Wednesday, March 18, 2009

The Smart Money Continues Flowing Into Gold

The gulf between the "smart money" and the "dumb money" continues to grow ever wider. To me, the "dumb money" is any investor who watches CNBC or actually reads worthless publications such as Money Magazine or Kiplinger's.

As Tim Iacono, of the blog - The Mess That Greenspan Made, pointed out today Money and Kiplinger's are still in state of denial about the stock market. Not only that, but as Tim pointed out, Kiplinger's continues to rip one of the only investments that has performed well this decade - gold.

So anyone reading Kiplinger's (the "dumb money") will continue to avoid gold entirely and continue to pour money into S&P 500 index funds and make the rich guys on Wall Street even richer.

Meanwhile, the Financial Times today had an article today about someone whom I consider to be "smart money". Billionaire hedge fund manager John Paulson became famous for betting against subprime mortgages in 2007 and securing profits in excess of $10 billion for his funds.

Mr. Paulson seems to have moved from betting against banks to betting against governments. His fund, Paulson & Co., spent $1.28 billion buying Anglo-American's 11.3% stake in gold mining company - AngloGold.

Mr. Paulson is expanding his bet that gold will benefit as paper currencies suffer from the financial crisis and the massive printing of money by governments around the globe, led by the United States' Federal Reserve. He believes that this massive money creation will lead to the debasement of paper currencies and inflation.

I sure Mr. Paulson is being scoffed at now with his bet on gold, much as he was with his bet against the banks and subprime mortgages. My guess is that he will be right again.

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