Tips on Managing Risk in Investing

Markets have hit a barrier in the near term. The charts are concerning, as the NASDAQ, DOW, and S&P 500 are all trading just below their respective key 50-day moving averages on neutral Relative Strength. The near-term technical view for the NASDAQ and S&P 500 are bearish. The key U.S. indices are again underperforming the Chinese Shanghai Composite Index (SCI) this year. The SCI is up 5.02% this year, well above the key U.S. indices.

So, before you get too ambitious and begin to chase stocks higher after dips, let me give you a piece of investment advice.

The key to successful stock picking is to understand the concept of risk management as an essential element to investing success. The reason why I want to discuss risk management is my sense that there are some of you who probably fail to incorporate some sort of risk-management strategy. If you do, that’s fantastic and you are probably sleeping well at night. If you have been delinquent in this area, be careful.

I have been involved in the markets for over 20 years. After reading the strategies of some of the world’s best traders, a commonality surfaces: the most important tenet in trading is preserving your investable capital via the use of risk management. The last thing you want to happen to you is to trade sloppily and lose your tradable capital. Instead of being a player in the exciting world of trading, you would be relegated to watching from the sidelines. But guess what? You can avoid this by following some simple strategies.

When the price of a stock trends higher, you should always think about a potential exit strategy. This does not mean liquidating profitable trades, but rather protecting your unrealized gains.

If you have a price target for your stock, you can sell the stock when it reaches that target. Alternatively, if the gains are significant, you can take profits on a portion of the position and let the remaining portion ride. For instance, if a stock rises by 100%, you can liquidate 50% of the position and let the remaining half ride. Under this simple strategy, you realize some profits, but at the same time create a zero-cost trade, as you have already recouped your initial investment. You can view the remaining half as your risk capital.

Another strategy that needs to be considered is the use of mental or physical stop-loss limits. The reality is that no one is perfect in trading. I have made mistakes and so have many of you. If you can accept this, then that’s half the battle. To protect against these mistakes, you should use stop-losses on your positions. Where to place the stop depends on how much capital you are comfortable with risking. Stops can range from three percent below the purchase price to as much as 15% or more. Setting a close stop can take you out quickly in a volatile market, like what we are witnessing at this juncture. Conversely, setting the stop too low can entail large losses.

Stops should also be used when a stock is trending higher. These stops are referred to as trailing stops and are constantly adjusted as the price of the stock rises. This can easily be done in a spreadsheet or by hand. Adapting trailing stops helps to protect your gains as the stock rises.

Some of you may be wondering if the stop-loss should be a mental or physical stop. I prefer a physical stop, as it effectively eliminates the potential influence that emotion can play when you trade. I’m going to say it here. EMOTION kills good trades and often makes you keep your losers. Keeping losers is counterproductive and will make you a viewer from the sidelines. Emotion has no role in trading.

I consider emotion the cancer of trading and it needs to be eradicated!

And for those of you familiar with options, you can employ a “Put Hedge” or “Protective Put” to help minimize the downside loss. If you own mutual funds, you can buy the appropriate index Put by determining the type of fund it is (i.e. small-cap, blue-chip, S&P 500, technology, etc.).

If you are already adhering to risk-management strategies, good for you! Otherwise, learn them and it will make you a better and more successful trader and investor.

George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.

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Some Compelling Arguments for Investing in Canada

03/21/11 Laguna Beach, California – “When I’m older, I want to travel around the world,” your editor’s 12-year old son, Ethan, declared recently.

“That’s a great idea!” his dad replied. “I think that would be a great experience, Ethan.”

“Yeah,” Ethan continued, “I think it would be really sick [i.e., cool] to live in different places all around the world.”

“Absolutely!” his dad agreed. “You could get one of those around-the-world tickets that all the major airlines sell…and then figure out where you’d want to go. The tickets are usually good for a year of travel.”

“That sounds fine, too,” Ethan replied. “But that’s not what I have in mind. I don’t want to travel around the world, I want to live around the world. I want this to be, like, my career.”

“A career world traveler?” his confused father asked. “How would that work, exactly?”

“Well I would just live in one place for a while, then move on to the next place. That would be sick to say, ‘Yeah, I used to live in Viet Nam, but now I live in Brazil.’”

“True,” his father agreed. “But how would you support yourself?”

“I would just get a job wherever I was living,” Ethan explained. “Then when I moved to a new country, I would get a job there.”

“Ummm…okay,” his father replied, “but that just means that you would probably live in poverty all around the world. Because in most cases, you’d only be able to earn the local minimum wage, which would not support a very appealing lifestyle. You might be better off earning money here in the States, then traveling for a while. You could do that over and over again, at least for a while.”

“No, that’s not what I’m talking about,” Ethan insisted. “I want to live around the world…as a career. I’ll figure it out.”

“Okay. Go for it, Eth.”

Usually, relocating to an overseas locale is the unintended result of a given career choice, not the objective. But Ethan’s plan turns the traditional relationship between cause and effect on its head.

Investors might want to consider a similar course of action…

Send your dollars overseas – not just for a visit, but as a long-term “career.”

For many American investors, foreign investments are more of an accident than an objective. They might own a few foreign stocks through a global mutual fund. Or they might have some exposure to foreign economies and currencies through the shares of an American multi-national corporation like Johnson & Johnson or GE.

But American stocks and bonds remain the steak and potatoes of traditional American investment portfolios. Foreign stocks and bonds are merely the spices and sauces. This economic provincialism – epitomized by the spectacular success of Warren Buffet’s Berkshire Hathaway – has served American investors very well for several decades. But a re-assessment may be in order.

For starters, even after the spectacular rally of the last two years, the S&P 500 Index has produced a negative total return during the last ten years. But the strongest reasons for looking overseas have nothing to do with the recent past…and everything to do with the imminent future. Simply stated, the America of the future may not reward investment as handsomely as the America of the past.

Therefore, US investors may want to consider shifting from a dollar-centric view of the world to a wealth-preservation-centric view. They may want to consider increasing their allocations to places that don’t use our currency, don’t use our alphabet and might not be able to distinguish between George Washington and George Clooney.

But one of the very best investment destinations of the moment is not very foreign at all. It’s right next-door in the friendly, mostly-English-speaking land we call Canada. (Oui, nous savons qu’ils parlent francais aussi!)

“In my three decades in the forecasting business,” writes David Rosenberg, the Chief Economist and Strategist at Canada’s Gluskin Sheff & Associates. “I don’t remember a time when the upside potential and downside risk to investing in Canada vis-à-vis the USA – from an economic, financial and political standpoint – was as compelling as it is today.”

Rosenberg cites a variety of striking contrasts between the two economies. In no particular order:

Canada is a net oil exporter; the US is the world’s largest oil importer.Canadian employment growth is booming; US employment growth is moribund.Canadian government finances are fairly solid; US government finances are spiraling out of control.Canadian inflation is tame; US inflation is resurgent.

As a result of these trends, Canada is becoming an increasingly attractive investment destination, relative to the US.

“The Canadian economy remained very strong in the opening months of 2011,” Rosenberg writes. “It looks like the Canadian economy could outperform the US economy for the second quarter in a row… Canadian manufacturing shipments jumped 4.5% month-over-month in January, the best monthly showing in over a year and a half… Wholesale sales were also very strong, jumping 1.6% month-over-month on an inflation-adjusted basis… On top of this, the economy has created 84,000 jobs in total in January and February (adjusted for population, this would be equivalent to about 800,000 US jobs!).”

Meanwhile, south of the 49th parallel, employment growth remains disturbingly lackluster. “While companies, in the aggregate, are no longer shedding labor,” says Rosenberg, “there is no evidence that either job openings or new hirings are taking hold. The latest Job Opening and Labor Turnover Survey (JOLTS) data for January showed that US job openings dropped 161,000…and now stand at their lowest level since July 2009 when the economy was barely emerging from the worst recession since the 1930s. New hires also fell 193,000 and are now down in six of the past seven months – the lowest they have been since October 2009.”

Meanwhile, America’s national finances are going from bad to worse, as Democrats and Republicans alike, respond to trillion-dollar deficits by proposing billion-dollar spending cuts. By comparison, Canada’s finances are in tip-top shape.

“Canada stands out as being one of the few countries that is not only rated AAA by the major credit agencies but actually does have a AAA balance sheet,” Rosenberg points out. “[Accordingly], the Canadian dollar…has emerged as a safe-haven currency – like the Swiss franc but with a decent positive yield and exposure to raw materials… The Canadian dollar experienced no fewer than five intermittent pullbacks last year and yet still finished 2010 with a 5½% gain, not just against the USD, but versus a basket of non-dollar currencies too… The added fact that the loonie has so vastly outperformed its commodity counterparts such as the Aussie and the Kiwi attests to the view that the Canadian dollar story transcends the prices of crude, corn and copper.”

Not surprisingly, Rosenberg winds up, “foreign investors continue to love the Canadian story. The latest international transactions in securities data showed that foreigners added $13.3 billion of Canadian stocks and bonds in January, after adding nearly $120 billion in 2010. It is worth noting that the CAD hasn’t sold off on the latest round of global turbulence (like it used to in the past) and has remained above parity since late last year. In fact, in 2010, sell offs were short in duration and provided only brief windows of opportunity to accumulate positions.”

Rosenberg makes a compelling case for Canadian assets. Canadian stocks and bonds may not be the very best non-US investment destination, but they are probably very far from the worst…and they speak our language!

Eric Fry
for The Daily Reckoning

Eric J. Fry, Agora Financial’s Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling.  Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research —  institutional research products dedicated to international investment opportunities and short selling. 

Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry  supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts.  His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.

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Investing in Gold When Governments Take Action

03/21/11 Tampa, Florida – I was kind of amused at the CNBC headline that read “Welfare State: Handouts Make Up One-Third of US Wages,” as if this is something new.

I mean, where have these CNBC weenies been the past decade?

Well, their complete cluelessness was immediately evident when they started out with the phrase, “Even as the economy has recovered,” which makes me laugh and laugh and laugh, and then I try to stop laughing because my stomach hurts from all that laughing, and then I get grumpy and fussy because my stomach hurts, and I put the blame squarely where it belongs; with the clueless CNBC saying, “even as the economy has recovered,” which still makes me want to laugh at its utter stupidity, and I would laugh, too, if my stomach didn’t hurt so much.

Instead of apologizing, though, or even offering me a nice pizza and a six-pack to help settle my upset tummy, they breezily go on to explain that “social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.”

The article went on, sort of hammering it home, “Government payouts – including Social Security, Medicare and unemployment insurance – make up more than a third of total wages and salaries of the US population,” which they ominously follow up with “a record figure that will only increase if action isn’t taken before the majority of Baby Boomers enter retirement.”

“If action isn’t taken” is such an ominous phrase when you stop to think about it, and which, if you do stop and think about the government “taking action”, makes you want to frantically run, screaming, to buy gold and silver bullion since the history of the results of government “taking action” is almost uniformly Bad, Bad News (BBN).

Apparently in an effort to calm me down, CNBC goes on to cite a comforting parallel, in that “At the very least, we can take solace in the fact that we’re not quite at the state welfare levels of Europe. In the UK, social welfare benefits make up 44% of wages and salaries,” as if that makes it better! Hahaha!

Unfortunately, instead of calming me down, it makes me more scared and outraged, if not at least infuriated and paranoid delusional, and predictably makes me want to frantically run, screaming, to buy gold and silver bullion, even more than before, which was only two lousy paragraphs ago.

And with lightning reflexes like that, there is nothing left to do except say, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning , and other fine publications.

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Why Diversification Is King in Investing

My best stock market advice to you is to embrace the concept of investment diversification and the need to add small-cap stocks in an effort to increase the expected return of your portfolio.

I would like to discuss the concept of asset allocation as a critical part of any prudent portfolio management strategy.

Asset allocation refers to the asset mix of your portfolio, which is divided into the three major asset classes: cash; fixed income; and equities (stocks).

As the macro and micro factors change, as well as your investment objectives, you should rebalance your asset mix accordingly to the new conditions.

In general, without going into portfolio theory, the risk and expected return of an investment increases as you move along the spectrum from cash to fixed income to equities. The more risk assumed, the higher the expected rate of return, albeit this is not always the case in reality. For instance, adding penny stocks and micro-cap stocks could add to your total return.

The relationship between risk and return should be used as a guideline.

The proportion of each asset class within your portfolio is dependent on your individual risk profile. For instance, the more risk-adverse investors or those who are close to retirement may want a higher mix of fixed income/cash and to steer clear of too much equity. On the other hand, risk-tolerant investors or those investors who are young may want to take a more aggressive approach and maintain a higher mix of equities in conjunction with less fixed income/cash.

A general rule for asset allocation is that the weighting of the fixed income portion as a percentage of your total portfolio should approximate your age.

Let’s say you are 25 years old. The basic guideline tells us you should have about 25% of your assets in fixed income and up to 75% in equities. And, on the other end of the spectrum, a 50-year-old entering the final phase of his or her working life should have a conservative 50% weighting in fixed income securities. And, of course, a person at the retirement age of 65 should have a minimum of 65% in fixed income.

Keep in mind that this rule should only be used as a guideline and is not meant to be conclusive.

Prudent asset allocation tries to achieve the highest rate of return given the risk. The most basic of investing is to understand how to create an appropriate blend of equity, fixed income, and cash.

To determine your risk profile, you should first understand your investment personality.

Investors range from the ultra-conservative investor who wants to sleep at night to the highly aggressive speculator who thinks of the stock market as a roll of the dice. It is crucial that you stay within your risk boundaries if you are very conservative. For example, if you tend to get jittery when the stock market gyrates, you may want to focus on fixed income and less on stocks, otherwise you’ll be reaching for that bottle of “Prozac” a bit too often.

Asset allocation is often dependent on your age; but, in reality, understanding each person’s risk profile is also very important. The only rule that generally applies is that, the older you get, the less exposure to equities you should have, as you don’t want to risk your life savings for a hot tip.

Among market watchers, there’s an old saying in the market: Bulls make money, Bears make money, Pigs get slaughtered! Translation: Don’t get too greedy, and live within your risk profile.

George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.

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Understanding “Black Swan” Events and Investing Accordingly

03/14/11 Laguna Beach, California – As the horrors of the Japanese tsunami push the horrors of the Libyan Revolt from the front page headlines, the rest of us struggle to figure out what it all means…

These horrors do not merely force us to consider whether oil will surge past $100 a barrel and/or whether the Dow will tumble below 12,000, they force us to examine the “whys” of inexplicable human suffering – to assign a cause and/or to extract a value…to the extent possible.

As the images of extreme – and seemingly random – human suffering illumine our TV screens, atheists and theists alike must decide where Divine providence ends and bad luck begins. No matter where you might place your data point on the continuum between providence and luck, your “explanation” will seem woefully inadequate.

If providence be the cause, why is Capitol Hill still above water? If bad luck be the cause, why are governments along the seismically active “Rim of Fire” investing in tsunami-warning buoys instead of rabbit’s feet?

Although your editor, a Christian, believes in the “Hand of God,” he also believes that the Hand of God sometimes looks an awful lot like bad luck. In other words, your editor is not smart enough – or righteous enough – to know what God is up to. He simply knows that lots of bad stuff happens for no apparent reason.

The Christian imperative is not to know the unknowable; it is to respond to “bad luck” compassionately. Let philosophers debate the teleological context of human suffering…and let God decide it.

A little over six years ago, when a massive tsunami inflicted epic suffering from Thailand to Sri Lanka, your editor wrote a column entitled, “Cosmic Dodgeball.”

“In the span of a few terrifying minutes last Sunday morning,” he wrote, “120,000 human beings perished beneath a fatal wall of water. That’s more than double the number of American soldiers who died in a different sort of Asian cataclysm four decades earlier. But manmade disasters like the Vietnam War bear no resemblance whatsoever to natural disasters. Manmade disasters, despite their horrific consequences, seem almost tame and rational alongside the natural variety. In other words, the brutality of war is shocking, but not unexpected by those involved. The brutality of nature is alarming, precisely because it is so unexpected and so completely random.

“A soldier pinned down in a firefight on the beaches of Vietnam knows he may not see another sunrise,” your editor continued. “But a tourist relaxing on the gentle sands of Patong Beach does not doubt he will watch that evening’s sunset. Fate sometimes foils expectations and delivers utterly unimaginable outcomes.

“Whenever epic disasters occur, nature seems indifferent to both the laws of probability and to our human sense of fair play. Epic disasters just don’t seem right, but they happen nonetheless. And whenever they do, it feels as though we humans are engaged in a kind of cosmic dodge ball – a ‘game’ in which the balls are invisible to the human eye until the moment they strike. The object of the game, of course, is to avoid getting hit. But as the balls are invisible, we are never really sure how we should be bobbing or weaving.”

The game of investing sometimes feels just as random…and capricious.

Most investors trust the stock market to lap at their feet as soothingly as the waters of Patong Beach. They believe the stock market will be kind to them most of the time. That’s what history shows, after all. Therefore, very few investors bother worrying about the financial tidal waves that could wash their capital out to sea. And even fewer investors prepare for these exogenous, “Black Swan” events.

Instead, most investors simply hide their complacency and/or lethargy behind the phrase, “No one can see disaster coming.” But, in fact, that assertion is patently false. Scores of insightful investors saw disaster coming in 2008, well before the credit crisis rolled in and crashed atop the financial markets. A few of these insightful investors profited handsomely from the ensuing disaster, but most of them simply headed to higher ground before disaster struck.

Some of the very best investment strategies begin with mere survival – with mere capital preservation. When the ground beneath you begins shaking violently, it’s best to head to higher ground…even if it means missing a day of work…or missing out on a stock market rally.

Middle Eastern tyrants are murdering – or preparing to murder – their own citizens; oil is topping $100 a barrel; Ben Bernanke is pursuing prosperity through dollar-debasement; one-trillion-dollar government deficits are the “new normal”; the Chinese economy has stopped producing trade surpluses…

Do you feel the rumbling?

Eric Fry
for The Daily Reckoning

Eric J. Fry, Agora Financial’s Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling.  Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research —  institutional research products dedicated to international investment opportunities and short selling. 

Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry  supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts.  His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.

View articles by Eric Fry

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

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Investing in Silver Instead of Toilet Paper Currencies

03/04/11 Tampa, Florida – I was intrigued by an essay titled “What You Need to Know About Buying Silver Today”‘ which came as the result of Jeff Clark, of Big Gold, being interviewed by The Daily Crux.

Of course, Mr. Clark knows all the reasons to buy silver, and deftly ticks them off, one after another, as I would do if they ever asked me, instead of everyone always rudely shouting at me, “Hey! You can’t come in here!” and “Don’t eat that!” and, “Stop yelling at me to buy gold, silver and oil stocks as protection against the suicidal lunacy of the Federal Reserve creating so much money!”

Mr. Clark never actually gets to the point of hysterical raving that people should buy, buy, buy silver, silver, silver, and calling people idiots – idiots! – if they are not buying silver, which is convenient for me because that is exactly what I do. Idiot! You’re an idiot if you are not buying silver! See?

Anyway, The Daily Crux asks the Big Question On Everyone’s Lips (BQOEL), which is, “Just how high do you think silver could go?”

I was hoping that he would, as I would, immediately launch into “attack mode” and say, “What kind of stupid question is that to ask? The whole thing depends on the purchasing power of the dollar, which is literally headed towards zero because of the constant, massive, unbelievable over-creation of dollars by the evil Federal Reserve, which would mean that the price of an ounce of silver would be, literally, infinity dollars! That’s how high silver will go, you moron, as will the prices of everything go to infinity, when the dollar has zero purchasing power left, and is, finally, like all fiat currencies, worth Exactly Freaking Zero (EFZ)!”

I could mention Zimbabwe because Zimbabwe is a very recent example, of the thousands and thousands of fiat currencies through history that have gone to zero value because of over-creation, of a currency that went to zero value because of its over-creation.

As a case in point, and in a particularly pointed-yet-distasteful way as befits the whole subject of currency destruction, massive inflation, bankruptcy and ruination, I remember a photo of a sign posted in a Zimbabwe toilet, advising users as to what could be properly be used as toilet paper in this particular crapper.

It read, “No cardboard. No cloth. No Zim notes.” How disgusting! Money that is not even usable as toilet paper!

So, the question for today’s Mogambo Pop Quiz (MPQ) is, “What is the price of an ounce of silver, priced in Zimbabwe dollars?”

Well, since the Zimbabwe dollar is not officially worth zero, the MPQ is an easy one: The price, in Zim notes, is, literally, infinity!

This means that one ounce of silver – one lousy ounce of silver! – now costs more than all the Zimbabwe dollars ever printed! Ever!

And, more horrifically and closer to home, since the American dollar is on the same sorry path, the fate of the US dollar will be that of the Zimbabwe dollar, making silver a screaming bargain, and if you are not buying it, then you are an idiot!

At this point, I would usually degenerate into a Patented Mogambo Brand (PMB) of raw, in-your-face aggression on how the American dollar is a Big Piece Of Crap (BPOC) because of the Federal Reserve creating so staggeringly many of them, or a rant about how we Americans are a big bunch of idiots, or how the ultimate price of one ounce of silver is, like Zimbabwe, more than all the American dollars ever printed, making silver, at less than $35 an ounce, such a screaming bargain that to not buy silver is to proclaim yourself an idiot.

Mr. Clark, sensing my underlying motive, appeals to our greed! “Good choice!” I say!

He says, “Many people don’t realize this, but silver rose 3,646% in the 1970s, from its November ’71 low to its January 1980 high. If you were to apply the same percentage rise to our current bull market, silver would climb another 500% from here, and the price would hit $160 an ounce.” Wow!

Of course, all of these fabulous gains in silver presume a dollar with a relatively consistent buying power, which ain’t going to happen, and instead the dollar will continue to fall in purchasing power and thus everything will become more and more expensive, all the time more and more expensive, all because the despicable Federal Reserve is continuing to create So Freaking Much Money (SFMM).

But you won’t care! Your buying gold, silver and oil stocks all along the way, as the evil Federal Reserve kept creating so much money, will have made you rich, rich, rich! And so what is a horror of life-or-death misery for others is of no consequence to you, and you just say to yourself, “Whee! That investing stuff was easy!”

The Mogambo Guru
for The Daily Reckoning

Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning , and other fine publications.

View articles by The Mogambo Guru

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

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