Friday, September 4, 2009

Here we go...Obama pushing us to the edge of a cliff

Somebody emailed me the other day a quote from Warren Buffett, "Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

Well, Warren Buffett needs to wake the f&@k up because if I was in space looking down at the U.S., I would be scratching my head about Americans using a printing press to create fiat money and then walking around believing one piece of paper is worth more than another because it has an extra zero printed on it.

Last year during the U.S. financial crisis when the stock market collapsed, the world rushed out of stocks and into U.S. dollars. I said repeatedly that they escaped a hurricane but are now in the path of a tornado, because the real crisis that we need to be concerned about is the hyperinflation that will come as a result of the government trying to prevent a recession. Americans bought dollars because they were looking for a safe haven, but dollars are actually more risky than stocks because they represent no real value at all. Gold and Silver are the only real safe havens out there and finally the world is beginning to wake up and figure it out.

It's funny watching CNBC and seeing how stupid they are. They are trying to figure out why Gold and Silver prices are skyrocketing and are clueless. One guest today chalked it up to Indian wedding season coming up, LOL. Then, when they finally got frustrated about trying to figure out why Gold and Silver are rising, they spent the rest of the show arguing about whether the economy is having a "U", "V", or "W" shaped recovery.

I got news for CNBC, the economy is not recovering! We are in a brief period of euphoria because the massive money printing by the Federal Reserve has driven stock prices up to artificially high levels, but now that Gold and Silver prices are rising, these stock market gains will quickly evaporate when valued in real money. The only time we can truly talk about the stock market reaching a bottom is when the Dow bottoms at one ounce of Gold. If we see the Dow fall to 5,000 and Gold rise to $5,000 per ounce, then maybe we will be close to a bottom for stocks.

We've seen the Dow/Gold ratio fall from a high of 44 in 1999 to a low of 7 a few months ago, before rallying back to 10 and then to its current level of 9.4. In 1973, we saw a similar bounce in the Dow/Gold ratio from 7 to 10, but then the next move was down to 4. I think it's very likely a move in the Dow/Gold ratio to 4 is likely in 2010 which means if the Dow stays around 9,000 we would be looking at $2,250 per oz Gold.

Historically, during periods of high inflation, Silver prices have soared at a much faster rate than Gold. The Gold/Silver ratio is currently 61, but it always returns to 16. If we see $2,250 per oz Gold next year and the Gold/Silver ratio returns to just 30, we could be looking at $75 per ounce Silver.

My new huge Silver play that I will soon be announcing is currently producing Silver at less than $6 per ounce and their production is growing rapidly! This is my top Silver pick for the next decade and I believe it could become our biggest Silver winner of all time!
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