Lear Capital: Time Travel Brings Golden Opportunity

We’re surrounded!  Everywhere we turn we hear nothing but good news.  Unemployment is falling, the dollar index is at an 11 month high, July housing starts jumped 15.7%, interest rates are still low, the Dow is back over 17,000, oil prices are falling, inflation is non-existent and all is said to be well in Mudville.  If only we could believe.

Don’t get me wrong, I long for the days when Real Estate, Stocks and Commodities were all rising together in glorious harmony.  The days when our investment choices were between ten and fifteen percent returns.  Risk seemed non-existent, rewards were high and money flowed from every spigot located throughout the markets and the economy.  Those were the days.  Even gold-bugs were happy as all parts of their diversified portfolios were performing.  For many investors, retirement was in sight.

We all remember how, in an instant, that state of euphoria turned into a state of shock.  Housing and the markets collapsed by 50% or more forcing the liquidation of any equity position just to cover debt gone bad.  Most never saw it coming and were unprepared.  Some of the vigilant never totally trusted an economy built on debt and they were diversified and prepared for anything the markets had to offer. 

We should have seen it coming but we did not.  Then, it made perfect sense to buy a house and borrow 120% of its value.  It made perfect sense that double digit returns on real estate could go on to infinity.  It made perfect sense for sub-prime loans to be packaged as securities and sold as insured investments.  It made perfect sense to buy as much stock on margin as you could.  So many things that should not have made sense, did.  Why?  Because the news we heard told us everything was OK!

Today’s news rings eerily similar to the news leading up to the last debt crisis.  It makes perfect sense that debt, now 80% higher than it was before the last crisis, is of no concern.  It makes perfect sense that war erupting all over the world is of no consequence.  It makes perfect sense to print 3 dollars to get 1 dollar of growth.  It makes perfect sense for a population to grow 7 times faster than the work force and call it recovery.  And, it makes perfect sense for gold and silver to trade below their production costs.  Once again we don’t see it coming but how can you miss it?  Oh yea.  It’s the news.  Everything is OK!

If only one could travel through time.  Think how rich you would be.  Imagine, knowing what you know now and being able to go back just 7 years.  Stocks hit record highs before falling off a cliff.  To have the foresight to sell everything at the very top and take your profit and run would have been worth a fortune.  Imagine the pain you could have avoided.  Imagine being one of the few who still had a retirement plan.

This is the opportunity investors have today.  You can travel through time.  Listen to the news and see how things are today just as they were 7 years ago.  Don’t get lulled into complacency when all the data screams “trouble ahead!”  Am I saying sell all your stocks and all your real estate?  No!  I am saying, take some of your profits or gains and be diversified.  Put some money into tangible assets that you can touch and feel.  Yes, put some money into gold and silver.

At the present time, both gold and silver prices sit lower than their all-in costs of production.  Since the Dow reached its pre-crisis high in 2007 it’s up just 22%.   The S&P is up 30% while the NASDAQ sits alone in a corner wearing a dunce cap, still trading below its all-time high set in January 2000.  In comparison, gold is up 70% since 2007 and 400% since year 2000 and that’s with gold trading 35% off its all-time nominal high.  As gold currently trades it would have to rise 50% just to return to its nominal high and 100% to reach its inflation adjusted high.  If the economy is in as much trouble as the real data implies, which investment has more potential, stocks or Gold?

Silver tells a similar story.  Since 2007, silver is up 53% and since year 2000 it’s up 300%.  Currently silver trades 58% off its all-time high.  It would have to rise more than 100% just to regain that level and 600% to reach its inflation adjusted all-time high. 

Through good markets and bad both gold and silver have been consistent winners.  And, while past performance is no guarantee of future returns, take a good look at the real economic data and decide for yourself if time travel is right for you.