Daily Round-up: Friday, September 10, 2010

Hello again

Not as much to talk about today.  Perhaps the most significant news of the day was the word that Canada’s unemployment rate went up to 8.1%, despite actually adding jobs.  The story at the Globe is aptly titled, “Job creation tepid in lacklustre economy“.  Basically the economy added a total of 36,000 jobs.  Good news!  But the gain was entirely the result of public sector hiring as the private sector shed 32,000 jobs.  Bad news!  You can’t have everyone work for the public sector.  Well, you could, but it’s called communism.  Don’t expect this number to get much better in the coming months.  There may be noise around the trend, but the trend will be clear:  Job losses, negative growth, Canada in recession by Q3 2011.

The Globe also carried this tongue-in-cheek piece: 9 ways that gold is a religion masquerading as an asset class.  I’m not a crazy gold bug, but I absolutely believe that everyone should own physical gold or an appropriate proxy (CEF.A-T, PHYS-T) as a part of their portfolio.  My position on gold is that it is in a secular bull market that has lots upward movement left to it.  Gold is unique in that it either trades as a currency or a commodity depending on the psychology of the times.  I believe it is currently trading as a currency, evidenced by its increasing decoupling with the US dollar.  I believe this will continue until balance sheets are restored at the sovereign level.  People are anxious about sovereign debt levels and rightfully so.

There are many reasons that I am bullish on gold:

-Central bankers have become net buyers of gold for the first time in several decades.  They have DEEP pockets.

-I completely reject the notion that it is in a bubble.  Ask your co-workers how many of them own gold.  It’s pretty hard to have a bubble without widespread public participation.  It will reach bubble territory, but you’ll know that when every where you turn people who have no business advising you on financial matters are suddenly encouraging you to buy gold.  Mass psychology.  As an aside, try asking the same thing about real estate.  And how many times have people who have no clue about the world of finance encouraged you to buy real estate?  Exactly.  I digress.

-Total global gold production has seemingly reached its peak and is now declining at the same time that .

You may be wondering about how a call to own gold fits in with a deflationary outlook.  Well let me first of all say that I think it is wise to hold 10-20% of your total portfolio in gold.  It will hold its purchasing power relative to other assets in a deflationary environment.  More importantly, since it currently trades as a currency, it will see great strength when deflation wreaks havoc on government tax revenues, making their debt burdens more onerous and raising the likelihood of default.  It’s then that gold will really shine.  So, hold a bit of gold, a bunch of conservative income-producing liquid assets, and some cash.

Don’t be one of those bunker bunnies waiting for the end of the world.  But also don’t be like the knuckleheads who wrote the above article.

Cheers

B

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