I am bearish on Gold and Silver – GET OUT!!

I have been bullish on gold/silver now for many years. Starting in early 2005, I started to buy gold and precious metal stocks including juniors.

I have remained consistently bullish on gold/silver and never wavered … until now. Today, I officially am a bear on gold/silver. I have to agree with Roubini that Gold is a barbaric relics and price will soon crash. He has good credibility as he correctly predicted the sub prime crisis and is a professor of the prestigious Stern School of Business at New York University.

There is nothing really special about gold and silver. You can’t eat it. You can’t even go to the store and buy anything with it. I cannot imagine why we go back in civilization and back to bartering with gold and silver. This is the era of paper currency where central banks can control crisis through monetary supply via the printing press. Central bankers are very well connected globally and thus a crisis like the Great Depression will never recur again. It is soundly based on the theory from a famous economist John Maynard Keynes who solved the problem of the Great Depression through interventionist economic policy to mitigate the adverse effects of a crisis.

We owe a lot to Bernanke, Greenspan, Paulson and Geithner did an amazing job at solving the financial crisis of 2008. We should be very thankful to these maestros who managed to get us out an economy spirally out of control and to the point of no return. We salute them. Bernanke deserves to be Times man of the year and Greenspan was rightly knighted by the British Empire in 2002.

They exhibited rare vision, brilliance and courage to take actions contrary to logic by solving a debt crisis with more debt or like giving heroin to a marijuana addicts. Actually it works! It took courage from Paulson and Geithner to bailout “too-big-to-fail” corporations like Citigroup, GE, GM, Bank of America, Fannie Mae, Freddie Mac, AIG and JP Morgan. Do not worry about the $1.4 Trillion deficit this year, $14 Trillion debt and >$53 Trillion total unfulfilled liability in the balance sheet. It will be paid when the recovery comes. After all, America still has the most creative people and best technology in the world. They will create a new era of productivity through technologies like what they did with the Internet. Look at the best of global businesses and fundamental research today. They are still dominated by all the best universities and companies like Wal-Mart, Microsoft, Disneyland, Boeing, Intel, IBM, Cisco, L-3, Caterpillar, Exxon, etc. The best of the best in businesses and ground breaking ideas are still in America. They lead the world by a big gap.

Do not worry about unemployment. It is about 9.7% now. If you take out part time waiting for a full time job, the figure is more like 16%. But this is a lagging indicator. Employment will catch up with the road to recovery.

The stock market has gone up >70% since March 2009. The largest 500 companies
( excluding financial companies ) hold almost $1.2 Trillion in cash or > 10% of assets – the largest since 1960s. These cash can be used for increased dividends or acquiring weaker competitors if the market pulls back. Interest rates are record low. Companies can borrow at next to nothing and invest in cheap assets. The government still have 2/3 of its $787 billion stimulus money to spend over the next 18 months. The employed are working hard than ever. People are scared of getting laid off. So they work more hours for no additional pay. These have resulted in higher output, fixed costs and increased productivity. Inventory levels are low. Since the overbuilding of inventory in 2007 and 2008, inventory levels fell by 70% for some companies. M & A activities are increasing. Companies are increasing their dividends.

We are on a road towards recovery!!

We think we are bad. But look at Portugal, Ireland, Italy, Greece, Spain and Britain. They are worst than us. If we think we are in a bubble, China looks worst. Jim Chanos commented that China bubble is 1000 times of what happened in Dubai! But China is still growing at 9-10% per year on GDP.

I am sure the Chinese will continue propping up the U.S. dollar forever because they need Americans to consume their goods. They cannot allow the US$ to collapse as they are holding a trillion dollar of our currency. If US$ defaults or devalue, they will suffer greatly. So they will continue to buy our treasury, sell us their cheaply manufactured goods and US will continue to spend and live in luxury. It is a win-win proposition. Where are the markets the Chinese can export their products except US. The whole world is in a mess. Japanese is in a deeper recession with debt to GDP far worst than US. European Union is breaking down with all the troubles in Greece spreading to Portugal, Spain, Italy and Ireland. Britain is a fallen great empire and the British pounds looks like collapsing soon. US consumers are the only willing to continue to spend despite unemployment and foreclosures. Our consumers are still spending healthily and happily. All consumers stocks are up especially those selling luxuries!

The U.S. dollar will always remain the world’s reserve currency. Forget about gold and silver.

Obama is taking steps to freeze government spending and debt will decline. Trust the government and they will get the job done or they will not be elected again. Bernanke will mop up the excess liquidity before inflation hits the economy. There are absolutely no signs of inflation and interest rate will remain low. If there is anything to fear, it is deflation and it will depress the price of gold especially junior just like the credit crisis in 2008.

With gold up $13, it is a perfect time to exit. Take profit and run.