Gold Stock Bull

A very powerful documentary was recently released entitled Zeitgeist Addendum. It is sure to offend many of you, inspire others, but is certainly relevant information to consider given the current state of the world and of particular interest for contrarian and gold investors. Among other topics, it covers the creation of the Federal Reserve, domination of the world by bankers, the IMF/World Bank’s exploitation of small countries, the destruction of the dollar, Ron Paul, religion and how we might be able to change our current direction and move towards a more peaceful and fulfilling world. Regardless of whether you agree with the movie’s views on religion and proposed solutions, it explains our banking and economic system in a very compelling and digestable manner. Your comments and feedback are welcomed.

Click here to link to Google video source for full screen view.

My portfolio has taken a beating this year as gold stocks have fallen off the cliff. But gold is charging back as investors are seeking safe-haven assets that hedge against inflation. The dollar rally has lasted longer than many anticipated, but it is only a matter of time before it collapses back towards 70 and below.

It is important to remember that theses bailouts are incredibly inflationary. The Fed and government cannot print a TRILLION dollars out of thin air and expect action like this not to debase the currency. On top of this, the Fed just engineered a stealth cut of interest rates that effectively pushed down the overnight lending rate by about .75 percentage point to 1.25 percent. All of these actions and the market reacted by declining 5% today! The gig is up.

Where should you put your money during these desperate times that we are just staring to experience? This is the question on the minds of millions of investors, from traders to the everyday American with a 401k or IRA that has lost 30% or more of its value since the start of the year. Well, I can tell you where I’ve been putting my funds and what type of returns they have been generating lately.

Subscribers were told to pick up EEV on Sept 9th and again on October 1st, when the ETF was trading between $100 and $110. It closed today at $150, so we gained over 40% in a matter of weeks. I have been a long-term holder of both SKF and SRS, but recently called a bottom in both ETFs and recommended picking up shares at $100 and $80 respectively. Since the October 1st recommendation, SKF is up 45% and SRS is up 52%.

While gold stocks are getting dragged down with the overall stock market collapse, the physical metal is actually up 20% in the last month. Today alone, we witnessed gold advance over $30 while gold stocks (measured by the HUI) declined. This decoupling of the physical metal from mining shares was called out in our newsletter last week as we sold stocks and bought The Canada Central Trust (CEF). CEF was up over 5% today.

The point is that there are always opportunities in the market, no matter how grim things become. As mainstream investors lose their shirts and pit traders cover their faces in pain, our portfolio is advancing and booking profits each week. I realize hard times are coming no matter how well I invest, but laying out a contrarian strategy to preserve and even grow wealth during the onslaught is something everyone should be contemplating. It might be the end of the economy as we know it, but I feel fine.

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This opinion piece in Bloomberg is worth repeating in its entirety. Kudos to Jonathan Weil for calling a spade a spade. The bailout is hyper-inflationary ‘my friends.’ Out of dollars and into gold. I am buying CEF, SKF, SRS and EEV. I don’t think enough people understand the relevance and magnitude of what is going on. Alarmist? Nah, we are basically screwed.

“Maybe Congress isn’t so dumb after all.

The fatal flaw in Treasury Secretary Hank Paulson’s $700 billion bailout plan was that it wouldn’t fix the problem: Too many important financial institutions don’t have enough capital.

If the government wants to save dying banks before they take others down with them, it should choose the clean and direct path: Inject capital into them. Take ownership stakes in return. And, where that’s not feasible, seize them and sell their assets in an orderly way, just as the Resolution Trust Corp. did after the 1980s savings-and-loan crisis.

Only after a company’s shareholders and debt holders have been flattened should taxpayers take a hit. And for a $700 billion investment, U.S. taxpayers should get a lot more in return than a gargantuan pile of toxic waste.

For that much money, at yesterday’s prices, the government could buy 23 of the 24 banks in the KBW Bank Index, including Bank of America Corp. and Wells Fargo & Co. And it still would have money left to buy a stake in JPMorgan Chase & Co., the largest company in the index.

Infusing capital directly, though, was too simple for Paulson. It lacked subterfuge. He decided the way to save the financial system from the evils of structured finance was through more structured finance.

Instead of asking Congress to let Treasury recapitalize needy banks, he proposed buying some of their troubled assets at above-market prices. This would have let other banks create phony capital by writing up the values of similar assets on their own balance sheets, using Treasury’s prices as their guide.

Small Wonder

In short, Paulson’s plan was one part robbery (with the banks doing the robbing) and one part accounting sleight of hand. No wonder House members rejected it.

If Paulson or congressional leaders devise a Plan B, they should look to the example of Fortis, Belgium’s biggest financial-services company. This week, the governments of Belgium, the Netherlands and Luxembourg invested 11.2 billion euros ($16.3 billion) in Fortis. In exchange, they got ownership of almost half its banking business.

That’s how a government intervention is supposed to work. The company gets fresh capital, which has the added benefit of not being fake. The buyers get equity. Legacy shareholders get slammed with dilution. And if the company recovers, the government can sell shares to the public later, maybe even at a profit.

Such simplicity might feel unnatural to someone like Paulson, who used to run Goldman Sachs Group Inc., or a congressman such as Barney Frank who depends on campaign checks from bankers like an infant needs mother’s milk. And lots of taxpayers might object anyway, because it still would involve sending big checks to banks.

Gaining Understanding

At least voters could understand a plan in the European mold, which might lead them to be more forgiving about any unpleasant details. That’s better than trying to scare the public into supporting a bailout that doesn’t make sense.

As for the illiquid assets still on banks’ balance sheets, the best way to find out what they’re worth is to start disclosing every conceivable piece of data about them, right down to the daily cash flows they produce. A big reason subprime mortgage-related securities aren’t selling is that outsiders can’t see what’s underlying them on a timely basis.

Remove the kimonos, and capitalism will take its course. At some price, buyers will emerge, once they can see what they’re buying. Banks could clear their books. The companies that are able to attract fresh capital would survive. And the ones that couldn’t would die, as they should.

What Congress must remember is that Americans don’t exist at the pleasure of the country’s banks. It’s supposed to be the other way around. There’s still time for the politicians to come up with a rescue plan that will work. The important part is making sure you and I get something of value in return for our money.”

Click here for original article in Bloomberg

And for some true bipartisanship… both Ron Paul and Dennis Kucinich say the bailout plan is bullshit.

Contact your representative right now and tell them not to pass the bailout in its current form. Or sit there and get robbed while handing massive debt to your children, debasing your currency and delaying and exasperating the inevitable.