the case under Ronald Reagan, it unleashes the power of the individual to create and produce. This is the natural state of the world.  And this is what perma-bears will never concede to. They will always be pessimistic.  They are already on the lookout for the next crisis.

 

It is instructive that the perm-bears believe that the economy of the 60’s and 70’s was a result of reality having it’s way with America. But the 25 years of Reaganomics, they believe was a fiction, an artificial boom having nothing to do with the real world. Today’s recovery they see as temporary. The next recession they envision to be permanent. Once again, the negative is their reality, the positive is their fiction.

 

What they fail to see is that just a little bit of capitalism goes a long way.  It tends to overpower even greater doses of statism.  You don’t even have to have pure capitalism or total freedom to have prosperity.  Moving toward these is sufficient. The journey itself yields progress.  Instead of fighting to promote capitalism, the perma-bear will go to any length to point out all the potential problems, but never once point out possible solutions. The very thing that can make their society a better place to live is excluded from the perma-bears mission.

 

The perma-bear never look at Apple or Google, they look at government debt.  They never look at the life saving drugs being developed by the many bio tech firms and pharmaceuticals. They look at foreclosures. They never look at Steve Jobs, Bill Gates, or Warren Buffet.  They look at unemployment.  But it is creativity, innovation, and productivity which move the world. The negatives are there to be overcome. The negatives are small compared to the positives and the negatives are temporary -- except to the Perma Bear always waiting for the next patient to walk into the emergency room.

 

I am not looking for a monetary and economic collapse as the perma-bears are.  But should one come, I expect to be one of those that spot it quickly, protect myself the best I can, and preserve wealth despite it. And then move on.  That's exactly what this site is dedicated to: keeping a close watch on where we are, where we are going (good or bad), and figuring out how to get to there in the best financial shape possible.

 

 

Which brings us to this week's...

 

 

Market Update:

 

 

Continuing in the spirit above, precious metals are hitting new highs. Is it because the dollar has collapsed? No, the dollar is about the same level today against the basket of 15 currencies, called the dollar index, as it was before the crisis in 2008. Is it because our creditors are dumping the dollar as a reserve currency? No, in the March 2, 2011 report, China has increased its holding of dollars to all time highs. Is it because the stock market is crashing? No, the stock market has doubled since the crisis. Is it because the bond market has crashed? No, interest rates are at historic lows. Then it must be that the economy has disintegrated. Well, not exactly. We have been growing for over 18 months and corporate profits are the highest in history. Corporations are sitting on about 2 trillion in cash, and manufacturing just hit its highest pace since 2004.

 

Which goes to prove, you do not have to have Armageddon to have a higher gold price. There is another path to riches: prosperity, and a return to the gold standard–or at least a move in that direction. One scenario preaches doom, gloom, and requires the destruction of the economic and monetary system as we know it, the other entails the repair of the system.

 

A move back toward gold and silver as money by individuals, and the replenishing of reserves by central banks, is not a fad. It is a movement that will last for years. This is why a core position in gold and silver coins and mining companies is a winner and will continue to be. It also explains the broadening appeal of all resource stocks.

 

As I write this, it is being reported that thirteen states are submitting legislation to use gold and silver as legal tender. This is a continuation of this nations move toward a new gold standard.

 

At this moment in time the US is on the mend. Stocks in general have had a huge run led by tech and resource stocks in anticipation of improving world growth. A correction is probably near and certainly due. I have decided to lock in profits. CDE, SLW and Copper Fox, all broke out to new highs and I took about a third off the table. I added to my position in DNN as I mentioned I might last week.

 

Times are good. Stocks have made moves of 50% to 1000%. I expect these stocks to go higher, but as for me, I decided to ring the cash register and sit back and let the world go around for a while.

 

Portfolio by weight:


Copper Fox Metals

Cash
 
Coeur d'Alene Mines

Rubicon Minerals

US Silver Corp

Silver Wheaton

Lexam

Denison Mines

 

Rochester Resources LTD