Should you do like Jim Rogers and sell your house in order to buy yuan? Or sell all your dollar investments in order to buy the euro...or gold?
Well, maybe...
Our guess is that the dollar has further to go...down. And gold has further to go...up. "Unless there's some new Paul Volcker waiting in the wings," said old friend Marty Weiss over dinner last night, "it's hard to see what could save the dollar."
"Is there some new Paul Volcker warming up somewhere?" we asked rhetorically.
"No..."
Volcker saved the US dollar in the early '80s...by putting up interest rates and tightening credit. He barely got away with it then. Now, it would be impossible. Even with the Fed's current 'open bar' policy, a lot of people are drying out, sobering up, and getting cranky.
"A wave of foreclosures and evictions is about to sweep the United States in the wake of the subprime mortgage lending crisis," says the BBC .
"This could destabilise the US housing market and may also lead to further turmoil in financial institutions, which collectively own US$1 trillion worth of subprime debt."
The BBC sent one of its reporters to Cleveland – poor guy. It's the "subprime capital of the United States," the report continues, with 10% of the houses empty...and whole neighbourhoods "blighted by foreclosed, vandalised and boarded-up homes."
"There have already been 1.7 million foreclosure proceedings in the US in the first eight months of 2007, and up to 2 million families are expected to lose their homes over the next two years, according to estimates by the US Congress's Joint Economic Committee.
"Many of these mortgages were sold by unscrupulous and little regulated mortgage brokers, who received handsome commissions for selling expensive and unsuitable products."
No, dear reader, there is no Paul Volcker ready to protect the dollar. And no, there is probably nothing to stop the price of gold from going over US$1,000 – except perhaps a depression.
The best advice is probably the same advice we gave at the beginning of the decade: Sell the Dow/buy gold .
Is it too late?
No, we don't think so.
Two things make us think the gold bull market has much further to go.
First, the public is not really in it yet. They're hearing about it now. They've been asking questions, but they haven't bought in. Taxi drivers are not yet giving tips on what mining stock to buy. Coin sellers are not yet reporting shortages. The price of gold is not yet front-page news. When these things happen, you'll know it is time to move on. But we're not there yet.
Second, the old gold bugs are a fearful bunch. They remember the last time gold rose to US$800. It makes them twitch and fret to think about it. They suffered for the following 20 years. They don't want to live through that again. If they bought at the last peak, after 27 years, they're finally back to break even. Many will want to get off this train before it goes into the tunnel again. They say bull markets climb a wall of worry. There are still plenty of worrywarts in the gold market...and plenty of places for gold to get a foothold as it climbs up.
Predicting a US$1,000 price for gold seems modest...
In fact, we don't even think US$2,000 is all that outrageous...
But when they start calling for US$10,000...it will probably be time to reconsider.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Alan on 8 November 2007:
Trichet is one candidate.P.S.Can you make the sums easy ones?
Comment by Michal on 8 November 2007:
"If they bought at the last peak, after 27 years, they’re finally back to break even"
It's interesting that when gold bugs talk down the dollar they always say how much its lost due to inflation. They'll also mention how false the inflation figures are as inflation is always much higher than officially reported by the government.
But the above statement that gold bugs who bought gold in 1980 at $800 have just broken even is ludicrous. In nominal terms yes, but in real terms gold would have to rise to well over $2000 before they would break even due to inflation. Anyone who bought gold at any time during the 1980s and most of the 1990s is still sitting on a large loss.
Comment by Shim marom on 16 November 2007:
If gold is such a great bargain, why are prices dropping now?