Investment Newsletter - A Trip To Mt. Perelin: Well Not Exactly

It pays to remain as objective as you can be when analyzing any investment. People have a tendency to fall in love with an asset class, usually because it’s treated them so well.
By: Fitzroy Mclean
 
April 26, 2011 - PRLog -- Monday afternoon Doug Casey and I went to Mt. Perelin Society meeting in Buenos Aries. Well that is not exactly accurate. We set out to go to the meeting. We got as far as the hotel where the meeting was being held. We had good intentions. Nobel Prize (not that we put much stock in that laughing stock of an organization) winner Mario Vargos Llosa was scheduled to speak.

He is a rarity in Latin America; a champion of free markets and individualism so it was worth the ride across town. Somehow, our ¨quick bite before the meeting¨ turned into a really good lunch with an even better bottle of wine followed by a trip to Prado y Neptuno and we missed the formal presentation. As always, our conversation covered a broad range of topics but it was Doug´s take on the recent movement in gold that remains foremost in my mind.

Doug recently wrote about his take on gold now that it has crossed over US$ 1500 and I thought his take was worthy of as wide a distribution as possible. Please forward this on to your friends who are wondering where gold might go next. Better yet, send it to your friends who have never even thought about gold as an asset to protect them from the catastrophic loss of purchasing power of the US dollar and the Euro which we at Without Borders believe is in the very early stages. Here are Doug´s insights:

Once and Future Money

A meme is now circulating that gold is in a bubble and that it’s time for the wise investor to sell. To me, that’s a ridiculous notion. Certainly a premature one.

It pays to remain as objective as you can be when analyzing any investment. People have a tendency to fall in love with an asset class, usually because it’s treated them so well. We saw that happen, most recently, with Internet stocks in the late ‘90s and houses up to 2007. Investment bubbles are driven primarily by emotion, although there’s always some rationale for the emotion to latch on to. Perversely, when it comes to investing, reason is recruited mainly to provide cover for passion and preconception.

In the same way, people tend to hate certain investments unreasonably, usually at the bottom of a bear market, after they’ve lost a lot of money and thinking about the asset means reliving the pain and loss. Love-and-hate cycles occur for all investment classes.

But there’s only one investment I can think of that many people either love or hate reflexively, almost without regard to market performance: gold. And, to a lesser degree, silver. It’s strange that these two metals provoke such powerful psychological reactions – especially among people who dislike them. Nobody has an instinctive hatred of iron, copper, aluminum or cobalt. The reason, of course, is that the main use of gold has always been as money. And people have strong feelings about money. Let’s spend a moment looking at how gold’s fundamentals fit in with the psychology of the current market.

What Gold Is – And Why It’s Hated

Let me first disclose that I’ve always been favorably inclined toward gold, simply because I think money is a good thing. Not everyone feels that way, however. Some, with a Platonic view, think that money and commercial activity in general are degrading and beneath the “better” sort of people – although they’re a little hazy about how mankind rose above the level of living hand-to-mouth, grubbing for roots and berries. Some think it’s “the root of all evil,” a view that reflects a certain attitude toward the material world in general. Some (who have actually read St. Paul) think it’s just the love of money that’s the root of all evil. Some others see the utility of money but think it should be controlled somehow – as if only the proper authorities knew how to manage the dangerous substance.

From an economic viewpoint, however, money is just a medium of exchange and a store of value. Efforts to turn it into a political football invariably are a sign of a hidden agenda or perhaps a psychological aberration. But, that said, money does have a moral as well as an economic significance. And it’s important to get that out in the open and have it understood. My view is that money is a high moral good. It represents all the good things you hope to have, do and provide in the future. In a manner of speaking, it’s distilled life. That’s why it’s important to have a sound money, one that isn’t subject to political manipulation.

Over the centuries many things have been used as money, prominently including cows, salt and seashells. Aristotle thought about this in the 4th century BCE and arrived at the five characteristics of a good money:

• It should be durable (which is why, say, wheat isn’t a good money – it rots).
• It should be divisible (which is why artwork isn’t a good money – you can’t cut up the Mona Lisa for change).
• It should be convenient (which is why lead isn’t a good money – it just takes too much to be of value).
• It should be consistent (which is one reason why land can’t be money – each piece is different).
• And it should have value in itself (which is why paper money leads to trouble).

Of the 92 naturally occurring elements, gold has proved the best money. It’s not magic or superstition, any more than it is for iron to be best for building bridges and aluminum for building airplanes.

To continue reading this article please visit Without Borders and see 'Blog' and 'A Trip To Mt. Perelin: Well Not Exactly'

Editors note: If you are interested in learning more from Doug and the rest of the editorial staff at the Casey Report, you can sign up for a risk free trial subscription. There is no other publication we read every month on the day it is published. In fact, much of what I used to read regularly has become superfluous because The Casey Report does such an excellent job of highlighting and distilling the most important economic topics as they unfold. It really is a must read.

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Without Borders, is the monthly newsletter that gives you exclusive access to actionable intelligence on the very best places in the world for you to invest… and enjoy your time http://www.wbinvestmentnewsletter.com
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Source:Fitzroy Mclean
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