The Gen Xers Guide to Investing

OK. So the party's over. The economy is in the tank, and medicare and social security is bankrupt (as in, none for us). Wall street? Forget about it. It hasn't made any real gains since the end of the last century. Unless you want serious heart burn, stay the hell out of the market. Real estate? Well, we all know what happened there. Forget about housing for at least two years. This leaves our generation, the U2 generation, the generation that grew up with Reagan, Thatcher and the Cold War, with an empty bag. Or is it (empty that is)? They say that you can make money off of any market, off of any volatility, off any bearish sentiment. Who are they? You can make money in today's economy. It's just that you have to think differently... totally differently. You have to think old school. And this means getting back to the basics of money, what money is and how it is being inflated into the heavenly realm. I am addressing you, generation X (and Y and Z) because we are smarter than that, and we should have known better given our proclivity for cynicism and natural desire to snoop for something better. Here I will give you the truth about a new economy, and the one thing that can save you.

The Volker Years

Paul Volker was the Chairman of the Federal Reserve during the Carter administration, and was reappointed under the Reagan administration. Mr. Volker virtually ended one of the greatest periods of stagflation and unemployment by raising interest rates and lowering the money supply to 3.2% from its high of 13.5%. This did not go without any adverse effects, however, the high interest rates took a hit on farming and construction.
This period of time was dominated by the cold war, a period of long negotiations between the U.S. and Britain to pressure Russian leaders to cooperate in arms proliferation control. Though this period may have been marked chilly and ominous to onlookers, there were no major wars between the United States and others at this time. This also contributed to a rather stable economy. Enter Sir Alan Greenspan.

The Greenspan Years

Alan Greespan has the distinction of holding the longest number of terms as Chairman of the Board. He held posts in the Reagan, Cinton, and both Bush administrations. It was during the 1987 crash were Greenspan made famous the statement "the Fed stands ready to provide all the necessary liquidity"... . He is also famous for his universally reguarded as confusing speeches, where contests were held for people to decipher Greenspan's elusive statements. Greenspan, unlike Volker, did not like to put a cap on inflation, as he believed more printed money could stimulate the economy. But this kind of policy thinking would lead to one of the great crises of our times. Greenspan is also associated with one of the greatest financial bubbles of our time- the real estate bubble.
In 2007, Greenspan finally admitted to a bubble and was quoted saying there would be "large double digit declines... larger than most people expect". Now we know why. In 2003, Greenspan dropped federal interest rates down to 1%, thus creating the greatest expansion of money credit in history. This also created the greatest real estate speculation in history as well, causing the housing market to sky rocket. We are living with the consequences of that monetary policy and will continue to do so throughout this recessionary phase.
In the meantime, the stock markets have gone haywire. Real estate is in the proverbial tank, and investment opportunities seem lost (except for oil). Only one sector has risen clearly above the fray, gold and silver, which have both experienced triple fold gains in the last six years. This is an average gain of 50% per annum. Ironically, Ben Bernanke the current fed chairman wrote a graduate thesis praising the economic virtues of gold.

Why Gold?

First of all, gold is still considered real currency by central banks. It is stored and traded as real currency between central banks. It has only been decoupled as a reserve currency. No longer is cash directly redeemable in gold. But it still holds its status as a store of value. This has had an overall crippling effect on the economy over time, as the dollar now floats. In other words, the feds can now print as much paper as they want to since it is detached from gold.

Why gold and not stocks?

Stocks are for losers. Literally, stocks are for losers. The dow jones has made not significant gains in the past two years, and are now getting hit by the sub-prime mess. major players like citigroup and merill lynch have all posted significant losses and retailers are experiencing the worst sales data in years. People are (and should) distrust the stock market as they will never be a true indicator of an economy in the tank. There exceptions to the rule, and you can still make money in stocks just not the same ones dad and mom went to.

New Generation, New investment strategy

If there is one thing that Gen Xers want, it's change. This can be both good and bad. In terms of investing, this is good. It is this kind of contrarian thinking that is ripe for new gold investors. It goes against the grain. It is non-establishment and it is profitable. This is especially good fo Gen Xers who have worked and saved money over the years, looking for a nest egg. You are in your thirties, and the clock is ticking. You need to plan for the future, you need to plan for retirement and you have to expect the worst case scenarios.

Planning

If there is one thing Gen X is adverse to, it's planning and thinking about the future. One way to look at the future is this. There is no future. The sky is falling, the markets are crashing. Though this may sound extreme, it will get you in the proper investing mindset. Trust no one and do your own homework. Today's investment world is 'evolutionary' is a sense- survival of the fittest. You must evolve or perish.

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