Jim’s Mailbox

Posted at 5:07 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

I thought the following might be of interest to you:

Best,
Your CIGA, thenose

(Excerpts From Article)

Gold
Its Role within the Modern Investment Strategy
08/94 Princeton Economic Institute
By Martin A. Armstrong

There have been numerous people who have argued that gold is THE hedge against inflation. Many will tout their fancy statistics and point to all sorts of charts in support of their case. Others will argue that gold rises during geopolitical uncertainty and at the first outbreak of war it should be bought. And yet there are still others who claim that gold has LOST its luster and is a throw back to ancient times. In their boasts, they claim that inflation has been vanquished and that gold is no longer needed to stabilize the world monetary system.

In an effort to answer these questions in hope of separating the MYTH from REALITY, it demanded that a very long database be constructed. Looking at gold’s performance over the past 20 or 30 years is simply NOT enough historical perspective to come up with a realistic outcome untainted by subjective theories and biases.

To start, we gathered one of the more consistent time series on inflation – the US Wholesale Price Index. The prices of raw commodities at the producer level have always been a more definitive view of inflation rather than the politically manipulated CPI (Consumer Price Index). Due to the fact that the CPI is used to adjust taxes, real interest rates, social security payments and entitlement increases of all sorts, the formula for the CPI has undergone at least 14 MAJOR revisions since World War II. The last revision of major importance took place back in 1983 when real estate was largely replaced by rents. This revision was significant due to the fact that it accounted for 40% of the total CPI prior to that time. The revision was carried out under the pretense that housing was better reflected by rent than value. Appreciation in housing itself was viewed as an investment – not part of the true cost of living

Conclusion

The illustration of gold’s rise in the face of declining confidence in government is endless. The hoarding of gold was so severe during the Great Depression that Roosevelt ended up outlawing the private ownership of gold and confiscated everything the government could find. Quite a drastic police state tactic. Nevertheless, it did happen here in the United States!

In this brief overview of financial history, one striking common theme arises from the trials and tribulations of man – gold rises NOT as a hedge against mere inflation, but as a hedge against the UNSOUND PRACTICES OF GOVERNMENT and/or POLITICAL UNCERTAINTY. Steady rising inflation DOES NOT act as an underlying support mechanism for gold. Its role within the modern investment strategy is a hedge against political and economic uncertainty. Gold has always risen the MOST when the confidence in the government is at its LOWEST!

More…

Dear Jim,

Concerns about the Swine Flu outbreak turning into a Global Pandemic are escalating. The World Health Organization is already considering whether to issue nonbinding recommendations on travel and trade restrictions, and even border closures.

If this turns into a Pandemic at a time when Pakistan is on the verge of collapse, the global economy is in crisis, and hyperinflation begins to spin out of control, then the Four Horsemen of the Apocalypse will be upon us.

Swine flu fears prompt quarantine plans, pork bans
By FRANK JORDANS, Associated Press Writer Frank Jordans, Associated Press Writer

GENEVA – Canada became the third country to confirm human cases of swine flu Sunday as global health officials considered whether to raise the global pandemic alert level.

Nations from New Zealand to Spain also reported suspected cases and some warned citizens against travel to North America while others planned quarantines, tightened rules on pork imports and tested airline passengers for fevers.

Nova Scotia’s chief public health officer, Dr. Robert Strang, said the east coast Canadian province had confirmed four "very mild" cases of swine flu in students ranging in age from 12 to 17 or 18. All are recovering, he said.

More…

You and the team at JSMineset have done an extraordinary job keeping your readers informed of the long-range implications regarding all of these issues.

May God bless you all and keep you safe.

All the best,
CIGA Black Swan