Covell Financial

Most people who follow gold have a mindset that gold is an inflation hedge. That is, that gold goes up when inflation goes up. Right now gold is at record highs and climbing, yet inflation is running at about 1.3% -so what’s going on?

The Wall Street Journal has an interesting article that points out that a better correlation exists between gold and how the dollar is doing, not how inflation is doing.

So here’s the bottom line: if you share the belief that the strength of the dollar is more relevant to gold prices than the inflation index, then you should be thinking about where you believe the dollar is going over the next several years. If you think the dollar will be stronger, than gold makes no sense. On the other hand, if you think we are trending towards a weaker dollar, than gold does make sense.

Here’s something that is not getting much press, and you have to wonder why.

So far in 2010, there have been 103 bank failures. That is twice as much as 2009, which was a pretty bad year. One of the contributing causes to borderline banks going under, in my opinion, was the increase in FDIC coverage. Sure, everyone was happy they now had $250,000 FDIC coverage, but the cost of that increased coverage had to come from some place. What most people don’t know is that banks have to pay the FDIC a fee for every $100 the FDIC covers.

So, when the coverage more than doubled, the fees the banks had to pay more than doubled. That increase in fees is not something the banks can easily pass along to depositors given the current financial climate.

Bank closures are a scary thing, and the story is largely ignored by the press. For more information, go HERE.

I think it is important that people understand what a trillion dollars actually is. The word “trillion” is thrown around without anyone, especially politicians, really knowing what a trillion represents. All we know is that it is a “big” number.

My own theory is that if people know what a trillion dollars is, they will have some idea of exactly how much trouble this country is in. So, in many of my seminars I use a simple slide to illustrate how bad the national debt really is and what throwing around figures like a $trillion looks like.

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