[T.S.R:15914] Bob Lenzner: QE2 Will Push Gold and Silver Even Higher

The outlook, according to Goldman Sachs ( GS - news - people ), a rather influential house of money, is for either a "fairly bad" or a "very bad" economy. Take your pick. A GDP growth rate of less than 2% will make mincemeat of the bullish estimates for S&P 500 earnings. You could see margin compression and the bearish ramifications of consumers saving rather than spending. My late great friend Leon Levy wisely warned that corporate profits should decline by 11% for every 1% the personal savings rate increases. You are now fairly warned. Don't look to housing for upbeat news. There are 8.6 months of supply of new housing inventory to work off, according to David Rosenberg of Gluskin Sheff. The tally is 3.9 million homes and condos listed for sale, 2 million housing units sitting empty and another 3.7 million vacant and being held off of the market. The result is that home prices have still not stabilized, and won't until some bold solution is developed. I put the odds of this as low. Sales of consumer goods are running at a measly annual pace of 0.8.% after subtracting the inventory growth in the first quarter of the year. The ISM manufacturing index was disappointing as well. There's nothing here to explain the market's tendency to suddenly experience huge rallies. Also don't expect any dramatic change from the November elections to magically change the economic softness or provide the jolt of optimism that the political gurus are dreaming about. This is fantasy thinking. The spike in gold and silver prices to unexpected new highs so swiftly is evidence of the weakness in sovereign currencies and their economies. It is proof positive that another bout of quantitative easing only stimulates the price of precious metals, not economic activity. Gold and silver have taken on the flavor of currency surrogates and that's been fine for all my friends who were in gold since $800 an ounce or lower (see "Don't Say We Didn't Tell You To Buy Gold.") Here's the most shocking factoid I've run across in some time: Gold is the only asset class that has generated a positive return for 10 straight years, the longest winning streak since 1920. Problem is that you inevitably must recall that 1920 led to 1929. The shrewdest global investor of our age, Gorge Soros, gave this clever put-down of quantitative easing at Columbia University this week: "Quantitative easing is more likely to stimulate corporations to devour each other than to create employment." He means the liquid cash sloshing around on balance sheets could be used for massive acquisitions, which may or may not make sense. We're seeing some of this takeover wave already with Dell ( DELL - news - people ) and Hewlett-Packard ( HPQ - news - people ) getting into a bidding war over tiny 3Par and the massive BHP Billiton ( BBL - news - people ) bid for Potash. Soros reckons we need another fiscal stimulus, more government spending, in order to prevent sliding back into a recession or worse. I want you to benefit from the insights of another friend, Leon Levy's protégé at Oppenheimer Funds, Stephen Robert, who was also chairman and CEO of Renaissance Institutional Management, part of James Symons quantitative hedge fund empire. Robert's thoughts on the economy, published in a separate column here, are compulsory reading for investors looking for long-term wisdom. Here's an excerpt: There are no-short term fixes for the U.S. economy. That's the dirty little secret that America's leaders are loath to face. The sooner we stop pretending that we can reverse the decline for this year or next, or perhaps over the next two or three years, the faster our nation will be able to safely and soundly recover. This crisis is not at all like economic crises of the last 50 years. It's much more like our own depression of the 1930s and Japan's economic tanking that began in the early 1990s. Massive debt is suffocating our growth. Worse yet, the experts really don't know what to do; all the traditional medicines have been tried, some at doses many times the usual curative amount. Still, this recovery is anemic. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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