Client Update — September 30, 2009

 

The New Gold Rush!

California was the home of the original gold rush in 1849 and Wall Street is now the cause for the new gold rush in 2009.The first rush was fueled by greed after the discovery of gold, providing opportunity to improve one’s lot in life.This new gold rush is being fueled by fear that our lot in life will diminish unless we own gold.This fear is rooted in the hundreds of billions of dollars being printed by our treasury and thereby putting our currency at risk.

How did we get into this mess?Contrary to media reports, capitalism has not failed us.No other political/economic system has ever produced so much freedom and opportunity while improving the standard of living for so many people.The terrible economic crisis that hit us in 2008 has crippled the reputation of capitalism, even though the crisis was caused by our government’s actions.We all know that printing too much money is not a good thing, but our government did it anyway starting at Y2K with concerns about our economy and the new century.This led to the tech stock boom, and during the subsequent bust our government created even more money to save us again.This led to the housing boom (the money has to go somewhere!), and now we’ve just gone through our second bust this decade.How has our government decided to fix this one?By giving the addict more drugs!

History does not repeat itself, but it rhymes.Had the Federal Reserve not created so much money and kept interest rates so low twice this decade, this current crisis would not have been able to develop.All that money needed a home, and it eventually found one in home prices.For capitalism, this is merely the failure to handle all the money that government recklessly created.The three largest economic disasters—the 1930’s Great Depression, the 1970’s Great Inflation, and the 2000’s Great Recession—were all caused by government economic policy mistakes, but played out in the capital markets, and thus capitalism undeservedly received the media’s blame and the public’s scorn.

All of this begs the question, what works well in a world of falling dollar value and uncertain economic times?First and foremost is protection in the form of assets that should retain their value and even profit in this environment: foreign government bonds, commodities such as gold along with other natural resources, and higher growth areas like technology.Areas that may seem safe but could lose value include US treasuries and utilities. Second is vigilance.Most advisors won’t admit it, but the days of buy and hold are over.As we’ve always done for you, we will constantly watch over your portfolios, making strategic changes in investments as conditions warrant.Opportunities present themselves every day, but so do threats.It is just as irrational to believe that every investment opportunity is bad, as it is impractical to think that there is not risk in them.

We will continue to find investments where we can reasonably assess the risks in this dynamic and ever changing environment.Please call if you have any questions about your portfolio.

 

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