Dear Reader,

When it comes to selecting a restaurant, we're often told to follow the wisdom of the crowds – go to the packed restaurant, not the one with only a few customers sitting like islands in a sea of empty chairs. For a long time, this advice served me well; but as the years went on, I started exploring foods outside my comfort zone. I started with sushi, then Lebanese food, followed by Indian, Nepalese, and Vietnamese pho. There is a whole world outside of meat and potatoes – a world of flavors and spices that put European cuisine to shame.

Not only did the food change, but my wisdom about food did as well. These days, I don't see crowds as a positive sign. In fact, if a restaurant is filled to the brim, I'm probably not going to enjoy myself. Don't get me wrong – the food might be good, but I've eaten enough steaks, burgers, and nonauthentic Italian food for one lifetime. What sells and what's really amazing and unique are often two distinct things. And this doesn't just apply to food. Turn on the radio or TV and flip a few channels. Is watching Snooki on Jersey Shore really the best entertainment available? Probably not, but it's popular.

In a way, this reminds me of the market at the moment: one day it jumps 200 points, and the next day it falls by the same amount or more. Should these volatile moves in the market concern an investor? Well, one should ask who is creating this volatility – it's akin to knowing who is packing those restaurants. Is it folks with a broad range of culinary tastes or someone interested in nothing more than a decent burger? In this case, the market movers are the folks who have things completely upside down. One day a Greek bailout looks closer and the next day it looks further away. Hence, they're buying and selling, back and forth.  We at Casey Research have already decided our position: The bailout is bad news, even if it manages to temporarily prop up Greece.

The "wisdom of the crowds" works for their taste in bailouts and interventions. That sort of thinking doesn't work for our palate. Let them buy and sell in unpredictable and schizophrenic ways for the next few months. We've got our game plan, and they've got theirs. Time will show which one is superior.

Next up, Jeff Clark will discuss what could be the best mistake of your life.

The Best Mistake You'll Ever Make

By Jeff Clark, BIG GOLD

The following conversation took place between a friend's son and I; he's a bright but relatively young investor. He had purchased some gold based on some things I'd told his father. Shortly afterward, the price dropped hard. As you'll see, he was not very happy with my advice and said so in an email to me. So I called him…

I: Sounds like you're upset.

Friend: Yeah, that's putting it mildly. What the hell am I supposed to do now?

I: Because the gold price has dropped?

Friend: Yes! It's down 15% in a month! I thought you said this was going to be a good investment.

I: It is. And it will be. You might even consider buying more here if you have the funds.

Friend: I have some other money, but why would I put it in gold? It's losing money.

I: Because it's on sale. Because it's cheaper now than when you bought it. And especially because none of the reasons for buying it have gone away.

Friend: That doesn't mean it's going to go back up.

I: As I told your dad, there are no guarantees, but I think it will have to go higher. Either way, it will hold its purchasing power over time. We're holding it as an alternate currency, a more sound form of money that can't be debased.

Friend: Yeah, well, my money just got debased, big time. It needs to go up 20% for me just to get back to even.

I: Five years from now your dollars will have lost at least 10% of their value, based just on current trends. There's a good chance it will lose more than that. And gold will probably rise more than 10% a year. At some point it'’s likely to go into a bubble.

Friend: [silence.]

I: Look, I know you're upset, but I'd hate to see you bail. This is one of the best investments we can make this decade.

Friend [relenting a little bit]: You really believe that.

I: I can't promise you anything, but yes, I do.

Friend: And that's because you think inflation is coming.

I: It's for a lot of reasons, and that's one of them. Inflation is virtually baked in the cake; the dollar's long-term problems will be impractical to resolve; and the global economy is on high alert. This is exactly the kind of circumstances gold is for.

Friend: Then why is it falling?

I: Institutions need cash and liquidity, and gold offers a bid. Besides, nothing goes up in a straight line, and gold had just run up 35%. It was time for a break.

Friend: So this big drop really doesn't worry you.

I: It doesn't. I'm buying. In fact, I'll prove it to you – send me your gold and I'll buy it from you.

Friend: [Silence.]

I: I know it doesn't feel good right now, and it may take some time for it to make another new high, but gold is too important not to own here. It's a long-term trade, so plan on holding it for a while. In fact, if it helps, just forget about the fact that you own it – go do something fun and have a beer at the pub.

Friend: [a little chuckle].

I: I don't think you made a mistake buying at the price you did, in spite of it being lower now. Odds are high you'll be happy in a few years.

Friend: [pause] All right…

I'm glad my son's friend decided to hold on, because that conversation took place in June, 2006. He'd bought gold at around $700 and watched a month later as the price fell to as low as $567.

Gold ended up declining a total of 21% in just five weeks before bottoming, after a run-up of 35% (sound familiar?). And yes, it took over a year before it hit a new high.

Yet my son's friend – now older and wiser – wishes he could go back in time and make the same mistake again and buy gold at $700. His investment is sitting on more than a double, in spite of buying at a temporary peak.

I think that a few years from now we'll all wish we could go "back in time" and buy gold at $1,700. And I believe you'll still feel that way if gold falls to $1,500, as some writers are projecting.

I think this because circumstances now are worse – and hence more bullish for gold – than they were in 2006. Look at how much money we've printed (the monetary base now exceeds $2.6 trillion, a mind-boggling 200% increase since 2006). Look at the state of the global economy – highly vulnerable and propped up by governments. Consider the lingering and inescapable predicament of many European nations – scare tactics aside, how, exactly, will this be resolved in a healthy way? Ask yourself if the outlook for the US dollar is out of the woods (roughly 10% of federal revenue goes solely to debt payments, a figure that is projected to triple). Explain how the reckless path of deficit spending will shift without causing some kind of major impact on the economy (history shows abject deficit spending leads to economic downfall, virtually without exception). Tell me how we avoid massive inflation, an outcome that seems so certain at this point that about the only way to avoid it would be a massive global meltdown – and even then, the Fed would surely print to oblivion.

Like I told my son's friend, nothing is guaranteed. But until real interest rates are positive again, government leaders instigate honest solutions to our debts and deficits, the global economy becomes an engine of growth, the sovereign debt issues in Europe are genuinely resolved, and global currencies – especially the US dollar – are strong again, I'm buying gold.

Yes, there will be volatility. And yes, a short-term "solution" to what seems like certain default in Greece, for example, would cause some investors to sell gold. But like in the spring of 2006, these are temporary, short-term fixes only. For the tumult that is most likely ahead, there simply isn't any better currency protection than gold and silver.

Join me in calling your favorite bullion dealer and making the mistake of buying gold at $1,700.

[No one knows with any certainty the future's trajectory… but we at Casey Research know that contrarian investing will continue to be a profitable strategy as nations continue to meddle in markets. Get expert ideas on what's ahead and how to make the most of it – order your When Money Dies Summit audio recordings today. They're available in CD or MP3 format for your convenience.]

Additional Links and Reads

Citigroup, Goldman Sachs Selling Debt (Bloomberg)

Citigroup and Goldman Sachs each sold a billion dollars' worth of bonds. I'm a little concerned here. It's not like these companies are planning on starting new projects with the cash. In fact, Goldman Sachs has been laying off workers. It's probably trying to get cash as precautionary funding before the economy and its balance sheet really hits the fan.

BlackRock Expects "Massive" Mining M&A (Bloomberg)

Big companies heavy on cash, excellent valuations, plus financing risk for some spells M&A opportunities in the mining sector. The article notes:

"You've got falling earnings, you've got compressed multiples, most of mining companies are trading under replacement costs," Pengana's Ronge said. "There are definitely opportunities. The market is pretty much ripe for consolidation."

Raiffeisen Bank TV Ad: Easy (Subprime) Loans in Hungary, 2007 (YouTube)

Here’s a good reminder how we got here – a 2007 Raiffeisen Bank commercial from Hungary. Essentially, a banker does everything in her power to avoid hearing the loan applicant's salary. If it weren't so sad, it'd be almost funny. Thanks to Robert N. for sending this one in.

That's it for today. Thank you for reading and subscribing to Casey Daily Dispatch.

Vedran Vuk
Casey Daily Dispatch Editor