Poor Richard’s Report
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My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institution clients.
A CASE FOR GOLD
Hi:
I have been trying to write this market letter for over a week now. My problem is that I want to keep it simple and right to the point without causing a panic or looking foolish. Tough Job!
So here goes my fourth and hopefully my last try.
We have been experimenting with fiat currency since August 15, 1971 when President Nixon took us off the gold standard. This allowed politicians and financiers to create all sorts of funds without any solid backing except the US Dollar. So, four decades later the world economies are awash in dollar debts that have become tainted to say the least. We are in a horse race that has come up lame. The problem is that some of the other thoroughbreds play by their own rules.
The major players have suffered huge losses that they have not been accustomed to for a very long time. It is the major players that carry monstrous debt and it has trickled down to you and me. The whole world is tapped out as far as standing in a banking line for credit.
Cadbury (The British Chocolate Company) came to the bond market the same time the British government did. Cadbury got the better rate. Microsoft (NASDAQ –MSFT) will probably do better than the US Government Bond offerings since MSFT is a true AAA rated security. When corporations can borrow money at a cheaper rate than their governments something is very wrong.
We are in a worldwide recession, which means business is slow and unemployment is rising. This also means people’s spending habits are changing.
We are in, I believe, a topping out process of a major bear market rally. The second leg down could bring blood in the streets. It could start as a major corporation fails to pay its interest on a semi annual debt payment. When business slows down this could hurt their debt coverage and put it in jeopardy because their interest payments estimates might have been based upon higher sales and earnings.
There are as few as five corporations that have debt rated AAA (Highest, or best rating). This fact means that with a slow economy, many corporations will not be able to pay their debt payments. Wall Street watches dividends, I watch bonds. Bonds come first, then Preferred stock followed by common stock. Bonds are considered safer than common stocks, so when a bond defaults it could send shock waves throughout the world.
This could cause a collapse of stocks as mutual funds will just sell- hit the bid- and currencies falter and precious metals rise. Especially gold.
I have noticed that when the dollar weakens gold rises. I believe that central bankers sell our debt and then convert our dollars into gold bullion.
Going back to some form of the gold standard will put a break on government spending by any government. Too much spending will make that currency worthless. Either way it is a tough choice.
UBS (a Swiss Bank) estimates that if the US went back on the gold standard, gold would go to $6,000 an ounce. Add in China and Japan and we are looking at $9,000 and ounce. Gold is presently selling at a little under $900.
We can buy the Spider Gold Trust (NYSE-GLD-$90) that trades at 1/10 the price of gold. It trades dollar for dollar with the price of regular gold. If gold trades down GLD will trade down. If gold trades up the GLD will trade up. All you pay is NYSE commission. No fancy management fees and all that garbage. You can sell anytime and receive a check in three days after the sale. This can be your personal hedge. You do not need a lot of money for personal protection. Buying too much would be a speculation, which could sink you, if it happens. There are no sure things in this world, as we sure are learning now, so don’t be foolish.
If you have any problems, please do not hesitate to get in touch with me.
Richard C De Graff
256 Ashford Road
RER Eastford Ct 06242
860-522-7171 Main Office
800-821-6665 Watts
860-315-7413 Home/Office
rdegraff@coburnfinancial.com
This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.