Armageddon in the Markets

With all markets in the world down by an average of over 20%, people that have been so used to good returns have been a little shocked..to say the least. The media is now calling this the bottom and even our very own prime minister is predicting that a recovery is close. The question that we all now ask, is this the time to pick up some bargains?

Technically speaking, markets are due for a bounce but will it be a dead cat bounce or will we see a fall rally. The biggest barrier to this rally is the fact that credit markets have pretty well shut down. Banks are not lending to each other and are not lending to companies or individuals. There is a crisis in confidence around the world and the result is a lack of trust. No one believes the governments and their bail out plans, no one believes the banks and now people have lost faith in the capital markets.

So during this time of mistrust, where is the best and safest place to keep your money? The overall commodity market has just been hammered. The fundamentals are still very good but with lending frozen, some of these companies with great properties may be forced to sell out or go bankrupt. The producers that have positive cash flow and low debt levels will be the survivors.

For the short term, the safest place appears be in the commodities of Gold and Silver. Interestingly, both have gone down in the last week, even though we are in an ideal environment for these two precious metals. To begin, the government's fiat money system has placed the printing press on full blast, hoping to inject enough monopoly money into the market to make everyone feel better. Its kinda like a drug junkie hitting up. He feels better for a short while but then feels a lot worse. His condition continues to worsen each time, which is what is happening to the markets each time a liquidity injection occurs.

Secondly, there is a great deal of FEAR and UNCERTAINTY in the markets. No one really knows what will happen next. To make matters worse, the biggest investors in the market right now are baby boomers that are just years from retirement. Many have seen their nest eggs that they have worked their lives for cut in half. This can make anyone feel uneasy but especially those that do not have time to wait for the markets to recover. The baby boomers will move to safer investments which usually means bonds. The one problem with bonds is that they are backed by companies and governments that have the highest debt levels ever seen in history. Is there a chance that some of these bonds may go belly up like the ones with AIG, Lehman Brothers, etc. have? The one thing about Baby Boomers is that some of them have pretty good memories. They can remember what happened in the 1970's and early 80's when gold soared to an inflation adjusted price for today of over $2000. Some can even remember back to the dirty thirties when Gold was the only asset that didn't lose its value. Housing, stocks, etc. all were hit during the dirty thirties but Gold went up. Could they be thinking that this might happen again?

Finally, the world political seen is very fragile right now. The middle east is teetering on all out war between Iran and Israel. Pakistan and Afghanistan are in the midst of political changes that could totally destabilize the countries. Even Russia is fighting with the US and you know that this can not be a good thing. This unstable nature of the world plays well for gold and silver. If you don't believe me, just watch the next time a major terrorist event, attack or war breaks out. The first thing that happens in the markets is that gold and oil go higher. I predict that the number of these type of events will continue to increase and thus will be good for Gold and Silver.

If all of this hasn't convinced you to buy physical Gold and Silver, the cherry on the cake is the fact that there is now a world shortage of these precious metals. This seems odd, since the paper price hasn't really gone up...but it will. It is just a matter of time and when it happens, expect it to be explosive. We got a small taste of this recently when AIG collapsed. If you don't have time to go to a bullion bank (Bank of Nova Scotia in Calgary) or a coin dealer, the best way in my humble opinion to play the commodity is through the HORIZON BETA PRO GOLD Bull fund. The fund offers 2 times leverage to the price of gold, can be bought in your RSP and can be traded just like a stock. The safest bet is still physical gold versus derivative and futures gold which the Beta Pro trades in but for the short term you can make some real money with a rise in the price of gold. Happy Thanksgiving and Happy Trading! Let's hope the government does not make Turkeys out of us through their continued lack of responsibility and printing of money,