Good Morning All
I am a big Bill Fleckenstein fan and I thought his most recent post was very insightful.
Bill recently attended a conference in NYC where the best and the brightest shared their world views on the economy.
The biggest star at the conference was legendary hedge fund manager John Paulson. IMO, this guy is the smartest guy on Wall St. He made billions betting against the subprime market in 2007.
The returns in his fund are simply breathtaking year after year. According to Bill, Mr. Paulson had some very bullish comments around gold:
"Paulson holds court I don't think I would shock anyone if I said that the day's headliner at the conference was Paulson (though the other speakers were equally fascinating to me). Everyone wants to know what he thinks because he made so much money on the subprime collapse. But it should be noted that he puts his pants on one leg at a time, too, and thus can be wrong like the rest of us.
After all, he wasn't that much more right about what was liable to happen than a handful of others, such as Grant and my friend I often refer to here as the Lord of the Dark Matter (who's quoted, for example, in "The trouble with techs right now" and "Will economy's green shoots wither?").
However, what Paulson did was to take his views and express them brilliantly,which may also have been a function of just how well he understood the situation. Thus, given Paulson's recent track record, those who have a bullish viewpoint on gold naturally want to know what he thinks.
In short, he believes that money printing by the government will ultimately lead to a good deal of inflation.
Parenthetically, while deflationary chatter certainly has the headlines and the upper hand regarding folks' opinions in the short run, I see quite a body of sharp investment minds coming to the conclusion that in a social democracy with a fiat currency, essentially all roads lead to inflation.
In any case, Paulson is convinced that gold will be a very good way to protect himself from the eventuality of currency debasement (i.e., inflation). He observed that if one thinks about gold in a three- or five-year time horizon (instead of hour to hour, day to day or week to week), the probability increases of gold being higher over time -- and, most likely, much higher.
I had not thought about gold from that point of view, but that is exactly right. Consequently, if folks have positions that are reasonably sized, it makes volatility -- especially when it's downward, as was the case last week -- much easier to accept. "
The Bottom Line
Food for thought. It appears that the things we own(housing, cars etc.) are dropping in value while things that we need(fuel, food) are becoming increasingly more expensive. This makes the inflation/deflation argument a tough sell for both sides.
This is hardly the recipe for a strong economic recovery. Let's not forget that we will also eventually be forced to deal with our soaring budget deficit. In short, this means much higher taxes for everyone. The politicians are lying when they say they will only tax the rich.
If we see the healthcare reform bill pass I predict the tax rate in this country will be 50%. Canada's tax rate is 51% in order to pay for this. Take a look at any of the westernized countries that have national healthcare and you will see a similar tax rate.
I advise everyone to read Bill's article. The mood at the conference he attended which included the best and the brightest was extremely bearish. My contacts on the street have been telling me the same thing.
Be careful with your money folks. Please diversify your nest egg in order to protect yourself from the nasty storm we are about to sail into.