I've been intending to put up a post on silver for a while, discussing why it may be a much better alternate currency play than gold.  However, it's a topic that requires a fair bit of detail -- combine that with my lazy nature and I hadn't got past a handful notes on the subject.

Fortunately for me, laziness sometimes pays off:  There is an excellent post up at Slope of Hope which covers everything I had intended to say and more.  I strongly suggest that anyone considering a wealth preservation strategy read it.

Posted by: Hermit Dave at 01:41 PM | No Comments | Add Comment
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I've noted numerous times that, when the Fed and other central banks are debasing fiat currencies, the stock market is a terrible indicator of economic health.  If one would like further proof of this, Zero Hedge has a post up showing the stock market valued in gold over the past three years.  The chart they use is a much more accurate representation of the current state of the US economy than the stock market valued in dollars.

All standard metrics of economic health show a small bounce off the 2009 lows, followed by further slow deterioration.  The S&P 500 as priced in gold reflects this extremely well.  This concept, of course, is the basis for my current 'wealth preservation' vs. 'investment' fund battle.  When fiat currencies are being debased as strongly and rapidly as they currently are, one simply can not use the raw (dollar denominated) stock market data as indicative of anything other than currency devaluation.

The Fed has made it clear that they are going to turn your dollar-denominated savings into trash, but the stock market is the wrong place to move those dollars.  The ZH post, and associated graph, demonstrate this quite clearly.

Posted by: Hermit Dave at 10:57 AM | Comments (1) | Add Comment
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So, the Fed announced today an additional $600 billion commitment to propping up the stock market so their cronies could cash out; er, I mean a commitment to bailing out the banks and paying executives huge bonuses at the expense of the average American; er, I mean a commitment to helping revive the economy.  Yeah, that's it ... reviving the economy.

I knew this was coming, yet I'm still completely sick to my fucking stomach over this.  I don't have the energy to write a long diatribe about this utter fucking disaster, or even explain in depth what it means.  The economic, financial, and market links in my blogroll will simply have to suffice for analysis.  The key point is that the Fed has committed to a pace of monetization that equals the projected debt of the Federal Government for the foreseeable future.

This does diddly-squat to revive the economy -- just ask Japan.  All it does is steal, through inflation, from responsible and productive people in order to prop up a completely broken capital structure and pay off powerful vested interests.  In Al-Qaeda's wettest dreams they couldn't do one one-hundredth of the damage to America that the Fed is doing.

What can the average person do about it?  In the medium term, protecting oneself from inflation is the most important thing.  Cash is trash, and in an ever increasing fashion.  Bernanke is attempting to force us to buy dollar-denominated risk assets, but that is the one thing we must not do.  Stocks are out -- they'll probably go up, at least for a while, but eventually the economic damage from the current policies make them a terrible investment.  Bonds are likewise out -- they're the equivalent of Russian Roulette at these levels, and the Fed is playing a rigged game.

This leaves us with commodities and foreign investments.  One can buy silver and gold as alternative currencies to combat dollar devaluation.  One can buy into commodity funds with various weightings in things like energy, foodstuffs, and basic metals to protect oneself from inflation.  One can also buy foreign currencies (and invest in foreign assets), but this is extremely risky as other countries can try to competitively devalue their currencies to 'equalize things' with the US.  Going the foreign investment route opens up a Pandora's box of complexity and requires constant vigilance.  I don't recommend it.

For someone with a relatively small amount of wealth to preserve, the simplest and most effective thing is to convert all savings into silver, gold, and commodity funds.  Keep enough cash on hand for day-to-day expenses and to pay bills, but otherwise convert it into something which at least has a chance of holding its value.  The PowerShares DB Commodity Index Tracking Fund (ticker DBC)  is nicely weighted, with an emphasis on energy.  Combining that with some precious metal holdings would be a way to try to preserve your wealth without adding a lot of complexity to your life.

In the long term there are two possible solutions to our dilemma.  The first is the political solution -- to make huge cuts in government spending, end the Fed, take a hell of a lot of pain, but maintain society and our country.  The second is to write off America as beyond redemption, detach oneself from the government as much as humanly possible, and prepare to be largely self-sufficient.  I'd like for the former to happen, but the clock is ticking rapidly, so I'm preparing for the latter.

Posted by: Hermit Dave at 07:03 PM | No Comments | Add Comment
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