Tuesday, November 3, 2009

India Takes Their Position

A major news story a few months ago was that the International Monetary Fund (IMF) was going to be selling a significant portion of its gold reserves in order to raise capital to help countries in need of additional bail outs.

This struck fear into the heart of gold investors (including myself) because the amount of gold they planned on selling was an enormous quantity.

This afternoon they announced that they had already sold half of the total gold they plan on selling. The number of buyers that it took to sell it all? One.

India stepped to their window and took every ounce of gold they could get their hands on. They have essentially rung a bell that is now being heard around the world.

The important part of India's purchase is not that they want to accumulate more gold, it is that they want to diversify themselves out of their dollar reserves. THEY DO NOT WANT THEIR DOLLARS.

The entire world is playing a game of musical chairs right now, and everyone is taking their positions as quietly as possible.

China has gone on a spending spree over the past twelve months accumulating copper, steel, oil, gold, and companies that produce natural resources. Instead of funneling the majority of their savings back into United States treasury bonds, they are diverting their money elsewhere. THEY DO NOT WANT THEIR DOLLARS.

In the meantime, back home here at the States, we need the world's savings more than any time in history. Obama has announced a budget deficit next year in the order of $1.4 trillion.

That means the rest of the world has to send every dollar that they work hard to save in order to finance our budget deficit. Not only that, but they have to do it every year moving forward, forever. Our leaders have no plans on cutting spending, and they have already told the rest of the world that is our stance.

Remember, Obama has estimated a $1 trillion+ budget deficit over the next ten years, assuming that our economy rebounds sharply and begins growing again right away.

Speaking of that, lets take a look at how we're doing. As part of Obama's "stimulus" program of close to $800 billion earlier this year he has and will continue to send hundreds of billions to state and local governments.

The plan was to stimulate the economy with fresh new jobs with these fresh new bills. Unfortunately, the state governments are themselves running massive deficits as the local real estate and economies crumble around the country. The money from the stimulus program will run through next year. What happens after that?

The Lieutenant Governor of New York last week estimated that in 2011 state governments will run a $500 billion deficit.

$500 billion!!!!!!

This will be added to the $Trillion plus national deficit if we get the rosy economic picture to emerge. As our economy continues toward oblivion and unemployment moves closer toward 25%, you will see calls for stimulus number 2, then stimulus number 3.

To add to this debt, Obama's team has also announced their new Obamacare plan. The cost? $1.2 trillion.

$1.2 trillion!!!!!!!

Please understand, I would like for everyone to have medical care. I would like for the government to send stimulus checks to everyone in the mail, and I would love to have them create employment for everyone.

BUT WE HAVE NO MONEY. WE ARE 100% INSOLVENT!

We owe $100 trillion, we are adding $5+trillion in total debt per year, and the numbers grow worse as we move forward.

The rest of the world is moving as fast as possible right now out of their dollar positions. What do you think will happen when they not only do not finance our $1.4 trillion deficits, but they actually become net sellers?

That kind of stuff is not important, so lets talk about something more fun.

Billionaire Wilbur Ross sent shivers through the real estate market last week when he announced that we have not even begun the commercial real estate meltdown. He came back on CNBC this morning, not to take back his statement, but to reconfirm it. He also said that he felt the government would not save the commercial real estate market the way that they are artificially supporting the residential market.

Why? "Because buildings do not vote, but households do."

His words were music to my ears as I believe this is where the NEXT investment opportunity in this country will be located. As money over the next few years moves away from American stocks, real estate, cash, and especially bonds, it will move toward the emerging markets and commodities.

This will be the time to sell your foreign stocks and commodities for American real estate as the market is on a fire sale. Banks will once again be giving property away for pennies on the dollar, just as they did back in 1991 during the savings and loan crisis. Only this time the opportunity will be far greater.

Warren Buffett this morning announced the purchase of a major American rail company, saying that he is betting on the future of America. What did not get press, however, was that every time he said that during the interview he said he was betting America will be a better country 10, 20, or 30 years from now.

I agree with him 100%. When Clinton, Bush, Obama, Greenspan, Bernanke, and their minions finish destroying everything this country represents, I believe that when we begin to rebuild it will be the buying opportunity of a lifetime. We will once again be the greatest emerging market in the world.

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