Thoughts on Markets

Friday, May 30, 2008

Correction Over? - Borrowing




Gold at 884.40 and silver at 16.80 with the last tick upward is more comforting than what we have seen for most of the week. Silver is acting slightly better than its partner: gold. This correction may have run its course. Possibly, we have not seen the end, yet. Bank Credit Analyst moved gold to neutral the other day and said that it could test the resistance at 850. Were it to do that, I would consider it an all out buy time. I did pick up additional Calls on the GDX (miners index EFT) this week.

I have included the five year graph on gold to place more emphasis upon the long range perspective which one must hold with gold. The corrections have been merely blips on the radar. We must also remember that the precious metals are a sound alternative to depreciating paper currencies of the world. These are a medium for preserving wealth in a time of unbacked paper currencies. No currency in the world, today, is backed with precious metals.

The mining stocks are the investment vehicles in this environment. They took a big hit yesterday, but are coming back some today. We will have to see how the day plays out.

The Economics of Borrowing:

Ps. 37:21, “The wicked borrows and does not pay back, but the righteous is gracious and gives.” In this passage, we see clearly that to avoid the wickedness of sin, the borrower must repay the debt. Further, as we discovered in the last posting, debt is a form of slavery; therefore, prompt payment of a debt is necessary to redeem one’s self from slavery as swiftly as possible.

Pr. 22:1 says, “A good name is to be more desired than great riches, favor is better than silver and gold.” This is almost exactly repeated in Ecclesiastes 7:1, “A good name is better than a good ointment . . .”

These passages warn a would be borrower that he must plan ahead very carefully if he is considering going into debt. First, he should very carefully consider his need. As the government and central banks continue to depreciate the circulating currency, one can find himself in an emergency situation. Paying cash up front for a home is very difficult even though the prices of homes here in America have dropped some during the last two years. There are very few families who can afford a home without a mortgage.

It would be wise to consider renting rather than buying in such a situation, but rental payments can be higher than mortgage payments at times. Renting versus buying must be weighed carefully. Remember that leasing for an extended period of time is, also, a form of debt. One signs a contract that he is bound to honor.

The depreciating dollar has put automobiles out of the reach of many without a loan. In this, one must consider the purchase of an older vehicle which can be afforded versus the new one. Perhaps, an older vehicle could be purchased for cash rather than going into debt.

Finally, one must carefully consider the amount of the debt that he can afford. He must service the debt out of income or liquidation of investments or other assets. A major consideration at this time is how secure is the present income. Many folks have lost their jobs here in these United States over the past two years. It seems as though there will be more people out of work in the near future. These type of considerations are important, because one must pay his debts promptly to maintain a good name.

This is particularly true in the case of Christians. Many people know that we belong to Christ Jesus our Lord. Were we not to promptly pay our debts, we would not only damage our own name, but we would damage the name of our Lord before the world. Even when our associates are not believers, they look to us for every bit of evidence against us and our King.

Lastly, I want to emphasize that debt free living is what God intended for us. Each of us should look toward reducing and eliminating debt as rapidly as possible. Reaching a debt free status is almost as wonderful as Christian’s experience of losing his burden of sin in Pilgrim’s progress. What a relief! Praise the Lord!

More on debt in the next post.

Best to each of you and yours, Doug

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