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THE
ROCKET SCHOOL OF ECONOMICS


Two Questions
by Professor von Braun

March 6th, 2000

Volatility has become the name of the game when it comes to the stock market. Surprise, surprise! "We are sinking, we are not sinking, all is well, all is not well, here hold this while I find a lifeboat". Flip, flop, up, down, in, out, buy the dips. Yes, well really! Nasdaq trades 2.8 billion shares in a day and all is well? OK.

This market, (the one that Sir Aldot Com cannot recognize for what it is, as in a bubble of giant proportions), begins to behave like a patriot missile with the wrong programming, and CNBC says it's a buying opportunity? Well thank you very much, but no thanks.

Could this market go up from here? Well off course it could. The DJIA could reach a new high from here, after all, anything is possible. But is this a bull market rally? Or is it merely a bear appearing in a bull's clothing?

It has been the view of several commentators for some time now that this market is in trouble, and there are some who will say that it (the market) is in deep "doodahs". As in: past the point of no return.

Then again we could say that after all is said and done, 60% of all American households can't be wrong.

But as a precautionary measure, most investors should realize that they have been given enough clues by now to ask the two following questions and once having received an answer, they should then act accordingly.

The first question they should ask, (regardless of whom they may address the question to), is; "How many exits are there within the current arena?" This is a very important question, since, given the volatility we are witnessing, (yes, this is real TV here), what happens if everybody tries to exit at once? As in, "do we make it safely through the exit door?"

Now, a brief reflection on the absurdities that exist within a bubble will, or should, convince you that exits are (as has always been the case with previous bubbles) limited. Should you expect an orderly exit via the marked exits you could have a problem. "I'm sorry sir/madam but this exit is not operating at present." Whoops.

So as a precautionary measure, if you have not already done so, get smart and check the exits!

The second question that should be asked is "Do I really have a strategy for what needs to be done after I have exited the arena?" As in what do I do now? Do I stay in cash, or bonds, or gold stocks, or gold bullion, or a bear fund, or what?

Now, in the "for what it's worth" category, we at the Rocket School have a small problem that we thought you, the reader, should be aware of. While there are several good commentators out there who publish their commentary at various websites contained within the world wide web, it is interesting to note that (an observation on our part) very few of them have published a strategy that clearly defines what they are going to do after the proverbial hits the fan.

As in where are they going to put their hard earned $? To assume that one will completely escape a Wall Street "correction" is a not too dissimilar mistake to the belief that the "bull" market will go on forever. Risk is risk, regardless of which side of the fence you are on. Already we have seen some "bear" strategies take a severe hit. The common belief that owning shares in gold mining companies will be a safe haven is itself, given the potential problems with forward sales, suspect. Buying into mining companies that are developing projects in foreign countries contains risks that need to be taken into account. We have in recent times seen examples of what over zealous forward sales can do to a share price and we have also seen examples of companies under-estimating country risk.

Owning gold bullion is about as risk free as it gets, providing of course you take delivery of your purchase. Paying down debt wherever possible is a good move. Believing in the tooth fairy may give one a sudden bout of a digestion related illness. Expecting the financial world to continue as it has for the last several years could also be responsible for the appearance of an unexpected hurdle or two.

Relying on equity in an asset that is overvalued and may be subject to a sudden revaluation to the downside won't help either. Now is the time to be looking carefully at what will provide a return that has a reasonable chance of being maintained during a period of potential turmoil in terms of the value of paper assets.


The Prof can be contacted by email at profvonb2@aol.com

Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.

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The Rocket School of Economics -- The Lecture Series Index

  • 22 May 2009 -- An Often Overlooked Issue!
  • 28 Mar 2009 -- Problematic Banking Systems!
  • 14 Nov 2008 -- What Exactly is an Asset?
  • 23 Aug 2008 -- Through the Looking Glass?
  • 02 Aug 2008 -- Compounding to the Downside!
  • 26 May 2008 -- Back to Basics Again!
  • 31 Mar 2008 -- The Broken Watch -- Part 2.
  • 27 Mar 2008 -- The Broken Watch -- Part 1.
  • 06 Feb 2008 -- The Financial Equivalent of Faulty Towers.
  • 10 Dec 2007 -- Monetary Systems & Productive Assets.
  • 14 Feb 2007 -- Divorced from Reality
  • 06 Sep 2006 -- Gold, Bankers, the Trade Deficit and Unsettled Transactions
  • 19 Jun 2006 -- When is a Reserve Not a Reserve?
  • 31 May 2006 -- The significance of August 15, 1971.
  • 08 Apr 2006 -- Keep Your Eye on the Ball!
  • 30 Mar 2006 -- What came first?
  • 11 Mar 2006 -- An Unanswered Question.
  • 08 Jan 2006 -- Where have all the projects gone!
  • 11 Dec 2005 -- Gorillas, Rising Gold Prices and Depreciating Paper Currencies!
  • 23 Oct 2005 -- Custodial Risk.
  • 16 Sep 2005 -- An Inherent Flaw.
  • 08 Aug 2005 -- Central Banks and 'Reserves'.
  • 31 Jul 2005 -- Central Bankers, Actors and 'We'.
  • 17 Jul 2005 -- Unintended Consequences! -- Part 3.
  • 07 Jul 2005 -- Unintended Consequences! -- Part 2.
  • 25 Jun 2005 -- Unintended Consequences! -- Part 1.
  • 14 Jun 2005 -- The Two Greater Fools Theory.
  • 03 Jun 2005 -- Real Money, Funny Money and YOU -- Part 4.
  • 30 May 2005 -- Real Money, Funny Money and YOU -- Part 3.
  • 26 May 2005 -- Real Money, Funny Money and YOU -- Part 2.
  • 21 May 2005 -- Real Money, Funny Money and YOU -- Part 1.
  • 09 Nov 2002 -- Carrying a Big Stick.
  • 17 Sep 2002 -- Wishful Thinking!
  • 27 Jul 2002 -- Gold Bugs Beware -- part 2.
  • 10 Jun 2002 -- Gold Bugs Beware!
  • 06 Apr 2002 -- Currencies versus Gold.
  • 26 Jan 2002 -- Bear Market Strategies.
  • 01 Jan 2002 -- 2002 -- A Perspective.
  • 20 Oct 2001 -- The Storm Clouds are Gathering.
  • 30 Sep 2001 -- What to Say?
  • 01 Jul 2001 -- ...Said the Fly to the Spider.
  • 14 Jun 2001 -- Upward and Downward!
  • 28 May 2001 -- Volatility Time, Again!
  • 14 May 2001 -- The Coming Bull Market in Gold Stocks?
  • 24 Feb 2001 -- High Hopes, Wishful Thinking & The Absurd
  • 20 Feb 2001 -- Who Put the Holes in the Swiss Cheese?
  • 22 Jan 2001 -- US Dollar Admits Identity Crisis!
  • 16 Jan 2001 -- Dear George W.
  • 24 Nov 2000 -- The Bubble Has Burst
  • 11 Nov 2000 -- The Media, Bull Markets & the Gold Price
  • 02 Nov 2000 -- Gold Stocks
  • 29 Oct 2000 -- Oh The Tangled Web We Weave ...When We Set Out to Deceive
  • 24 Oct 2000 -- A Mystery!
  • 16 Oct 2000 -- A Peso Here ...and a Few Thousand Pesos There
  • 10 Oct 2000 -- The Unfolding
  • 30 Sep 2000 -- What's Wrong with THIS Picture?
  • 25 Sep 2000 -- Buy Gold Now!!
  • 23 Sep 2000 -- The Times, They Are a' Changing
  • 15 Sep 2000 -- Time WILL Tell!
  • 27 Aug 2000 -- SS "Paper Assets" Begins to Take on Water
  • 06 Aug 2000 -- The Indian Summer
  • 26 Jun 2000 -- A Yellow Brick Wall
  • 22 May 2000 -- The King IS Naked
  • 30 Apr 2000 -- Goodbye Yellow Brick Road
  • 18 Apr 2000 -- Beware the Ides of March, April and May
  • 08 Apr 2000 -- Really, Sir Aldot!
  • 25 Mar 2000 -- Where To From Here?
  • 18 Mar 2000 -- The Gnomes of Zurich
  • 12 Mar 2000 -- The "New" Economy??
  • 06 Mar 2000 -- Two Questions
  • 04 Mar 2000 -- Iceberg Dead Ahead!
  • 28 Feb 2000 -- The Wizard of Oz
  • 06 Feb 2000 -- Here We Go Again!!
  • 15 Jan 2000 -- Comments on the Gold Market
  • 29 Dec 1999 -- No Raw Ingredients Required
  • 28 Dec 1999 -- No Way Out
  • 14 Dec 1999 -- Ho, Ho, Ho!
  • 07 Dec 1999 -- Greenspan's Bubble
  • 03 Dec 1999 -- Early Warning Signs


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