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The Daily Reckoning Weekend Edition Saturday April 3, 2010 | Taipei, Taiwan --------------------------------------------------------- • Measuring the world’s currencies against the golden ruler, • Dirhams for your tolas and lakhs for your biscuits, • Plus, all the reckonings from the week gone by, neatly wrapped for your private consumption... --------------------------------------------------------- The Fear Factor Strategy: For every $1 these stocks tank, you could pocket at least $3…and as much as $7 While the S&P 500 crashed 43.3%… this strategy has bagged average 102.9% returns... Since the start of the financial crisis, the Fear Factor strategy has crushed every asset class — stocks, bonds, gold, you name it It’s proven to turn $1,000 into $2,619… $3,383… even $5,718 To get in on the next Fear Factor play, you have to act now. It could come out in as little as 72 hours. ----------------------------------------------------------- Joel Bowman, from somewhere over the South China Sea... Your footloose managing editor is on the road again this weekend. We’re off to Kota Kinabalu, on the island of Borneo, for no reason in particular. Actually, we need to get our passport stamped once a month in order to stay here in Taiwan without actually “getting a job.” Fortunately, the region is not lacking for interesting places to visit. We’ll let you know how it goes... Of course, that doesn’t mean we’re going to leave you in the lurch, fellow reckoner. In lieu of our own weekend scribbles, today we offer some interesting commentary that came across our desk earlier in the week regarding another way to measure the performance of our favorite yellow metal. Depending on where you are in the world, you will hear gold quoted against all kinds of things. On trading floors in the U.S. it’s measured in greenbacks and ounces. Head to the Gold Souk in Dubai, and now you’re talking dirhams and tolas. And over in India, the world’s largest retail market for the precious metal, you might even find yourself paying “lakhs for your biscuits.” Interestingly enough, few people stop to wonder why we use inconsistent currencies to measure a consistent metal. You can always be sure that an ounce of gold is an ounce of gold...but what is this thing called a “dollar”? It’s inflatable, combustible and, reflecting the moral standards of the central bankers who print them, pliable. To measure a yard, you need a yardstick that is always the same length. It’s no good using a rubber band or a puff of smoke. Rubber loses its elasticity and will eventually snap. And smoke is blown away by the gentlest of breezes...just like faith in unsound money. Sound money, on the other hand, needs to satisfy some strict criteria. Aristotle thus made the case for a better yardstick when he wrote, “Gold is durable, not like wheat, divisible, not like diamonds, convenient, not like lead, constant, not like real estate, and best of all, as jewelry, it has intrinsic value.” Adrian Ash, head of research at BullionVault, cuts out some of the fiat currency noise in today’s guest essay. Please enjoy... -------------------------------------------------------------- The Golden Ruler by Adrian Ash, head of research at BullionVault We’ve said it before, but we'll say it again... The bull market in gold starting 10 years ago is about much more than the Dollar – a fact that investors and savers worldwide might want to consider in 2010 if the US currency continues to rally. Given G7 interest rates averaging 0.4% too (Reuters' data), gold looks likely to keep drawing strong bids worldwide. BullionVault's Global Gold Index tracks the price of gold against the world's top 10 currencies. Weighted by each issuing state's GDP, its 2010 make-up is based on the latest IMF forecasts. Meaning that the basket is led, as always, by the US Dollar (32%), with the Euro (27%) in second place. Behind that, China (12%) overtakes Japan (11%, down from 18% a decade ago) for the first time this year. The GGI then includes the price of gold in British Pounds (5%), Russian Roubles (3%), Brazilian Real (3%), Canadian Dollars (3%), Indian Rupees (3%) and finally Mexico Pesos (2%)...thus covering well over two-thirds of the global economy and more than half its population. Its value? Think of the GGI as gold minus the noise. The index is significantly less volatile on a daily basis than the gold price in Dollars, Euros or Sterling alone. It shows you what's happening to the price of metal overall – rather like you might track the Dollar Index to see how the greenback's doing – instead of focusing solely on one single pairing. And it's telling us...? • The GGI outperformed global equities in Q1, rising 4.28% from the close of 2009. The MSCI Barra World Index (local prices) added 4.16%. • The index has yet to fall for two consecutive quarters since the start of 2000. • To date, the GGI shows the world's money en masse shedding very nearly three-quarters of its value in gold since the start of 2000. Our guess here at BullionVault is that this loss of purchasing power in cash and bank-savings worldwide would require strong, positive real rates of interest – after inflation – to reverse it. Our second guess? There's fat chance of that worldwide anytime soon. Regards, Adrian Ash for The Daily Reckoning Joel’s Note: Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen's Award for Enterprise Innovation, 2009 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees. --------------------------------------------------------------- ALSO THIS WEEK in The Daily Reckoning... Trade of the Decade: Sell Everything By Eric J. Fry Laguna Beach, California In the January 4th edition of The Daily Reckoning, Bill Bonner offered his new Trade of the Decade: Sell long-dated Treasury bonds, buy deep-value Japanese stocks. Your California editor agrees wholeheartedly with the first half of this trade, but has a different suggestion for the second half…and he shared these views in a recent presentation to the Investment University Conference in San Diego, California, which occurred on St. Patrick’s Day. What follows is a lightly edited transcript of that presentation… Trade of the Decade: Sell Everything, Part II By Eric J. Fry Laguna Beach, California America’s economic hegemony is fraying at the edges. The “Land of the Free” is shackling her citizens to multi-trillion dollar debts that neither they, nor their children, nor their children’s children, can repay. This inconvenient reality may not cause a big problem anytime soon, but it will burden the American growth engine for decades to come. China: The Bursting of a Super-Bubble By Vitaliy N. Katsenelson Denver, Colorado The world looks at China with envy. China’s economy grew 8.7 percent last year, while the world economy contracted by 2.2 percent. It seems that Chinese “Confucian capitalism” – a market economy powered by 1.3 billion people and guided by an authoritarian regime that can pull levers at will – is superior to our touchy-feely, democratic capitalism. But the grass on China’s side of the fence is not as green as it appears. In fact, China’s defiance of the global recession is not a miracle – it’s a “super-bubble.” When it deflates, it will spell big trouble for all of us. The New Abnormal By Dan Amoss Jacobus, Pennsylvania You know that market sentiment has reached a euphoric extreme when nearly every presenter at a Grant’s Conference is bullish. This conference is known for attracting speakers with a more bearish slant than you would normally find in mainstream finance. Down to the sea again... By Bill Bonner Baltimore, Maryland Every line in the financial world has a hook on it. And at the end, sooner or later, is a banker with the wit of a tuna. Back in the early ‘00s, the Fed cast out a line, urging member bankers to lend more money. Dallas Fed chief Robert McTeer had bad advice for consumers too: “Buy a Hummer,” he said, before the price of oil went over $100. A few years later, Alan Greenspan caught the entire financial sector in a net. Financial derivatives, he said, helped spread the risk and helped make the system more stable. ------------------------------------------------------------ HOW TO SNAP UP RAW GOLD...AT JUST A PENNY PER OUNCE! What if just before the biggest gold price surge in recent history, you could get your hands on a large stash of the yellow metal... for less than one penny per ounce? There's no alchemy involved. No secret technology. And no smoke and mirrors. But a small upstart new mining company is doing exactly that. Its technique is simple. Full Report Here. --------------------------------------------------------------- The Weekly Endnote: Finally, a quick thanks to all those reckoners who sent in their Trade of the Decade submissions throughout the week. The response was massive and we’re looking forward to featuring a few of your ideas in upcoming issues. If you haven’t yet sent in your own trade, you can email us at the address below. Remember, we’re looking for one asset class to buy and one to sell. Be as creative as you like. And that’s about it for another week. By the time you read this your editor will either be cursing the weather in Borneo or trekking through the island’s lush jungle...or both. Catch you next week. Cheers, Joel Bowman Managing Editor The Daily Reckoning