Marc Faber on interest rates, gold and silver

JIm Rogers on CNBC

The Trend is your friend

Alfonso Colombano

While technical analysis is a great tool to time the markets, trying to get market timing right is no easy task.

In my opinion, the best way for most investors to make sustainable gains is to simply invest with the bigger cycle. As we have spoke before about cycles, basically the most important cycle is the long-term bull or short market for whatever asset class you are evaluating. By studying cycles, most investors that do not want to divert their time away from their main profession or business, can comfortably and safely invest in several asset classes.

We know that equities cycle tend to run from anywhere to 18-24 years. The last US bull market we had lasted from 1982-2000. Commodities cycles also last about the same range of time, but their performance is opposite of that of stocks.

My main point is that for the vast majority of investors, rather than trying to time the market, the best solution is to do what’s called dollar cost averaging in the current bull market, which is mainly commodities. Dollar cost averaging, as defined by Wikipedia, is simply  “form of investing equal monetary amounts regularly and periodically over specific time periods (such as $100 monthly) in a particular investment or portfolio.”

For example, an investor that had accumulated precious metals and resource stocks in the past 10 years, would have probably outperformed all of the of the major “diversified” funds. Another advantage of investing in commodities directly is that there’s a lot less evaluation to be done. Even though we recommend investing in commodities producers, there are always extra risks such as management, financial reporting and others that you do not get with the physical commodity. Oil has gone from roughly $10 in 1999 to $107 currently, an increase of roughly 10 times. In about the same time, ExxonMobil, the largest private integrated Oil & Gas Company in the world (before 1999, Exxon), has increased from $33 to $84 currently, (an increase of 2.5-3 times).  The same holds for many other resource producers. Of course, it is always advisable to own these stocks in a commodity cycle since they have outperformed other sectors’ stocks.

Political Prisoner Bernard von Nothaus

Bernard von Nothaus, creator of the Liberty Dollar medallion, has been found guilty of numerous counts including counterfeit and now potentially faces 15 years in prison (he hasn't been sentenced yet) because his company minted one ounce silver and gold medallions. The US government now considers him a domestic terrorist. Von Nothaus created a product that is currently in high demand. His product competed directly with US fiat currency that has lost 96% of its value since its inception and is losing value at an exponentially faster rate. The issue is simply that Von Nothaus has threatened the government’s monopoly on counterfeiting.

While the dollar, according to the Bureau of Labor Statistics, has declined in value by over 20% in the last decade, one of von Nothaus’ Liberty gold and silver one ounce medallions have increased in value by over 425% and 585%, respectively. Why would anyone ever prefer use of dollars when comparing them to medallions? There is no wonder why the feds shut down von Nothaus’ operation. The government has set an example of what they will do to those who challenge them. Mr. Nothaus will become another of the many political prisoners in the US.

Von Nothaus is accused of counterfeit but counterfeiting, as von Nothaus has said, is “using something of no value to get something for value.” His company was doing the opposite of what the government is doing. The fact that the government is targeting those who choose to protect themselves from a devaluing fiat currency is Orwellian. Unfortunately, this is a trend that I fear will escalate.

Marc Faber on Inflation

Jim Rogers and Oil Prices

Price Inflation

As we discussed in podcast a couple of weeks ago, the common definition of inflation is incorrect and obfuscates the real cause. Inflation, until recently, has always been defined as an increase in the money supply. Increasing the money supply, or inflating, has the consequence of increasing prices throughout the economy, whether these are consumer goods or capital goods.

Most mainstream economists wrongly define inflation as being an increase in the price level. First of all, defining a “price level” is quite an impossible and futile task. Measuring consumers’ subjective valuations and aggregating those in an average cannot be done.  For example, as people get older, they tend to consumer more medical services, which in the US, have been going in prices at a very fast level. In other words, the “price level” for somebody in their 70’s-80’s is quite different from the “price level” of somebody in their 20 or 30’s.

Many people dismiss that having a proper definition of inflation is important at all. What they don’t see is that by wrongly defining inflation they are concealing the source of these price increases, which is always the central bank increasing the money supply. The mainstream media always blames price inflation on some other cause, rather than blaming the monetary authority. Whether it’s the “evil speculators”, “greedy OPEC” or other boogiemen of the day, the media hides the true source of these price increases. The CNNMoney article below is a clear example of this:

On a monthly basis, CPI rose 0.5% in December, from 0.1% growth the previous month -- the largest monthly move since June 2009. Economists surveyed by Briefing.com had expected a 0.4% rise in December.

Most of that increase was due to gasoline prices, which surged 8.5% in December alone, as commodities rallied.

The U.S. Consumer Price Index, a key measure of inflation, increased 1.5% over the past 12 months ending in December, up from 1.1% in November, the Bureau of Labor Statistics said.

Core CPI, which strips out volatile food and energy prices, is still at a historic low, after rising a mere 0.8% for the entire year, and only 0.1% for the month.

“Core CPI” applies to you if you don’t drive and don’t eat. I guess there isn’t that many people who can live without transportation or food. This measure of price inflation is completely bogus and tries to obfuscate the real cause as mentioned earlier.

When all prices rise, it is not a matter of the supply of goods, or another good, like gasoline rising in price, cause price increases. When all prices rise, it simply means that the currency is depreciating (in other words, the supply of money is increasing).

More importantly, people have adjusted to the fallacy that price inflation is a “fact of life”. Quite the contrary, in a growing economy, price decreases every year are a result of higher productivity in the economy and should be welcomed. The 19^th century in the US was a period of unprecedented economic growth accompanied by appreciation of the currency. In fact, a dollar in 1900 bought as much as double the amount of goods that it did in 1800.

http://research.stlouisfed.org/fred2/graph/?s[1][id]=BASE

As the money supply keeps increasing, the dollar will continue to depreciate vis-à-vis goods, in particular commodities. As a hedge for the next couple of months, it is indeed a very good idea to invest in agricultural commodities. And don’t forget, the mainstream 90% of the time misses the point and outright lies to the public, so don’t believe most of the news out of the media.