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Investment Philosophy

Rather than go on endlessly about the subject in essay format (as most 'philosophers' are wont to do), it seems more appropriate and time-saving to put The Monitor's investment philosophy into a bullet style list format.

Here it goes:

Why Call it “Euro vs. Dollar” Monitor?
The euro is the reason gold has been set free from its former dollar-shackles. Not that gold would not have broken free anyway, sooner or later, but the euro made this possible sooner rather than later, and enabled the process to run its course in a more disciplined (i.e., less catastrophic) fashion (so far, at least). The exact mechanism of how this has worked out is described in detail in “Euro vs Dollar - The War on Your Wallet”, one of the two free bonuses reserved for Monitor subscribers.

Worth vs. “Gain”
The Monitor’s investment philosophy is based on true worth, or value, rather than nominal “gains”. It is easy to trap people into salivating over how much money they are going to "make”, but the real issue should always be how much real value an investment adds to your overall plan. “Gains” can evaporate as fast as they came. Value stays.

Long Term vs. Short Term
We always like to look at the long term history of an investment, rather than only its recent performance. A good investment can easily have a dismal-looking recent performance and still be great investment. The best example is the price of gold. From mid-2006 to late August of 2007, gold’s performance looked pretty bleak. A year and a half of going “nowhere” after a dramatic drop in 2006. The long-term picture, however, tells the real story. Despite its “dismal” recent performance, gold had not broken down from its six-year trend, and had not even come close to its lower trend line.

Real vs. Nominal
It’s crucial to look at thinks in real (i.e., inflation-adjusted terms as well, especially when you are looking at long-term trends. For example, although many run-of the mill commentators and financial news distorters (sorry, I meant “reporters) are hammering around on how “expensive” gold has become, it is clear that in real terms gold hasn’t even recovered the 50 percent mark in regaining its 1980 all-time high of $850. Here is the inflation-adjusted picture that many miss - and even it is probably overstating the current real value of gold because of persistent understatements of the official inflation rate.

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Why Gold?
When we refer to “gold” we usually mean precious metals in general. However, among those, gold truly is “King” in our view. It has less industrial use than silver or platinum, and is therefore less susceptible to a breakdown in demand stemming form general economic declines/recessions, or even depressions in my view.

Gold has a “marginal utility” of zero as Prof. Antal Fekete so ably explains. "Marginal utility" essentially is a fancy economist egghead term for the observation that gold’s usefulness per additional unit acquired does not decline as is the case with other commodities.. In other words: old’s highest use-value lies in (a) owning it (as a hedge against inflation, currency depreciation, stock market breakdowns, or what have you), and (b) spending it (in an environment where no taxes are imposed on its appreciation in fiat-terms). It highest value does not lie in its use for other purposes like manufacturing or consumption.

You can probably make better short-term profits from betting on price swings of silver and platinum than on those of gold, but in the long run nothing “pays” better than owning gold.

Fundamentals vs. “Technicals”
This is an outgrowth of our long-term perspective. Technical signals may have meaning in the short term, but are less valuable in the long term. Also, even if employed for short-term analysis, unless they are seen in the larger context of the long-term fundamentals, they can create a very misleading (and costly) picture. I advised someone very close to me to invest in a gold mutual fund back in 1997 and convinced the person to “ride it out” past the 2001 bottom. Had that person sold out in panic at any time before 2003, she would have had to “pocket” serious losses. Currently, the dollar-value of the investment stands at more than three times the original amount. Fundamentals simply did not support a long-term decline, even though the technical signals looked very bad for a good long time.

Bullion vs. Paper
I consider it foolish to bet on paper-gains at the expense of the opportunity to hold the actual metal in close proximity. The paper-game is controlled by others - the financial elites and their political henchmen. They can control (manipulate) the paper-price of the actual metal to some extent, but they never could control its actual value to real people, especially when their own debt-based paper system is cracking at the seams. Playing the paper game is like playing roulette. In the long run, the house wins. Otherwise, there would not be a “house.”

When you play that game, you are going in with that knowledge. You may think that whatever charts and technical signals you have at your disposal will let you beat the system, but that rarely happens and if it does, things often enough turn back against you. If there really was a sure-fire way to beat the system, and if it could be taught, the paper-casino would long be closed now and the person who figured it out would be richer than Warren Buffet - or in prison. To put it in crasser terms, playing the paper-gold game is like shooting yourself in the foot and then beating it with a hammer. We do not recommend it.

Value vs Debt
This ought to be an obvious one, but so many people miss it. Buying into a system where nothing more than debt is posing and circulating as money is financial suicide - especially on a national scale. However, just as time heals all wounds, it also erases a lot of memory chips in our brains. We are creatures of habit. Once we “get used” to something, we accept it, no matter how bad it is in principle. In te process, we always tend to forget that in the process of “getting used” to something was always get used!

Gold is value. It is the ultimate form of payment. Fiat is debt. It is spawned by debt (the other side of the coin representing the “credit” a bank enters on your account when it pretends to loan you money that previously didn’t exist and which the Fed/Treasury then disingenuously counts as part of the “money supply.”)

Other Investments
Even though we consider PM stocks to be derivatives of metals, we do analyze PM mutual funds and make recommendations, at times. This is not a major part of the Monitor’s suggested investment strategy, though. We occasionally discuss other investments as well, but we do not regularly keep track of their performance.

If you have any questions about or comments on these fundamental principles, please feel free to email me.

Got Gold?

Alex Wallenwein
Editor, Publisher
The EURO VS DOLLAR MONITOR
Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

November 27, 2007

Heed the Thinker