Below, I’ve summarized pertinent points of this growing food crisis:

• Though the mass media has continued to virtually ignore this massively important story, food riots, instigated by soaring food prices, occurred in about 30 countries last year, including Haiti, Zimbabwe, Ethiopia, and Bangladesh. Due to shrinking food stocks, leading agricultural commodity exporters such as India and Argentina imposed bans on overseas sales of food products.

• Last year, global rice stocks fell to a 30-year low after droughts decimated crop yields in China and Africa. At one point, during a two-week period in April of 2008, prices of rice rose 50%. Rice is the staple food for more than 3 billion people. According to the World Bank, the real price of rice and wheat respectively rose to a 19-year and a 28-year high last year.

• At the recent G8 Agriculture Ministers meeting held in Treviso, Italy in April of 2009, US Secretary of Agriculture Tom Vilsack stated that climate change had materially affected the challenge to feed the world’s population – expected to reach 9 billion by 2050 from today’s current number of 6.5 billion. As a solution, he called on the G8 to back the use of science in agriculture, including genetically modified organisms, to boost productivity.”

• In 2009, for the first time ever, the United Nations reported an unprecedented 1 billion+ people went hungry every day and predicted that this number would continue to rise due to persistently high food prices and the continuing economic crisis.

Though the above unfolding catastrophe should be the leading story of every major media outlet in the world, instead swine flu has trumped this potentially much greater catastrophe. World Health Organization (WHO) officials have currently assigned the worldwide risk of swine flu to a Phase 5 level indicative of an “imminent pandemic”; if starvation were considered a disease, the risk factor of this hunger catastrophe would be assigned the WHO’s highest rating of Phase 6.

Beyond the surface points I noted above, there are some truly disturbing facets of this hunger catastrophe that lie beneath the surface. Given that the WHO has labeled swine flu a pandemic with a recent figure of confirmed cases at 1,316 worldwide, it is no exaggeration to consider a hunger pandemic that currently has more than 1 billion victims a catastrophe. Though droughts, low crop yields, and the spectacularly foolish, inefficient experiment to turn food into biofuels have all significantly contributed to the imminent mass starvation problems that will soon materialize, the truth is that the easiest and most efficient way to address the hunger catastrophe is purposely being obfuscated and hidden by the world’s Central Banks and financial oligarchs. Ironically, one of the most significant components of the troubling rise in food prices, monetary inflation, is also the easiest symptom to attack and solve as opposed to other solutions that seek to raise crop yields through the increased use of biogenetically engineered seeds. In addition, though poor climate conditions have undoubtedly contributed to low crop yields in recent years, the real effect of monetary inflation on plunging food stock levels is often obscured by governments through highly inaccurate and deceptive PPI (producer price index) numbers.

Of the current 6.5 billion people in this world, 50%, or 3.25 billion, live on a daily wage of $2 that has not changed in years, despite the fact that significant erosion in the purchasing power of these $2 over the past decade. In turn, the billions of people that subsist on $2 a day spend $1 on food daily. Simple math dictates that if the price of basic diet staples in the developing world (rice, corn, wheat, etc. but specifically rice) rises to $2 or $3 a day or more, more than 3 billion people will no longer just be hungry, but will begin to die from starvation. In previous essays of mine, I have outlined a strong argument for significant inflation in our future despite the persistent campaigns to spread deflationary beliefs. If time proves my arguments to be correct, then a doubling, or even a tripling or quadrupling in the prices of basic food staples is a real and distinct threat to the mortality rates of billions of people. Given the magnitude of this moral crisis, no matter one’s stance in the debate of inflation versus deflation, it is imperative to grant consideration to the possibility of strong inflation in imminent years and its implications for 3.25 billion of our fellow citizens.

This is precisely why the moral disaster of mass global starvation that looms in our near future must first and foremost be approached as a direct symptom of the foolish and dangerously destructive monetary policies now being implemented by the US Federal Reserve, the Bank of England, the Bank of Japan, and the European Central Bank. The United Nations, in their press release, stated that mass global hunger today is attributable to rising prices, and none other than former US Federal Reserve Chairman Alan Greenspan, in a rare moment of clarity, stated in 1997 that “price increases are really the same thing as depreciation of the currency”. There is little doubt in my mind that one of the largest components of rising food prices over the next five years will be a very significant “food tax” that is directly attributable to the debasement of all major global fiat currencies. Thus, one of the most efficient and effective steps we can implement to prevent our current global hunger catastrophe from evolving into a global starvation catastrophe is to re-institute a sound monetary system in which all money is backed by gold or silver or a combination of both.

During the recent G8 Agriculture Ministers meeting in Italy, when US Agriculture Secretary Tom Vilsack used this platform to promote the business interests of the biogenetic agricultural industry, such chatter was a smokescreen designed to deflect attention away from the true culprit of this catastrophe – monetary inflation. Given Vilsack’s history of well-documented supported for bio-genetically engineered agricultural crops, including his award as Governor of the Year by the Biotechnology Industry Organization in 2001, his preferred solution to this crisis offers no surprises. Those who invest in Monsanto (NYSE:MON) now, in terms of monetary profits, will likely emerge smelling like roses a couple years down the road. Still, a larger moral question than the debate over the safety of bio-genetically engineered food or the morality of using a crisis to promote business interests must be answered – “How significant are the contributions of our unsound monetary system to the greatest potential humanitarian crisis of our lifetime?”

Given the course of monetary policies being implemented by our global Central Banks, though this is a prediction I hate to make and detest even more if it comes true, the likelihood is very strong today that hundreds of millions of people will starve to death within the next five to ten years. Though many will find this prediction outrageous, remember that many of my predictions that were considered outrageous 2-3 years ago have now come true. I write this article not for shock value, but for the simple reason that this crisis is avoidable if we begin altering our solutions to the global financial crisis today. However, a persistent refusal to acknowledge the primary role of our fraudulent monetary system in creating this worldwide financial crisis will only serve to cement this obscene prediction in future years.

Should this grim hunger catastrophe continue to progress as increasingly seems likely, growing numbers of food-inspired riots and complex national security issues caused by mass migration issues will arise that will necessitate a response from our world leaders. Should this happen, I have no doubt that our world leaders will spin the starvation catastrophe as attributable to every reason imaginable but the true culprit – our unsound monetary system. Should this problem progress, eventually millions of rural poor will migrate to urban centers, driven by a need to earn higher wages to buy increasingly more expensive food. Ironically the consequence of flooding urban areas with cheap labor in developing countries will be significant wage depression for higher income earners and the rapid deterioration of the middle class into the poor.

Historical precedent for this outcome already was already set during the post NAFTA-years in Mexico, when NAFTA policies created a mass migration of poor into urban centers and effectively destroyed the wage potential of the middle class. Thus, this hunger crisis will not only affect the survival rates of 3+ billion people, but it will also negatively impact the earning potential of billions of urban dwellers in the future as well. Hopefully, this potentially epic humanitarian and moral disaster will finally serve as the necessary blaring alarm to citizens of the world to address the equivalent moral disaster that is our fiat monetary system.

JS Kim is the President & Founder of SmartKnowledgeU, LLC, a fiercely independent investment research & consulting firm that helps clients create wealth during this ongoing global financial & monetary crisis.

Recently, Bank of America CEO Ken Lewis testified that former US Treasury Secretary and ex-Goldman Sachs CEO Hank Paulson instructed him to disobey securities law and conceal material losses in the Merrill Lynch merger from investors. Lewis additionally testified that Paulson threatened to fire him and his entire board if he tried to back out of the Merrill deal. These revelations, too, did not surprise me, for these kinds of activities, devoid of all morals and ethics, have been occurring regularly within the financial industry for decades. It only seems as if such transgressions are more numerous today because of the recent attention given them in the media, but in reality, they have neither proliferated in frequency nor expanded in egregiousness.

Anyone that has ever worked for a Wall Street firm is well aware of the danger an analyst brings upon himself when he refuses to tow the official corporate party line regarding stock ratings for a firm that is simultaneously closing a financially significant deal with the analyst’s employer. Even though this atmosphere of “unspoken coercion” of inflated stock ratings existed for decades, when the bull was strong on Wall Street, very few journalists found this story newsworthy. Even though regulatory laws were passed many years ago to separate investment banking interests from securities interests within the same firm, the percent of US stocks covered by Wall Street firms rated as a “buy or hold” actually increased from 89% (2003) to 93% (2007) after the passage of aforementioned regulations. Who in their right mind would ever believe that 93% of all stocks covered by Wall Street should be rated a “buy or hold” and that only 7% should be rated a “sell”?

When regulations are enforced through self-monitoring and self-policing as is too often the situation, and when all financial regulatory agencies are themselves lacking in integrity and transparency, new regulations can be enacted every day without effect. Self-regulations and regulations imposed by morally bankrupt people have never been effective. How quickly we forget that UBS Paine Webber financial consultant Chang Wu was fired by branch manager Patrick Mendenhall no more than several hours after Enron executive Aaron Brown complained to Mr. Mendenhall about an email Mr. Wu had sent to his clients. In the email that Mr. Brown found “extremely disturbing”, Mr. Wu had advised all of his clients to sell Enron stock due to massive liquidity problems he had uncovered, even though UBS Paine Webber had rated it a strong buy. (Source: CNN, “Financial Adviser Fired Over Enron Advice”, 26 March 2002). After Mendenhall fired Wu, UBS sent an email to their clients retracting Mr. Wu’s statement, informing them that Enron stock was “likely heading higher than lower from here on out.” (Source: New York Post, 4 October 2006).

We should be cognizant that in light of the Enron scandal, that this level of deceit has not been a recent development. In 2001-2002, a partial list of companies that had to re-declare earnings due to erroneous information contained in previous earnings announcements included the following companies: Adelphia, AOL Time Warner, Arthur Anderson, Bristol-Meyers, Squibb, Freddie Mac, ImClone, Citigroup, General Electric, JP Morgan, Tyco, Worldcom, Dynergy, Enron, General Motors, AIG and Hyundai. Many of the company names on this list are the same companies that have been exposed as withholding material information from their investors about their financial health either in this year or in recent years. And let us not forget that in the early 2000’s, JP Morgan, Morgan Stanley, Goldman Sachs, Credit Suisse First Boston, Lehman Brothers, UBS Warburg, and US Bankcorp Piper Jaffray all paid fined between $32,5000,000 and $400,000,000 for engaging in deceptive and unethical behavior (Source: PBS Frontline, “The Global Settlement, an Overview”, 28 April 2003).

In regard to such ethical issues, unfortunately, little has changed today. With the blessings of FASB and our current administration, almost every major bank in the US is cooking their books today (i.e. consider that, of $4.2 billion of Bank of America’s recently declared earnings, $1.9 billion was attributable to a non-recurring event, the sale of China Construction Bank shares, and $2.2 billion was attributable to a fantasy-land valuation of Merrill Lynch structured notes). As I previously stated though, the Enronization of America started well before the Enron scandal. If we take a moment to dwell on what aspects of our financial system have been Enronized with fraud, it would include our financial ratings system led by Standard & Poors and Moodys, our mortgage system, our banking system, our equities analysts and financial analysts, our accounting system, our regulatory agencies including FASB, the SEC and the CFTC, our media, our politicians, our corporate executives, and lastly and most significantly, our monetary system.

In fact, though the current media focus seems to be on morally bankrupt financial executives and institutions, the fact is that this scenario could not have proliferated over the past several decades if the problem did not run much deeper than just our financial infrastructure. If other integral aspects of our society were uncompromised, they would have flushed out the dishonesty so prevalent in our financial industry many years ago. So the real question that needs to be examined is this – How exactly did the Enronization of America become so systemic?

The Enronization of our Legal System

The first phase of the Enronization of America occurred through our legal system. Most of us make the grave mistake of equating our legal system with morality, but law and morality are creatures that often reside at opposite ends of the spectrum under our current legal system. Since those that make our laws are also the same amoral people that control our financial system, often our laws have very little concern with governing morality and much more focus on ensuring that the very elements that hold power maintain or expand their power. Most Americans automatically equate a behavior as right or wrong depending on whether a law defines such behavior as legal or illegal without any critical thought, and this is a mistake. The fact is that today, many laws have nothing to do with morality. In fact, our legal system is laden with such hypocrisy at times that it allows for the very same behavior to be defined as legal if a financial elite is engaging in the behavior but illegal if a “regular Joe” is engaging in it.

Consider that US corporations can legally funnel hundreds of millions of dollars of overseas earnings to sham off-shore shell corporations specifically set up to serve as a tax-evasion shelters and this action is considered legal, but wealthy US individuals that essentially attempt to do the same thing regarding their own personal income will be prosecuted for tax evasion. Consider that Richard Strong, CEO of the former Strong Mutual Funds, admitted to skimming $1.8 million from his clients’ accounts that essentially was the equivalent of stealing, yet under the auspices of our current legal system, was not sentenced to a single day in jail (Source: Washington Post, 23 June 2004). Yet there is little question that if a hungry, unemployed man steals food equivalent to a fraction of the money Richard Strong stole, he will go to jail if caught. Stealing $1.8 million may be legal, but it certainly is not moral.

In 2005 and 2006, CEOs from the 11 largest firms in America paid themselves $865,000,000 in salary even though their “leadership” caused a loss of $64,000,000,000 of market capitalization in their firms during the same equivalent time period (Source: BBC News, 22 June 2006). Yet, if an employee of this firm performed as miserably as did these CEOs, their reward would almost certainly be a pink slip, not millions upon millions in bonuses, salaries and perks. Again, paying oneself hundreds of millions in salary and hundreds of millions more in bonuses despite contributing to unemployment and the massive loss of shareholder wealth is by all means legal though few would dispute the unethical nature of such behavior.

Were our legal system truly to regulate morality, many executive suites of America’s largest financial corporations would transform into ghost towns as a great percentage of executives would be jailed. There are numerous actions that are considered “legal” today that would be illegal if moral and righteous men were making our laws, and even a handful of “illegal” behaviors that would most likely be re-categorized as legal. Suffice it to say, if our legal system has been Enronized, our regulatory agencies by default, have also been Enronized. The Enronization of our Securities and Exchange Commission (SEC) has never been more apparent its failure to shut down Bernard Madoff and protect American and foreign families from fraud even though independent financial fraud investigator Harry Markopoulos informed the SEC both in writing and verbally numerous times of the fraudulent nature of Madoff’s fund over a nine-year timespan.

During Congressional testimony regarding this matter, Mr. Markopoulos stated that when the SEC repeatedly ignored his warnings about the fraudulent nature of Madoff’s practices, he began to fear for his as well as his family’s safety, a damning indictment of not only the SEC’s abject failure to regulate, but also of their propensity to protect powerful members of the financial elite, even when they commit fraud. The continuing failure of other regulatory agencies such as the CFTC to act in the interests of American people is also quite evident. Consider the CFTC’s recent approval of fraudulent financial products such as the new E-mini Gold and Silver futures contracts, introduced on April 19th by CME group, that settle strictly in cash. Futures contracts that specifically prohibit the delivery of its underlying commodity explicitly allow its participants to legally naked short a commodity with zero intention of every purchasing or holding the underlying physical asset in their possession. If this transpires, a fraudulent commodity market that can never resemble the free market dynamics of its physical market is established.

In recent months, the regulatory agencies have demonstrated a propensity to still prosecute criminal activity that occurs among the “regular Joes”; however, if your rank is among the financial elites, a clear and repetitive response of inaction has been established.

The Enronization of our Media

The second phase of America’s Enronization has occurred through the mass media. Ben Bagdikian, the author of the seminal work on media mergers and consolidation titled The Media Monopoly, has noted that almost all major media in the US is now under the control of five major conglomerates – Time Warner, Disney, Murdoch’s News Corporation, Bertelsmann of Germany and Viacom. To be fair, there are a handful of major news organizations not controlled by the “big five”, including The New York Times, The Washington Post, The Chicago Tribune and Los Angeles Times. However, Badgikian’s basic premise that the problem with our media is “not one of universal evil among the corporations or their leaders” nor one of “a general practice of constant suppression and close monitoring of the content of their media companies”, but one of a contradiction between the values of free enterprise and the interests of giant conglomerates, is still valid.

Today, many important news stories break on the internet by bloggers well before they attract the necessary viral proliferation to draw the attention of major media outlets. Today, a strong case can be made for the argument that one will find a greater level of truth and integrity in reporting on the internet than in major information distribution channels such as CNBC.

The Enronization of Our Critical Thinking Skills

Undoubtedly the Enronization of our media has evolved into the Enronization of our educational system. Though this is a topic that commands the devotion of an entirely separate article, the financial elites have heavily influenced the curriculum taught at leading American educational institutions for decades now. For example, over the last century, the Rockefeller family has donated millions upon millions of dollars to leading economic schools such as the University of Chicago and Harvard Business School. Even if you don’t buy into the strong likelihood that millions of monetary donations to educational institutions buys the financial oligarchs influence over our educational curriculum, you should at a minimum consider this possibility. Perhaps it is the monetary influence of financial elites such as the Rockefellers that is largely responsible for erroneous economic beliefs about inflation and our monetary system that persist today.

To grant further support to the suggestion that the financial elites likely utilize their money to guide certain aspects of the curriculum at leading educational institutions in America, recall that in 2002, David Rockefeller stated in his own autobiographical memoirs: “For more than a century ideological extremists at either end of the political spectrum have seized upon well-publicized incidents such as my encounter with Castro to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as “internationalists” and of conspiring with others around the world to build a more integrated global political and economic structure – one world, if you will. If that’s the charge, I stand guilty, and I am proud of it.” The only difference today is that the cabal working against the best interests of the US and all American families is no longer secret, but well documented and well known.

Since the above statement is sure to stir up cries of conspiracy regardless of the fact that it is directly attributable to a member of the financial oligarchy, let us take a minute to consider the Enronization of our critical thinking skills. Why do those with a keen interest in suppressing the truth about the origins and nature of our current global financial crisis have great success in doing so merely by simply using the word “conspiracy” to marginalize the well-constructed arguments of others? Why do the people that attempt to discredit these truthful revelations never offer more than flimsy verbal accusations devoid of any evidence to validate their accusations?

And why do we rarely, if ever, challenge the fact that the vast preponderance of people that flippantly dismiss valid arguments about our current global financial crisis are those whose personal wealth depend upon deluding masses of people about the health of our stock markets and the soundness of our financial institutions and monetary system? Today, the Enronization of our institutional education system has dulled our aptitude of critical thinking to such a degree that we now look to others to do our thinking for us. Instead of challenging the propaganda that makes zero sense, we are all too willing to be duped into believing erroneous concepts just because they are written in a textbook or a newspaper.

As a prime example of this, consider the propensity of Central Banks and the IMF to pre-announce massive gold sales that they rarely execute. From a purely logical standpoint, can anyone well versed in logic truly argue one beneficial reason for doing so? In 1999, when now UK Prime Minister pre-announced the sale and actual eventual execution of 400 tonnes, or more than half, of the Bank of England’s gold reserves, his announcement promptly caused the gold market to plummet to $250 an ounce, the lowest price in the last decade. For an institution interested in making profits, it is a foregone conclusion that pre-announced large sales of gold reserves will significantly depress prices; thus what is the reason behind such an announcement other than to purposely depress prices? Yet, when skeptics are presented with such evidence and can offer no valid counter-argument, instead of intelligently considering the validity of another’s viewpoint, too often we are apt to shut off our brains and repeat beliefs that have been repeatedly rammed down our throats rather than critically assessing the situation for ourselves.

In the seminal book about warfare, The Book of Five Rings, legendary samurai Miyamoto Musashi wrote, “true enlightenment can be seen by what a person has done, not by what he says. Those who have missed the mark may chatter all day long about this and that, but they have never done anything. Anyone can make a good argument, but few can show good results.” If we as Americans wish to stop the Enronization of our country and to reinstitute our rights of self-determination and our Constitutional rights to a sound monetary system that are paramount to a free society, we must judge people not by what they say but by what they do. We must listen not to those that present hollow arguments and that can demonstrate no positive track record of results, but rather focus on the thoughtful arguments of the few that have been able to illustrate the intelligence and validity of their views because their predictions have been vetted over time.

As a nation, we have become Enronized because we too often focus on the false arguments of those that are well versed in the art of persuasion yet have a persistently poor track record of results. As a prime example, consider this video of Congressional testimony where former US Treasury Secretary Hank Paulson disingenuously claims that he advocates greater transparency in US markets when in fact, Goldman Sachs, under his direct leadership, aggressively lobbied to repeal laws that granted financial markets transparency. We are much too apt to accept the words of people rather than to take the more intelligent approach of analyzing their actions to judge the validity of their words.

The Enronization of Our Leaders

The final phase of the Enronization of America has occurred through our power structure and politics. The financial oligarchs that wish to suppress the truth about their role in this crisis have been very opportunistic in forming close relationships with the highest echelons of government and then using this inordinate power to polarize the masses and further consolidate their power. The revolving door among Central Banks (i.e the Bank of Italy, the Bank of England, the US Federal Reserve), Goldman Sachs, the US Treasury, JP Morgan, and Citigroup has been well documented so I won’t repeat the prolific work of others here. However, using politics or nationalism as a divisive maneuver is often a favored tactic of the financial elites, so we must remain vigilant against immoral attempts to deflect our attention away from the true causes of this crisis, such as the scapegoating of immigrants or other shameless tactics.

When obfuscation of fact and misinformation systemically replace transparency and integrity as they have in our modern society, we have little chance of producing a favorable outcome to this current crisis. Twenty-six banks have failed thus far in the United States this year and every single bank failure announcement, without fail, has occurred on a Friday afternoon after market close so that the revelations of these bank failures cannot adversely affect markets while they are open. Additionally, such announcements are timed as such to grant investors two weekend days to forget about these failures.

America has been Enronized over the past several decades not because of Democrats and not because of Republicans, but because of the financial oligarchs that have ruled and continue to rule our country. The Enronization of America has happened under President Clinton’s watch, it continued under President Bush’s watch and it is now progressing under President Obama’s watch. Until we wake up and correct many of the flaws in our thinking and in our justice system, the Enronization of America will continue. Arthur Shopenhauer, a noted German philosopher, once stated, “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”

We have already passed through the first stage where truth has been ridiculed. For several decades, those that attempted to reveal the price suppression schemes executed by governments and Central Bankers against gold and silver were ridiculed as conspiracy loonies. Today, the evidence of this manipulation is so overwhelming (please reference all of Ted Butler’s tireless work to expose silver price manipulation) that men that dwell firmly inside the confines of the mainstream, men that previously would never have dared to publicly state such sentiments just 10 years ago, are now stepping forward and publicly acknowledging the existence of price suppression schemes that interfere with free markets (i.e., Donald Coxe, chairman of Harris Investment Management in Chicago).

Today we have progressed to the second stage of truth, when truth is violently opposed. Within the past year, former Treasury Secretary Hank Paulson testified multiple times in Congress that it is not reality that is important to stock markets, but only what people think they know, even if what they think is wrong. Though he did not make that statement in these exact words, Paulson regularly emphasized the vital importance of consumer confidence to the performance of capital markets. In the end, confidence levels measure consensus belief and often have very little correlation to the reality of underlying economic fundamentals. In a bear market, such as the one in which we are currently engaged, it is safe to say that rising stock markets serve as a barometer of deceit. The greater the deceit by our leaders, the more likely stock markets will act irrationally and rise when there is no foundation to support the rise, including the most recent rally that we have witnessed in US markets in March and April of 2009. I will go on record here in believing that we will see another waterfall decline in US and global markets by the end of this summer.

It is no wonder, given the propensity of our leaders to deceive, that US consumer confidence jumped to its highest level this month since last November. As long as markets react positively to lies that prevent the masses from understanding the grave situations of our faltering economy and monetary system, our government and financial leaders will continue to prevent people from knowing or understanding the truth. One merely has to consider that FASB conveniently altered mark-to-market regulations immediately prior to first quarter 2009 earnings season and immediately prior to stress tests that were to be conducted on these same institutions to realize that our current administration is not any more interested in disclosing the truth or increasing transparency than previous administrations. Again, we would be wise to remember Miyamoto’s sage advice to judge someone not by his or her words, but by his or her actions.

The fragility of America’s emotional state regarding the dire economic situations that existed during the last US Presidential campaign left America vulnerable to blindly accepting anybody that promised change, but again we must consider the actions, not the words, of this current administration. We must look at the men appointed to “solve” this crisis and understand that almost all of these men come from the same unethical institutions such as Citigroup, Goldman Sachs, and JP Morgan, that were largely responsible for creating this crisis. The most efficient way to solve a crisis caused by lack of ethics and morals is not to put the most morally bankrupt people in the nation in charge. It should disturb us all that men like Paul Volcker have been appointed to lead a Presidential advisory board when he once stated in reference to rising gold prices in the 1980’s:

“That day, the U.S. announced that the dollar would be devalued by 10%. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.”(Source: Volcker’s memoirs printed in the Nikkei Weekly, November 15, 2004).

Men that clearly state a position that collusion to rig markets is preferable to the transparency and integrity of free markets should never be appointed to any position of leadership in our country. Despite the lack of leadership from the financial elites during this crisis, they have made it clear that their agenda of concealing the truth from us will not prevent them from shamelessly pinning us with the blame for their errors by increasing our taxes and devaluing the purchasing power of our dollars.

And this is precisely why the energy of those that participated in the recent teabag protests is improperly focused. Yes, our government has contributed to the instability of our economic infrastructure. However, the government is not the root cause or the prime perpetrators of our global financial crisis. This honor belongs to the financial oligarchs and the fraudulent monetary system they have instituted. Today, governments have devolved into nothing more than an instrument of execution for the financial oligarchs. The late great John F. Kennedy was the last US President to understand and recognize the massive flaws and amorality of our modern day monetary system, as evident in his signing of Executive Order 11110. Were the honorable President Kennedy still alive today, but a regular citizen, voicing the exact same displeasure against our current monetary system as he did half-a-century ago, I have little doubt that those in power would have already marginalized his arguments and labeled him as a “conspiracist”.

The End Game: How to Stop the Enronization Process

The lack of transparency and the veil of secrecy that has existed in our financial world for a very long time now have enabled the Enronization of America. Furthermore, the misinformation campaigns that the financial elite have engaged upon for decades have further supported and maintained the ignorance of the masses. If one merely focuses on gold and silver markets, one can uncover a mountain of deceit. Consider that when Central Banks lease gold, they still claim it as an asset on their balance sheets, an obviously fraudulent practice. In fact, I could fill another ten pages with the deceitful reporting practices of Central Banks regarding gold that I have uncovered, but I don’t want to dilute the central focus of this essay, which is not to focus on the Enronization of commodity markets but to focus on the systemic-wide problems of fraud in America. This is not an indictment of American citizens, but an indictment of those that reside at the very top of the power structure, and most specifically, the financial elites.

In the end, let us not look to the words of our financial and government leaders for truth, but to their actions. If there has ever been another institution in the history of America with a persistently worse track record of accomplishing their stated mission than the US Federal Reserve (that of maintaining price stability), I can not think of one. Thus, we should permanently shutter institutions that have a track record of utter failure and that have consistently failed to act in the interests of their citizens. This list would include the US Federal Reserve as well as the Bank of England, the Bank of Japan, and the ECB. We should also permanently shutter those financial institutions led by corrupt executives that have cumulatively made billions from the purposeful deception and bankrupting of American families. Finally, if you are a shareholder with voting rights, it is incumbent upon you to exercise your rights at general meetings to oust all corrupt directors and executives at corrupt firms. Because it is near impossible to regulate morality, the only sustainable solution to stopping the Enronization of America is to remove the very institutions and people responsible for this process. As current administrations of major governments all around the world have demonstrated an unwillingness to do so, it is patently clear that this movement must originate from the people.

If we all desire the freedom of self-determination that is impossible with a corrupt monetary system, this change will have to come from the people. If we all desire a sound monetary system devoid of the ability to be mercilessly manipulated by elements of the US Treasury, the US Federal Reserve, the Bank of England, Goldman Sachs and JP Morgan, this change will have to come from the people. If we all are opposed to leaving a legacy of indentured servitude to the financial elite for future generations, then this change will have to come from the people. The alternative consequence of our inaction will be the manifestation of Shopenhauer’s third stage of “truth as self-evident” at a not-so-distant time in the future when it will be far too late to affect a positive outcome from our current financial crisis.

JS Kim is the President & Founder of SmartKnowledgeU, LLC, a fiercely independent investment research & consulting firm that focuses on understanding the roots of our current monetary and financial crisis to create wealth.

In the book F.I.A.S.C.O, an expose´ about the failure of Wall Street to serve their clients responsibly, author Frank Partnoy described the interview process for a highly sought-after position in Morgan Stanley’s asset management group. According to Partnoy, the Morgan Stanley executive that won the job told him that a key question in his interview process was the following: “What are the most important qualities a salesman can have?” The executive relayed to Partnoy that he clinched the job by answering, “Without a doubt, integrity. This is a trust business, and we are selling our trust.” I have always maintained that most successful investment professionals employed by large commercial investment firms would be extremely successful in any sales position, whether that position was in the pharmaceutical, automotive, or retail industry. Given the scandals that have rocked nearly every single commercial investment firm around the world, trust is now a very hard sell in the investment industry. Still, the most successful investment professionals have always been consummate salespersons, and they still know exactly how to psychologically manipulate you to gain your trust. And this is where the crisis can help you identify whether or not an investment professional is deserving of your trust.

Over the years, many different studies regarding stock market performance among investment professionals have come to the same conclusion – that top investment professionals employed by the commercial investment industry are barely likely to perform better than random stock picking. Among the most well-known of these studies was a series of studies performed by the Wall Street Journal in which Journal staffers were instructed to choose stocks by flinging darts at stock table pasted to a board. In late 1998, the WSJ printed the results of 100 of these dart-throwing contests. The professionals won 61% of the time, but still lost an embarrassing 39% of the time to stocks selected by random dart throwing. Against the Dow Jones Industrial index, the professionals’ winning percentage plummeted from 61% to 51%, meaning that half the time the index beat the professionals and half the time, the professionals won. Thus, an investor that merely bought an index fund would have performed nearly as well as every investment professional that partook in the study, and without having to pay any management fees.

Since then, many academics have attributed the near equivalent performance of investment professionals and major market indexes to the efficient market hypothesis (EMH) that states that no investor can earn abnormal returns by trading in securities markets because all security prices reflect all available information. This is utter nonsense. Investment professionals rarely outperform market indexes not because of the EMH but because of the GMH, the Greedy Market Hypothesis. Investment professionals employed at commercial investment firms all over the world generally have one job – to bring assets into the firm, NOT to produce stellar returns for clients. Since their primary job is to convince potential clients to hand their money over to the firm, as odd as this may sound, investment professionals rarely know a lot about investing. They know a lot about how to present themselves to appear to know a lot about investing, and even more about superior sales tactics, but not a lot about investing.

On the contrary, if an investment professional’s primary job was to maximize portfolio returns, then top investment professionals would most likely significantly outperform the returns of major indexes in their respective countries. If you have wondered in the past why the performance of many investment professionals mimics the performance of your domestic stock market index year after year, it is because they employ the terrible diversification sales strategy (versus a legitimate investment strategy) to manage your portfolio. As a consequence of this emphasis on selling versus returns, if you’ve parked your money with a commercial investment firm, you are likely to own every single major component of the stock market index in your country. This is the scam of diversification – you will own almost exactly the same stocks that comprise the major stock market indexes. Furthermore, during terrible global markets such as the ones we have recently experienced, you will be paying management fees for the gift of achieving the same returns as an index fund.

Poor global markets do one thing well. They expose all the flaws and ugly scams, including diversification, that investment professionals employ to gain your trust and your money. All the strengths of salesmen masquerading as investment professionals that are glorified during bull markets are readily exposed as weaknesses during terrible markets. Be warned that this doesn’t mean that their sales skills will diminish, as surely many of the best salesmen will rack up well-constructed but fallacious arguments to convince you that market bottoms have formed when indeed they have not. However, if you fall victim to their same sales ploys after reading this article, no matter how expert their sales tactics may be, you have no one to blame but yourself this time around. Why? This crisis has made it easy to spot the frauds.

Just because an industry has spent billions of dollars on marketing a strategy over a period of many decades does not make it a wise strategy. Instead of clinging to a false belief that has only benefited commercial investment firms for decades and never the average investor, every investor should be using this opportunity to challenge and investigate the validity of past investment beliefs propagated by the industry. Though the commercial investment industry has propagated a lot of lies over the past few years, I maintain that diversification is still the biggest lie that the greatest majority of investors refuse to acknowledge. If you are one such person, let me use history to help you shed yourself of this lie. Throughout the course of history, many “incontrovertible truths” have been proven to be lies after long periods of time when millions of people fiercely clung to such lies as truth.

For example, because of oppression by certain authorities of the Catholic Church that occurred hundreds of years ago, millions of people fiercely clung to the erroneous conviction that the sun revolved around the earth, even though the astronomer Copernicus had already documented many compelling reasons that invalidated this “truth” by 1514. In fact, more than 100 years later, this false belief still persisted among the masses, and when the astronomer Galileo agreed with Copernicus, the Catholic church, under orders from Pope Paul V, convicted Galileo of heresy and subjected him to house arrest for the rest of his life. The Catholic Church condemned Galileo for supporting an indefensible position that they stated “[was] contrary to the true sense and authority of Holy Scripture”. Of course, this example is just one of the most famous of thousands of false beliefs propagated by men in positions of authority throughout the course of history.

In light of the above historical perspective and the fact that you will not find a single investment professional that significantly outperformed any of the major global stock market indexes over the past two years by employing a diversification strategy, it is time to seriously question the “wisdom” and the true intent of diversification. Why does the commercial investment industry hire its financial consultants from such a far ranging diversity of professions? If you wanted to work for Ogilvy & Mathers as an advertising executive, you would have no chance of being hired unless you had many years of experience in advertising. If you wanted to work for HOK as an architect, you necessarily must possess a degree in architecture. But if you wanted to work for a commercial investment firm as an investment advisor, the most important qualification that you needed to have, bar none, was the ability to sell, not the ability to understand financial markets.

I have always maintained that diversification is a sell-side strategy that commercial investment firms employ to hide the flaws and weaknesses of their salesmen and saleswomen that understand very little about how to identify the macroeconomic trends so important to understand the best ways to invest your money. Diversification theory states that it is impossible to know what asset classes will perform well every year and thus, the reason diversification is necessary. This is a lie. Because of the commercial investment industry’s emphasis in their hiring and training processes in the ability of their employees to sell, it may be impossible for THEIR investment consultants to know what asset classes will outperform this year; however this does not mean that it is impossible for ANY investment consultant to know what sectors will outperform this year.

On August 14, 2006, to prepare investors for this developing crisis, I wrote an article called “The Days of Buy and Hold are Over”, in which I stated: “Unless your name is Warren Buffet, the days of buy and hold are over. Actually even if your name is Warren Buffet, the days of buy and hold are over. At least they are for the rest of this decade. Buy and hold as a strategy is dead and will get you nowhere for the second half of this decade.” Just in case investors did not understand my message completely, I followed-up this article with a more explicit message just two days later on August 16, of 2006, in which I discussed the fact that the S&P 500 in mid-2006 stood at the same level it did 7 & 1/2 years prior on January 1, 1999. Regarding this situation back then, I stated : “And that’s the good news. The bad news is, as of 2006, the U.S. stock market’s performance will likely become even worse for the rest of this decade.” I was so adamant about these views back then because for anyone willing to seek the truth, the fact that an imminent crisis was brewing was crystal clear and indisputable. As I said, diversification is a total cop-out but a fine strategy best reserved for salesmen that understand nothing about macroeconomics. And this brings me to my last and final point.

Today, trust still probably ranks as the number one most important quality for choosing an investment consultant. Poor markets, ironically, make this task infinitely easier. For those investment consultants that are asking for your trust today, just seek out their track record of performance for the past two years. If they have significantly outperformed the global market indexes during this time, it is very likely that you can trust them as obviously they have executed some markedly different strategies from the rest of the crowd to achieve their returns. If they have performed in line with the general poor performance of the global market indexes – adding gains when the global markets experience a bear-market rally, and losing value when the indexes tank – you almost certainly need to keep searching for someone you can trust.

Many investment firms apply not only the terrible theory of diversification to their portfolio management strategies but also to the analysis they disseminate. In other words, when global market indexes experience a bounce, they employ one analyst that writes a publication stating that this is merely a bear market rally, while another one of their employed analysts writes an article that this event marks the beginning of a new bull market. When oil is trading near $50 a barrel, they employ one analyst that states oil is heading to $80 a barrel while another one of their analysts states that oil is heading to $30 a barrel. Or, if they have analysts that make 10 wrong calls in a row and then make one correct call, they extol the virtues of this one correct call while conveniently burying the grave errors of their prior 10 predictions. Of course, investment firms that employ the above strategies will appear to be correct all the time, but a simple check of their track record should reveal them as either fraudulent or trustworthy.

Given the accessibility to a firm’s track record granted by the internet, checking a firm’s track record during the last two years should be fairly easy. Review their performance track record through their blogs and publicly posted information. Since many firms will delete their erroneous predictions on their own website, Google the firm’s name and see if you can find other websites that re-published their past predictions. Review emails a firm may have sent you during the past two years since you now have the benefit of hindsight to determine if the majority of their predictions have been excellent or plain rubbish. Taking these few simple steps should allow you to uncover a clear and unbiased record any firm’s track record. In the end, if you can’t find any public information that allows you to establish or verify an investment firm’s track record, than this type of discovery should raise a serious red flag.

During a bull market, you may not know who to trust as everyone looks like a genius, but during terrible markets, when very few perform well, finding an investment firm you can trust should become infinitely easier. Just follow the tips above and finding a trustworthy firm to inform you about the best ways to invest money during this crisis should become a cinch! And what analysts should you trust in the future? To avoid the Machiavellian professionals that are using this crisis for self-promotion, simply identify the small group of analysts that posted warnings of this crisis months and years before it happened. Any analyst that understands that the fraudulent monetary system implemented by Central Banks is the true root of this crisis would have been able to see this crisis coming for a very long time now.

A recent story reported about counterfeit £1 coins out of London made me reflect upon the enormous irony of the story given that our current economic woes have been caused by an unsound global fiat currency system in which all currency is backed by nothing. It made me think, “Is there really any difference between “real” and “fake” money?” Though mass production of counterfeit £1 coins in the UK has been a problem for years now, apparently the counterfeiters have stepped up their game in recent months. At the end of September, 2008, the Royal Mint reported that random samples of £1 coins in the UK determined that 1 out of every 50 £1 coins was fake, an astonishingly large percent. However, the most recent assay conducted by the Royal Mint at 31 locations in the UK has determined that 1 out of every 40 £1 coins is fake, with the total amount of estimated fake £1 coins in circulation in the UK now at 37.5 million pieces.

Currently, all major Central Banks have massively increased their monetary base by hundreds of billions of dollars in relatively short periods of time, with some increases in the trillions of dollars. In order to be able to do so, it is obvious that there are no limiting inputs in the “production” of money other than printing presses, paper, ink and manpower. The news of the surge in counterfeit £1 coins has come on the heels of a recent announcement by the British Government that they will revoke a 165-year old law that requires them to publicly account for their balance sheet on a weekly basis. Among the most vociferous complaints registered against the repeal of a key section of this 1844 banking law was the following sigh of resignation: “there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.”  With the Bank of England cloaking its printing of the Pound Sterling in secrecy, the only logical conclusion of this action is that further debasement of the Pound Sterling is on the BOE’s agenda for 2009, even though their most recent actions created a  rapid and steep 30% drop in value (against a basket of international currencies) at the end of 2008.

However, the Bank of England is not the only Central Bank to conclude that running the printing presses overtime to pull their domestic economies out of trouble is the preferred solution even though this “solution” will have some serious blowback consequences in the future. The Bank of Japan, the European Central Bank and the US Federal Reserve have all demonstrated a proclivity towards massive expansions of the monetary base, an action that will eventually lead to massive expansions in monetary supply and an ultimate race to the bottom in currency debasement. So with Central Banks literally taking actions that will eventually destroy the purchasing power of all major currencies, it is no stretch of the imagination to conclude that the “real money” they are currently printing will soon have far more deleterious effects on the purchasing power of said money than the comparatively small percentages of “counterfeit money” that leak into the system.

To truly understand the flaws of our current unsound monetary system, let’s consider other counterfeit markets in which the real item always truly has significantly more intrinsic value than the fake item. Consider a fake Louis Vuitton handbag versus the real good. The fake item will undoubtedly be made of inferior material and may fall apart quickly due to poor stitching and production values. Or consider a fake gold coin that is really a steel coin covered with a thin layer of 18 karat gold. The real 99.99% pure, fine troy ounce gold coin will be worth 100 times more in value. Or consider a fake Patek Philippe Calibre 89 watch versus the real thing. The real Patek Philippe Calibre 89 watch has 1728 unique parts that account for its precision timekeeping. A fake one will most likely not have more than 30 to 50 unique parts.  In every instance, the intrinsic value of the real item is worth many multiples more than the fake item.

Now consider a fake £1 coin or a fake $100 US dollar bill versus the real thing. The real £1  coin is a mix of copper, zinc, and nickel. So usually is the fake, or if it is made out of a different mix of metals, the intrinsic value is still nearly equivalent. A fake $100 US dollar bill is printed on paper and ink. A real $100 US dollar bill is printed on special US Treasury cotton paper embedded with red and blue fibers, but other than that, the intrinsic value of both the fake and real $100 bill is just the cost of paper and ink. The only difference is that the Central Bank that prints the real one tells you that you can use it to buy goods whereas the fake one is not good for buying anything.

But there was a time this wasn’t true. There was a time when Kennedy US silver half dollars were 90% silver, and that is why mint condition 1964 Kennedy half dollars sell for $11 a piece today. The intrinsic value of this coin would be worth much more than a “counterfeit” Kennedy half dollar with zero silver content. The 1964 Kennedy US silver half dollar that was taken out of circulation was sound money. There was also a time in the 1800’s when US dollars could be converted to gold.  During this time, there was an enormous difference between the intrinsic value of this paper money that could be converted to gold and “counterfeit” paper money that was backed by nothing. In fact, if one were to ask what action is likely to debase the value of all paper currencies more, the action of Central Banks today or the action of all money counterfeiters in the world, one would have to conclude that the answer, by an overwhelming margin, is the action of Central Banks.

With great irony, counterfeiters are performing a huge public service to many currency speculators by scaring them away from currencies that will suffer severe debasement from the actions of Central Banks that print “real” money. When Central Banks create new “real” money out of thin air, one would be wise to view the introduction of this new “real” money into our system with as much, if not more, suspicion as one would view counterfeit money. True, this introduction of new “real” money needs to make the transition from our monetary base into our monetary supply to create rapid inflation, but it is my firm belief that this transition is coming. In February, 2000 US Congressional testimony, then US Federal Reserve Chairman Alan Greenspan commented, “We believe if you have a debased currency you will have a debased economy.  As I’ve said earlier, the difficulty is defining what money truly is.” Likewise, if you have a debased economy, the culprit often is a debased currency. And this is exactly our problem today. All major global currencies have an intrinsic value of virtually nothing and can only be exchanged for another major fiat currency with an intrinsic value of virtually nothing.

Technorati Tags: dollar crisis, unsound money, dollar crash, counterfeit money, counterfeit one pound coins, global economic crisis

Just a quick note. We decided to change our blog title to “The Underground Investor™” from “Zen of Investing” because we noticed that someone unaffiliated with our company is constructing a website with the title “zen of investing” in the URL, presumably to capitalize off of our regular blog traffic. To make it clear that this website with the “zen of investing” title has absolutely zero affiliation with SmartKnowledgeU™, LLC, and to avoid any future confusion, we have decided to change the name of our blog.

“The Securities and Exchange Commission has begun a broad investigation into whether Wall Street bank employees are leaking information about big trades to favored clients, such as hedge funds, in an effort to curry favor and has requested a wide range of information from at least four major banks” including Merrill Lynch, UBS, Deutsche Bank and JP Morgan. The SEC sought records regarding all stock and option trading data for themselves and their customers for the last two weeks of September. Basically the SEC said that they wanted to discover the extent of “front running” that exists, the act of insiders buying or selling stocks and options ahead of major large volume institutional purchases or sales that virtually guarantees profits.

Without knowing the results of this investigation, I can already tell you the answer to this question, regardless of what the SEC will finally report. It happens, and it happens on a widespread basis. If the SEC really wanted to be thorough in their investigation, they would also investigate all the “front running” activity that powerful politicians obviously engage in and the loose collusion that likely exists among the major Wall Street institutions when their “coincidental” purchases and sales of the same blue chip stocks constitute such a high percentage of the float that they actually move the markets for these stocks.

Insider trading has always existed at the highest levels of what I call the three-headed despot– Government, Banking, and Corporations – and it will never stop. I have always maintained that the most powerful persons in the world are not legislators, but bankers. Bankers pay the legislators’ paychecks so given that the whole checks and balances system of almost every governments is a mere façade that truly does no longer exists, every time the legislators come down too hard on the bankers, the bankers will tighten the leashes that they hold around the legislators’ throats until they back off.

Inexplicable actions happen all the time in the market and it is highly likely that many of the ones that turn enormous profits for large global institutions are a result of front running. For example, during the past couple of decades, almost all of the major global bullion banks had enormous bets placed in gold derivatives at one time or another, from which astronomical profits were made. Interestingly enough, if one studies the behavior of these institutions, some in particular refrained from making any bets in gold derivatives until very high ranking members of the U.S. Department of Treasury left the government to join their company’s executive boards. The level of other institutional bets in gold derivatives seemed to be directly correlated to the strength of political connections these corporations had with the U.S. Treasury. The greater their connections, the greater their bets.

Front running happens in so many different areas of the global markets that besides it is just too widespread for any regulatory agency to entirely abolish. In addition, the people that engage in front running are some of the wealthiest individuals and institutions in the world, with way too many resources at their disposal to crush such investigations. So in the end, can the average investor benefit from all this front running in an absolutely legal manner? Most definitely yes. The key is to follow the trails of money. Because the information world has flattened, finding the trails of money has become 100 times easier than it was even a decade ago. If you can find instances where enormous investments are being made in corporations without any significant news on the frontline, you can be assured that some front running is occurring and you can piggyback along for the ride up. In the past six to nine months alone, I’ve used this strategy to gain triple digit returns several times in mid-cap to large-cap companies that were far removed from the volatile nature of micro cap companies that most investors believe are necessary to attain triple digit gains. Keep this in mind and it’s not only the most powerful people in the world that can benefit from front running. They do it illegally but for the average investor, it’s possible to do it legally.

Technorati Tags: Merrill Lynch, UBS, Deutsche Bank, JP Morgan, insider trading, investment strategies, frontrunning

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J.S. Kim is the founder and Managing Director of SmartKnowledgeU™, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.

Gold has risen about $60 an ounce since the beginning of the year, or roughly 10%, yet the price of Newmont has only risen from $44.20 a share at the begging of the year to $45.81 as of February 9th, or just a measly 3.6%, amazingly underperforming the price of gold itself!  Why is this amazing? Because the strongest, best gold stocks typically will outperform the actual appreciation in the price of physical gold by multiples of 2, 3, 5, and even higher. This statistic tells me, as Newmont is the most prominent gold stock of the lot in the eyes of institutional fund managers (note not our eyes, but in the eyes of institutional managers) that they are not on board yet at all.

So why would I say that if you haven’t already bought Newmont, that it’s not too late to buy Newmont now? Because when the rest of the thundering sheep herd out there finally climbs on board, so will all the institutional managers, and since the overwhelming number of institutional managers in the United States have no idea how to evaluate gold stocks to choose the best ones, they will undoubtedly just dump money into the “safe” gold stock – which I believe will be Newmont if I had to pick one stock.

Although I’m sure that Canadian institutional managers are much more knowledgeable about selecting gold stocks since a great deal of “resource” stocks trade on the Toronto and Vancouver exchanges, still given the relative size of the U.S. stock market in comparison to the Canadian market, U.S. fund managers that eventually start investing in gold stocks will influence the price of gold stocks with their purchases, and Newmont is the stock most likely to benefit from their realization, even if it comes late in the game.

By far, Newmont won’t be the gold stock that will appreciate the most or grant investors legendary profits. In order to achieve this, you simply must take the time to learn how to identify great gold stocks. Or for that matter, stocks of any asset class because even though I’ve blogged about gold quite a bit, it’s just not gold, but other asset classes as well. There are other classes of stocks that I have not yet once discussed in my blog, but even though they have risen 80% to 130% since I bought them over the last eight months, there is still more considerable upside. Our SmartKnowledgeU members know what these asset classes on, and hopefully, they’ll all be on board as well to benefit in the coming year. It’s not about following the media and the institutional buyers that will make you wealthy. It’s about beating them to the punch.

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J.S. Kim is the founder and Managing Director of SmartKnowledgeU™, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.

One asset class that corrected steeply at the end of 2006 and beginning of 2007 was gold stocks. If you read my previous blog posts over the last several weeks then you’ll know that this week was the time to get in. Even if you haven’t, with the past couple of days being stellar for gold stocks, it is not too late. Of course, I can’t be positive that gold has bottomed, but the risk-reward scenario is strong enough that this week I’ve added to my positions so that I’m 75% or more into all the final positions I desire in this asset class. And if you haven’t yet established positions, it’s still not too late.\

Why?

It is always better to buy into this asset class a little a late during dips and consolidation phases and sell out of this asset class a little late during bull runs versus buying and selling too early. Why?

During consolidation phases and corrections, declines in gold stocks can be steep and rapid. Often there are days of temporary rises when it seems that the correction has bottomed, only to be followed by another steep decline much to the dismay of many investors. It is better to wait for some sustained momentum, and perhaps give up 5% of the next upleg rather than get in too early, lose 30%, sell out prematurely and miss huge gains that follow. As far as selling, how many stories have you heard about people that owned Microsoft and sold out at a 50% profit only to miss the next several thousand percent they could have had had they held on? Again because gold is such a volatile asset, and you may be tempted to sell out during a great upleg after 150% profits, it is better to widen your stop loss strategy at this point to account for the volatility of this asset class.

If your stock dips 25% from this point, and then goes another monster run of 400%, you don’t want to be kicking yourself. Widening your stop loss point where you would be stopped out at a 90% gain is still a huge gain, and probably sufficient to keep you in the game during even a steep correction in a continuing upleg. As you gain experience, you will develop a better feel for exactly how much you may need to widen your stop losses to prevent getting sold out too early, but always remember that is much better to sell out a little late and give up some of your profits rather than sell out too early and give up enormous profits that you would have earned by holding on.

A word of caution. You must know what you are doing when you buy into gold stocks. During major gold bull runs there literally have been differences of several hundred percent in the returns of even major gold stocks. You will almost never see differences of this kind among similarly structured companies in any other major asset class. For example, seeing a 20% return in Exxon stock but a 370% return in British Petroleum just isn’t very likely to happen. We at SmartKnowledgeU™ offer the most comprehensive guidance for exactly how to identify the best gold stocks to purchase but as long as you learn how to do it before you do it, that’s the most important step.

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J.S. Kim is the founder and Managing Director of SmartKnowledgeU™, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.