Good Post.
I find this line particularly interesting....
" I think in a few years, when people get accustomed to the idea of stocks as the real store of value and place where value is created, gold, $$ and other things will be abandoned. Then, interest rates will be perpetually higher because people won't want to hold cash as a store of value."
So you are saying that you think our current fiat money system will be replaced by stocks? Or that people will put more value in stocks than they do in $$? What would cause this to happen? Any single event, or just a gradual building of confidence in the stock market and the value of the companies that make up the market?
You are suggesting that people will have faith in stock certificates, backed by the goods and services that underlie those said business. I suppose this has already happened in some ways, with options being used as compensation in many companies. However when these companies failed to produce ever increasing stock prices their form of money lost the faith of their employees, who then demanded another faith based currency the $$.
I guess what I see happening is a loss of faith in the $$. What would people turn to then? I think you know what I think is the answer to that...
Why do I think this might happen? I believe, in some small ways it may have already begun. People will lose faith in Greenspan and the ability of the fed to rescue the economy at any given moment. There will be investigations and hearings on the practices of wall streets investment banks. People will see how they have been taken advantage of, and a loss of faith will be well underway.
I do not mean a total collapse of the monetary system or complete chaos, although it could happen I guess. I just mean a weaker dollar, less people wanting to invest (more savings, less consumer confidence and spending), a return to at least some sort of money backed by more than a promise. It would not take much to ignite a gold rally, just a few people believing in it again. And there are some good stocks with nice leverage to take advantage of any return in confidence to gold.
Another factor that could weaken the dollar might be Chinas emergence as a more substantial military threat, a second cold war so to speak. One reason the dollar is so strong is it is backed by the United states military and nuclear warheads. If the US was not the only dominant military power, or even was perceived as having a formidable opponent it could hurt the faith in US currency.
All of these things, the bubble, loss of faith in the fed, the perception that the American public had been taken advantage of by the financial institutions they had so trusted, the emergence of another super power could cause a rise in gold. Of course I say 'could', it is speculation, but to me the rewards seem intriguing and a better risk than being long tech, at lest for now. I just don't see any value in tech now, it is still priced for perfection in my estimation. |
