-- Posted Thursday, 10 February 2011 | | Source: GoldSeek.com
By: Dr. Jeffrey Lewis
It is the week of February 07, 2011 and the Dow rests above 12,000 for the first time in three years. The markets have rebounded impressively since March of 2009, when the financial markets struck their lowest lows before a quick surge and near double to today.
It is extremely interesting to watch the return to the financial markets and watch as each investment, regardless of its type, surge in price as money flows back into every financial vehicle on the market. AOL just purchased the Huffington Post for several multiples over its revenue in another large scale purchase of online media. The deal, done in all cash, only goes to show how cheap cash actually is. When was the last time any company, especially AOL, pumped out cash in return for 100% ownership?
And how about “The Big Game?” No, not who won, but who owned it. Sure, there were plenty of the typical beer, pizza, and insurance advertisements, but what about the new kids on the block? Did you notice the two giants in the “Sell it for less space,” LivingSocial and Groupon? They each spent several million dollars promoting their new, recession-empowered business models.
Corporate Cash is Cheap
There is a very obvious trend in each of the above happenings. The markets are rallying after companies are coming back to make investments in their businesses and shed cash, and even big-game advertisements for two of the largest half-off websites weren’t out of the picture. Keep in mind that the lifetime of both Groupon and LivingSocial doesn’t even extend past a decade if laid end to end.
Companies are ready to shed cash once again, but few realize how that plays out. When companies are shedding cash, it means cash is inexpensive or is expected to continue to decline in value. It also means that cash is better spent now and borrowed later than it is borrowed now and spent later. That is to say simply that interest rates are too low. Bernanke has pulled what should go down in history once more as “pulling a Greenspan.”
Don’t Forget
But while everything appears to be fine, at least for right now, we shouldn’t forget what gave us the Great Recession in the first place. We shouldn’t forget the trade deficit that is large enough to consume the entire stimulus package in just one year, or that oil prices have continuously drained the US economy following any rebound.
Nor should investors forget that at today’s pace, it will be nearly a decade before the United States returns to full employment, even though the value of the dollar is in decline and the government runs a deficit of greater than $1 trillion. There are still plenty of long-term leaks in the capital flow of the United States government and citizen, and there are still a great number of patches that need be made to ensure long-term financial success and continuation of the American economy.
While all seems to be perfect once more on the back of cheap credit, there is still plenty to be done. Perhaps that is why, even in the most risk-loving climate that the markets have seen in three years, that gold and silver have shed only a fraction of their value in what is supposedly their weakest season.
Should gold and silver hold, it will be proven that we have found a new bottom—at $1300 and $25 for gold and silver, respectively.
Dr. Jeffrey Lewis
www.silver-coin-investor.com
-- Posted Thursday, 10 February 2011 | Digg This Article
| Source: GoldSeek.com
