Dollar Falls Sharply as Gold Approaches It’s All Time High… Again

Vampire: the Eternal Struggle
As my personal friends know, I’m a gamer geek. My collectible card game (CCG) of choice is Vampire: the Eternal Struggle (VTES). It’s Richard Garfield’s (the designer of Magic: the Gathering) second CCG and he designed it for multiple players. It’s a game I enjoy playing competitively.

Every year, White Wolf (the company that publishes VTES has a North American Championship. In order to play in this tournament, you first have to do well in a qualifier tournament which every region has. This weekend, Los Angeles had its qualifier tournament and I enjoyed playing in it (I didn’t qualify). Since VTES has a small but loyal player base compared to other CCGs, you get to know everyone pretty well who competes on a national level. We’ve become a pretty close knit group despite the fact that we all live in different regions; our willingness to travel and our love of the game brings us together.

Well known members of this tight-knit circle include Ben Peal, and a married couple, Robin and David Tatu. They have all purchased my book and found it a good read. Both of the Tatu’s were at the tournament this weekend, and I commented to them that my investments were up some 50% over the last six months. They recommended that I sell my gold investments before they crashed. Now, I found it a bit peculiar that two people who told me that they learned a great deal about how the economy works from the book that I wrote would then tell me to sell gold.

It does make sense in a human nature kind of way. The knee jerk response I’ve gotten when I tell people how much money I’ve made off of my gold investments is “Sell!” It’s a bit of conventional wisdom that has its roots in reality. After all, trees don’t grow to the sky and what goes up must come down. If something’s up 50%, then it must be time to sell it.

Well, yes and no. Continue reading Dollar Falls Sharply as Gold Approaches It’s All Time High… Again

Checking My Scorecard

Every now and then, I make predictions in this blog. Today seemed as good a day as any to take a look at my prior predictions and see how they faired. As a life long Cassandra, I can’t really say that I hate to say I told you so. Honestly, I love saying I told you so.

Specifically, I told you:

  • In November I told my readers that the bonds of Genworth Financial seemed like a good buy. I took my own advice and bought some. They paid over the weekend, realizing me an annualized 20% or so.
  • In January, and many times since, I have repeatedly warned that Dr. Lacy Hunt’s advice to plow money into long term US Treasury obligations was a recipe for disaster. So far this year, the 30-year US Treasury bond is down 20.9%. Ouch!
  • That Barrick Gold was a screaming buy in October of 2008. I loaded up on Barrick at $20.85 a share in November. Last week I sold my Barrick stock for $35.50 a share and took the money and put it straight into GLD. Extra credit: Since that date, GLD (gold bullion) has appreciated and ABX has fallen. Sometimes I just get lucky!
    • That we had witnessed the end of deflation and that this year would see the start of a rampant inflation that would last for years.

    Now, for the longterm prediction that’s the real clincher. Continue reading Checking My Scorecard

Barrick v. Bullion

I sold off all of my Barrick shares today. I got a price of $35.50, which is far above the $20 and change that I bought them for. They have served me well. Given how passionate I am about gold investing, some readers may take this as a bit of a surprise. It’s not that I don’t expect the price of Barrick shares to rise longterm, because I do. I expect that all of the money bring forced into the system by its would-be saviors, the Federal Government and the Fed, are going to cause run away inflation that will force the price of many things higher, particularly gold shares.

However, since this inflationary scenario has not yet unfolded, I have to make the most profitable decision I can given the information I have at hand. Currently, analysts expect Barrick to be $1.75 a share for 2009 and $1.80 a share for 2010. With the company trading at $35.50, that works out to a Price-to-Earnings ratio of 20 or so. That’s a PE ratio that’s not as bad as the stock market at large (the Dow Jones Industrials are currently trading at a PE of 43.1 and the S&P at a PE of 62!) Of course, for Barrick, a lot is going to depend on the price of gold itself. Today, gold closed at $925 an ounce. Continue reading Barrick v. Bullion

Is Obama Misplaying His Hand?

Kevin, good friend and loyal blog reader, recently posed me this question:

I was reading the May 6th issue of _Cardplayer_ magazine today, and Roy Cooke’s column, which always sports excellent advice, had this quote about Limit Hold-Em:

“The larger the pot and the greater the risk you are taking, the less you should try to obtain extra bets and the more you should focus on playing your hand in a manner to win the pot with as little risk taken as possible.”

I thought that was superb advice, since taking any large hit to your stack is actually meaningful, whereas you can afford to take several small hits and continue on your way.

Then, I suddenly got chills up my spine, and thought, what if Obama’s overplaying his hand? I know the economy *seems* like a No-Limit game when the government (especially the Feds) has your money, but it’s really closer to Limit poker than it is to NL [As an example of a No-Limit Hold-Em government game, think cold-war military spending in the ’80s, and S.D.I. as the all-in move. Thank G-d Russia folded.]

“The larger the pot and the greater the risk” — sounds like a bajillion-dollar already-failing business bailout, doesn’t it? “The less you should try to obtain extra bets” — such as Nationalized Health Care — “and the more you should focus on playing your hand in a manner to win the pot” — a healthy United States economy — “with as little risk taken as possible” — such as giving a bajillion dollars to prop-up already-failing businesses instead of giving every taxpaying adult in this country a $17,000 tax rebate? Imagine all the cars that we’d be buying from those now-failing Detroit businesses if we all had $17,000 in our pockets! Imagine all the companies now in financial distress that Bank of America wouldn’t be allowed to buy! And the $17,000 play would definitely minimize O’s risk, since it would correct the economy (at least for now), guarantee his party’s dominance in the elections a year-and-a-half from now, and almost certainly set him up for the final table (his second term as President). That’d be playing your hand, O. My advice: Don’t give up your day job.

–kevin

Just so people understand the poker principle at work, the idea is that sometimes you should play your hand differently than math would dictate to add deception as to what you have. However, as the size of the pot grows, deception loses its value in comparison to playing a strong hand in a straight forward way in order to win the pot since the value of a large pot begins to outweigh the value of additional money won through deception.

The analogy is a bit stretched here, because we’re not talking about Obama being deceptive per se. Rather Kevin is saying that saving the American economy is of tremendous importance and Obama should not waste precious time and effort trying to get pet projects approved. This is true. However, it also highlights an classic area where our elected officials have a significantly different interest than the citizenry. For citizens, political crises are caused by disruption and are to be avoided if possible. For politicians, political crises are their opportunity to pass far reaching laws that expand the scope of their purview. “Never waste a crisis,” as the saying goes. In this regard, Obama is acting like you’d expect a Socialist politician to act; he’s using the crisis to pass his agenda.

In terms of ending this recession, Obama’s actions are doomed to fail. Kevin is correct in pointing out that the bailout bill of $17,000 per adult would be far better spent as a tax rebate then as a bailout given in the form of a loan or an equity share in auto companies. Of course, it would be better still if the government did the opposite of Keynes’s advice and began to cut spending altogether rather than expand it, but austerity has fallen out of fashion in government circles. Cutting back on spending was a tried and true method for restarting a stalled economy from time immemorial, and a method that has an unparalleled level of success.

Spending our way out of a deficit, unfortunately, has very little to show for itself in terms of ending recessions. It didn’t end America’s Great Depression of the 1930s, nor did it end Japan’s ongoing depression. It really has very little in terms of economic history to suggest that it will work at all. To return to the poker analogy, this seems like the kind of self-destructive behavior you see losing players engage in all the time: they make plays they shouldn’t make, but feel they’re a good player despite never having seriously studied the game and being a consistent loser at it. Sadly, we the taxpayers have decided to stake this losing player with as much money as he needs. No one would be foolish enough to do this in the poker world, but that’s why government is such a wonderful invention- it allows us to collectively act far dumber than any one individual ever would.

A Personal Journey and A New Direction

My friends and regular readers have no doubt noticed that I am not as prolific a blogger as I once was. This is true. Over a year ago I moved from Dallas to Los Angeles to become closer to my daughter. I wasn’t able to find a steady job at the time, but I was all right with that. I have a good skill set as a poker player, and I was content to play poker to pay the rent for a time. I enjoyed what I did and the money, though erratic, did come in.

Still, I had always figured that eventually, I would find something else to do. It’s not that I didn’t enjoy poker, I just wasn’t sure it was what I wanted to do for the rest of my life. So I took acted out of a luxury that most people didn’t have. I didn’t enter into something in order to pay the bills, I already had that covered. Instead I just focused on what it was I enjoyed doing. I enjoy studying the economy and found that I was able to make predictions about the future. Friends encouraged me to put my ideas down in a book, and so I did. It turned out that the predictions my book made very quickly came true. Since I had made invests according to my philosophical outlook on things, I profited from the crash.

So, in addition to poker, I was making a nice return as an investor. Well there’s two sources of income anyway. I started this blog in order to pursue a third source of income as a writer. So far the income has proven elusive, and that’s in large part what the writing regarding this blog as tailed off a bit. I’ve been spending my time learning a new skill set. In the past six weeks or so I have read and digested CSS: The Missing Manual and Syndicating Web Sites with RSS Feeds For Dummies in addition to some other books on Word Press. Continue reading A Personal Journey and A New Direction