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Why do we do what we do?Mike Hoy Thank Heavens the alarm goes off and I wake up in a cold sweat from a nightmare. There is no way that I would want my capital invested in the Dow Stocks. The truth of the matter is that you are reading this article because the knowledge and research that you have done has led you to the precious metals sectors and the websites that promote those sectors. If you happen to think like I do you are invested in these sectors because you feel the risk associated with investing in the traditional market is just not worth the reward. You understand that the Fed is stuck between the proverbial "rock and the hard place." On the one hand there are an all time record high number of houses on the market for sale. On the other hand inflation and the out of control printing of money are growing at double digit rates. Everyday the folks on CNBC spend hours debating the next major move in interest rates. In my opinion the next major move in interest rates will be down. In fact this seems to be a pretty easy call. Why? It's real simple. The reason there is a record number of houses for sale is because the people who were sucked into buying these homes at record high prices financed with two year adjustable rate mortgages and interest only mortgages are now faced with the reality of paying for these homes with monthly payments that are simply unaffordable for their budgets. After spending two years raising interest rates, from levels they should never have fallen too in the first place, the Fed will be forced to lower rates in what will turn out to be an unsuccessful attempt to bail these "lost souls" out of a bad situation that can only get worse. The lowering of interest rates will resemble giving a heroin addict a fix. A short term fix is not a long term solution. I believe the housing market will never fully recover until all these questionable mortgages are completely washed out and these homes are repurchased by individuals using traditional fixed rate mortgages protecting themselves from themselves and rising interest rates. There is no question that the Fed will select hyper-inflation over deflation every time when faced with this choice. These lower interest rates will most likely be the "trigger" that sends the Dow to dizzying heights culminating in a buying panic and the proverbial "rhinoceros horn." This could last a couple of years and in my opinion give the Dow its "ultimate top." Inexperienced investors who get sucked into this buying panic will meet the same fate of those in the housing market and the tech sector selloff back in 2000. THE DOLLAR So what about the dollar? Who cares! The thing is "toast" and the Fed knows it. They also know that those who have it must be extremely careful in the dumping of the dollar. There is no question that those who have accumulated the most US Dollars are attempting to diversify those reserves into an asset that cannot be printed, controlled or devalued at the leisure of those who are most in debt. In my opinion the ultimate dumping of the dollar, 2+ years down the road, will lead to a rise in interest rates that will ultimately surpass the 20.5% prime rate of 1980. This is econ 101 coupled with the predictability of the current day politician. These nations who have and continue to accumulate dollars have made their intentions perfectly clear. There is no doubt that these nations are diversifying into gold because they know that there is a finite supply of gold and in the end those who have the gold shall make the rules. A very small percentage of investors fully understand the inevitable end of a fiscally irresponsible monetary system. The only question that remains to be answered is how much elasticity still remains in the rubber band before it snaps? I think that after two years of raising interest rates the Fed still has a rabbit or two they can pull out of the hat. The raising of these interest rates over the last two years has set the stage for the lowering of rates giving the economy a short term fix before giving it and the traditional markets a massive selloff. WHY DO WE DO WHAT WE DO? This is a real simple question to answer. WE DO WHAT WE DO TO MAKE MONEY. We know, in the end, that gold has no where to go but up. Most of us understand that the true gold market is the physical market and not the futures market. The physical market is the market where the fiat paper is exchanged for an asset that cannot be printed or controlled by those who owe the most. In my opinion the physical buying of gold is just beginning and has barely scratched the surface. Those who are most active buying gold in the physical market love the corrections like the one we have just experienced. These people who are buying gold have a lot of money to spend and they know a cheaper price on an ounce of gold means the money they have to spend will buy a lot more gold. In my opinion a lower gold price only serves to put a bigger smile on these people's faces. With the amount of gold these people want to purchase their ultimate concern is moving the price of gold up making their additional purchases more expensive. These people have to be absolutely ecstatic over being able to buy gold on sale. Until governments accept fiscally responsible programs gold will continue to grow in popularity while the dollar replaces it as the "archaic relic." Gold will rise to the "preferred asset of choice" and all the games in the world cannot change this trend. 2006 TOTAL RETURNS With the Dow Jones punching out new all time highs in 2006 I couldn't help but take notice of the awards that were passed out for the Best Fund Managers of 2006. These awards were passed out for three separate categories; Domestic Funds, International Funds and Fixed Income Funds. The winning returns of these respective categories as reported by CNBC on 1-3-07 are as follows;
Initially, looking back on 2006 I was not happy with my returns. My portfolios spent the last 2/3rds of the year going down in value. My portfolios peaked in value in April and May. We have three different accounts; an IRA Account, a Margin Account and a Cash Account. I decided to figure out just how dismal a return I had on these accounts for the year. Needless to say I was quite surprised when my totals were in;
Why do we do what we do? Because this is where the money is to be made. I am not investing in precious metal stocks for percentage returns. I believe that by identifying companies in this sector who have excellent management teams that properly develop their projects returns of 10X + invested capital will be common before gold reaches its ultimate highs. It is very important for each
of you to recognize that weakness in stocks does not necessarily
mean that something is wrong with the company. This is why it
is important for each of you to do your own homework and due
diligence on every company you own. This is so important because
if you do know what is going on you will then recognize that
corrections open the door for a classic opportunity to buy or
build positions in good quality companies that are trading at
prices that in no way reflect a fair value of the projects being
developed. In my opinion the recent weakness in gold and the precious metals stocks has created the opportunity for those who have the experience, knowledge and guts to position themselves for returns that can easily be the best you will ever have. Yes folks, we do what we do to make money and it is times like we have now that allow us the opportunity to make the most! The opinions expressed above are strictly the opinions of the writer. It is up to each of you to do your own due diligence as your opinions may differ from mine. Have a Great 2007, 321gold Inc |
