Buying is golden

In recent days the Dow has proven remarkably indecisive. Bouncing around aimlessly, for the most part it has trended down slightly. We, like many advisors, are waiting to see if the Dow breaks through its November lows, which could signal a new downturn and massive bear market. However, like most people, we are still optimistic. We still believe that November's lows will hold, due in part to what is going on in Washington. We believe that the next week or two will see the passing of Obama's stimulus package, and with it the resumption of bank lending. We believe that these events have been timed by the new administration in order to magnify the perceived positive effects of the new stimulus bill.

Of course we maintain that the increase in bank lending will spark a massive wave of inflation, the likes of which haven't been seen in this country since the 1970s. It is a little known fact that in the past 6 months, the Federal Reserve has more than doubled the monetary base, which will cause the US money supply to skyrocket once this new money begins to circulate through the economy. This circulation, also called money’s velocity or turnover, will increase once banks begin lending money, which in addition to helping consumer spending and small businesses, also allows major corporations to finance continuing operations as well as new projects and acquisitions.

We, therefore, maintain our stance that in order to protect their financial well-being, investors need to own hard assets like natural resources and precious metals. Merrill Lynch, Goldman Sachs, and UBS have all issued buy recommendations for gold. However, investors should be extremely careful how they invest. Investors need to be mindful of the differences, especially the risks and dangers, associated with the trading of exchange-traded funds (ETFs) and derivatives. These are much more complex than traditional investment vehicles, and we strongly recommend conducting research or speaking with an investment advisor to decide if they're right for you.