No Time For Risk - Part 1

The following is an excerpt from "Bring Out Your Dead" by Doug Casey.

The single most important thing about bear market investing – it’s hard. Or, put another way, it’s hard to make a decent return without taking extraordinary risk.


As Doug points out, in the current environment, everything – including commodities – is overvalued. And they are going to remain that way until they aren’t. Maybe the Fed actually has it right this time, and the bottom won’t be reached until 2015 or 2016? I wouldn’t discount it at this point.


But what of the inflation we see as inevitable? And gold, in the interim?


Let me quickly tackle the second question first.


In any debt crisis, the foremost concern of creditors is to get paid back. Compared to that, returns on investment come in a weak second. In a sovereign debt crisis, the question of repayment is complicated by the fact that the debtors control the creation of the currency units that will ultimately be used for payments.


Individual and institutional holders of U.S. Treasuries, along with other assets amounting to trillions of U.S. currency units, can see with their own eyes what’s going on. To continue holding such large quantities of instruments denominated in these unbacked currency units – or those labeled “euros” or “yen” – is to risk being left with a lot of worthless paper as the governments try to repay debtors by creating the stuff, literally, out of thin air.


And so these holders diversify their portfolios into alternative, and far more tangible, assets – gold and silver included. That is the fuel that has sent gold higher over the last ten years and that will keep it high – short-term corrections notwithstanding.


It is, however, when the inflation from all the money creation starts to appear that we’ll begin to see the shift into gold begin in earnest, and the price will really take off.

Continued tomorrow.....