Alvaro On Gold Advice

On Feb 13, 2009, at 5:20 AM, Alvaro wrote:

Estimado John, I was reading a posting of yours from June 2005 :

"You could also take your equity and hedge the house with gold coins... if the housing bubble busts gold very well may shoot up (assuming this is the last asset class to bubble in this series).
Remember, the bottom of a market is not low prices, but "no buyers." During the depression 20,000 properties were on offer along the French Riviera. There were no buyers"

If the guy followed your advice, he currently has a bundle!.

***Alvaro, thanks for your note... I should make clear I am not a financial advisor, and it is not really "my" advice. One of the benefits of being self employed is you are connected to a wide group of other self-employed people, who tend to be skeptical of the official advice. Gold would have never occurred to me unless I was working with and listening to people far more experienced and wise than I. Yes, if someone took the advice, he would have a bundle now. And if I was wrong, he would be busted. The best advice going right now from my point of view is mish shedlock at

http://globaleconomicanalysis.blogspot.com/

and anything by Dr. Gary North at http://www.lewrockwell.com/ Right now they seem to disagree on a fundamental point, but that is even better, because you can weight the facts for yourself...***

So what should he do now?

***And my best advice is always start your own company.***

I have two sovereigns and a small mexican gold coin. Not much left for saving, believe me. We do save nevertheless, and dollars _look_ attractive if only because our uruguayan peso depreciates faster. However, given the high price of buying gold coins from dealers (relative to the gold price) I have my doubts.

***Right, I learned that there is so little trade relatively speaking at retail it is very possible for them to run out of stock, which jacks local prices up, both buying and selling. But I would be afraid of any currency at all at any time, unless you plan to get rid of it pretty quickly. The USA is able and ready to introduce a complete new currency at any time, requiring you exchange old currency for new. If so, you may find as a practical matter your dollars are worthless.

Gold has problems too. If Gold shoots up to $4000 an ounce, as I have been convinced it will within the next couple of years, then your coins will be quite valuable. But when you visit the coin dealer, he will say "no tiengo mas dinero." When gold hit $1000 a year or so ago, the coin dealers , who have bank lines of credit with which to buy gold, used up their lines and could not buy any more gold. So, if gold does shoot up, be prepared to trade the gold for something you want and need (a fishing boat) and get a receipt of sale noting you paid in gold.***

Also, I now will have to borrow some dollars to build an extra room for my house. I think inflation will drive the net weight of debt down, but it will also erode my salary.

***I do not know how it is in Uruguay, but we have built enough for 100 years in USA. I would build nothing right now, and rent what I needed, and certainly not borrow anything. Yes, inflation should drive the burden of debt down, but as you say if it drives wages down then you have no advantage, and inflation may come much later than you expect, hurting you slowly. Right now I would borrow nothing and start a business, any business... something you love.***

So I am writing you to ask for your opinion. I hope I don't come across as too daring ("atrevido" is the word here) given that we only exchanged a couple of emails.

***In English we say "forward" as in he came across very forward... daring is usually with acts, not relationships... and don't worry, I learned a new word today, atrevido, so it is very much worth it to me.***

Best regards and thanks in advance for your answer,
Álvaro

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