1/4/2010 Peter Schiff On Fast Money: Dollar Collapse By 70% In 2010?

I think they really need to listen more instead of interrupting him all the time saying he is wrong.  If he wasn’t right about his real estate bubble/ housing collapse call, I think they would all be talking over him in this video.  That is the what they use to do to him 3 years ago.

If he is correct on the dollar falling in value, then I do wonder how high gold and silver will go up.

Also amazing is that the numbers in the last 10 years show that what I learned from college textbooks and professors were proven to be false.  Of course this can change over time.  But for now these are what the numbers are by investment returns.

Bloomberg:

Relative Value

Investors who put $10,000 in stocks on Dec. 31, 1999, have $9,090 now, while the same amount in 10-year Treasury notes would have grown to about $18,000 following a 6.1 percent annualized return, according to data compiled by Bloomberg. A $10,000 investment in the Reuters/Jefferies CRB Index of 19 raw materials increased 3.3 percent a year to $13,803. Gold futures rose 14 percent a year, turning $10,000 into $37,852.

The average annualized return for U.S. equity mutual funds was 1.7 percent during the decade. Only one fund out of 3,833 gained in 2008: Forester Value Fund rose 0.4 percent that year, according to Chicago-based Morningstar Inc.

Hedge funds’ annualized return was about 6.3 percent since Dec. 31, 1999, according to Hedge Fund Research’s HFRI Fund Weighted Composite Index. The measure rose 19 percent in 2009 through Dec. 15.

Isn’t that amazing? Not only did the higher risk stocks perform worse than the low risk treasuries, it even lost to gold which more than tripled in the last 10 years.

Anyways,  I remember this analyst Kevin Cook giving his recommendation and am surprised how accurate his forecast has been so far.

Discussing the correlation between the dollar and gold, with Kevin Cook, PEAK6 Investments market analyst.

I blogged about gold and you can read my posts here:  gold & gold 2

Of course the stock market roared up over 50% since March. Gold has performed very well too. Pretty much any stock you picked went up. One commodity I considered and regret not buying was silver. It actually performed better than gold in the same time period.

Last month I sold all my gold because of the run up and because I wanted to lock in my gains. It seemed like a bubble waiting to pop. However, it continued to surge on the news India purchased a few tons. After continued research, I feel more confident in gold as well as silver, so I am back in the metals temporarily. It is still going up, and all I do is continue to read articles to get a feel of how high it will go.

There are 2 things I found on line that helped me decide how high gold and silver will go and how long to hold them.

Rosenberg: Gold Going to $2600 Thanks to China

Gold has finally surpassed the $1200/oz mark.

But it may be going much higher. China is going to increase its holdings signficantly, according to Breakfast With Dave, Gluskin Sheff’s analyst newsletter with David Rosenberg.

So significantly, in fact, that gold could hit $2623/oz in the near future.

From Breakfast With Dave:

Gold just capped off its best month in a year — up 14% in November and 34% so far in 2009. Not even the S&P 500 can compete with that. Helping drive the latest gains was the news out of the China Gold Association that the country’s gold demand is on pace this year to exceed 450 metric tonnes, a 14% increase over the 395.6 tonnes in 2008. (In contrast to India, jewelry sales are up double-digits in China so far this year.) By way of comparison, China, which recently surpassed South Africa as the world’s largest producer, is on its way to 310 tons of newly mined output this year, or more than 30% below its level of demand.

It’s not just the middle-class in China that is starting to buy gold, but the central bank, which has very deep pockets, is going to do likewise. We just came across a Bloomberg News article quoting an official from the state-owned Assets Supervision and Administration Commission (Ji Xiaonan, the Chief) as saying “we recommend China increase its gold reserves to 6,000 metric tons within three-to-five years and possibly to 10,000 tons in eight to 10 years.” China’s reserves, after a 76% buildup since 2003, currently stand at 1,054 tons, so we are talking here about the prospect of some pretty heaving buying in coming years.

If China were to lift their gold reserves to 5,000 tonnes, which is equivalent to about two years of global production, that shift in demand would boost the gold price by $800/oz to around $2,000 ($1,978) based on our models. If China moves towards 10,000 tonnes, well, that would end up taking the gold price to $2,623/ounce if our calculations are in the ball-park.

Make no mistake, we are gold bulls…

The other article I liked was actually a chart explaining why gold is cheap from the  seeking alpha site.

I am not a market timer, just someone who got lucky on  their hunch and didn’t let my greed get the best of me.  I remember seeing this doing the dot.com run up and after that bubble busted I started to buy everything I liked. I owned Apple, EBay, Amazon, Microsoft, Yahoo, Walmart, and a few others I can’t remember now but basically they were all products and services I used in my personal life. I got that idea from reading Peter Lynch’s books from college.

I have been out of the stock market since then and was tempted a few times to buy back into it.  I avoided the temptation because I felt it would still go lower.  I was wrong about that and missed the nice 50-60% run up from March 2009 till today.  I actually switched to gold because I felt uneasy about the decisions our federal government was making on the bailouts, stimulus packages, and running up the deficit.  Although I expect to continue to go up, I sold everything yesterday because it too has had a nice run up.  Again,  I put aside my own personal greed and am happy to make a profit versus giving it back to the market.

Looking back on it now, I see that the other metals have done much better. Silver would have been a better hedge and had an even greater move up than gold in the same time period.  I guess another reason I sold off my gold holdings is that I have had a more challenging time understanding the recent market.  In the past stocks, oil, and gold went in different directions.  Recently stocks and gold have been going up and down together against the US dollar.  But 2 days ago, the dollar went up, the stock market went down, and gold didn’t really move.  That did get my attention.

What really bothered me was the internet rumors that gold bars were missing from inventory.  I don’t buy physical gold but purchase GLD ETFs.  I didn’t like that  possibility where rumors could steal my earnings even if it wasn’t true.  The way investors  are, you can never predict if they will be rational in the short term.  So better to be safe than sorry, at least for me.

Last year in march 2008 I blogged about these investments in a post called Recession, Oil $102 a barrel, Gold $984 an ounce, + Volatile stocks end down again.   At that time the recession was just starting but if you look at the numbers and compare them to now, they don’t make sense.

At that time gold was $984, oil was $102, and the DOW was sitting at 12,258.90. Today gold is$1057, oil is $77, and the DOW is sitting at 9789.44.   I am sitting on cash earning 0% interest now and waiting to see which way all these investments will go (up, down, or sideways)  and will begin dollar cost averaging into my picks after another sizable correction.

On a side note, interest rates back then were higher and we had a federal deficit that was  $2 trillion smaller.  If you asked me to guess where gold, oil and the stock market would be back then if interest rates fell to 0% and the federal deficit ballooned another 25%, then I would have guessed gold to be at $2,000, oil at $200, and the DOW to be 7,500.  Here we are now and I would be wrong on all 3 counts.