Monday, April 26, 2010
Around the office, we've taken to calling it "the most important trend in the world."
Right now, just about every productive citizen in America is reading newspaper stories about the crazy levels of debt the U.S. is taking on in order to pay for its huge defense complex, "free" health care, bailouts, and mushrooming social programs.
Most of them – even if they don't have a bit of interest in the stock, commodity, or real estate markets – are asking, "Can we really pay for all this stuff? It seems crazy."
Around the office, our answer is: No way, no how can the U.S. government pay for all that. Trying to pay for all that stuff is going to devalue our paper currency and drive up the price of "real money," gold.
This situation – the U.S. government issuing blank checks to everyone eligible to vote (job or IQ optional) – is what we're calling the most important trend in the world. And to monitor this trend, we use a simple tracking system... which we'll update you on today.
We track this trend by watching the price of gold, which represents "real money" that cannot be debased, or plotted alongside U.S. government IOUs (bonds), which are being passed out like beer at a frat party right now.
You see, we think we're right... but we always monitor the market to "test" our thesis. Here's the trend at work:
In the chart, the rising black line displays the percentage change in the price of gold. As Europe and the U.S. blow up their finances, gold gains. It's up about 25% in the past year. The declining blue line is the percentage change in U.S. IOUs (as represented by the big U.S. bond fund TLT). The value of our IOUs can decline just like a crack addict's credit score can. They're down a little over 5% in the past year.
The classic Wall Street definition of a bull market is: "a series of higher highs and higher lows." Bull markets tend to take a few steps forward, then one step back... The same goes for bear markets, only we say these are a series of "lower lows and lower highs."
With these definitions in mind, take another look at the chart. Note those higher highs and higher lows for gold... and the opposite for Uncle Sam's IOUs. It's the most important trend in the world.
If you think that there's such a thing as a free lunch... that the solution to a debt crisis is to take on more debt... and that the tooth fairy exists... you can forget about this trend.
But if you know 2 plus 2 equals 4... and if you know you can't borrow, tax, and spend your way to prosperity... you'll get on the right side of this trend and accumulate gold.
Major oil-services firms surge... Baker Hughes and Schlumberger hit fresh highs.
Timber REITs Plum Creek and Rayonier hit 52-week highs... lumber firm Masco at new highs, too.
Homebuilders gain on new home sales... new highs for D.R. Horton, Pulte, and Lennar.