Cash Will Not Always Be King

While cash and 2 year and under gov bills have been the place to be as of late,
they won't always be.

Real returns on cash are strongly negative. The Fed Funds rate at 1.5%
means you lose money every year by putting you cash in savings. In fact,
while global credit has contracted and nearly every asset has plummeted
in value, one thing has not gone down, that is the governments creation
of US dollars.

Inflation is a cheat and the gov has a printing press. The current bail-out
bill solves nothing. The gov has a war in Iraq, Afghanistan, and a likely
one brewing in Pakistan. The Russians have $600 billion in currency reserves
and are asserting themselves once again. The "New" Cold War will ratchet
defense spending up on big ticket bombs, missiles, planes and the like.

The Democrats will not dream of cutting or vetoing defense spending bills.

They don't want to seem "weak" on terror or whichever other new bogeyman
the military-industrial complex invents to line its own pockets. We are
going to see pay outs to regional banks, the auto and airline
industries, extension of unemployment benefits, and more social
programs. In the end we will just print more money.

In the short-term the USD may rise against other paper currencies, but
in the end they will all revert to were they have historically.
That is to say zero. No paper currency has ever stood the test of time.

At some point, we don't know if it is in 3 months, 1 year, or two years,
the gig will be up and the fiat currency era over. All of the bail-outs
and wars will make cash no longer King, but a Joker, as an inflationary
wave crashes upon our current (and temporary) deflationary environment.

We would use this extreme weakness in stocks and physical silver
to slowly add to the highest quality companies. We do not think
this is a market bottom, but many top quality stocks are down 2/3 in value.
Slowly start getting long.

For the speculative portion of our portfolio we like Exeter Resources (XRA), Fronteer Group (FRG), Allied Nevada (ANV), Andina Minerals (ADMNF), and Minera Andes (MNEAF), Silver Wheaton (SLW) and Silver Standard (SSRI) at current prices and on pullbacks.

When the public and mutual fund managers pile into the gold stocks we suspect it will be like the dotcoms all over again. We have no idea as to the timing. An opening of a January 2010, 65 Call on the GDX is recommended at under $2.70.