Doug Casey (Casey’s Gold & Resource Report):

L: Doug, we’ve talked about cars, cows, and cash, but the investment world thinks of you as a gold bug, so let’s give that a go; why gold?

Doug: Sure. First of all, it’s because gold is actually money. It’s an unfortunate historical anomaly that people think about the paper in their wallets as money. The dollar is, technically, a currency. A currency is a government substitute for money. Gold is money.

Now, why do I say that?

Historically, many things have been used as money. Cattle have been used as money in many societies, including Roman society. That’s where we get the word “pecuniary” from: the Latin word for a single head of cattle is pecus. Salt has been used as money, also including in ancient Rome, and that’s where the word “salary” comes from; the Latin for salt was sal (or salis). The North American Indians used seashells. Cigarettes were used during WWII. So, money is simply a medium of exchange and a store of value.

By that definition, almost anything could be used as money, but obviously, some things work better than others; it’s hard to exchange things people don’t want, and some things don’t store value well. Over thousands of years, the precious metals have emerged as the best form of money. Gold and silver both, though primarily gold.

There are very good reasons for this, and they are not new reasons. Aristotle defined five reasons why gold is money in the fourth century BC (which may only have been the first time it was put down on paper). Those five reasons are as valid today as they were then. A good form of money must be: durable, divisible, consistent, convenient, and have value in and of itself.

L: Can you elaborate on that?

Doug: Yes, and from them, we can draw inferences that will help us anticipate the fate of the dollar.

First, let’s take durable. That’s pretty obvious – you can’t have your money disintegrating in your pockets or bank vaults. That’s why we don’t use wheat for money; it can rot, be eaten by insects, and so on. It doesn’t last.

Divisible. Again, obvious. It’s why we don’t use diamonds for money, nor artwork. You can’t split them into pieces without destroying the value of the whole.

L: If I paid for a new Ford GT with the Mona Lisa, what would be my change – a small canvas by Picasso?

Doug: [Laughing.] That’s right. Maybe you’d get millions of those paintings of Elvis or Jesus on velvet.
Consistent. The lack of consistency is why we don’t use real estate as money. One piece is always different from another piece.

Convenient. That’s why we don’t use, for instance, other metals like lead, or even copper. The coins would have to be too huge to handle easily to be of sufficient value.

Value of itself. The lack here is why you shouldn’t use paper as money.

Actually, there’s a sixth reason Aristotle should have mentioned, but it wasn’t relevant in his age, because nobody would have thought of it…

Click here to read the rest of the interview at Whiskey & Gunpowder.

Jeff Clark (Casey’s Gold & Resource Report):

Enron? Bear Stearns? Bernie Madoff? They’re all big stories about big losses and have hurt a lot of employees and investors. But none come close to getting my vote for the decade’s most dastardly deception…

First came Enron, with $65.5 billion in assets, going belly-up and becoming the largest bankruptcy in U.S. history at that time. Chairman Kenneth Lay said that Enron’s decision to file bankruptcy would “stabilize the company,” but over the next five years the company was completely liquidated. The stock went from a high of $84.63 in December 2000 to a whopping 26¢ one year later.

And what had we been told by the media? Fortune magazine dubbed Enron “America’s Most Innovative Company” for six consecutive years. A well-intentioned friend wanted to give me a gift subscription to the magazine for Christmas; I choked on my cocktail and luckily he assumed my drink was too strong. In the end, you can thank Enron for bringing us the Sarbanes-Oxley Act of 2002, a ghastly financial reporting regulation for which compliance is grossly expensive, and – stop the presses! – hasn’t prevented similar repeats.

Next came WorldCom filing for bankruptcy in 2002, their assets of $103.9 billion dwarfing Enron’s. “We will use this time under reorganization to regain our financial health and focus, while operating with the highest integrity,” assured CEO John Sidgmore. Was his eggnog spiked? Today, WorldCom stock certificates have been spotted as doilies under pancake house coffee mugs signifying it’s decaf.

Tyco, Adelphia, Peregrine Systems… it’s a crowded field around this time. But their stories of fraud and greed and mismanagement get boring after awhile. Just watch the closing credits from the movie Fun with Dick and Jane and you’ll see what I mean.

Bear Stearns set us all up for the Big Meltdown of 2008. It was B.S. (no, I mean Bear Stearns) that pioneered the asset-backed securities markets, and we all know how that turned out. Later we learned that as losses mounted in 2006 and 2007, the company was actually adding to its exposure of mortgage-backed assets, gearing itself up to 35:1. With net equity of $11.1 billion supporting $395 billion in assets, B.S. carried more leverage than a streetwalker’s push-up bra.

And during it all, Bear Stearns was recognized as the “Most Admired” securities firm in a survey by Fortune magazine (there’s that Lower Manhattan tabloid darling again). Frequent sightings of company executives on country club fairways assured the public that all was well. And CEO Alan Schwartz told us there was “no liquidity crisis for the firm” and insisted he “had the numbers to back it up.” His company was sold four days later to JPMorgan Chase at $10 per share, a 92% loss from its $133.20 high. Perhaps his numbers were prepared by ex-Arthur Andersen employees.

Lehman Brothers, the 158-year-old investment bank, was next and still today holds the title as the largest bankruptcy in U.S. history. L.B. succumbed to 2007’s Word of the Year, “subprime,” and its $600 billion in assets all went poof! In just the first half of 2008, before the meltdown, Lehman’s stock slid 73%.

 And what did CEO Dick Fuld tell us in April of that year? “I will hurt the shorts, and that is my goal.” He must have been referring to the attire of his tennis club buddies, because the ones who actually got hurt were numerous other banks, money market funds, institutions, hedge funds, REITs, brokers, private and public trusts, foundations, government agencies, foreign governments, employees, and investors.

 Moving on to the largest U.S. government bailout recipient by far, AIG’s troubles spawned my favorite placard of the decade: seen outside their Manhattan offices stood a sign that simply read, “Jump!” Maybe its creator heard what I did from AIG’s financial products head Joseph Cassano: “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions.”

He must have substituted his prescription eyewear with those giant New Year’s Eve glasses, because the government sunk $180 billion into the company and it still had to be split up and the assets sold to the highest bidder. I’m sure that his non-flippant comment had nothing to do with him making CNN’s “Ten Most Wanted Culprits” list in 2008.

GM, with $91 billion in assets, filed for bankruptcy in the summer of 2009 and is now largely owned by the U.S. and Canadian governments (i.e., taxpayers). The $19.4 billion in federal help wasn’t enough to keep the nation’s largest automaker out of bankruptcy. But don’t despair: the government is pouring another $30 billion into GM to fund “reorganization operations.”

GM shares? Bye-bye. For 83 years GM had been a member of the prestigious 30 Dow Industrial stocks. It managed to survive the Great Depression but not this decade’s Greater Depression. Yet chairman Ed Whitacre had insisted, “I remain more convinced than ever that our company is on the right path and that we will continue to be a leader in offering the worldwide buying public the highest quality, highest value cars and trucks.” I wonder what he thinks now that the stock is named “Motors Liquidation,” trades only on the pink sheets, and sells for about 50¢?

Topping off our list is the infamous Bernie Made-off (er, Madoff), who scammed $65 billion over 20 years from unsuspecting institutions and wealthy investors. But don’t be too upset, because the number is probably half that amount. Hey, the alleged size of the losses comes from his own ledger book, and should we really trust his balance sheet? Dubbed the largest Ponzi scheme ever, I beg to disagree, as you’re about to see…

By now you are probably wondering… what’s bigger than all these? He’s covered the major frauds and scams of the past decade – what could possibly be left?

To quote my favorite sleuth, Hercule Poirot, “When all the facts are laid before me, the solution becomes inevitable.”

Here are a few clues…

Federal Reserve Chairman Ben Bernanke said on July 16, 2008, that Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.” Then-Secretary Treasurer Henry Paulson declared on August 10, 2008, “We have no plans to insert money into either of those two institutions.”

►Both Fannie and Freddie were nationalized 28 days later, on September 8, 2008.

Ben Bernanke claimed on February 28, 2008, “Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks…” Henry Paulson added on July 20, 2008, that “It’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”

►Since the recession started in December, 2008, 144 banks have failed.

Paulson informed us on April 20, 2007, that “All the signs I look at show the housing market is at or near the bottom.”

►The number of foreclosures skyrocketed shortly thereafter and will now any day surpass those during the Great Depression. 

Ben Bernanke announced on June 20, 2007, that “[The sub prime fallout] will not affect the economy overall.”

►Less than one year later, the stock market crashed, losing 53% of its value, and is still down 25% despite one of the biggest bounces in history.

Those in charge of our country’s finances not only failed to see the crises developing and then bungled the handling of the recovery, they’ve deliberately misled us about what they’re doing to our currency. In spite of emphatic promises, flowery speeches, pat-on-the-back assurances, and continual reassurances, here’s what they’ve actually done to the dollar:

• Since September 1, 2008, the monetary base has ballooned from $908 billion to $2.0 trillion. The current monetary base is now equal to bailing out General Motors 23 times.
• Bailout funds in 2008 and 2009 total $8.1 trillion. That’s almost 78 WorldComs. It’s over 123 Enrons.
• U.S. debt has risen sharply, from $6.2 trillion in 2002 to $12.1 trillion today. That’s over $39,000 per citizen.
• David Walker, the comptroller general of the Government Accountability Office from 1998-2008, warned that the U.S. is on the hook for $60 trillion in unfunded liabilities. Independent analysts peg the figure at near twice that. Whatever the number, it is incomprehensibly large. The only way we will meet these liabilities is to print the money and inflate them away.

We’re bailing out corporations that should fail, making financial promises we can’t keep, and adding layers of debt we can’t possibly repay. And the real killer is, if we don’t have the cash, we just print it. It is, by any reasonable account, the “blunder that will plunder” the next several generations. It is changing America permanently, and the problems will persist long after you and I are laid to rest.

Bottom line: after all the bailout programs, housing initiatives, rescue efforts, stimulus schemes, bank takeovers, wars, unemployment benefit extensions, and numerous other promises, the biggest financial deception of the decade is what the U.S. government is doing to the dollar. Nothing else even comes close.

This reckless activity has spooked our foreign creditors, weakened our global standing, diluted our currency, is punishing savers and retirees, and ultimately sets us up for a level of inflation this country has never seen before.

Yet, what is the guardian of our economy and money telling us now?

“Will the Federal Reserve’s actions to combat the crisis lead to higher inflation down the road? The answer is no; the Federal Reserve is committed to keeping inflation low and will be able to do so. In the near term, elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here.” (Ben Bernanke, December 7, 2009).

This is pure rubbish. If inflation could be controlled by just thinking stable inflation thoughts, then Ben should be able to grow a full head of hair by just thinking scalp follicle thoughts. This is so ridiculous, it’s insulting.

Government actions make a mockery of their words; what they say and what they do are diametrically opposed. It’s clear that inflation is not a question of if, but when.

Any level-headed individual has to conclude that there will be a steady – and likely accelerating – decline in the dollar’s purchasing power. It’s inevitable.

The great masses don’t quite understand it yet, but they will. There will be no escape from the cold, hard slap in the face citizens will receive when a high level of inflation arrives. And when it does, it will make a mockery of any opposing viewpoint.

So the question before you is simple: Will you be a prepared survivor for what lies ahead, despite what our government leaders tell us, or will you be a complacent victim of the biggest financial deception of the decade?

For me, there’s only one solution. Don’t kid yourself into thinking a man-made asset will protect your purchasing power. This is the time to be overweight gold and silver. I advise letting them serve their purpose for you.

Learn the best ways to buy and hold gold and silver, and the stocks that will help you outpace the inflation that’s right around the corner. Give Casey’s Gold and Resource Report a risk-free try and learn how to escape with your assets intact. For $39 a year, it’s a no-brainer. Click here for more.

Martin Hutchinson (Money Morning):

U.S. Federal Reserve Chairman Ben Bernanke’s latest thesis is that the home mortgage bubble had little to do with record low interest rates, and was actually much more a problem of regulation.

It sounds plausible – until you give it some real thought. After all, I believe that humanity has already tried a system with tight, vigorously enforced regulations, and no price mechanism.

It was called the Soviet Union.

Okay, that was a bit of a cheap shot – to some extent. Bernanke stated that “borrowers chose and were extended mortgages that they could not be expected to service over the longer term.” That appears to make the problem one of regulation: The types of mortgages that banks should be permitted to offer should be limited to ones that borrowers have a reasonable chance of servicing.

In theory this makes sense. However, it is a prime example of what I in the past have referred to as the “Keynesian Bureaucrat Fallacy,” or KBF.

Under the KBF, wise bureaucrats – who, like economist John Maynard Keynes, were presumably educated at Cambridge and steeped in the traditions of the Bloomsbury Group – will decide the appropriate regulations for every sphere of the economy.

They will then enforce them with draconian rigor, forcing the economy to behave in a way that optimizes economic welfare, measured by whatever means the bureaucrats devise. Irrational market-based signals – such as the price mechanism, will be ignored – unless the bureaucrats decide it is safe to take account of them.  . .

Click here for the rest of Mr. Hutchinson’s commentary on Money Morning.

Adrian Ash (The Daily Reckoning):

The collapse in India’s gold demand during 2007-09 might seem good reason to question the fundamental strength of gold buying worldwide.

After all, if the world’s No.1 gold buyers can’t keep up with record-high gold prices, who can…?

But the plain fact, as BullionVault first forecast in spring 2009, is that China has overtaken India as the number one private gold buyer this year. The typical Chinese New Year gold rush has already begun (thanks in part to 3% discounts at major retailers), and robust demand looks likely to continue through 2010 if not beyond.

Full-year 2009 private demand in mainland China could outstrip India, the former No.1 buyer, by one quarter if not one third. Short of a (very unlikely) collapse in Q4 demand, full-year private gold buying – including jewelry and retail investment – is set to have grown 10% from 2008’s record in volume terms, rising 26% by value to equal $13.5 billion or more.

On recent trends, that would equate to more than 2.0% of China’s famously massive household savings (up from 1.0% ten years ago) and account for almost one ounce in every eight sold worldwide.

Basis the GFMS consultancy’s data (published by the World Gold Council), physical gold purchases by mainland Chinese households in 2009 was already running 19% ahead of India’s private demand for Q1-Q3.

Given China’s continued economic growth (certain to hit Beijing’s 8% target according to the Chinese Academy of Social Sciences) – not to mention the surge in money-supply and credit growth over and above GDP (put at 23 and 27 percentage points respectively by Deutsche Bank) – private gold consumption in Q4 most likely remained very robust. Whereas India’s private gold off-take during Oct-Dec. continued to shrink in the face of record-high prices. Indian bank and wholesale dealers have reported below-market bids from their clients throughout the autumn. Comments from the Bombay Bullion Association put Q4 imports 54% lower from 2008’s already disastrous finish.

Fourth-quarter Chinese consumption should be in the range of 116 tonnes (if it adds 37% to Q1-Q3 volume, as per the 5-year average) to 128 tonnes or more (if Q4 tops Q3 by volume, as it has each year since 2004). The running total to end-Sept. was 315 tonnes. It is likely to finish full-year at 431-443 tonnes.

India’s private demand, in contrast, ran 45% below 2008 levels during the first 9 months of the year, most notably depressed during Q1 (down 83% from Q1 08, with Indian investors becoming physical dis-hoarders on GFMS’s data; overall, India was a net exporter of gold for the first time since the Depression according to market historian Timothy Green). Applying the 5-year average ratio of Q4 demand to Q1-Q3 figures (27% added to 264 tonnes), full-year private off-take would come in at 336 tonnes, the lowest total since at least 1991 on GFMS’s data. . . .

Click here for the rest of Mr. Ash’s analysis at The Daily Reckoning.

David Fessler (Investment U):

Back in April, I wrote a column detailing the looming train wreck in the commercial real estate market.

It turned out to be a rather controversial piece.

How controversial? You can judge for yourself here in my April column: The Commercial Real Estate Sector: As The Other Shoe Drops – Be Wary of Bank Stocks. It was groundbreaking enough to land me a spot on Glenn Beck’s show on Fox News.

Virtually nobody else was talking about the topic and a number of readers e-mailed to tell me how daft I was for even mentioning it. But I sensed the mess coming a mile away.

Right now, commercial real estate is in the gutter. It’s where the banks were last March. No one wants to touch the sector in any form.

But I think it’s time to jump back in.

And before you think I’ve sucked down a little too much holiday eggnog, hear me out…

A Contrarian Bet Worth $9.5 Billion

I’m in good company with my projection here.

During last February and March, a hedge fund called Appaloosa Management was busy buying up shares of Bank of America (NYSE: BAC) and Citigroup (NYSE: C).

And the guy calling the shots was a man named David Tepper, who runs the fund.

At the time, investors, colleagues and even his friends thought he was nuts – a move akin to lounging on the deck of the Titanic while everyone else was abandons  ship.

But in yet another example of how it’s often wise to take a contrarian investment stance, the bet not only paid off handsomely for Tepper’s firm, but for Tepper personally. Appaloosa is up nearly $7 billion on the trade, while Tepper stands to pocket a very cool $2.5 billion in profit for himself.

Tepper’s no one-hit wonder either…

His track record includes huge payouts for his investors in Korean stocks, Russian debt, junk bonds and commodities over the last decade.

We should all be so astute…

Perhaps we can be, because there’s still time to get in on his next big idea…

A Lonely Voice in a Sea of Pessimism

Tepper is quietly purchasing commercial mortgage-backed securities (CMBS).

His purchases include large chunks of real-estate debt – mostly in the form of bonds, according to the Wall Street Journal.

Most notable among them are huge portions of the debt of two New York City developments – Peter Cooper Village and 666 Fifth Avenue, both high-profile real estate development deals. Tepper believes both are significantly undervalued. . .

Click here for the rest of Mr. Fessler’s article on Investment U.

Bill Bonner (The Daily Reckoning):

The Los Angeles Times tells us that mortgage defaults in the prime category rose in the 3rd quarter. If you are wondering what might happen to housing prices in the US…should the depression continue…you might want to keep an eye on the default rate.

Housing prices are down about 30% nationwide. In some areas, they are down much more. But they had been going up for so long…this downswing still seems like an aberration. Hope has momentum…especially in the housing market. Housing prices rose along with inflation for 100 years. Then, they rose much faster than inflation over the last 10 years, ending in 2007. This leaves people with the impression – false – that housing always goes up over the long run. As we have pointed out many times in these Daily Reckonings, housing prices in the nicest neighborhood of Baltimore, where we have our offices, hit their highs, in real terms, in the 1920s. They’ve been going down ever since. Even after the big run up to 2007, they were still below their ’20s peaks. That’s a bear market in real estate prices that has lasted, so far, 80 years.

We don’ t have reliable numbers – in fact, we don’t even have unreliable numbers – but our guess is that property prices in central Rome topped out during the reign of Trajan…or maybe even Augustus. They must have gone down for the next 1700 years, because as late as the 1800s, the most precious real estate of the Roman Empire…around the forum…was being used as a goat pasture. That’s still better than say Troy or Ctesiphon – cities that were abandoned and forgotten completely.

Real estate doesn’t go up over the long run. Sometimes it goes down…often for a very, very long time. . .

Click here for the rest of Mr. Bonner’s commentary at The Daily Reckoning.

Bill Bonner (The Daily Reckoning):

We reported that the US government would need to roll over $2.5 trillion worth of debt next year. We probably erred. The number was right, but it was meant to be over the next two years. During the next two years also, worldwide, banks need to roll over $7 trillion. Whether it is over one year or two years, we’re talking big money.

Most people who bother to think about it are coming to the conclusion that this is very inflationary…and very bullish for gold. They think the Fed will need to “monetize the debt” directly, or indirectly. One way or another, they say, the central bank will have to increase the volume of money so that the government can finance its deficits.

Paul Krugman, Nobel Prize winner in economics, suggested that the Fed add another $2 trillion to the nation’s monetary base, partly to accommodate federal borrowing…and, he believes, to stimulate employment.

This idea is widespread. Richard Koo, one of the few economists to understand the Japanese depression and what awaits the US, thinks along similar lines. The US economy is going into a depression, like Japan; the government must spend huge amounts of money in order to keep GDP from falling.

Japan’s top man shocked the nation last week when he announced the largest budget deficit ever. The government will spend about $1 trillion – a new record. And it will collect less than half that much in taxes. Meaning, most of what the Japanese government spends is borrowed – something the Japanese haven’t done since the days when Americans were dropping bombs on them.

The Japanese government is doing what it should do, says Koo. It is replacing missing private spending with public spending. So doing, it has avoided a drop in GDP and employment. Throughout its 20 year slump, Japan’s GDP has never fallen below the peak set in 1989. Nor has unemployment ever risen above 6%. Bravo!

Bravo?

Click here for the rest of Mr. Bonner’s commentary at The Daily Reckoning.

Bill Bonner (The Daily Reckoning):

No, dear reader…it’s not that simple. It never is.

That’s true of almost everything….

The bond market has begun to sell off. The big question is: what does it mean?

Is it A sell-off? Or THE sell-off?

We’ve done well with our simple trade for the last ten years. We bought gold. We sold stocks. But what’s ahead?

Will that be the best trade for the NEXT 10 years too? Or is it time to sell bonds, rather than stocks?

Hmmm….

Stocks have lost value over the last ten years. US stocks were about the worst thing you could own over that period. But what are the odds that they’ll be the worst thing you can own over the NEXT decade too?

Who knows… Historically, it would be unprecedented for stocks to have negative returns over a second 10-year term. That doesn’t mean it won’t happen. But is it a bet worthy of the Trade of the Decade?

Don’t know.

What we’re looking for are the extremes. We want to buy things that have been so beaten down for such a long time that they almost have to go up. And we want to sell things that have been going up for so long that people are sure they’re going up forever.

In 1999, gold was perfect for the buy side. It had been going down for 20 years…while other asset classes and money substitutes soared. On the sell side, stocks were perfect. The Dow had been going up since 1982…and prices had reached levels that could only be sustained by delusions and hallucinations.

But what now?

We have a couple more days to think about it… Stay tuned.

What else?

Click here for the rest of Mr. Bonner’s commentary on The Daily Reckoning.

Tom Bulford (Penny Sleuth):

Joseph Stalin does not sound like a very nice man to have worked for.

He had this idea that digging up coal from underground in order to burn it as soon as it reached the surface was a bit of a waste of time and effort. Why not simply burn it while still underground and then simply draw up the heat and gases through a pipe?

Convinced that this was a smart idea he set his scientists to work on the problem. Unfortunately for twelve of these scientists, they failed to do so and Stalin had them executed.

But to be fair to Stalin, his idea was right but just a little ahead of its time. Last week the UK Coal Authority granted a license to Clean Coal, a subsidiary of the quoted Anglo-American (ticker: AAL) to put Stalin’s theory into practice.

Under the North Sea, within ten kilometres of the coast, is enough coal to satisfy UK demand for at least ten years. The difficulty is getting it out.

But thanks to a new technology called Underground Coal Gasification this is no longer necessary. Let me show you how it will work.

How to make hard-to-reach coal fuel a power station

A drill will bore its way through the ground at somewhere, on land, close to perhaps Grimsby. Having reached the required depth it will then take a ninety degree turn and head out sideways underneath the coastline until it hits the coal seam.
Next a second bore hole will be drilled into the coal seam. Once that is done the coal will be set alight underground, and will be constantly fanned by oxygen fed down one of the pipes. Up the other pipe will come a methane-rich synthetic gas able to fuel a power station.

This will not be the first time that this has been done. Similar projects are already up and running. In the course of investigating a penny share company last week, I came across another such plan.

This was Strategic Natural Resources (ticker: SNRP), and I managed to catch up with chief executive Jeremy Metcalfe, a man whose enthusiasm and energy defies his seventy years. . .

Click here for the rest of Mr. Bulford’s report at Fleet Street Invest, UK.

Chris Mayer (The Right Side):

The U.S. dollar is a sort of monetary brand.

And like any other brand, it can fall out of favour. Even iconic brands can rapidly lose their “must-have” cachet. Sometimes, a brand can disappear entirely, as did Pan American Airways or “Members Only” jackets. But there is always something else waiting to take its place. So it is with the U.S. dollar, a brand making lows in the financial markets.

The dollar has been the “Coca-Cola of monetary brands,” says James Grant, editor of Grant’s Interest Rate Observer. But even the best of brands can be lousy investments. Grant uses the analogy of the New York Times. It was the greatest name in newspapers. In 2002, the stock sold for $53 per share – an all-time high, as it turned out. Today, the “Gray Lady” fetches only $8 per share.

“What happened?” Grant asked. The World Wide Web happened, he says. “The Times has hundreds of reporters, but this is a story they seem to have missed.” As if the lowly stock price was not evidence enough of its decline, the NY Times got another reminder when it borrowed $225 million against its headquarters building.

The cost of such borrowing, Grant reports, was 14%. The august Times today borrows at rates no better than a working-class stiff at a pawnshop. The U.S. Treasury should take note. The government seems as intent on creating dollars as prolifically as bunnies create other bunnies.

Here we get to John Paulson, a presenter at the Grant’s Fall Investment Conference and undoubtedly the richest man in the room. Portfolio magazine dubbed him “The Man Who Made Too Much” after he made $3.7 billion by betting against mortgage-backed securities (MBS). He is one of the greatest hedge-fund managers ever.

Gold is his favourite today. As to why, Paulson presented a simple, but compelling case. First, the monetary base has exploded in a way we’ve never seen before. The monetary base is essentially the Federal Reserve Bank’s currency and reserves.

The Fed, by buying up securities in this crisis, has pumped a lot of money into the economy.

Click here for the rest of Mr. Mayer’s article at Fleet Street Invest, UK.