How to invest in the government-based economy

As the government takes over more of the economy with healthcare reform, where's an investor to turn? Gold.

The Dow was up 9 points on Friday…following a week of big news.

Congress passed a bill permitting the US government to take over the health sector…about 17% of US GDP. Let’s see. The feds don’t have any money, right? They’ve got the biggest deficits ever, and will have to borrow $2.4 trillion this year just to keep the lights on.

And now comes news that Social Security has gone into deficit for the first time ever…and 7 years ahead of schedule.

The feds took over the mortgage finance industry last year. Practically every single mortgage written last year was underwritten by the US government.

And they took over the auto business too. They should be able to do for autos what they did for passenger trains. That is, they should turn Detroit into an Amtrak…which is to say, a Zombie City, if it isn’t one already.

Then, there was the bailout of Greece. And not only that…there was a weak auction of federal debt. A few years ago, any one of these bits of news could have walloped the stock market.

But investors didn’t seem to know what to do with the news. The Feds had taken over another big chunk of the economy. But what to make of it? Was that good news or bad news? The stock market seems unable to make up its mind. Finally, it ended the day with less than 10 points of movement.

Gold investors had a better idea what to do. They bid up the price of the yellow metal $11. Even central banks are buyers:

Central Banks Buy Gold, from MoneyNews:

Central banks around the world added 425.4 metric tons of gold to their reserves last year, the biggest increase since 1964, according to the World Gold Council. That represents a 1.4 percent gain to put their holdings at 30,116.9 tons in total. The increase was the first since 1988. Central banks in India, Russia and China were among those boosting their gold reserves last year, as the precious metal jumped 24 percent, hitting a record of $1,226 an ounce in December. Central banks now possess 18 percent of all gold ever mined.

“There’s clearly been a renaissance of gold in central bankers’ minds,” Nick Moore, an analyst at Royal Bank of Scotland, told Bloomberg. “It’s not just been central banks taking on gold, but a general shift for physical gold in the investment sector.” Many are now singing gold’s praises, with the precious metal up about 3 percent so far this year.

“Gold is quietly, at the edge, becoming the world’s second reservable currency, supplanting the euro and rivaling the dollar,” money manager Dennis Gartman wrote in his Gartman Letter, obtained by Bloomberg. “The trend shall continue months, if not years, into the future.”

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