02/02/10 - How to Talk to a Nincompoop
My Grandmother’s favorite word for politely describing the obtuse among us aptly characterizes a recent attack on gold. And that it comes from an investment magazine that commands front-of-the-rack prominence in waiting rooms across our great land is reassuring evidence we have a long way to go in this gold bull market.
Money magazine’s January/February edition ran an article near the rear of the issue titled, “Coming Down with Gold Fever.” The author paints a decidedly negative picture of gold, going so far as to compare gold’s rise to some of history’s greatest asset bubbles (tulips in the 1630s, Internet stocks in the 1990s). The article is so blatantly biased and inaccurate that I decided to have a little fun with my rebuttal.
Regular readers know I affectionately refer to the gold debunkers as “Bert.” You judge if this author is worthy. What follows are the article’s claims, along with my advice on How to Talk to a Nincompoop (HTTTAN)...
“Gold is now the world’s ‘it’ investment.”
HTTTAN: You’re absolutely right! A few cable TV commercials clearly signal the world has latched on to gold and is dizzy with excitement. The bestsellers at my local bookshop all scream with titles about gold. The radio waves are sparking with talk about buying, storing, testing, and securing all the different options with gold. And all those live newscasts from the lines outside gold shops across the country are really getting old.
?If gold were in a mania, it would resemble the dotcom craze of 2000, where companies with no profits traded at 400 times earnings; when investors were leaving their brokers to chase the latest tech stock; and where everybody and their brother’s dog was talking about the hot technology stock they just doubled their money on. None of that is happening now.
Besides, there’s a good reason investors have been buying gold: it outperformed most other investments last year.
And gold stocks tripled the performance of the Dow, more than doubled that of the S&P, and outran the Nasdaq.
“The price of gold is the only thing rising... gas costs less than it did a year ago.”
HTTTAN: Well, my blood pressure rose when I read your article – does that count? And whew, I’m glad I misread my DirecTV bill announcing higher monthly charges. Higher fees from my bank? Must’ve had my glasses off while checking my last statement. So, are you suggesting we wait till there’s rampant inflation before we buy gold?
?To start, the national average gasoline price rose from $1.70 to $2.70 a gallon over the past year, a 58% increase. The data disproving this blatantly inaccurate and misleading claim is available free on the Internet. If you want to talk about things rising, how about the monetary base that more than doubled over the past 18 months to nearly $2 trillion, the steepest increase ever.
When you think of inflation, you apparently think “higher prices.” News flash: price inflation stems from monetary inflation, and monetary inflation has ballooned. Price inflation is a tidal wave building off the coast. Don’t get caught sipping piña coladas on the beach.
And you’re right: gold is the only thing that’s been rising over the past decade! Ergo, that’s been the place to be with a meaningful portion of one’s investments.
Gold is doing what it’s supposed to do: rise in times of crisis!
