ConservativeTM is my personal blog on a variety of conservative political issues.

Please contact me at if you have any questions or comments. Thanks.

Friday, April 24, 2009

25. Rational?

My cousin sent me a link from the alleged investment expert Jamie Dlugosch. The title of the article is “There is no place for gold on the global financial stage.” Mr. Dlugosch states that he “…despise[s] gold and everything it stands for” and that investment in gold is “hogwash!” He then lays out his five “expert” reasons for not investing in gold.

I have no idea what qualifies Mr. Dlugosh to hold the title of “expert.” But what I do know is that his five reasons seem to come more from a novice than any sort of thoughtful expert.

Since mid-2001, gold has risen from $260 to almost $1,000 an ounce. Although it has retreated recently to the $900 range, it is likely preparing for another major run upward. During this same time I’ve listened to investment talking heads on TV bash the buying of gold while gold ignored their advice and continued to climb higher in value. During that same time we watched tech stocks bubble, burst and lose 85% of their value under the Clinton administration. The real estate market bubbled and, to date, has lost 35% of its value. All this while gold increased 285% in price.

So, even though this site is primarily about politics, I’m going to take the time to go through the five points and refute Mr. Dlugosch’s arguments. But then, maybe this is about politics. I suspect that Mr. Dlugosch is probably a disciple and kool-aid drinker of the messiah and doesn’t want to accept that Obama is destroying the dollar, our economy and our way of life. In doing so, this then leads to gold being a very good investment and hedge against losses in other markets.

So – let’s begin…. Here are Mr. Dlugosch’s five reasons for not investing in gold. I have selectively edited his comments on each point. My rebuttals follow each of his thoughts.

1. There Is No Inflation. “….Today, the numbers do not support an inflationary environment and fear over current spending and stimulus of the government creating inflation is misplaced.”

Apparently Mr. Dlubosch actually believes government inflation figures, probably the most manipulated and inaccurate reports produced by the feds. The higher inflation, the more the government must pay in Social Security, government salaries and pensions, etc. It is to their benefit to keep the figures low. I don’t need an official report to know that inflation is alive and well in the US.

The Obama stimulus package, budget, massive borrowing and the Treasury simply printing another trillion dollars to throw into the economy, all work together to devalue the dollar and destroy the economy. Certainly, he can’t believe that this isn’t happening and that all those reasons don’t work to increase the value of gold? Well, maybe he can.

2. Gold Prices Are Easily Manipulated. “Unlike paper currency that is impossible to manipulate in any way, gold can be accumulated by a group of connected buyers for the sole purpose of eliminating supply from the market.”

Wow, amazing. He actually states that paper currency is impossible to manipulate. Someone needs to tell George Soros about this. Based on just one comment he made in an interview about the French Franc, the franc plummeted in value the following day. Or what about China's persistent manipulation of the value of the yuan? Doesn't Mr. Dlugosch read the financial news?

Is the price of gold manipulated? Yes, just as the stock market, oil, corn, wheat other commodities, real estate and currencies are manipulated. And who are the biggest players in these manipulations? It is banks and governments which regularly manipulate currencies, stocks, bonds and commodities. But much like the stock market, these manipulations are short-term moves. The market will always find its correct level over time.

3. Gold Is In Limited Supply. “Those who want to return to the gold standard fail to appreciate that at some point a lack of supply could have disastrous consequences in a gold-based system.”

Yes, there is a very limited supply of gold in the world, only about two Olympic-sized pools worth. It is one reason this metal gets the adjective “precious” in front of its name.

But as fiat currencies become worthless and individuals turn to something to preserve their wealth, precious metals such as gold, silver, platinum are at the top of the list. China has even begun to hoard copper as a hedge against falling fiat currencies.

Is it viable to have a gold-backed currency? Probably not, but that doesn’t make gold a “hogwash investment” over the next 3 to 5 years.

4. Gold Was Dead For 20 Years. “For more than 20 years, the price of gold did nothing. If you invested in gold, you wasted your time. That all changed with fears of inflation and hedge fund speculation several years ago. Today, the church of gold is full of believers. What changed?”

Yes, that is true. But from 1975 until early 1980, gold was a fantastic investment, going from $35 to $860 an ounce, a return of over 2,300%. Mr. Dlugosch, all investments move in cycles. Stocks tend to move in twenty-year cycles. From 1920 to 1940 the Dow Jones Industrial Average moved from about 110 to only 130. From 1960 to 1980, the DJIA again went sideways from about 600 to 800. That was an average annual return of merely 1.45%. But that doesn’t mean that stocks weren’t a fantastic investment between the years of 1940 to 1960 and 1980 to 2000.
If you bought real estate in Southern California in 1989 you watched as the value of your property declined 40% and had to wait another ten years for the value to return to your original purchase price. Investment-wise, was that a good ten years for you? On the other hand, if you bought real estate in 1994 and sold it in 2004 you did quite well.

All investments have periods of boom and bust.

5. The Dollar Is The Global Currency. “Do not underestimate the strength of this country as compared to the rest of the world. Predictions of our demise are premature.”

I agree, we are still a powerhouse of a country. That does not mean that the dollar cannot go into crisis nor is it premature to sound the alarm at the direction we are being taken by the Obama administration and a complicit Congress. Our government is moving in the same direction as other fallen empires by destroying our monetary system and our economy through excessive borrow and spend policies. I’m sure there were those shortly before the fall of the Roman Empire who insisted it couldn’t happen as well. With computers and the internet, it can happen almost instantaneously. Civilizations and empires also come and go in cycles. And even if this is not the end of the United States as we know it, it again does not mean that gold is not a good investment right now.

Mr. Dlugosch founded and edits a newsletter called “The Rational Investor.” I guess we’ll see just how “rational” his advice really is over the next three to five years.

24. The Bubble-Headed Bleach Blonde

"We got the bubbled-headed bleach blonde
Who comes on at five
She can tell you 'bout the plane crash
with a gleam in her eye." - Don Henley, Dirty Laundry

The other day I caught a few minutes of CNN, you know “The most trusted name in news?” They were discussing another of Obama’s anti-business proposals and the costs associated with such a program. The anchor finished the segment by saying, “the concern is that corporations will pass these costs on to the consumer.”

I couldn’t suppress my very audible sigh. Is there a brain in anyone’s head in the media? How about academia? I’m beginning to seriously wonder.

So, in my effort to educate the left by writing this column, I’m going to give a brief class on businesses and corporations. I’m hoping to enlighten those Ivy League intellectuals that run the news rooms of CNN, NBC, CBS and ABC. God knows, SOMEONE needs to have a talk with them.

Guess what Ms. CNN-Reporter? ALL costs of businesses are borne by the consumer. Did you hear that? The consumer pays ALL COSTS. Instead of repeating this ad nauseam, I’ll just ask you to re-read the first sentence of this paragraph fifteen times.

Costs of doing business include rent, salaries, fuel, energy, raw materials, office supplies and equipment, legal fees, government regulation, lawsuits and, are you ready for this one…….. TAXES. Yep – even corporate taxes – are paid by the CONSUMER. These costs are passed on to the consumer in the price of the product. And, if you didn’t already know, a corporation isn’t even a person – it is merely a piece of paper filed away in a law office.

Now, what about the investors, you know, the stock holders? Hey, maybe they are the evil, greedy ones CNN talks about. Let me ask you a question, Ms. CNN. Suppose a stock broker calls and wants you to invest in the ABC Corporation, a little start up firm that makes ATWs (advanced technology widgets). The price per share is $10. You understandably ask about the company’s profit potential. ABC Corp, your broker tells you, has no intention of making profits – EVER. So, if the company does well, your share price will never be more than the $10 you originally paid. If they don’t do well, you’ll lose your money. Also, since they don’t want to be greedy and make a profit, there will never be any dividends paid to you. So – are you ready to invest? At the bank in a safe, secure CD, you’ll get 3% on your money. If you invest in ABC, at best, you’ll merely get your money back and, at worst, you’ll lose. Is this a difficult decision? If a corporation doesn’t make profits, no one will invest in their business.

Hey, Ms. CNN – are you still with me here? Or am I moving too fast?

Ok, let’s review - if a company doesn’t pass along its costs of doing business to the consumer it can’t make a profit. If it doesn’t make a profit, then investors won’t invest and there won’t be any companies.

During the Clinton administration, Big Bill was hot on raising the minimum wage. A businessman challenged Bill complaining that the higher wages would hurt his business. Yale and Rhodes Scholar Bill replied, “just raise your prices.” Guess what Bill, if I get a raise yet the cost of everything I buy goes up at the same time, my raise is meaningless. I’m in the same spot I was before I got the raise.

The left keeps proving to me over and over again that they are the “feel” people. They make all decisions based on how they feel and never seem to bother using their heads. Yes, it does feel kind of good to hate big corporations. It feels good to point your finger at something or someone else on which to blame your own problems even though it solves nothing. Ultimately, you will be the one that is hurt, not the corporations. You will be hurt either in having to pay more for goods and services, by losing your job or you will watch your investments, your pension, your IRA and your 401(k) values drop like a stone falling from a tall building. If you ultimately drive corporations out of business or out of the country, it will be the employees and again, the investors who are hurt. It’s pretty difficult to hurt a piece of paper – or didn’t you know.

Hey – guess what Ms. CNN, that’s exactly what is happening right now. Stock prices are falling just like that stone off of that imaginary building and with it Americans are watching their savings and retirement funds fall dramatically in value. It started, interestingly enough, as soon as Obama got the democrat party nomination and began his war on business.

Now do you understand? Or will you need another class?

Wednesday, April 22, 2009

23. The Perfect Storm

We conservatives have sat passively by for the last seventy years while the wave of socialism, started by the FDR administration, has continued to build strength and pour over us. We’ve worked, saved, raised our families and voted yet the storm, with a brief respite during the Reagan years, has grown larger and more devastating over time.

LBJ’s Great Society cemented the inevitable outcome we are just beginning to witness as those who contribute less and less demand more and more from those who produce wealth in this country. They have demanded, organized, lobbied, intimidated and voted themselves entitlements which are quickly bankrupting our nation.

We conservatives sat quietly and watched in the early 2000s as the Bush administration and the Republican controlled congress did nothing to ease the tide of socialism. Economic values and principles embraced by conservatives were ignored by Bush and the Congress and spending and waste continued unchecked.

Disillusioned by the Republican party and their candidate fielded for the 2008 election, some were desperate enough to vote democrat while many opted not to vote at all. Regardless, the approaching wave could not be stopped. Now all elements have come together to form the perfect storm, an economic Category 5 hurricane led by Obama, Pelosi, Reid, the democrat Congress and the main-stream media. Together they will destroy our economy, the dollar and every entitlement program devised over the last 70 years. It will wipe out and cleanse this country of socialism much as Katrina washed over New Orleans. In their attempt to banish the US of conservatism, they will instead be washing away all signs of their precious socialism.

Just as a hurricane needs fuel to continue its destructive journey, this storm needs money - your money - to feed itself. Hurricane Obama will seek out every dollar and confiscate it from those who have worked and saved. It will be taken “for the good of the collective.” When the monetary well is sucked dry, the Fed will print more and more worthless, inflated dollars of which will have no real value.

As much as Obama loves to crow about only raising taxes on a small portion of Americans, it is only the delusional who believe it. Taxes on sales, income and energy have already begun to rise in many states. "Sin" taxes are increasing at astronomical rates. Fees charged by government agencies have already, in many cases, doubled. A rise in corporate taxes means a subsequent rise in the products they produce. These are taxes and fees paid by not only the wealthy and the middle class but also by the poorest of those in our society.

What is soon to come? Inheritance taxes will be raised to levels only seen in socialist Sweden. There will be no point to even attempt to save for the next generation as the government will confiscate it. Already Obama’s administration is talking of confiscating retirement savings accounts, our IRAs, 401(k)s and annuities. These have been declared to be a “failure” by his administration and that they should be rolled into the Social Security system so that the government can "properly manage" them.

Profits made by wise individuals investing in energy, gold, silver and other commodities are already being targeted. Obama wants a big portion of their "ill-gotten gains" and is looking at windfall taxes exceeding 90%.

In the late 1990s, James Dale Davidson published his book, “The Sovereign Individual.” I suggest everyone read his book keeping in mind when he wrote it and then what is happening today. We as conservatives and moderates have no choice but to economically rise up against our government to preserve ourselves. Continued inaction will destroy any security we have amassed.

We must have a two-pronged approach to this storm. The first is to preserve our own wealth and the second is to cut off the monetary fuel that feeds this monster.

First, for those who still work, increase the deductions on your W-4 form, especially if you are someone who annually receives a refund. Stop lending money to the government interest free. If you are brave enough, stop paying taxes all together. After all, doing so didn't seem to hurt Tim Geithner's career.

Second, start paying for purchases in cash, preferably from smaller, locally-owned stores and markets. Negotiate “no sales tax” purchases. Not only do you save money by avoiding taxes, the vendor (regardless of his political persuasion) avoids paying state and federal income tax as he is unlikely to declare the income.

Third, if you are over 59 ½, consider rolling all money out of your IRA and 401(k) plans. Not only are you likely to pay higher taxes on what you withdraw in the future, but you risk having what is left in the account confiscated and rolled into the Social Security system. For those in Roth IRAs, do not count on the government keeping its promise for tax-free withdrawals. Ever since the inception of the Roth IRA I have been highly suspect that anyone, especially anyone of moderate means, would ever see the day in which the government didn’t renege on that tax promise. If you are under 59 ½, I would first stop contributing to your retirement account, take that money and begin buying gold and silver, as I talk about in the point below. If you currently have money in your retirement account, consider the penalties that will apply should you pull money out of your IRA. Reconsider your account and your contributions and what would happen if that money was suddenly gone and under the control of Nancy Pelosi.

Fourth, begin buying gold and silver. Not mining stocks or ETFs, but the physical metals. Be aware that FDR confiscated gold from those wise enough to hold it in the 1930s. Much of it needs to be in vaults in foreign countries such as Switzerland, Lichtenstein, or other countries with strict, private banking laws. Do not use banks with international branches such as UBS or Credit Suisse. Find smaller, independent banks. There is nothing illegal in transferring money to another country and buying gold for the bank to hold. Keep some silver on hand, either in the form of ingots, American Eagles or silver coins minted prior to 1965.

The Obama administration is already hoisting the red flag warning us about violence in the streets. But instead of the wild-eyed, rabid, right-wing conservatives they fear, it will be those people who were promised government money and will now be cut off that will be rioting. It will be their blood that is spilled in the streets as their only sources of income are cut off or the dollars they do receive are worthless.

The storm will pass, but the victims will be like those who stayed behind in New Orleans, believing the inevitable could never happen during Katrina. Open your eyes people, it is happening now and the financial devastation will be like nothing we have ever seen before.