1930s Volatility is Here

If you are a long premium options trader, volatility is a necessary element to be successful. If volatility is lacking, time decay (Theta) will make this financial instrument a challenging (or even more challenging) one. These days, volatility is not lacking. In fact, volatility is thriving. For a long premium options trader, there is nothing like having market tailwinds to benefit your options strategy.
With a market that has gained 20% since March 9th bottoms and is down over 3% intra-day today (as of time of publish), 2009 has obviously been an extremely volatile year thus far. This year seems to be even more volatile than 2008, which by our calculations, was the highest level of consistent daily volatility in decades. In 2009, there have been a multitude of sessions that have seen stocks rally or fall by a significant percentage. It seems almost commonplace that the Dow Jones Industrial Average is up or down at least one percent.

Volatility can be defined in many ways (i.e. implied volatility, statistical volatility, etc.) -- in this analysis we look at volatility by the number of occurrences the Dow Jones Industrial Average rallied or declined by one percent or more on a closing basis in a trading day. More specifically, we looked at the absolute return for the Dow Jones Industrial Average for each day going back to 1928. We then calculated the number of occurrences (and the percentage) that the Dow Jones Industrial Average finished up or down more than one percent in a given year.

In 2008, there were 134 occurrences out of 253 trading dates (52.96% of days) that saw the Dow Jones Industrial Average finish up or down by one percent. This compares to the 2004 to 2007 period, which had a four-year average of 15.61%. This translates to only about 40 days per year in that four-year stretch that saw the Dow Jones Industrial Average fall or rise by one percent or more.

2009 has picked up where 2008 has left off. Our analysis was through March 9th 2009 -- as of that date we were on pace for an astonishing rate of 64% of the time the DJIA moves 1% of more on a daily closing basis. If the volatility continues through the last nine months of the year, this would be the most consistently volatile market since 1932, when the Dow Jones Industrial Average was up or down by one percent 74% of the time. Since March 9th, there has been no letup in this trend as roughly 10 of the 14 days (or 71%) are moving at this rate (as of the March 27th close). So the % pace for 2009 is actually a bit higher than the 64% utilized in the above chart.

For long premium options players, this kind volatility can be a blessing. Buying calls, puts, straddles, and strangles can be advantageous in this environment. For the "buy and hold" stock and mutual fund investor, this volatility can only be digested with a six-pack of Dramamine and Pepto Bismol.

Another takeaway for long premium option players is that the level of volatility that we have seen will likely not last forever. Periods of high volatility will generally result in a lower one, as these periods tend to cycle in and out. This trend will likely go into a dormant stage with declining volatility and less price fluctuations (although the explosion in growth of ETFs, Options, Ultra-ETFs, etc, may lessen the decline in volatility somewhat).

Thus, having an arsenal of options strategies beyond long option premium (which is always useful) will be even more important when the volatility wanes. Learning how to trade vertical credit spreads, iron condors, shorting straddles, shorting strangles, writing puts and covered calls will be important to add to one's repertoire.

5 Stock Tips to becoming a Successful Trader

When People look for stock tips they look for someone to tell them which stock will go up and make them a million dollars. But I’m going to give you something much more valuable, especially when you consider most “Hot Picks” don’t do so well.

If you want to learn how to make a nice return in the market you are going to want to learn the ropes yourself. That is all there is to it. You can’t rely on someone else to give you “Hot Stocks” because they will either have no clue what they are talking about or you will not play it the same way as them.

Luckily anyone can learn to trade the market. And if you are going to trade or invest there are 5 critical stock tips that you must follow.

Here they are my 5 stock tips.

1. Control Your Emotions

Being in the market is a constant struggle with your emotions. If your stock goes up even a little you get the urge to sell everything and walk away a proud man or woman with your tinny little profit. If the stock goes down you want to watch it all day as if that would make it change directions.

Emotions are bad (at least when it comes to the stock market) you can’t make any rational decisions when you are obsessed with every little thing. How could you, the slightest tick can bring so many emotions your way, good or bad and make you react differently, stressed, overjoyed, whatever it is.

This is one of the key elements that keeps so many traders and investors from making a decent return in the market, in fact, if you can’t control your emotions none of the other stock tips here will help you. But how can you do it? You are human after all.

The best way is to have specific rules that tell you when to get in and when to get out of a stock, and follow them. This will make sure your emotions will have no control over your position. You can only get out once your rules tell you to and not before.

Another thing you can do which will help control your emotions and follow your rules is to use smaller positions. Forget the fact that going all in 1 position is foolish anyways, but keeping your positions small will put less emotional stress on you, which will help you react more rationally.

2. Learning From Bad Trades

We all make bad trades, it can be hard to handle when you have lost some money trading. After all when you are just getting started you aren’t expecting it to happen. The stock market is supposed to make you money right? You’re not supposed to lose the stock can’t go down, that’s the wrong way.

Well, unfortunately experiencing losses are a natural occurrence in the stock market. The only thing you can do is learn from them.

Whenever you lose money don’t lose the lesson. Figure out why you lost and see what you could have done differently next time. Maybe there wasn’t anything you did wrong, the trade just didn’t work, it happens. In that case I just hope you kept your loss small by setting stops like I teach you.

Learning from your past trades helps you do well with other stock tips like controlling your emotions. When you do have a bad trade don’t consider it a bad trade. Consider it an education expense, you pay for college, the stock market is no different.

The money you lose will be put to good use if you take the lesson and use it to profit next time around.

3. Take A Breaker

Out of all these stock tips this is the one no one wants to hear, but it’s true. You can’t be involved in the markets every hour of the day. In fact sometimes being involved every day is too much.

Take some time off, remember to set your stops before you do, then let yourself get unstressed. Go fishing, golfing, play pool, do something else that will let you have fun and take your mind off the markets. There are other things in this world then money.

It will probably also benefit to your trading, sometimes it is better to take a break, especially when you are on a losing streak and come back later with a refreshed mind. You’ll be surprised at the results you can get.

4. Be risk Cautious

Most new traders look at the stock market as a pot of gold. You grab as many golden coins as possible then run off with a huge smile on your face. At least that is how I first imagined the market would be.

But it’s not, you’re going to win some and lose some. No matter who tells you otherwise it is not profit, profit, profit, it is profit, loss, loss, profit.

You can’t control when you will experience a profit and when you will experience a loss. The only thing you can control is how much you will lose if you are wrong.

So make it your business to cut your losses short and let your winners ride. The less you allow yourself to lose on a trade when you are wrong the less often you will have to be right to make a great return trading the markets.

Make use of things like stop orders, position sizing, and risk management. They can be your best friend in the markets, and save you from being one of the herd panicking while they see their accounts drop 50+% in a bears market.

Out of all the stock tips here this would probably tie for the most important with controlling your emotions. The best trader in the world is no different than a bum on the street if he loses all of his capital. Remember this is a business; your capital is the lifeblood of your business so guard it well.

5. Follow Your Rules

The Last of these stock tips is the icing on the cake. It is what puts everything together and makes you a profitable trader.

If you want to succeed you must have a set of rules that allows you to, cut your losses short, let your winners ride, and keep your emotions under wrapped.

This should take everything into consideration, how much you are willing to risk per trade, your time frame, everything. Remember your trading rules should never be broken, no matter what. The biggest mistakes I have ever made in the stock market happened when I did not follow my trading rules. Don’t make the same mistakes.

Now, as you learn and grow you might want to adjust your rules a little (not while you are in a trade of course). And see if you can’t make yourself even more profitable. But following your rules should be a daily practice for you.

Remember those stock tips. They can be very valuable for anyone willing to take the time to profit as a successful trader.

What is an ETF?

ETFs have been become very popular in recent times. The first ETF was started in 1993 in the US. Since then they have caught on as more or less stock substitutes. Instead of tracking the performance of a company ETFs track the performance of products.

For example there is gold ETF, GLD, which will typically go up if the price of gold goes up. Right now there is an ETF for practically anything you want to buy it on.

The benefit of owning an ETF as opposed to a stock is that they are unaffected by company news. For example if you are bullish on OIL you decide to buy BZP an oil company. However if BZP suddenly becomes under government investigation their stock will go down. This is true even if the price of oil goes up.

If you bought the oil ETF USO you will make money if the oil commodity goes up. You do not have to be conserved about what will happen with a given oil company.

Commodity ETFs can also be a good way to handle inflation. If the price of the dollar is going up the price of silver and gold can be going up relative to the price of a dollar.

They can be bought on the open market just like stocks. You should be able to buy them through your broker just as easily as you buy stocks. If you are going to use ETFs be sure you trade them just like you would a stock. The rules do not change.

3 x ETFs, the Latest hit

The 3 x ETFs are the newest things to hit the market. They provide you with huge returns or losses when you compare them with regular stocks, so should you use them?

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The answer is it depends.

If you are interested in getting into strong companies for the long term, I wouldn’t look at them. Because they are so new you don’t know how they will perform in the long run. The only way to tell is to watch them over 10 or 20 years.

If you are interested in making a nice short term profit like me then 3 x ETFs can be a great way to accomplish that. Because they offer so much leverage the return you can make is much higher on these funds then normal ETFs.


And the risk can still be managed by using things as stop losses and risk management. I have to say I haven’t dipped my ties into any of these, yet. But I will be interested to see how I can use them to increase my returns in the market.

If you are interested in doing your own research here are a few triple leveraged ETFs you can look at

FAS – 3x long financials

ERX – 3x Long Energy

BGU – 3x long large caps

Inverse ETFs, Should You?

Inverse ETFs or short ETFs allow you to profit from a falling market. If you think a specific sector, or index will go down you can profit from that move by buying the inverse ETF.

The nice thing about these ETFs is that you can use them to profit from a downward move in the market without needing a margin account, like you would need if you were going to short.

So Should You Use Short EFTs?



Well the answer really depends. If you are a long term investor who is willing to buy a stock and hold onto it for 10 years don’t buy them.

History has proven time and time again that stocks do go up on average in the long term. If you were to buy an inverse ETF today and wait 10 or 20 years you would probably have successfully cut your account in half.

So now that we have got that out of the way, these funds can be very, very profitable, if you treat them as a trade and follow all of your trading rules. Having precise entry and exit rules that allow you to cut your losses short and let your winners ride is a must here.

Any trading rules you have made become increasingly important to follow when using them or any other creative stock market techniques. You do not have the luxury of waiting for the long haul if things do not immediately go your way.

So if you have been seeing success as a trader in the markets go ahead and approach these. They can be quite useful, especially when you get into the Ultra Shorts and 3x shorts. If you are not having success as a trader I would recommend not getting involved in them until you feel comfortable.

list of Short ETFs

If you think you are ready to take a step in this direction here is a list of inverse ETFs that can help get you on your way.

PSQ – Short the Nasdaq

DOG – Short the Dow

SH – Short the S&P

RWM – Short the Russell

What are ETFs

Have you ever wondered, what are ETFs? Maybe you are just getting into the market and have heard of them or maybe you have been trading them and want to know what you are trading.

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ETF stands for Equity Traded Funds. They track a group of stocks such as an individual country or an individual industry group. So, for example if you are bullish on healthcare instead of looking for the best healthcare stock you can simply buy the ETF for the industry group.

This gives you somewhat of a diversified portfolio without having to look for many different companies. For this service they do charge a little annual fee. But that fee is normally very small and probably less than 1% of your total investment.

How To Buy Them

ETFs can be bought just like any other stock in the market. If you have a trading account you can simply enter the symbol in and click buy, and how many shares. Many also offer options which can be very helpful if you are looking to buy and sell covered calls on it or if you are looking to profit from a quick move.

Different Types of ETFs

There are 5 different Types of EFTs.

1. Investing Style, ETFs for different investing types some examples are.

ELV- Large Cap Stocks

IWF – Growth Stocks

2. Sector EFTs, which track different sectors some examples are

GLD – Tracks gold

XLF – Tracks the Financial Sector

XHB – Housing

3. Broader Market ETFs, track the major INDEXS some examples are

SPY – S&P

DIA – Dow Jones

EWJ – Japanese Nikkei Index

EWC – German index

4. Short ETFs, these funds work the other way, When the markets go down they go up, When the markets go up they go down, some examples are

DOG – Short the Dow

5. Ultra ETFs, for traders who want to catch huge moves

Ultra ETFs give you 2xs the leverage. Some examples are

DXD – Ultra short the Dow

SSO – Ultra long the S&P

5.5 3 x ETFs, for traders who still aren’t happy these ETFs give you 3x the leverage. Some examples are

FAS – 3x long financials

ERX – 3x Long Energy

BGU – 3x long large caps

6. ?... Who Knows what will happen, this ETF list could be very long in the future.

So what are ETFs? Basically another way to trade the markets.

What is a good investment

What is a good investment? What makes one stock perform well while others perform poorly? Throughout history the best stock investments have been made throughout a bears market, so it is natural to assume that 2009 will be a time when money is to be made.

So how do you go about finding which stocks to invest in? There are 5 simple criteria’s you should use when deciding if a stock is good to invest in or not.

When asking what is a good investment? Ask yourself these questions.

1. Does the company fulfill a need? You want to make sure you invest only in companies that have a purpose. It should be something that is not going to disappear overnight. For example Coke a Kola is not going to vanish. They have millions of customers worldwide.

Another thing I should add here. The company’s product should be something that you can understand. There are many companies out there which there CEO’s do not fully understand. Stay away from these.

2. How is the company managed? There is a strong correlation between companies with good management and companies who have made money for their shareholders. The better a company is ran the more likely it is that they will survive and prosper in the long term.

3. Does the company have little or no debt? The best ran company with the best product will not last very long if they have too much debt. Companies that have very little debt can use their money not to pay bills but to invest in themselves and pay out dividends.

4. Does the company have increasing/stable earnings? It is a good sign if a company is continuously increasing their earnings. That shows they are growing and hopefully that growth will spread to the shareholders as well.

5. Is the stock Undervalued? The concept of investing is simple, buy an undervalued stock and wait for it to increase in price. The best stock investments for the long term can be found by conducting fundamental studies such as P/E ratios, PEG ratios, and Price to Book ratios.

Reasons For Selling Options

Selling options has a ton of benefits in the stock market, especially when you are having trouble profiting from the market by buying options. Here are some of the major benefits you can get by being a seller.
1. You don't Have to pick the exact line

When you profit from buying the stock or the options it is very important to find the exact point at which the stock will turn around. You want to be able to draw a support or resistance line that is your line of action.

When it gets to that point you want to get in a trade. But if you are wrong, oh well better luck next time. When you are selling options however you don't have to know the exact point at which a stock will change directions.

For example when the market was making a large rally I knew it was overbought in the short term. I did not know exactly when it was going to turn around, but suspected it was going to pull back. So I sold a bear Call Spread.

If I had tried to find the exact point where it would turn around and head lower, I would have been stopped out numerous times and lost money. But because I sold the spread I was able to wait and finally profit when the markets did head lower.

2. It is less Stressful

It is less stressful to sell a far out of the money option and let the option expire then it is to find the exact point at which the stock is likely to turn around.

3. Higher Probabilities

Selling out of the money options gives you a greater chance of being successful on any 1 trade then buying the stock. That is because the stock does not need to move in your favor for you to make money.

It only need to not move against you too far. If you can find stocks like that you can be a profitable option seller.

Signs of a bottom

Everyone wants to find the bottom of the stock market so they can make huge returns and be looked at as a genius. But often times the only way you can tell when a bottom is, is after the fact. There are some signs that you can look at however to determine if the bottom is coming.
1. No one believes it

One of the best signs of a bottom historically has been when no one believes they are at a bottom. Everyone hears bad news and has some reason why the markets will keep falling. But remember the stock market is a forward looking instrument.

Stocks could start trending up 6 months or more before we see any recovery in the actual economy.

2. Stocks Stop Falling

Of course before stocks can start to go up again the first thing we need is for them to stop falling. When the markets start stabilizing again that is normally a good sign that the worst is over and we may see stocks start heading up again.

This can take a long time, it isn't that stocks just start going up all of a sudden, but they normally take some time to cool off first.

3. Leaders emerge

Often times a few of the strongest stocks will start trending higher. When those stocks start heading up it is normally a sign that other stocks will follow their lead, but not always the case. Of course the stocks that recover the fastest might make higher returns than the market.

I wouldn't mind getting into them as long as I cut my losses short if I'm wrong.

4. Reversal Patterns

Normally the bottom of the market is marked by a reversal pattern like the heads and shoulders or the double bottom. These patterns aren't always accurate, but they are worth looking at.

Of course there is no way to tell for sure whether we are at a bottom or not, but these are the signs that typically form when the end is near.

Zacks Beats The Major Brokers

Independent consulting firm Investars found that you would make more money by following Zacks Equity Research than looking at brokerage ratings.
Over a variety of periods, our long-term buy recommendations earned investors more money than those made by the major brokerage firms. Similarly, our sell recommendations helped investors identify which stocks to avoid.

Investars calculated that Zacks Equity Research's buy-recommended stocks rose 23.9% over the past 5 years, nearly 200% better than the Russell 2000.

To put this performance in perspective, let's look at how Investars says other firms performed. Following the buy recommendations from Goldman Sachs, Standard & Poor's, Deutsche Bank, Citigroup, Piper Jaffray, Raymond James, BMO Capital Markets and Ameriprise would have lost you money. Not a single one of those well-known brokerage firms had a positive return.

At the same time, Zacks Equity Research did a great job of telling you which stocks to avoid, or even short. According to Investars, Zacks' sell-recommended stocks fell 50% more than the Russell 2000. In other words, not only did Zacks warn you about the bad stocks, we helped keep you out of the worst of the worst - the ones that wreck your portfolio.

The Secret Behind Our Strong Performance What's our secret? It is combining our powerful quantitative model with the expertise of seasoned analysts.

Zacks harnesses the power of earnings estimate revisions to create two quantitative models: a short-term (1-3 month) indicator - the Zacks Rank - and a long-term (6+ months) indicator - the Zacks Recommendation. The Zacks Recommendation is an extension of the Zacks Rank and is designed specifically for long-term investors. Both models are applied to approximately 4400 stocks.

In addition, we employ a staff of 50 analysts with expertise in the specific industries they cover. Since there are often factors such as valuation, business conditions and management effectiveness that can be better spotted by a trained investment professional, we allow our analysts to override the quantitative model when they feel it is necessary.

Since our analysts cannot cover every stock, subscribers to Zacks Premium have access to 2 types of reports: analyst reports and snapshot reports.

Analyst Reports contain the analysts' recommendations as well as their in-depth written description on the company. These reports can range from 5 to 20 pages on the individual stock. Or simply, as many pages as necessary to impart to you why to buy, hold or sell the stock. These reports are available for the 1,150 stocks covered by our analyst team.

Snapshot Reports contain the quantitative recommendations and a quick overview of the key fundamental drivers behind the recommendation. This is contained in a 1-page document for approximately 3,250 stocks not covered by analysts.

The Best of Both Worlds There are many stocks with a long-term buy recommendation that are also on the short-term Zacks #1 Rank and Zacks #2 Rank lists. Combining both rating systems is a profitable strategy, and one I use for finding candidates for the Zacks Elite Focus List.

Here are 5 stocks that are buy-rated from both a short- and long-term perspective:

* Autozone Inc. (AZO) * Salesforce.com (CRM) * Hot Topic (HOTT) * ISIS Pharmaceutical (ISIS) * Tesoro Corporation (TSO)

Zacks Premium subscribers can view the full list of Zacks Equity Research's buy-recommended stocks. In addition, subscribers can also screen for stocks that are buy-rated from both a short- and long-term perspective with the Custom Screener.

Are Chipmakers Finally Stabilizing

Highlighted stocks include Altera Corporation (ALTR), Intel Corporation (INTC), Marvel Technology (MRVL) and Texas Instruments (TXN).

Much to my surprise, I'm seeing reasons to not be so pessimistic toward semiconductor companies.

The biggest is the trend in earnings estimate revisions. Six weeks ago, I said that "chip companies have seen approximately 400 earnings estimates cut". The number of falling forecasts has since declined to just 62. (Both numbers reflect revisions made over the preceding 4-week period.)

Some of this decline can be attributed to the fact that we are between fourth- and first-quarter earnings season. Typically, the number of earnings estimate revisions, both positive and negative, declines significantly during this time of year. Click here to find out more!

What can't be explained by the calendar, however, is the fact that 88 earnings estimates have recently been revised upwards on chip companies. In other words, there are now more positive revisions than negative revisions - a sharp change from early February.

This is not to say that industry conditions have improved; they haven't.

In early March, the Semiconductor Industry Association (SIA) said that January worldwide sales were down 28.6% from a year prior. A few days later, Marvel Technology (MRVL) said it does not expect conditions to improve over the short-term. Not to mention the fact that the economy continues to contract.

First-quarter earnings won't be good either. Every chipmaker in the S&P 500 (SPX) is projected to report at least a double-digit drop in profits.

So Why The Optimism?

Semiconductor companies have been responding to the difficult industry conditions by continuing to cut costs. For instance, MRVL is reducing its workforce by 15%. Intel Corporation (INTC) is freezing salaries.

There also could be a sense among brokerage analysts that conditions are nearing a bottom.

Worldwide revenues are at their lowest level in more than 4 years. Though semiconductor prices have dropped, usage of chips has increased. Consider the explosion in wireless devices that has been occurring. Not to mention the rise in devices that use flash cards, such as digital cameras and music-playing phones.

Inventory levels have also declined and at some point will be low enough to allow the industry to recover.

Still Early, However

Though these are positive signs, it is important to realize that the chip companies still have a long way to go. Even the estimate revisions, though positive, are not that impressive.

Nearly half of the positive revisions made recently are for just 4 companies: MRVL, INTC, Altera Corporation (ALTR) and Texas Instruments (TXN).

The fiscal 2009 profit projection for MRVL has the company earning 6 cents per share. Though an improvement from a month ago, when the consensus estimate called for a loss of 11 cents per share, it is still well below what analysts were projecting at the start of 2009.

Similarly, changes in forecasts for ALTR, INTC and TXN have stemmed the trend of negative revisions, but not much else.

So, I'm not prepared to make a bullish call about the semiconductor industry. But, there does appear to be some stabilization. Whether this is truly the bottom, however, remains to be seen.

Related ETFs

There are several ETFs that directly track the semiconductor industry. Semiconductor HOLDRS (SMH) has an approximate 45% allocation to INTC and TXN. Alternatively, S&P Semiconductor SPDR (XSD) is more diversified with no stock accounting for more than 5% of its holding.

Real Estate Investing - The Benefits from an Expert Investor

Benefit I-Tax Shelter
Through owning income producing real estate, Investors are able to use depreciation to offset a portion of the income a property generates. Through effective use of cost segregation, we are able to break out the components which make up a property and depreciate them on more aggressive schedules than typical straight line 27.5 year method.
If financing is used on the property, the amount of interest paid to a Lender is deductible expense which can also be used to lower the taxable income of a property.

Benefit II-Leverage
Income producing real estate is an asset which can be financed up to approximately 70-75% of appraised value. These loans can be non-recourse, which means an individual does not need to personally guarantee repayment of the loan. The asset is pledged as the sole security for repayment of the loan. Using leverage allows you to build up more assets over time using Other People's Money (OPM). The more assets you are able to acquire translates into greater income and wealth in the future. The interest paid on the loans is deductible, and the people actually working hard to pay off your mortgage are your tenants. This is another example leverage being used called "OPW", which stands for Other People's Work (OPW).

Benefit III-Inflation Hedged Income
Income from real estate is inflation hedged, as rents can be increased over time to keep up with inflation. The rising income will also lead to increased value, as income properties derive most of their valuation from the amount of income they produce. Many retirees today who did not have cost of living adjustments as part of their pensions are now struggling as their income stayed flat while the price of everything else rose.

Benefit IV-Tax Deferred Income*
Income from real estate can be tax deferred and in some cases actually tax free. Depending upon what your tax status is and your need for income, one of the best ways to pull money out of income producing real estate is to refinance it and pull cash out. Borrowed money is not defined as income, and is therefore not taxable as such. Income from the property will pay down the loan, and the interest paid is tax deductible. This strategy can be done repeatedly, putting tax free cash in to your pocket. Assuming you never sell the property but pass it on to your heirs, they will inherit the property at a stepped up basis, and those monies from the refinance will essentially have been tax free "income" to you.
If you decide that you want to sell your property and buy a different income producing one, you can defer any gain you have from the sale through doing a qualified IRC Section 1031 exchange aka "Starker Exchange". The basis you have from the old property moves with you into the new property. There are rules to follow, but through doing these exchanges, you could continually grow your portfolio through buying larger and larger assets. Again you could pass the property on to your heirs or leave it to your favorite charity and there would be no taxable gain to them.

Benefit V-Perpetual Income
Besides all of the other benefits income producing real estate has for an Investor, the benefit of income in to perpetuity cannot be overstated. Through proper planning and management, income producing real estate can provide you with income you will never out live, as well as the chance to leave an income stream to future generations. The asset could also be used to create a legacy of giving by leaving it to your favorite charity or house of worship.

TOP 10 INVESTMENT SCAMS IN WASHINGTON

Top 10 Investment Scams In Washington The Washington State Department of Financial Institutions (DFI) has identified the following ten investment scams as the most likely to trap Washington investors. The list is in no order of prevalence or seriousness.
Before making any investment, DFI recommends that you check to make sure that both the investment and the salesperson is registered and licensed in Washington by calling 360-902-8700 or 1-877-RING DFI (746-4334).

Ponzi Schemes In this scheme investors are told a cover story about how the business will earn money to allow it to pay high returns to its investors. In fact, the business is earning little or no money. Instead it repays early investors "profits" which are really money raised from new investors. Eventually the scheme collapses when the pool of new investor money runs dry. The scam artists often blame government intervention as the reason why new investors did not get their promised returns.

How to protect yourself:

When you are offered an investment promising high returns, stop and think before you commit yourself. Don't be swayed by "scarcity" tactics saying that the supply of the investment is limited and you have to act now to make sure you can get in on the deal. Do you understand how the investment works? If the claimed return for an investment is much higher than other investments make sure you understand the risks of the investment. Remember that if an investment sounds too good to be true, it usually is. Check to see if the investment is registered with DFI's Securities Division or U.S. Securities & Exchange Commission. Check to see if the person selling the investment is licensed with DFI's Securities Division.

Senior Fraud Seniors are targeted by scam artists because they are "where the money is." Volatile stock markets, low interest rates, rising health care costs, and increasing life expectancy, combine to create a perfect storm for investment fraud against senior investors. Older investors are being targeted with increasingly complex investment scams involving unregistered securities, promissory notes, charitable gift annuities, viatical settlements, and Ponzi schemes, all promising inflated returns. To learn more, visit NASAA's Senior Investor Resource Center at http://nasaa.org/Investor_Education/Senior_Investor_Resource_Center/.

How to protect yourself:

Don't let scare tactics cause you to make a hasty decision to lock up your money in an illiquid investment. If there really is something to worry about, take the time to consult with trusted family members and advisors to see what options are available to you. Make sure you understand what the costs of the investment are, how much the person selling it will be paid if you buy, and any restrictions or costs that might limit your ability to get your money out if you want or need to. Check to see if the person selling the investment is licensed with the Securities Division. Check to see if the investment is has been registered with the Securities Division or Securities & Exchange Commission.

Promissory Notes A long-time member of the Top 10 list, these short-term debt instruments often are issued by little known or non-existent companies promising high returns -- upwards of fifteen percent monthly -- with little or no risk. When interest rates are low, investors often are lured by the higher, fixed returns that promissory notes offer. These notes, however, can become vehicles for fraud when the issuer of the note has no intention or capability of ever delivering the returns promised by the sales person.

How to protect yourself:

A promissory note is only as good as the ability of the company to pay on the note. Make sure you understand the financial condition of the company and whether it is likely to be in a position to pay you back. Make sure you get a financial statement for the company. If you aren't familiar with financial statements, have someone you trust with an accounting background look at the statement for you. Check to see if the investment is registered with the Securities Division or Securities & Exchange Commission. Check to see if the person selling the investment is licensed with the Securities Division.

Unscrupulous Brokers While many investors find their stockbroker's assistance helpful, they should also take precautions and educate themselves to detect any problems that might occur.

How to protect yourself:

Before you choose a broker:

Make sure the broker is licensed with DFI's Securities Division. Check to see if the broker has any history of complaints. Call DFI's Securities Division at 1.877.RING DFI and FINRA's BrokerCheck Program hotline at 1.800.289-9999. Once you have established a relationship with a broker:

Read and keep the materials the broker provides to you. & Keep notes of conversations with your broker. Review statements carefully to see that your instructions were followed. If you see anything that does not look right, follow up with the broker promptly. If the broker does not answer your questions, speak with the branch manager. Remember that it's your account and your money so make sure that you understand and are comfortable with the level of risk of the investments in your account.

Affinity Fraud Con artists know that it's only human nature for us to trust people who are like us. That's why scammers often use a victim's religious or ethnic identity to gain the victim's trust and then steal his or her life savings. No group seems to be immune from fraud.

How to protect yourself:

Just because others you know have invested does not mean that an investment is right for you.

Invest only if you understand how an investment works. Check to see if the investment is has been registered with DFI's Securities Division or Securities & Exchange Commission. Check to see if the person selling the investment is licensed with DFI's Securities Division. Ask what the person selling the investment will be paid if you buy the investment. Remember that if an investment sounds too good to be true, it usually is too good to be true.

Unlicensed Securities Sellers Fraudulent and high-risk investments, such as promissory notes, oil and gas deals, gold or mining stock, and viatical settlements continue to be sold by unlicensed individuals. Scam artists continue to entice independent sales agents into selling investments they may know little about. The person running the scam instructs the independent sales force -- sometimes investment advisers, insurance agents or accountants -- to promise high returns with little or no risk.

How to protect yourself:

Check to see if the investment is has been registered with DFI's Securities Division or Securities & Exchange Commission. Check the status of a securities seller's license with DFI's Securities Division. Find out whether the seller has been the subject of any complaints.

Prime Bank Schemes Another perennial favorite of con artists who promise investors triple-digit returns through access to the investment portfolios of the world's elite or "prime" banks. Now it is common to avoid the term "Prime Bank" altogether and underplay the role of banks by referring to these schemes as "risk free guaranteed high yield instruments" or something equally deceptive. These "High Yield Programs" often reference the use of "treasury securities," "letters of credit" or similar methods. Scammers often use the allure of "tax free" money by using "offshore accounts" to entice investors.

How to protect yourself:

Don't fall prey to fantasies of great wealth. Beware if you are sworn to secrecy about the investment. Make sure you understand the investment. If it sounds too good to be true, it probably is. Check to see if the investment is has been registered with DFI's Securities Division or Securities & Exchange Commission. Check to see if the person selling the investment is licensed with DFI's Securities Division. Don't let your natural dislike of paying taxes cause you to invest in an offshore scheme where you lose control of your money. It's better to pay some tax on the profits from your investment than to lose your whole investment to schemers.

Internet Fraud Scams using the Internet have rapidly increased as scam artists have found that it is a cheap and anonymous way to reach their potential victims. Most Internet scams are not new, but simply done online rather than by mail, telephone or in person. Spam e-mails, chat rooms and online investment "newsletters" often promote stocks with hype and false information in the hope that unsuspecting investors looking to make a "quick profit" will buy and drive up the price of the stock. Unfortunately, it is the promoters of the hype and false info who are able to sell their shares and leave investors "holding the empty bag" when the price stock crashes. Internet scam artists can be difficult to identify and may be located out of the country, beyond the reach of U.S. laws. Investors should ignore e-mail offers from individuals representing themselves as Nigerian or West African government, business officials or anyone in need of help to deposit large sums of money in overseas bank accounts. Don't be dot.conned.

How to protect yourself:

Ignore unsolicited e-mail offers of investments. If you get an e-mail pitching a deal that can't be beat, hit delete. Ignore "phishing" e-mail messages that ask you to provide identifying information such as your birth date or social security number to update the records at your financial institution. Don't rely solely on what you read on a Web page. Remember that it is easy for scam artists to create slick and professional looking websites or post false information.

Free Lunches and Dinners Many seniors are being targeted with dubious free lunch or dinner seminars advertised as "educational." A yearlong study of free-meal investment seminars by state securities regulators across the nation highlighted the abusive tactics sometimes employed by seminar sponsors. Out of 110 supposedly "educational" seminars examined, all were actually sales presentations. Half of the seminars featured exaggerated or misleading claims about the performance of products being offered. Thirteen percent of the seminars were completely fraudulent.

How to protect yourself:

Look at your alternatives before investing. Talk with trusted advisors or family members. Just because a sales agent did you a small favor, such as providing a meal does not mean you have any obligation to invest. Evaluate any investment offered on its merits, not on whether you received a favor from the seller. Ask what firm the presenter represents and what products he or she sells. Remember there are no free lunches.

Telemarketing Fraud Hundreds of "boiler rooms" or high-pressure telephone sales operations peddle illegal or fraudulent investment products nationwide. These individuals will gladly accept the life savings of elderly persons who will never be able to recoup their loss. Many victims must return to the work force instead of enjoying the comfortable retirement they deserve, and the stress of their losses can have a deep impact on their emotional and physical well-being.

How to protect yourself:

Don't let your politeness make you a victim:

If you get an unsolicited telephone call offering a product, it's OK to hang up. If you start talking with the caller, it is easy to begin to see the caller as a friend. It's harder to say no to a friend, so it is best not to let the conversation get started. Practice what you will tell callers making unsolicited offers over the telephone: "Thank you, but I don't buy anything over the phone

Current Economic Recession Strategies

Making Money in the Recession - Is it Possible?
The current economic recession that major economies around the world are suffering from has many individuals worrying about their jobs, their savings and their future. The media is not helping one bit as they continue to focus on the problem and not on the solutions. And if you are wondering if there is a solution to the current economic recession the resounding answer is YES. As individuals, we may not have the cure for the global economic woe but each of us can do something that will minimize if not totally negate the impact of the recession in our lives.

People wondering if it is possible to make money during this recession must know that there were people in the past who have been able to turn crises into opportunities. The Great Depression that hit the United States in the 1930s produced some of the wealthiest individuals in American history. If these people were able to do it then with some hard work and determination so can you.

It all starts in your mind and how you view the current situation. If you will be focusing on the negative aspects of the recession: loss of jobs, businesses closing down, etc. then you will most likely miss the opportunities that are all around you regardless of the condition of the economy.

Today, one of the best sources of money-making opportunities is the Internet. There are plenty of ways to make money online. And the best part about opportunities on the Internet is that you don't need a hefty investment to take advantage of them. In fact, you can start making money on the Internet without spending a single cent. Annual Internet spending is over the hundred billion dollar mark already and it is not expected to slow down anytime soon even in the face of the global financial crisis. Imagine having just a small piece of this big wealth pie.

Indeed, it is possible to make money during a recession. In fact, you can even start building your wealth right now. There are plenty of opportunities to make money around you. Don't miss them because you are too busy being depressed about the recession.

Rules for Investing During Volatile Times

When markets are volatile, it's important to stick to some basic investment rules. Here are five tips to help you keep your investments on track.

1. Stick to your guns

Understand what you're trying to achieve and how long you're prepared to invest. The longer your investment timeframe, the more likely you'll experience some form of short-term market volatility - make sure you're comfortable with that prospect.

2. Understand how you feel about investment risk

Your investment strategy should reflect your attitude to investment risk - for example, investing in growth assets like shares can increase your long-term returns, but it's likely you'll experience greater short-term fluctuations than defensive assets like cash. Take a risk profile assessment to understand your tolerance to market volatility.

3. Invest in quality

Volatile markets aren't the place for speculation, unless you're prepared to lose your money on a bet that might or might not come good. Look for quality investments, and get a second opinion from your financial adviser.

4. Don't try to time the market

Investing would be simple if you could always pick the best time to put your money in and take it out. Remember that time in the market, not timing the market, is the key.

5. Get advice from a qualified source

If you're really serious about something - whether it's on a sporting field, in business - you should seek advice. Building and managing your wealth is no different. If you don't have a financial adviser, seek an adviser in your area who can help you with the following:


set your financial goals
devise strategies to reach your goals
choose investments that suit your needs
make informed financial decisions

Gold vs. Stocks: Worst Yet to Come

The US just reached a tipping point in its new Greater Depression...

DOUG CASEY, chairman of Casey Research LLC, has spent significant time in more than 170 different countries so far in his lifetime, living in 12 of them (currently New Zealand and Argentina) to help identify the best investment opportunities he can find, says the Gold Report.

A guest of David Letterman, Larry King, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin and Maury Povich, the author of Crisis Investing has been the topic of numerous features in periodicals such as Time, Forbes, People, US, Barron's and the Washington Post – not to mention countless articles he's written for his own various websites, publications and subscribers.

Now both Gold Bullion and crude oil lead the line-up of power players that Doug Casey thinks investors can count on as the world slips deeper and deeper into what he calls the "Greater Depression".

The Gold Report caught up with the peripatetic author, publisher and professional international investor between polo matches in New Zealand...

The Gold Report: You've been discussing what you're calling "crisis and opportunity", and in fact have a summit by that same name coming up in Las Vegas next month. Could you give us a high-level overview of what you foresee?

Doug Casey: We've definitely entered what I describe as the Greater Depression. It's not coming; it's here. It's going to get much, much worse as far as I'm concerned and unfortunately, it's going to last a long time. It doesn't have to last a long time, but the root cause is government intervention in the economy and everything they're doing now is not just the wrong thing, it's the opposite of what they should be doing. It's almost perverse.

The distortions and misallocations of capital and the uneconomic patterns of production and consumption that have been going on for over a generation need to be liquidated and changed, but everything the government's doing is trying to maintain these patterns. So it's going to be horrible. In addition, the government is necessarily directing more power toward itself with all of its actions. If I were you, I'd rig for stormy running for a good long time.

TGR: By "a long time", do you mean a couple of years, a decade, or a generation?

Doug Casey: This is, in some ways, uncharted territory. Let me say that for the long run I'm very optimistic. Why? Two things act as the mainsprings of progress.

Number one is technology and that's going to keep advancing, so that's very good. Second is capital and savings. Individuals will solve their own problems and, therefore, they will stop consuming more than they produce, which is what they've been doing for years, and they'll again start producing more than they consume. The difference is savings; that builds capital.

So technology and capital are going to solve the depression. But the government can do all kinds of stupid things to make it worse. Look at the Soviet Union. They suffered a depression that lasted 70 years from its founding. Look at China. The whole reign of Mao was one long economic depression. That could certainly happen in the US, too, where the government misallocates capital in such a way that technology doesn't advance as it could and people can't build individual capital the way they would. I'm optimistic, but anything can happen.

TGR: But didn't China and the Soviet Union have governmental structures very different from those in Western Europe and the US, and those structures allowed for more intervention? Are you projecting that we might slip into an era where Western civilization will allow their government to run themselves like the Soviet Union and China did?

Doug Casey: It seems to be going in that direction. Of course, Europe is going to be hurt much worse than the US Europeans are much more heavily taxed and much more heavily regulated. The average European is much more reliant upon the state psychologically as well as economically. So it's all over for Europe and this doesn't even count the problems that they're going to have in the continuing war against Islam, which are much more serious for Europe than they are for the US.

So, no, Europe is fated to be nothing but a source of houseboys and maids for the Chinese in the next generation.

TGR: So do you think that societies in Western Europe – and even the US – will allow themselves to be governed in the same fashion as the Soviet Union and China were during their depressions?

Doug Casey: Oh, totally. I don't see why that would not be the case. Even Newsweek says we're all socialists now. That seems to be the reigning ideology. In addition, psychologically, the average American – just like the average European – looks to the government to solve things. This is very bad.

Most people are unaware that Homeland Security, which is one agency that should be abolished post-haste, is building a 400-acre campus in southeast Washington, D.C., where initially they're going to put 25,000 employees. That's as many as the Pentagon has – and with 400 acres, Homeland Security has a lot more room to grow.

Ironically, the property is at the site of St. Elizabeth's Hospital, the first federal insane asylum in the United States. But once a bureaucracy has a piece of real estate and builds buildings, it's game over. They're just going to accrete and grow and grow, so that's one indication. The trend is clearly in motion.

It's all over for the US. In fact, let me say this. America doesn't exist anymore. What is left is not even these United States. That was decided in the 1860s. It's the United States.

America, which is basically an idea, a concept, is dead and gone. The United States is just another of 200 awful little nation-states that have spread across the face of the earth like a skin disease. There's no longer any difference that I can tell between the US and any other country.

TGR: How would you describe the concept that America was based on that is now gone? And is there another country in the world embracing that concept? Will there be a new America?

Doug Casey: No, there is no other place. I've been to 175 countries and lived in 12. My feeling is that the best thing that you can do is set your life up so that you're not to be considered the property of any one government. You might have a passport or several passports and, therefore, that government thinks they own you. But if you don't spend time in a country, practically speaking, there's nothing they can do about it.

So no, there is no real haven for freedom in the world today. The best you can do is go where the governments are so unorganized that they can't control you effectively. That's one reason I like to spend time in Argentina. They have an incredibly stupid government, but they're also very inefficient and ineffective. So it's wonderful as a place to live.

I also spend time in Uruguay, because it's a tiny little country with no ambitions to conquer the world. The nice thing about New Zealand, where I am now, is that it's a small country, only 4 million people, lots of open land. It's got some severe problems, but it's pleasant. I think the US is going to be the epicenter of a lot of problems in the years to come.

TGR: Few of our readers are probably in positions where they could live in 12 different countries, but they have amassed assets here in the United States. What advice would you give them to safeguard those assets?

Doug Casey: The key is to remember that we're going to have a long and deep depression, so most things that worked well over the last 20 years are unlikely to work well in the future. I'd been predicting the real estate collapse for a long time. It's still got a way to go, too, because a lot of real estate debt remains that has to be liquidated. There's a lot of leverage out there and there's been a huge amount of overbuilding. So it's far too early to get into real estate, at least in North America or Europe.

It's also way too early to get into the general stock market, for all kinds of reasons. Dividend yields are still extremely low. Earnings are going to collapse. Government bonds are perhaps the worst single thing to be in, because with the government printing up money literally by the bushel basket, the Dollar is going to start losing value radically and interest rates are going to start going up radically at some point. So you have to rule out most stocks.

I'm afraid that the most intelligent thing you can do is to own a lot of gold, including Gold Coins in your own possession. And I think speculation in Gold Mining stocks makes sense at this point, because gold stocks are about as cheap as they've ever been relative to other assets, really, in history. Now is an excellent time to do that as well. But that's in terms of speculation.

Investment risk is tough enough, but the biggest problem is political risk. That's what you have to watch out for. That means you have to diversify internationally. This is harder for most people, harder psychologically, and it takes more assets to make international diversification viable. But if you're in a position to do it, it's the most important thing you can do.

TGR: Are you recommending putting all of your investment in gold into the bullion or are you also recommending some portion in producing junior and exploration stocks?

Doug Casey: Both, but look at the stocks as being speculative. Most of your money should be in gold with a bit of silver, too. Silver is basically an industrial metal, but it has monetary characteristics. Now is the time to be very overweight in the metals and I think owning gold stocks is a good idea. They're very cheap.

TGR: Anything else investors can do to preserve whatever may remain of their wealth?

Doug Casey: Owning real estate in some foreign countries is a very good idea – from a lifestyle point of view, an asset diversification point of view, and a possible capital gains point of view, too. They can't make you repatriate foreign real estate. Having some US Dollar cash while we're going through this deflationary period is very wise as well, but that's not going to last. Eventually the US Dollar is going to reach its intrinsic value.

TGR: Not that you have a crystal ball, but how would you see the rest of '09 playing out?

Doug Casey: Nothing goes straight up or straight down, but it seems that '09 is going to see much higher Gold Prices and much lower stock prices and much lower bond prices, too. But remember, the worst is yet to come.

You haven't heard an awful lot about people losing their pensions yet, but that's going to happen because what are pensions invested in? They're mostly invested in stocks and bonds and commercial real estate. All three of those things are disaster areas, and bonds are the big disaster area yet to come.

So I think it's going to be nothing but bad news in 2009. What happened in 2008 was just an overture to what I think is going to happen in '09 and '10.

TGR: Even into 2010?

Doug Casey: Yes. This isn't going to be cured overnight, mainly because of what the government's doing. As I said, it's perversely exactly the opposite of what they should be doing, which is abolishing all the agencies and freeing up the economy. They're passing lots of new regulations, they're going to have to raise lots of taxes eventually, and they're inflating the currency. So it has to last, at least into 2010. It's going to be quite dismal, actually.

TGR: And what happens with the unfunded Medicare liabilities?

Doug Casey: They're not going to be funded. They're going to be defaulted on and, actually, that's the best thing that could happen. That's one of the things that should be done now; the US government should default on its debt. This is shocking for people to hear, but it wouldn't be the first time the US government has done that. It did that almost at its founding in continental days.

This debt represents a tax liability that's being foisted off on the next generations who have no moral obligation to pay and should not pay. I think as an ethical point, the US should default on this debt. It's impossible to pay it back, and it won't be paid back. It's more honest to acknowledge that bankruptcy now as opposed to pretend it's going to be paid back. Defaulting even might forestall runaway inflation in the dollar, which would be a catastrophe of the first order. So it's the smart and moral thing to do, and it's going to happen eventually anyway. All the real wealth will still be here; a lot of it will just change ownership. The big losers will be those who lent to the State, thereby enabling its depredations, and they deserve to be punished.

But even a default tomorrow will do no good unless you put the US government into reverse and disband all of these ridiculous, destructive agencies that have grown like a cancer for years. Taxes should be cut 50% to start with, just out of hand. And the defense establishment – it's a misnomer; it's not defense at all but rather foments wars around the world – should be cut hugely. Not with a butcher knife; but a chain saw. But none of this is going to happen; in fact, just the opposite. That's why I'm so pessimistic now that the tipping point's finally been reached.

TGR: Are we at the tipping point?

Doug Casey: Yes, we've absolutely gone over the edge. The consumer is no longer in a position to consume. Everybody is going to cut consumption to the bone and hopefully find something to produce instead. It would be better for people to start viewing themselves as producers than consumers. That would be a step in the right direction to get them psychologically more in line with reality.

TGR: In last fall's meltdown, Gold Bullion held up, but the gold-mining stocks didn't. Quite a few producers and soon-to-be producers, and some companies making discoveries, seem to have bottomed out in November and December. But worry persists in the market. Suppose another shoe drops or another black swan appears? Richard Russell of Dow Theory Letters and others have been talking about the Dow going down to 5,000. What would that do to the gold stocks?

Doug Casey: Gold Mining stocks are also stocks, and the best environment for gold stocks historically has always been when both gold and the stock market are going up. But since the last gold stock bull market came to an end, I think it's entirely possible to see a bubble develop in gold stocks with all the money being created. I certainly hope so. I'm actually optimistic for gold stocks just because they're so cheap relative to everything else.

TGR: They have been beaten down...

Doug Casey: Yes. And that fact, along with the waves of money being printed around the world and the much higher gold prices we are going to see, could cause a speculative mania to develop in the gold stocks. Nobody's even thinking about that possibility right now, because they're so battered. But this is the time to get into the right ones because it's likely to happen in the future.

TGR: The 1929 crash – which was really the preamble, because '30, '31, '32 and '33 were certainly bigger – is when gold stocks such as Homestake did their best. How do you see that playing out this time around? Is it different this time or do you expect a similar pattern?

Doug Casey: You know what they say, "History doesn't repeat itself, but it rhymes." I think that, first of all, the gold mining industry is a much worse industry now than it's ever been in the past, because just as all the easily defined light sweet oil basically has been discovered, all the easy-to-find high-grade gold basically has been discovered. Most mines that are going into production are low-grade, which means that you have to move a lot of dirt, which means that they're much more capital-intensive than in the past. So gold mining's a worse industry from that point of view.

Also, politically speaking, with the rise of the green movement, there are people who don't want any oil burned, any dirt moved, any trees cut. They don't want to see anything happen. This makes it much harder to do gold from a permitting and political point of view. We're in a much higher tax environment than in the past. So it's a tough industry. It really is. It's just a 19th century choo-choo train type of industry that interests me only as a speculative vehicle. You'll notice that gold went from lows of about $300 to highs of about $900 and none of these gold companies are making any money because their costs actually went up faster than the price of gold.

So I'm not saying Gold Mining is a great business. It's not. It's a crappy business. Still, we could have a bubble in the stocks. I'm hoping we do.

TGR: Aren't we going to see a change in that in '09? Oil, which is one of the large components of that cost, has come down dramatically. A lot of these producers must be locking in oil at these lower prices. Won't that translate into year-over-year earnings increases for the gold producers?

Doug Casey: That's possible. The producers actually may show increases for the next couple of years. I don't doubt that. But I don't think oil will stay where it is. I think oil's eventually headed back to $150 a barrel or more.

TGR: So why wouldn't you own oil as well as gold?

Doug Casey: It's a good idea, but we weren't really talking about oil. I'd say that oil is a good thing to own. Oil is a real buy now. It's as good a buy at $40 as gold is at $900 right now. Maybe a better buy; who knows?

TGR: If we go into worldwide depression, will oil continue to be a good buy or will it self-regulate around this $40 a barrel?

Doug Casey: I am bullish on oil. Although I'm philosophically not very sympathetic to the peak oil theory, I think it's a geological fact. Also, China and India and the other developing parts of the world don't use a whole lot of oil now. As they develop, they will to want – and almost need – to use a lot more oil. That's going to keep pressure up on the demand side. But the supply side actually finally is constrained, so it's going to mean higher prices. In a depression-type environment, US and Western oil consumption could drop a lot, but the third world would take up most of that slack. So I have to be bullish on oil.

TGR: Are you bullish on any other sectors or commodities?

Doug Casey: I'm bullish on agricultural commodities. They ran way up last year and then collapsed again. I think a good case can be made that most of the soft commodities are quite cheap and will go higher, so I'd look at those, too. I think gold definitely, oil in the years to come has the potential to go much, much higher, and the agricultural commodities have a lot of potential.

TGR: Gold appears to be uncoupling from the US Dollar. Historically, when the Dollar was strong, gold would be weak. But we've had a couple of recent instances in which both the Dollar and Spot Gold have been strong. Obviously, we've seen a total decoupling of gold from oil. It used to be when oil was running, gold was running and vice versa, but that no longer seems to be the case. Is that just an old wives' tale or is something going on?

Doug Casey: I've never seen any necessary relationship between gold and oil, just like there's no necessary relationship between rice and natural gas, or nickel and soybeans. All these commodities tend to move together, all the currencies tend to move together and stock markets tend to move together, but they all have their own dynamics. I think it makes sense to compare the relative prices of various commodities and see what may be cheap or dear relative to other things based on the fundamentals.

On any given day, somebody may have to buy or somebody may have to sell a huge amount of almost anything. It's unpredictable and you can't tell what constraints are out there in the market. I don't even pay attention to day-to-day fluctuations because they're just random noise. I watch the big trend. It's been shown that if you just made one correct trade and stuck with it at the beginning of every decade for the last four decades, you would have realized something like 1,000 times on your money. To me, this is the proper approach to the markets, not to try to second-guess from day-to-day what's going to happen. That's foolish because you get chewed up with commissions and bid-ask spreads and double-thinking your own psychology and so forth.

I really just like to look at long-term trends. In terms of long-term trends, you've got to be long gold, long silver, long oil; you've got to be short bonds. I think that's really all you need to know. The other things we mentioned such as agricultural commodities and so forth are worthy of attention. But, as I said, I'm not a day-to-day trader. I think that's very foolish.

Inflation? Deflation? Buy Gold

Devaluation ahead? Here's how to profit – again – says a '70s veteran...

CHRIS WEBER – a 16-year old paper boy from Phoenix, Arizona – had just been dumped by his girlfriend, writes Tom Dyson for Daily Wealth.

It was a hot summer that year, 1971, and Chris thought he'd stay at home and read books. The first book he read was Harry Browne's How You Can Profit from the Coming Devaluation.

This book was Browne's first book, and it went on to become a national bestseller. (Now entitled 99% of All You Need to Know About Money and Its Effect Upon the Economy this is an absolutely fantastic book. It's so enjoyable, I read it in three hours and then immediately re-read it.)

"It was a revelation," says Chris. "It is still the best explanation of what money is, and how it develops, that I have ever read. After that, it was 'off to the races...'"

At the time, the world was living in a fixed currency system. The US government had set the Gold Price at $35 an ounce, and foreign currencies were fixed against the dollar. The United States, therefore, had the wonderful power to print paper dollars and tell the rest of the world they were redeemable for gold.

The problem was, the government started abusing this privilege in the late 1960s, inflating the Dollar to pay for Vietnam.

Chris realized the system couldn't last, and sooner or later the country would have to devalue the Dollar against gold. So in July 1971, he bicycled down to the local coin dealer and spent $650 – all the money he had saved from his paper route – on British gold sovereign coins

At the time, it was still illegal for Americans to own gold. Collectors' coins were exempt. The coins cost $12 each.

Chris Weber's timing was perfect. By the end of the summer, foreign governments stopped supporting the Dollar and began asking for Gold Bullion instead. On August 15, 1971, President Nixon closed the "gold window". He cut the link between the US Dollar and gold. That December, Nixon devalued the Dollar against gold by about 8.5%.

"As the price started going up, I started trading. I still don't know how I did it, but when I thought the price was going up too far, too fast, and had gotten ahead of itself, I sold my coins. I waited until I thought the rise was going again...

"By the time I finished high school, I was rich," Chris says.

By the end of the decade, gold hit $850 an ounce and Chris' gold sovereigns were over $300 each. When he saw the crowd piling in, he knew the game was up. He dumped his coins and invested the profits in 20% Treasury bonds...an investment he still holds today.

The paper route was the last job Chris had.

Chris Weber has since made millions from his investments and spent his life traveling around the world. He thankfully records his thoughts on stocks, currencies, and commodities in his Weber Global Opportunities Report. It's a fantastic letter...and I can't recall a major market move Chris hasn't nailed.

So what's he doing with his money right now? One of my colleagues here at Daily Wealth interviewed Chris last week. In the interview, Chris says investors should have protection against both deflation and inflation and says he recently dumped all his stock investments except a few gold mining stocks. He now holds all his money in gold and cash.

"This continues to be a time to be safe and on the sidelines. I believe that the ultimate lows of the stock market are going to be much lower than even today's prices, but it may take years – and months of fake rallies – to get us there."

Gold: Reality vs. Liquidity

Deep thoughts from a long-time thinker on gold...

AS SOMEONE WHO'S BEEN interested in gold for the last forty years, writes William Rees-Mogg for The Daily Reckoning Australia, I have always been interested in the definitions which can be applied to gold.

Is gold money? It often has been, but it is not at present. I suspect it may become money again, but is gold also a commodity? I think the answer to that question is "Yes". Gold used in chemical reactions, or in jewelry, is plainly a commodity which can sometimes be replaced by another commodity.

However, the question I find most interesting is whether gold is a real asset.

One of the problems of investment is that there are two variables, reality and liquidity. Land or property are relatively illiquid, but are also real, in that they have a use which does not depend on their value in exchange. Gold is highly liquid, indeed it is more liquid than paper money. In extreme circumstances, paper money can lose all its value, but gold is still acceptable as payment.

In 1940, for instance, when the French Army was defeated, many French people took to their automobiles to escape the advancing Germans. They found that petrol stations would not accept paper francs, but would sell their petrol in exchange for Gold Coins.

Gold Bullion also remains an acceptable currency in periods of high inflation, when paper money can lose all its value. But what does "reality" mean, when applied to an investment?

Obviously we talk about "real estate" to describe the legal possession of property. I think that means property with a permanent character and at least a potential use. In the same way, the traditional theorists of the Gold Standard would say that gold was a real currency, because it has permanence and a potential non-monetary use.

I accept that reality in an asset is a relative factor. In an ideal world, we would all like to hold our financial needs in a currency with a high degree of permanence, strong alternative uses and high liquidity. We have to make do with currencies which fall short of perfect "reality", and fall short of perfect liquidity as well. We make do with imperfect currencies because we have no choice.

Gold Investment makes one think about these issues, but it makes one even more uneasy about electronic money. In book publishing, I am well aware of the library demand for archival books which can reasonably be expected to last for centuries, like the printed works of earlier centuries. We need also to have permanent money, which can be relied upon to survive, even it its value may decline over time. The historic value of gold has been astonishingly stable over centuries.

In an extreme example, one could be worried about the issue of money and about its preservation. Mr. Madoff has shown that fraud can reach the unbelievable level of $50 billion. Might there not be still larger frauds, so large as to achieve what the Nazi war machine attempted – the complete take-over of a targeted currency?

Suppose that Al Qaeda, instead of attacking the twin towers, had attacked the electronic systems which record all the monetary holdings of New York. No lives might have been lost, but an electronic pulse might have erased one of the central counting houses of world finance. And is there not already some element of this cyber-catastrophe in the present world crisis?

Reality may be a variable concept, with nothing 100% real and hardly anything zero per cent real. When I was born, in 1928, gold was money, and gold was over 90% real – the rest existing as paper certificates and bank-notes issued in excess of the full bullion backing. By 1970, when I was in my forties, money was paper, and even the convertibility into gold of the Bretton Woods Agreement was breaking up. Now money is a largely unidentifiable electronic pulse, itself vulnerable to attack by electronic means. Virtual money has very low reality, much lower even than paper.

Surely this is a system which could be blown away because there is nothing in it to gain confidence. Even a return to paper money would raise the level of reality attached to world currencies. There is a problem of raising the reality level of all currencies – a problem which nineteenth century economists solved by convertibility to gold.

Inflationary Fire Insurance

Inflation now looks a near-certainty. The only unknown is its timing...

THE FLAMING EMBERS of inflation have already landed atop the thatched roof of American finance, writes Eric Fry in the Rude Awakening.

And yet investors can still buy fire insurance on the cheap.

In the next 1,373 words, we'll examine a few of these "inflation insurance policies" to assess their virtues and drawbacks. Because a powerful new inflationary trend is very likely to occur, and the prudent investor should probably take steps to guard against it.

"But wait a second!" some readers may say. "What if a powerful deflationary trend occurs first?"

Good question. Because it might. But we'd begin preparing for inflation anyway. Its arrival is near-certain. The only real uncertainty is its timing. Imagine an infallible clairvoyant told you that your house would burn down in one of the next five years, would you say to yourself, "Gosh, maybe I should try to figure out which year it will be and not buy fire insurance during the other four years."

You might actually guess correctly, in which case you would have saved yourself four years worth of insurance premiums. But you might guess incorrectly, in which case you would have lost your house.

Your call.

To this market observer, inflation seems like a near-certainty. Not an absolute certainty, mind, you, just a near-certainty, sometime within the next three years. So why not beat the rush to buy inflation insurance? Why not buy some now?

The nearby chart displays a sampling of inflation hedges, and how they performed during the last eight years of the infamous 1970s. Gold was clearly the standout winner. But we'd put an asterisk next to this result, due to a performance-enhancing assist from the US government.

You see, during most of the preceding four decades, the US government had been artificially suppressing the Gold Price at $35 an ounce, while also forbidding private US citizens from owning it. Therefore, once the government removed it cap – and removed the exchange controls on owning Gold Bullion – the price partied like a teenager whose parents had just left town.

Aside from Gold Investing, very few assets managed to keep pace with inflation as measured by the Consumer Price Index (CPI).

Hard assets like the CRB index of commodity prices and the Swiss Franc did outpace the CPI, but stocks and bonds both lagged miserably.

Skipping ahead about 30 years, we can see that the modern versions of the 1970s inflation hedges have performed quite poorly during the last 14 months. Clearly, inflation is not a widespread concern. But that's part of the reason it concerns us, and also part of the reason why we'd be inclined to take action now, while inflation hedges remain relatively cheap.

Our contrarian instincts lead us – rightly or wrongly – to distrust the consensus, especially when the consensus trusts in an idea like deflation. We don't think deflation is stupid, just unlikely. More precisely, we suspect that deflationary indicia will be seasonal, like daffodils.

For a while, they will seem to be everywhere. Then, just as suddenly, you won't be able to find a single one.

So with that biased and unscientific preface, let's sweep through a Reader's Digest review of ETFs that might provide some kind of hedge against inflation:

Gold: The "Old Faithful" of hedges. It's always worked before. Enough said. Exchange-traded funds like the SPDR Gold Trust (GLD) provide easy access, but without any actual ownership. With a $30 billion market capitalization, the "Spider" is now the go-to Gold ETF for big institutions. The next largest entrant is the iShares Comex Gold Trust (IAU) with a market cap of $2 billion. Both ETFs enable an investor to buy gold with a mouse-click. No muss. No fuss. But purists may wish to buy bullion coins like Krugerrands or Maple Leafs. As a gold investment, bullion coins have the advantage of being shiny, pretty and portable. But they have the disadvantage of costing 6% to 10% more than bullion itself, while also being so shiny and pretty that someone might want to steal them. [Ed.Note: Investors looking to square the circle, taking ownership but slashing their costs, might want to consider BullionVault...]
Gold Stocks: The bastard brood of gold and the stock market. As inflation hedges, Gold Mining stocks can be somewhat unpredictable and capricious. Over a multi-year span of time, they tend to reflect the gold side of their heredity. But during shorter time spans, gold stocks can behave much more like stocks than like gold...and that's not always a good thing. That said, ETFs like the Market Vectors Gold Miners (GDX) provides a handy way to buy a basket of gold stocks.
Commodities: Like gold, a basket of commodities that includes crude oil, copper and wheat tends to provide a very reliable hedge against inflation. Unlike gold, a basket of commodities provides diversification across multiple assets and – therefore – much lower volatility than gold alone. The largest commodity ETFs available are the PowerShares DB Commodity Index Tracking Fund (DBC) and the iShares S&P GSCI Commodity-Indexed Trust (GSG). DBC holds only six commodities: Crude oil, heating oil, aluminum, corn, wheat and gold. GSC holds a much broader collection of commodities.
Commodity-Focused Stocks: See comments on #2 above. The iShares S&P North American Natural Resources Sector Index Fund (IGE) provides broad exposure to commodity-focused stocks. Alternatively, the DWS Global Commodities Stock Fund (GCS) is a small closed-end fund that holds a similar portfolio. But GCS is selling 12% below its net asset value, which means that a buyer at the current quote controls one dollar worth of resource stocks for only 88 cents.
Non-Dollar Bonds: The Swiss Franc performed quite admirably during the last Great Inflation in the United States. But we are hesitant to bet on a repeat performance. Indeed we are hesitant to bet on ANY foreign currency as a way to hedge against US inflation. The Swiss economy, for example, no longer features a bunch of pocket-watch-toting gnomes doing nothing but guard vaults full of Gold Bullion. Instead, the modern Swiss economy also features pocket-watch-toting gnomes masquerading as hedge fund managers. The predictable result is that Switzerland's two largest banks have amassed questionable derivatives exposures that exceed the GDP of the entire country. Many other bankers speaking many other languages have achieved equally enormous feats of stupidity. No one knows how these feats of stupidity will influence the values of their native currencies. Not knowing, therefore, we are disinclined to guess. But those readers who suspect that the Dollar will be one of the first currencies to go down in flames, rather than one of the last, might be interested in the one of the many ETFs that hold foreign currencies. The CurrencyShares Swiss Franc Trust (FXF), for example, holds Swiss francs. Alternatively, the Dollar-phobic investor could purchase the SPDR Barclays Capital International Treasury Bond ETF (BWX) that holds a basket of bonds issued by foreign governments. Its largest allocations include a 23% weighting in Japanese government bonds, 12% in Germany and 12% in Italy.
TIPS: No discussion of inflation insurance would be complete without mentioning TIPS, short for Treasury Inflation-Protected Securities. Investors may purchase a basket of TIPS by buying the iShares Barclays US Treasury Inflation Protected Securities Fund (TIP). In theory, TIPS provide a direct and reliable hedge against inflation. But like so many other seemingly brilliant ideas, TIPS work better in theory than in practice.
The first risk to a TIP is an overt one: Deflation might persist for longer than expected (by us). In which case, the principal value of a TIP could decline below par. And even though the holder of the TIP would receive par at maturity, the interest payments that the holder would receive between now and maturity would decline in concert with the declining principal value.

The second risk is a covert one: The federal government controls the calculation of the Consumer Price Index (CPI). Therefore, if the CPI, as currently constructed, were to get out of hand and produce very high inflation readings, the government's bean counters would probably spring into action to create a "new and improved" CPI that would deliver much lower inflation readings. It has happened before. We all know it could happen again.

Thus concludes our review of inflation hedges. We hope all readers will utilize the delightful deflationary interlude we are now enjoying to prepare for what may lie ahead. Hostile inflationary forces may be amassing their forces at the borders of our economy at this very moment.

In short, we think it's a good time to risk being paranoid about the threat of inflation.

Euro Collapse, Gold Surge

Political unrest & financial crisis drives European investors to Buy Gold...

THE EURO has suddenly become a risky currency, writes Gary Dorsch of Global Money Trends, since the financial crisis in Eastern Europe could rival the destructive power of the US sub-prime debt bomb.

Western European banks have an estimated €1.6 trillion extended in Eastern Europe, two-thirds denominated in Euros and Swiss Francs, to borrowers whose incomes are paid in Hungarian Forints and Latvian Lats, and already stretched to the limit.

The Polish Zloty has dropped 29% against the Euro, the Hungarian Forint is 20% lower, the Romanian Leu down 17% and the Czech Koruna is 12% lower against the Euro, since the September collapse of Lehman Brothers, making their debts unaffordable and subject to default.

Emerging European currencies plunged on March 2nd, led by a 2.5% drop in the Hungarian Forint, after a summit of European Union leaders rejected a €180 billion bailout plan for the region.

The EU summit participants were unable to agree on any concrete measures to deal with the European credit crunch, the much-feared collapse of east European banks, or a pan-European stimulus program.

Hungarian president Ferenc Gyurcsany warned that failure to offer bigger bailouts "could lead to massive contractions in eastern economies and large-scale defaults that would affect Europe as a whole."

The result, he continued, would be increased political unrest and immigration pressures.

As such, investors have turned to gold as a "safe-haven" hedge against the possible default by Western European banks or emerging nations on their outstanding debt. Since July, the yield on Hungary's 10-year bond has soared from +335-basis points over the German bund, to +845-bp today.

Likewise, the Gold Price has been closely tracking the yield spread, reaching a record 230,000 Hungarian Forints per ounce last week.

Simply adopting counter-intuitive logic, however – that negative data on the US economy is bullish for the Dollar – still leaves the currency trader without the key explanation as to why a depression is bullish for the greenback.

Can China Rescue the World

Can Beijing rescue the global economy? Can it do it without sparking inflation?

CHINA'S SPECTACULAR double-digit economic growth this decade would not have been possible without massive debt-growth in the United States and Eastern Europe, writes Gary Dorsch of Global Money Trends.

But this growth of debt, which has sustained global demand for the longest period since World War II, has now resulted in a colossal financial crisis. At the same time, the exploitation of cheap labor in China by global industrialists has led to the destruction of four million US factory jobs over the past eight years.

The mirror image of America's industrial decline was the vast expansion of financial speculation, which ultimately led to the stock market crash of 2008 and the loss of another 2.6 million jobs so far. The flow of low-priced goods from Asia helped the Federal Reserve maintain a low interest-rate policy, thus providing the basis for Wall Street to create ever bigger debt and credit bubbles, all in the pursuit of fabulous profits.

Meanwhile, some 26 million Chinese migrant workers have lost their jobs and 670,000 businesses have shut-down, because of collapsing export markets for Chinese-made electronics, toys, apparel, and other consumer goods.

China's Politburo now fears growing social unrest and there is increasing popular demand that Beijing's $2 trillion foreign currency stash be spent at home to alleviate deepening social misery.

China has already launched a 4 trillion Yuan stimulus package, equal to roughly 15% of the country's GDP. While an 8.8% economic growth rate is needed just to generate sufficient jobs for the 24 million new workers who enter the Chinese labor market each year, latest forecasts project 5.5% growth or worse in the year ahead.

Thus Beijing might decide to boost its stimulus program this year. Japan has also approved ¥5 trillion for economic stimulus, and Australia approved A$42 billion.

China's official manufacturing index jumped sharply in February, gaining for the third month in a row and suggesting the country could be on the brink of a recovery despite a slump in global demand.

The official purchasing managers' index (PMI) rose to 49.0 from 45.3 in January, and far above the record low of 38.8 reached in November. Every sub-index in the official PMI rose in February. Output and new orders climbed to 51.2 and 50.4 respectively, returning to mild growth (as shown by any reading above 50).

Shanghai copper soared for a second-day on March 5th to 30,310-Yuan per ton, supported by the surge in the factory PMI and speculation that Beijing would boost spending on infrastructure and manufacturing, on top of the 4 trillion-Yuan stimulus package unveiled in November.

China's $200 billion sovereign wealth fund also said it saw investment opportunities in the natural resources sector, lifting base metal miners who may make attractive takeover targets.

Of course, China's national statistics have long come under skepticism and suspicion of outside analysts, who say the country manipulates its economic numbers to mask bad news. The official PMI jumped well ahead of a similar private survey, which registered 45.1 in February. Also raising a red-flag, China said new export orders rose to 43.4 last month, a 9.7-point leap from January, which is doubtful, while the rest of the world economy was sinking deeper within a synchronized recession.

But China's State Reserves Bureau bought 100,000 tons of zinc at 11,500 Yuan per ton last week, the second purchase in less than two months, and it has also contracted to buy 240,000 tons of copper as well as 300,000 tons of aluminum.

Copper inventories at LME warehouses have declined 23,000 tons over the past two weeks, the first noticeable drop in nine months. About 55,000 tons of copper are earmarked for delivery to warehouses in Shanghai, where copper supplies are at the lowest in a decade.

5-Figure Gold & Central Bank Sales

STOP PRESS! European bank breaks ranks, buys gold...

IT HAS BECOME CLEAR that central banks are Buying Gold for their reserves, writes Julian Phillips for the Gold Forecaster.

Here is a brief history leading to today – plus the present position of central banks as they turn to buying bullion for diversification, inflation-defense, and sovereign protection.

Massive Gold Sales
From the early 1980s and for the next 20 years, gold was under threat of massive sales from the world's central banks.

Many commentators reported that the overhang of gold above the 'open' market was so great that such sales would eventually lead to central bank reserves in the developed world holding no gold at all.

Central banks had further worsened the situation by loaning metal to Gold Mining companies, through the bullion banks, allowing them to sell their future output at current prices and thus finance gold production to a far greater extent than warranted by the price of gold during that time.

This acceleration in the production of gold allowed the Gold Price to be pressed down $850 to $275, the point at which Britain, at the instruction of today's prime minister, Gordon Brown, instructed the Bank of England to sell the greater portion of its gold reserves. From the turn of the millennium, however, this perspective changed dramatically.

Limiting Central-Bank Gold Sales
In 1999, and with gold sales making international headlines as the price fell, the major industrialized-world central banks met and established the Washington Agreement to restrict "dumping" and stem the plunge.

The 15 signatories announced to the world that it need not fear uncontrolled sales of gold reserves for the next 5 years, capping annual sales to 400 tonnes. While the US and Japan were not signatories, they gave tacit agreement to such a limitation. Since then, neither of them have sold gold on the open market.

Following the end of the 'Washington Agreement' in 2004, a second agreement – called simply the Central Bank Gold Agreement – extended the situation for another five years and with annual limits of 500 tonnes. This agreement now ends on 26 Sept this year.

Sales were limited to the sales previously announced by the signatories, with the exception of Belgium and Spain, who made no prior announcement to their sales. Under the second Agreement's 500-tonne a year limit, the ceiling has not been met. Sales are well below the limit so far.

Halting Central Bank Gold Sales
This slowing of gold sales from European banks in particular has been of great significance. They appear to have lost all appetite for gold sales in 2009.

Indeed, France now looks an unwilling seller, but under Presidential instruction it has been forced to do so. Italy has had no plans to sell any of its gold. Germany had the option to sell 600 tonnes under the CBGA, but it has not taken this option up. Switzerland took some of this German option, but it has ceased selling now.

It would be surprising if the signatories sold more than 150 tonnes of gold this year (Sept. to Sept.), let alone the ceiling amount of 500 tonnes. And next year, with or without a new agreement, we expect no such sales from central banks.

Central Banks Now Buying Reserve Gold
The potential IMF Gold Sales are not yet part of any central-bank gold selling policy. And just as the tide turned in 1999 it appears we are rapidly approaching another watershed in the history of gold in the monetary system.

Countries not seen as an important part of the global monetary system have, in the last few months, turned buyers of gold. Ecuador bought 28 tonnes, doubling its reserves. Venezuela bought another 7.5 tonnes, adding 5% to its hoard. These purchases are not deemed of great significance, however, compared with the big central-bank Gold Buying news.

Russia, at last – and after talking about it for over one year – has begun to Buy Gold aggressively. It was reported that Russia bought as much as 90 tonnes of gold for its reserves in the last 3 months. Previously it held 495.9 tonnes. So this is much more significant, as it is a large figure in the small 'open market' for Gold Bullion.

Prime minister (and former president) Putin is reported to have said that Russia wants to see gold forming 10% of Russia's reserve. Now the process of getting up to that level could have begun. Even so Russia has little influence on global central bank thinking, so such increases are not thought to directly influence the principles behind gold as a reserve asset.

That's not to minimize the impact of such purchases, however. If Russia were to keep up this pace of acquisition, it would be able to buy 360 tonnes a year and have a very significant impact on the Gold Price. But the principles behind gold as a reserve asset are affected far more by the following news.

During the second week of March, reports the European Central Bank (ECB), one signatory to the monetary union agreement actually purchased gold – the first time we have seen them do it. The purchase was not simply of Gold Coin (which has happened before, seemingly just for "housekeeping" reasons at the local mint), but rather of Gold Bullion.

In other words the ranks of central bank selling in Europe have been broken and one has turned buyer!

We feel more positive now in our belief that European central banks – the source of so much supply in the last 20 years – are now unhappy sellers. They look inclined to change their views to the buy side.

The very fact that one central bank in Europe has turned buyer confirms this. There is little doubt in our minds that there are conflicting views now amongst the heads of the leading European central banks on gold.

Middle Eastern Central-Bank Gold Policy
Meantime, according to the World Gold Council's new chief executive Aram Shishmanian, in the Middle East the new monetary union intend to have "gold play a prominent role in Gulf CC economies".

Gold "may play a role in that basket of currencies on which the GCC common currency will be pegged," he says.

Of course, the inclusion of gold in a basket of currencies would simply be for valuation purposes. It does not, of itself, imply that these central banks will Buy Gold for their reserves.

But "Gulf central banks, along with the central banks of Brazil, Russia, India and China, are expected to increase their gold reserves," Shishmanian went on, speaking to the region's Business 24/7. "Central banks with low reserves of gold are looking to increase their reserves. They are trying to analyze what the right balance should be. They are becoming aggressive. Currently the belief is that if more than 20% of a central bank's reserves are in gold, it is overweight, but this perception is changing.

"The metal is becoming an asset class in the region, and Gulf investors are looking at long-term investments in gold as a hedge against inflation."

We are certainly not in a position to contradict what the new WGC chief says. After all, he has the resources and contacts to be authoritative on the matter. And if the World Gold Council's CEO is correct, then he will have confirmed that 2009 and 2010 will be the year that heralds the return of gold to the global monetary system.

After nearly 30 years of opposition to gold by central banks and occasionally governments, it is a remarkable turnaround. This tells us that gold is returning to the monetary arena again. Yes, the world of Gold Investment had expected this for a long time. But now it feels a bit like seeing an oasis in the desert!

If right, we expect to see both Russian and Chinese gold production go straight into those countries reserves and not even reach the open market. That could account for nearly 600 tonnes of supply disappearing. Now add to that the halting of sales from European central banks, a perceived 500 tonnes a year. If this trend continues, then gold – as an investment – will be fully rehabilitated.

This is by no means the largest effect that the central banks' change of heart will bring about, however. The recognition by central banks that gold has a role in the monetary system will influence investors, both institutional and individual.

Should that happen – and let's say 5% of funds managed by pension and insurance groups moves into gold – then an amount of $920 billion, in the States alone, could head gold's way. Only a five-figure Gold Price could accommodate that volume of money in the gold market. Now add to that figure the same inclination in the rest of the world.

Any such rise in price will stunt the demand for sure, but be certain that gold is not simply in a bull market.