A shocking statistic was brought to my attention the other day. Maybe it will shock you as well. It's been 235 years since America declared its independence. In just the last 3 years more than one-third of our debt has accumulated. I thought it would be interesting to see how the markets fared while debt was skyrocketing.
At the close yesterday, the S&P was down 6.7% over the last three years. The Dow was down 4.2% and the NASDAQ was up 12.2%. All have risen off significant lows reached in March of 2009, but is it enough to declare recovery?
Real Estate is another matter. While it appeared we had hit bottom and started a recovery, this week's release of the Case - Shiller index report, showed housing prices beginning, what looks like, a double dip. With record foreclosures in 2010 of 2.9 million and even more expected in 2011, we may be looking for a new bottom in house prices this year.
That brings us to gold. From January 2008, our debt has risen 53%, while gold prices have climbed 64%. With even more debt piling on by the minute, one has to wonder what's in store for the next 3 years.
Ironically, it was debt that burst the stock bubble, the real estate bubble and the economy. Since then - well - you can see what more debt has done. In my opinion, it's financial insanity to believe that creating more debt will somehow produce a different result. It seems no rational person believes it will, yet we keep borrowing from our future. It's like trying to bail out a sunken ship except for one difference. The sunken ship can't sink any lower.
Analysts point to many factors that indicate much higher gold prices to come. Rising debt is just one of many but a good one. At least you can see it coming and react to it. If this isn't a case for diversification into precious metals, I don't know what is. Throughout history gold has been an effective store of wealth. I will submit, few people ever pointed to gold ownership as the cause of their financial demise. Rather the contrary is more likely. I suspect there are more people who came to regret selling it than there are people who regret owning it. A notorious case in point being Chancellor Gordon Brown's sale of Britain's gold at rock bottom prices.
That said, let me leave you with something to ponder. Let's say you put 20% of your assets into gold right now. Spot gold is $1404 an ounce as I write. Then let's say, by some magical act, you were given the ability to snap your fingers and revert the entire global economy back to 2006 levels, a time before the crisis hit. I think most would agree they were in better financial condition back then, than they are now. Keep in mind, your share of the increased national debt over the period since, is $15,000 per person in your household and rising. There's one proviso though. You can't sell your gold before you snap your fingers. You just bought it at $1404 an ounce and once you snap your fingers your gold is only worth $600.
Would you still snap your fingers?
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