11/05/09 Beunos Aires, Argentina – After spending a week trying to figure out how to run a wilderness ranch here in Argentina…and a few days with our old cowboy friends, Doug Casey, Rick Rule and Porter Stansberry…we’re back in Buenos Aires.
We’re back in civilization… Wait…you call this civilization? Looks more like Bubble Land again!
Gold is headed towards $1,100…
Bonds are soft…so is the dollar…
Speaking of old friends, Marc Faber says he’s long the dollar. Faber thinks the buck is over-sold. It could rise 10% in this last quarter.
But the Fed says it will keep interest rates low for an “extended period.” So there is still no sign of the kind of policy turnaround that might send the greenback back up.
Instead, we’ll have to wait until the bubble pops!
Oil is over $80…
Republicans are winning elections…
Hey, party like it was 2006…
The Dow is moving back up, too…and so are all the world’s markets…led by Asian stocks. China is booming…with its stocks up 4 days in a row…
The rise in gold comes as India’s central bank does the smart thing. Central banks need reserves. And historically, the only reserve a central bank can trust is gold. Putting US dollars in your vault – instead of gold – is a little like laying in a supply of lettuce to tide you over in a bad harvest year. Imagine what would have happened if pharaoh had stocked up on radicchio instead of grain? Those 7 lean years would have been a lot leaner than they were.
The Chinese have seen what happens when you rely on dollars for a reserve. You’re stuck. Because your reserves can wilt fast.
The Indians have a better idea – they’re buying gold.
The metal has outperformed stocks and bonds this year as it heads for the ninth straight annual gain. The Standard & Poor’s 500 Index has risen 15 percent in 2009 through yesterday while returns on the benchmark 10-year US Treasury note are down 5.7 percent.
Gold may average $1,125 in 2010, “with strong investment demand anchored by a negative real-interest-rate environment and probable central bank purchases,” analysts at Toronto-based Desjardins Securities Inc. said in a report.
And here’s another interesting item we found when we got back to an Internet connection: “Companies that become too big, complicated and debt-ridden should be allowed to ‘creatively destruct,’” says our friend Nassim Taleb, author of The Black Swan.
Taleb likens the process to natural selection. “Why is it that there are no land animals bigger than an elephant?” he asks. “Because nature doesn’t permit it. Bigger animals die off. Likewise, the market system disposes of companies that are ‘too big to fail.’ It gets rid of them.”
Unfortunately, says Taleb, the US government is impeding this natural process. The government is preventing the bankruptcies of large corporations that would clear the way for a new generation of healthier, more nimble, corporate organisms. Furthermore, these trillion-dollar bailouts are polluting the financial ecosystem with toxic piles of debt.
“We’re not destroying debt,” Taleb complains. “When you move it into the government, it stays in the government and that’s a problem.”
Sign Up for The Daily Reckoning e-letter and receive a copy of Bill Bonner's The Trade of The Decade report… at NO CHARGE.
We Value Your Privacy.
ShareThis
Interesting and to the point. Some things will work and many things will NOT work. Especially over the longer term. Please continue trying to tell us the way you think things work Mr. Bonner, it is greatly appreciated. Cheers, H.H.
To respond to Alexandre’s “bigger is best”:
I used to be in forestry. In the woods we would see these big old trees, towering about the younger ones. Unfortunately these big old trees were rotting on the inside, and their shade was hindering the growth of the younger, healthier trees.
Bring out the ax! The bigger,yet rotting, trees need to give way to the stronger, more fruitful trees. In the end there is a larger harvest.
Ditto with the corporations that are rotting with debt. There is healthier growth beneath their shadows.
Let the ax fall!
It is unfortunate… we could have let hundreds of billions of toxic debt just go by the way side last year… now we are stuck with it until the eventual failure of our government.
Two years from now the government can’t just say: “Oh, you know what, we shouldn’t have bought up that debt… we’re just going to erase that off the ledger.”
next bubble to blow up will be the united states govt. if you ran a business like the govt does, youd have been broke two thousand years before CHRIST!!!!!!!!!!!!!