I love writing articles like this one. I haven’t spent much time writing lately because I have not had much new to say; all that is changing.

For months I have sat back and absorbed the writings of other people. I get a charge out of what I read. I just love how some people “sing in the car” one day and are being “flushed down the toilet” the next. To me these people are missing the big picture!

Investing in the precious metals and natural resources is not that complicated. In fact, at this point in time, it is a “no brainier.” Why do I say it is a “no brainier?” Simple, there is no other place an investor can place his or her money and not get “creamed” with the coming events.

Rising interest rates, in my opinion, change all the “accepted” norms, standards, givens and fundamentals that the investment world has accepted as a way of life for the last twenty-plus years.

It is a fact of life, as interest rates rise, that the rules of the game will change. Not only will they change but they will not change for the better. An example of this is the refinancing game. There is no doubt in my mind that the games that gave the world ridiculously low interest rates created the greatest housing and real estate bubble that this world has ever seen. Rising interest rates will change this game for decades to come. The funny part to this is the fact that those playing the game refuse to accept the future and read the writing on the wall.

Instead of putting their “financial ship” in order they have created new and more devastating “financial weapons of mass destruction!” With The introduction of adjustable rate mortgages, interest only mortgages, the forty year mortgage and let’s not forget to mention the games associated with no down payments, the risks associated with investments in the housing and real estate market have never been greater. These financial institutions and real estate investors are “selling their souls” to prolong the greatest bubble since the tech bubble. You would think that after the tech bubble they would learn?

Couple this market with the “carry trade game” and the coming “derivative debacle” and you will see the financial system of the world tested in a manner that even the genius of Larry Kudlow will not be able to explain away.

Interest rates are rising because rising rates are the “bait” to draw the rats to the trap. The US has entered a period where it will issue more worth less paper and debt than anytime in our history. Rather than deal with the inevitable fact that individuals and countries cannot “borrow their way to prosperity” our elected officials will choose to hyper-inflate.

Personally I am truly amazed of all the buying in the long term bonds over the last few years. I see foreign countries printing their worth less currencies to buy our “little less worthless currency” and it is all a game. They know their paper is going down so they figure they will buy ours because, at this point in time, it is accepted as the world’s reserve currency. They figure that our currency, even though it is falling, will carry more weight than theirs when the crunch time comes. Unfortunately, they are all wrong, as all debtor currencies will fall at the same time, when push comes to shove.

What I have never been able to understand is why these entities, with the ability to create paper out of thin air, create their paper to buy someone else’s worthless paper? I believe the day will come when one of these entities will figure out the fact that they can create worthless paper, at an inflated value to what its future price will be, and accumulate as much gold as they can to fill their “empty vaults?” Fill their vaults with true wealth and down the road redeem their paper, used to buy true wealth, at a fraction of what the cost was to issue that paper in the first place. Not only will the paper be redeemed at a fraction of its issued cost but the gold that has been purchased will now be worth multiples over the purchase cost. This seems to me to be a program that any government could implement that would return a profit; something governments know very little about.

The funny thing about gold is the fact that you always read about those entities who say they want to sell their gold but you never read about the entities that are buying the gold. I find it very difficult to understand how the world thinks that because someone wants to sell gold that this is bearish for the price of gold? This is utter nonsense as it is a fact that every ounce of gold that has ever come to market has been bought by some willing and unnamed buyer. Not only has this gold been purchased but there are investors standing in line to purchase this gold for sale, in numbers of at least 2-3 X the volume of gold that is being sold. Never do we read who the buyers of this gold are.

As I have said before, I believe this gold is being accumulated by those who have the influence over those who make the decisions to sell, or give away, the “piggy bank.” I believe this gold has been sold to bail out certain parties who are heavily short with no chance of covering in the open market. I also believe that intelligent parties, like the Rothschild’s, China, the cash rich oil producing nations and true wealth of the world, like Gates and Buffett have been accumulating gold and silver because they know that the future will not bode well for the debtor countries of the world and traditional investments.

I will never understand why an entity, entrusted with the safekeeping of a nation’s true wealth, would loan that wealth out for the meager return of 1%. Although this does make perfect sense if they are loaning it to themselves and using the sale of gold to depress the price and line their own pockets through the carry trade game.

For those of you who feel the traditional stock market is the place to be, I suggest you pay attention to the unfolding stories in companies like GM and Fannie Mae. Both these companies have very severe financial problems that cannot be overlooked.

GM is a company that believes it is a government. It has more debt than most countries; the legacy cost that they are saddled with does not have a happy ending and they owe billions more to their under funded pension plan. GM is not alone in this mess as more than half of the companies that make up the S&P 500 have under funded pension plans. What do you think the true earnings of these corporations would be if they were forced to pay the true burden of their problems? No question that their earnings are overstated and consequently their stock prices. As their stock prices fall their pension woes can only worsen.

Lastly, I want to mention the derivative and the carry trade games that have been abused for years. Hedge funds and corporations that have borrowed money short term and loaned it out for the long term are in for some very nasty surprises. I believe these long term loans will eventually be underwater with much higher short term borrowing costs. They call this the “carry trade” and they are right as it will “carry them” right to the grave.

I feel that interest rates will rise to levels these players cannot even begin to comprehend. They have no fear or respect for the risk they are assuming in the games they play. All these people pattern their investments philosophies on the theory of technical analysis. I feel that they believe they are the ones who have the right to write the rules and establish the parameters of their game. I think that the era we are about to enter is an extension of the seventies and early eighties. If I am correct then anyone who owns long term bonds had better hope the income is adequate to meet their living expenses as they will not want to sell their bonds before maturity as they will incur big losses. I think the time will come where the uncertainty of long term interest rates will make long term bond investments a risky proposition.

I could carry on a long time about the problems that traditional investments have in front of them. Problems they will be forced to face in the future. I do not know the time frame in which “Humpty Dumpty” will fall off the wall and shatter all these bubbles but I do feel that September and October of 2005 will not be reminiscent of the “good ole days.”

The timing is always the tough part. Bull markets and bear markets always tend to last longer than most intelligent investors think because it is the actions of the less intelligent investor that they do not take into consideration. These are the same people who made fun of Warren Buffett and called him a “has been” for not participating in their “tech party” when Buffett was being polite by not taking the time to explain to them how stupid they were for investing their money in companies with multi billion dollar market caps. and very little in sales, let alone profits. These less informed people always create market moves that go to extremes. They will do it for us in the precious metals markets when the time comes.

Not only will they do it for us in the precious metals market but they will insure you and I that the mistakes we will make will not be the mistakes of being invested in the precious metals but by taking our profits too early as these people will still have plenty of money, greed, fear and buying power to throw away, again, before the stocks that we own hit their highs. If I could sell my positions out within 20% of their highs I would be a very happy man. If you think the tech stock and real estate bubbles were something; just wait until the precious metals bubble unfolds. Fear is a much greater motivator than greed!

So what is the “sweet spot?” My definition of the “sweet spot” is the time frame between the long term moves in a market that enable investors to load up on opportunities they did not properly take advantage of in the past. Companies whose drilling programs have increased the value of the underlying company but is not reflected in the current price of the stock.

In golf and baseball, the sweet spot is the best place on a club or bat to hit the ball. For those of you who play golf or have played baseball you know what the sweet spot is. You know when you hit the spot as the ball seems to explode off the club or bat.

Many gold and silver stocks have fallen to levels that are disgustingly cheap. Many of these stocks have no volume and big spreads. These stocks have camped out at such cheap levels for so long they should be sent a bill for rent. This is what I refer to as the “sweet spot.” Companies whose stock prices will move sharply higher when the volume does come back into the underlying issues. I view stocks of this nature as bargains. I believe it is inevitable that the next major move in gold is up and any short term weakness just creates greater buying opportunity. The fact that many of these companies have been sold off and that gold has temporarily succumbed to the games that get played, in holding the price in check; tells me that the next move is up.

I do not have a problem with games being played to suppress the price of gold; after all anyone who owns an asset has the right to sell it at any given point in time. I do have a real problem with the misinformation that is allowed to circulate about the quantity of gold that these entities say they have. I believe nothing short of full disclosure should be demanded from these entities in reporting the true amount of gold in the vaults and who the rightful owners of that gold are.

One day the buyers of gold and silver will take delivery of their purchases. It is at that point in time all the games come to an end as there will not be sufficient quantities of gold to deliver to the buyers and the truth will come out. It will also signal the end of the availability to purchase gold and silver by the investing public. I believe all the games being played by the “powers that be” will change and they will go from being sellers of gold to buyers of gold. It is at this point in time that we will make the biggest investment mistakes of our lives as we will take our profits way too early.

So you see it is a no brainier to buy at these levels; the tough part is to know when to take the long term profits!

© 2005 Mike Hoy
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