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Friday, June 26, 2009

The dumb money vs. the very smart money

[T]he dumb money is probably betting that the feds can make this work. That’s what all this talk of “green shoots” is about. A huge part of the public believes that the ‘worst is over’…and that the feds’ policies are working. They’re buying stocks in the belief that this is a recession just like any recession of the post-war period. Ben Bernanke says it will be over by Christmas; they believe him.

Meanwhile, there are some very smart people who think the feds’ efforts not only won’t work…but will create an even bigger disaster. Those people are buying gold…and commodities.

David Einhorn, the hedge fund manager who foresaw Lehman Bros. going broke, is now buying gold. John Paulson, who made billions by being right about the credit crisis, is also buying gold. The Chinese are buying gold. So many smart people are buying gold coins that they have become hard to get.

What’s our view? Who’s right? The dumb money; the smart money; or the very smart money?

They may be all right…but at different times. This rally could last a while longer. Then, prices will probably resume their downward path…and then, eventually, inflation fears will send gold soaring. . . .

[T]he feds must fully express themselves too. They’re bound and determined to cause inflation. They believe the country’s financial future depends on it. It may take them a long time to get the upper hand in their war against capitalism…but eventually, they will do it. And eventually, the very smart money will be proven right – when the dollar collapses…and gold goes up.
--from "The Deflationary Downturn" by Bill Bonner (6/8/2009)


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