Financially Surviving Various Types of Economic Disasters!
My family has been taking financial-based precautions to protect ourselves from certain man-made disaster events for over a decade. But, what we see coming makes us realize that we still have more work to do.
First came the "Y2K" threat. We prepared. We were ready. It passed without any significant damage.
Then came 9/11. A new word entered our vocabulary--terrorism. Then two wars followed for nearly 10 years--"their backyard". No more major, terrorism events stateside. We relaxed a bit, but found no value in disbanding our ready status.
A brief lull occurred followed by the financial debacle on Wall Street starting in late 2007 and the Great Recession began with a threat of a depression. Paulson, Bernanke, Congress, and the last two Presidents drowned the economy in an ocean of money. It has yet to wash back onto the shore's of the U.S. in the form of high inflation.
The banks left standing refused to spend the Federal money given them from the two stimulus plans. They remain fearful. They put this extra money into their "reserves" on the Fed's ledger to protect their bad debt situation with housing and commercial real estate. Then they changed the accounting rules to protect their financial appearances--"Sorry Main Street, you don't know what we know."
The nations of the European Common Market (ECM) started having enormous debt problems also. Iceland defaulted and stiffed the banks. Greece and Ireland took bailout money to forestall default. UK, Portugal, Spain, and Italy are staggering economically. They are next in line. How many more bailouts before sovereign defaults begin and the ECM breaks up? What are the implications for the U.S. and China? We'll see, but one could easily guess if he were honest.
Here we are today--mid-2011. The stimulated recovery has begun to run out of steam. Many Keynesian-minded people continue to cry out for more money, more spending, and more debt--"we can lift ourselves up by our bootstraps and spend ourselves rich." Sure you can, but please, not on the back of the American taxpayer!
In 2009, we became involved with the local Tea Party for nearly a year and remain marginally involved. But, after a time we sensed two things were wrong:
- This patriotic effort to save the country politically and financially will be too little, too late.
The progressives have had nearly a 100 years of effort and success behind them and the train is going down their tracks. By the time the conservative Americans go from the caboose to the engine of this national train, it will be going over the cliff.
- Most of the Tea Party members are not honest brokers.
Don't misunderstand. They are great American folks with their hearts in the right place concerning their country. But, many of the Tea Party members are older people with most on Social Security and Medicare--they are retirees. They all say they want serious budget cuts to save the country BUT no changes to "our benefits please--no matter what". And, yet these two entitlements alone will be responsible for destroying the country financially with unfunded debt. They are part of the fiscal budget train and they are not getting off until it stops. We think this will be a deadly stop!
As Dr. Faber said recently, it is the "tyranny of the masses
". Or, put another way, tyranny of the electorate
which is not too much different than progressive thought today--income redistribution.
Dr. Gary North examines all of the Fed Chairman's remarks closely and realizes that Ben Bernanke is out of financial "tricks" and is losing control. His last speech in June 2011, indicated he was mystified as to what was happening. Folks, there is no way out except by national default which will come first by mass inflation and then massive depression.
As we have watched all of these events, we can see the "hand writing on the wall". We have returned to our efforts of preparing for the worst of financial events imaginable--come what may, we will be ready.
We've become troubled about the lack of preparedness on the part of our friends, relatives, and national citizens at large. That is why we put up this website to alert as many people as possible. We hope some will take the time to consider our findings seriously and prepare.
Everyone needs to address their finances, employment/livelihood, food supplies, self protection, and be prepared for civil unrest. The clock is ticking, day leads onto day, but hopefully, there is enough time to prepare, if you start now!
Greatest Devastation Potential--Natural vs. Man-Made Disasters?
Although a case could be made that some types of natural disasters could conceivably bring about a national economic collapse under the right conditions, we don't know of any country that has experienced such devastation in recent history. Much of this stems from technology systems of
warning and protection that are in position today that weren't possible 25 years ago.
(The recent 2011, Japanese earthquake and tsunami came close, but this was a combination of two natural disasters that served as trigger points for the man-made nuclear disaster that followed. Granted these events did heavily damage the economy and killed many people, but they didn't devastate it. They will recover in a couple of years).
Going back further in history, the European Black Death pandemic known as a bubonic plague between 1348-1350 AD, killed between 30-60% of Europe's' population and also caused great social and economic upheavals-- the likes of which had never been experienced before. This disease was a natural disaster but it evolved into a pandemic by men through the global trading transfer of the germs.
After the Plague, the Little Ice Age, which occurred between 1550 to 1850 AD in Europe. It devastated many western, European nations and it took over three centuries to recover.
So these are the two primary natural disasters that come to mind, historically, that did manage to destroy national economies, reduce populations, and ravage agriculture and food supplies.
(An interesting note, as of 6/6/2011, solar physicists have become very concerned that Sun spots appear to be heading into hibernation which could once again spawn another mini-ice age for an unknown period of time. Whatever happened to Global Warming?)
Potential Future Natural Disasters
The number of natural disaster types that have the potential to scale large enough to severally affect a national economy to the degree of destroying it, are very limited.
The most likely natural disaster that could qualify might be a massive earthquake and/or tsunami on densely populated coastal regions where major cities exist.
Another type, less likely, might be an enormous volcanic eruption greater than Mt. St. Helens-say the Yellowstone National Park in Wyoming which contains a super volcano structure and capability. Scientist claim that if this area were to erupt as a super volcano, life on earth would cease and
everything we are discussing becomes mute!
And, the other possible natural disaster type which would be the least likely to occur would involve a large radiation storm in the form of solar flares from our sun. One scientists is predicting that this might occur in 2012! They believe that this could wipe out all aging, national electrical grids which would then trigger the downfall of many other infrastructure components within a country in the form of cascading trigger events.
Of course, the earth could get hit by an asteroid or massive meteorite large enough to take life on earth back to the stone age. Don't laugh though, just reported this week, 6/27/2011, an asteroid the size of a tour bus is coming within 7,500 miles of earth. In February of this year another such object came within 3,400 miles! Astronomically, these are near misses.
As an aside, read "Lucifer's Hammer"
for an idea of what this might involve-the novel is realistic and spooky. But, the writer did an excellent job in explaining how the surviving populations might continue on and rebuild society. It is still in print at Amazon. (Please utilize this book logo in the right column if you're interested.)
In this instance of asteroid collisions, there is little we can do about such a catastrophic event other than preparing in similar fashion for any large disaster and just hoping that we can survive the initial occurrence and then after that, the long-term reconstruction, if at all possible. But, we digress!
Potential Future Man-Made Disasters
We believe that the following man-made disasters have the greatest chance of affecting populations in this decade to a degree where a nation's economy could be brought to its knees for years or totally decimating populations nationally and even globally depending on the size of the initial economy-
- Economic Financial Disasters.
- Certain Terrorism Disasters Involving.
- Biological pandemic attack-people or food supplies.
- EMP attack. (Electro-Magnetic Pulse)
- Nuclear attack-dirty bomb.
- Cyber-Terrorism attack.
- Warfare-conventional or nuclear.
Detail discussions for each of the above man-made disasters can be found on this site.
Each of these man-made disasters could directly or indirectly affect a nation's electrical grid, food supply, financial systems, and communication systems. These failures could destroy the division of labor and the attributes of specialization for a national economy, driving a country backwards a 150 years, if not further.
Today, with the Middle East in total turmoil and revolution, many safeguards and treaties that had been established over time no longer apply. Enormous uncertainty now exists as to the protective working relationships that helped prevent terrorist events and wars in the past.
Al-Qaeda terrorists could become a much greater threat now globally with the destruction of the deterrent networks. Only time will tell if Bin Laden's demise will reduce the terrorist threats or if the Middle Eastern revolutions will enable al-Qaeda to regroup and reestablish their balance.
However, only one of the above man-made disasters has high predictability of impacting global populations at the moment-- economic financial disasters. All of the others, at least for the moment, are fairly unpredictable but quite possible. All of the above disaster types will ultimately create massive food shortages which will result in inflated prices, starvation, and quite likely wars.
Today, any educated citizen that examines the situation closely and honestly will easily see the reality of the situation. Additionally, Austrian economics can be utilized to see the financial realities about to occur. And, occur they must before nations can return to rebuild their societies and systems of enterprise.
The chorus of "practical" experts is gaining volume every day as more and more of them have watched the financial destruction of Keynesian economics and banking mismanagement. They are beginning to realize that their respective countries are on the road to ruin. Even if they took the correct action now, it wouldn't save the many affected nations from financial devastation. They have been kicking the "cans" of fiscal responsibility down the road for several decades and now the "cans" have become too large to kick any longer!
Europe is ahead of the U.S. in terms of economic destruction and default. These nations will begin to fall like dominos which will then impact the U.S. which is even in worse financial shape than Greece today if you consider the unfunded liabilities not officially on the books! In the U.S., they will eventually experience only two scenarios, if not both-mass inflation trending towards hyperinflation and then a massive depression, the likes of which has never been experienced. It will be global with exceptions. If Germany stops funding bailouts for Euro nations, they may be able to avoid national default. Also, certain Asian and Central and South American countries may be able to sidestep the problems.
Not too far behind these sovereign defaults will come China who is already approaching mass inflation metrics. (If you can believe their government metrics.) Their biggest problem will probably be massive, internal civil unrest which will likely end in much bloodshed and loss of life. It won't be pretty.
Focusing on Financial Man-Made Disasters
The odds are fairly high that man-made events in this day and age have a far greater likelihood of impacting everyone in a devastating manner in the short term.
Here is a must see presentation video by the author of Rich Dad, Poor Dad
, Robert Kiyosaki. This nationally known author has helped many individuals and families toward a better financial future. In the video he is surrounded by other associated well-known authors, lawyers, and investors including his wife. When you see experts like these change direction and prepare for the financial disasters they believe are coming, its is a sobering thought.
Click here to view the video in your browser.
It's these, man-made financial disasters that are of primary concern to us and to those people that are vigilant and attuned to international and national events. The most troubling are the derivatives investment products for finance and oil. These can create what Greenspan once referred to as "cascade defaults". (Unfortunately, too many people are invested in sporting events, celebrity gossip, and living for the moment. Many are in denial and prefer to remain ignorant.)
Even today, many financial elements are already in place that could trigger a global default by many sovereign nations. As national leaders and managers of many financial businesses continue to struggle to bring order to chaos, it is deemed by a growing number of experts that it is too late to do anything to prevent the coming bouts of hyperinflation and global depression. It is just a matter of time.
Sadly, the governments of the world will be the last to inform private citizens of any looming crises until it is upon the population. The good news is that governments are no longer the gatekeepers of information and knowledge with the advent of the internet. Information has become near instantaneous on a global basis, decentralizing knowledge and its control to say nothing of manipulation. The Pravda of old is dead and the New York
Times is soon to follow!)
Some modest investigation would reveal that most governments are very concerned with their economic survival and they have not bothered to clue in their general populations. They have engineered safety shelters that are fully supplied with food and water for themselves because government must survive at all costs. The best known places for government politicians are in Washington D.C. and of course certain military generals, Cheyenne Mountain in Colorado Springs, Colorado.
Additionally, the U.S. Government has been preparing large abandoned mines in several areas of the U.S. It is rumored that the Russians have been a bit more thoughtful concerning their citizens in that they have never abandoned their Cold War nuclear shelters but rather they have continued to maintain them.
(For an intriguing study and advisory on a nuclear holocaust, read the reference book by Dr. Arthur Robinson and Dr. Gary North-"A Fighting Chance--Ten Feet to Safety"
. (We found it interesting that the source library used to create this book at the Los Alamos Laboratory was destroyed by the U.S. Government for some unknown reason when the manager of the laboratory and owner of the library retired). The book is still in print at Amazon. (Please utilize the book logo in the right column if interested in acquiring it for study.)
So, have you heard of any plans or safe places set up for private citizens lately? We don't think so. But, below are several links to some very interesting YouTube videos regarding some of the underground structures prepared and being prepared for government officials and family members. These sites are quite large in that two 18 wheelers can pass each other with plenty of room to spare! Here is a hugh underground food storage facility in Missouri.
Government Safe Places for the Elite:
Here is an interesting investigation by former Governor Jesse Ventura regarding the Denver International Airport and some facts and witnesses talking about the massive underground shelter being prepared these many years under the airport. We aren't conspiracy people but this leaves me wondering. Why? For Whom? When?
Safe Place Under the Denver Airport:
So, if governments are taking precautions and preparing for some catastrophic event to protect their collective group of elites, why shouldn't you and your family? Trust us, nobody is looking out for you and yours!! Keep in mind, as I do, that Noah of the Bible spent a number of decades building his Ark and he never produced a single believer that the Deluge disaster was on the way. No one outside of his immediate family that is. We hope we'll have more success with our readers!
The purpose of this segment is convince as many people as possible that:
- The most pressing dangers facing the world today are the coming man-made financial disasters-if nothing else intervenes.
- These disasters will eventually unfold across nations until they reach a global scale.
- These economic events will affect national economies with mass inflation, hyperinflation, and depression.
- Fiat money will become of little value to those possessing it.
- There will be widespread commodity shortages of food, medicine, fuel, and water.
- These shortages could lead to massive starvation and numerous regional wars.
Before these economic tsunamis hit, we want to help as many people as possible prepare financially. Based on the testimony of numerous conservative experts, it's our strong opinion and conviction as well that families need to start:
- Accumulating food and provisioning water sources and purifying equipment that can last a family for several years.
- Eliminating private debt and reducing the number of non-essential liability assets to a minimum.
- Switching their attitude regarding money and investments by acquiring alternatives of gold and silver.
The first and second items are covered in detail on this site but this segment will be focusing on the last item.
Because we are not accountants, lawyers, or financial advisors, we can only tell you what we have learned and done over the past decade based on information from a select group of experts . We have found that there are two primary pools of "experts" in this area. The conventional experts that
think that the contrarian experts or daffy and vice-versa. So, this boils down to the old expression, "…you pay your money and you take your chance"
Unfortunately, your life may depend upon what experts you choose to believe. You've come to that famous fork in the path, as my favorite poet, Robert Wood, once penned-and which path you choose today "will make all of the difference" in the future.,
We are not financial wizards. We are just practical people that are well read and have been tracking the situations for over 14 years using a Austrian, contrarian perspective.
To put it bluntly, we are quite skeptical of many of the voices in the financial media as well as those financial advisors telling everyone to stay in certain investments and everything will work out--given a long enough time horizon. Most all of these experts have a vested conflict of interest which makes their advice very suspect.
Many of these "experts" never saw the housing crisis coming, so why would anyone believe them now? Our group of experts that we have slowly cultivated over time were well aware of the housing crisis at least two years before it hit.
Many of my friends have lost 40-50% of their retirement or investment funds and half of the value of their homes by listening to these compromised voices in the investment world. None of our friends would consider our advice. For us, however, we avoided many of these investment traps and achieved returns of over 500% with all of them still increasing!)
So, we'll be happy to share our strategies and describe what we have done over the past dozen or so years. If what we suggest makes sense to you, go and do likewise, but speed is of the essence and the cost of delay is increasing more each day !)
Investments for Hard Times
When one of the great investment sages who made his living for many years successfully recommending stocks and bonds, suddenly becomes a skeptic of every investment except gold and silver, you get the sense that something very serious is about to occur. Richard Russell, who wrote the Dow Theory Letters for many decades and has a stock index named after him (Russell 2000), became very bearish on all stocks, bonds, and T-bills several years ago. He began warning people to sell their investments and start buying gold and silver. He "eats his own dog food" too, because he sold off all of his investments, switched to precious metals, and paid off his home. He wasn't worried about what other people thought of his advice and actions. He was very firm in his recommendations. He has since quietly retired, from public life. What a shocker to Wall street! But, you never hear it mentioned by the business minions!
Dr. Gary North and Dr. Marc Faber also became very bearish on most other investments and began to encourage their members and Wall Street investors to start acquiring precious metals several years ago. Both are Austrian trained economists. North has a PhD in economic history which has proven very useful in today's world and Faber is an expert investor in the Far East and a very popular guest several times a month on CNBC Business TV.
Both men pull no punches and tell it like they see it. Both of these gentlemen have been warning everyone about the past real estate crash, the present commercial real estate bust, the future outcome of excessive printing of money by the Federal Reserve, and the unbridled madness of political spending deficits. They have been very consistent about where this will end up.
Keep in mind, the timing of large financial events is difficult to predict because of so many mitigating factors, but these experts have utilized historical financial principles and are convinced that there is no way out of these messes for many Western nations except two-hyperinflation and then depression which ultimately end in sovereign default(s).
Peter Schiff in his 2007 book , Crash Proof, started calling out the housing bubble and the financial defaults, predicting the crash several years before it hit. On Fox Business News he was challenged by all types of experts that his predictions would prove completely false. He was laughed off the TV set by the so called expert pundits. (You can still see some of these interviews on YouTube if you look for them). But, even though his timing was a little early, he called it right on the substance and level of failure. Unfortunately, no apologies have been issued to Peter by the pundits but he proved to be very accurate in his predictions. (It seems that today, in this environment, business TV has been avoiding Peter-I don't think they want to hear what he might say!)
Nouriel Roubini, a professor at New York University, has been credited by the financial world as the economist that pegged the recent financial debacle and the real estate crash. All of the writers and experts above were really talking and warning about it at least a year or two before he appeared on the scene. So, I'm a bit puzzled has to why he received the credit and accolades other than the fact that he was "one of them"--a Keynesian economist!
Billionaires, Jim Rogers and Eric Sprott, are both very wealthy investors that have a primary focus on precious metals. Rogers operates his commodities ETF out of Southeast Asia and Sprott is a very successful hedge fund manager. Mr. Sprott has a huge hedge fund in precious metals and even tried to buy some of the 400 tons of gold that the IMF was attempting to sell recently. (However, the IMF spurned his offer and would only sell to a
Mr. Rogers is more focused on commodities in general and favors food and water production in particular. "Farmers will be the next wealthy class of people he warns". And, he is probably quite correct, keeping in mind that many international hedge fund managers with cash to burn have gone to third world countries like Africa and South America to buy cheap acreage to begin farming food! They see massive food shortages in the months to come.
Rick Rule and John Pugsley are two investment experts in the area of precious metals which includes all sizes of gold and silver mining companies. A few years ago Rule was cautious about gold and silver but has now become totally bullish. When Rick Rule speaks, many big name experts set up and pay attention.
Mr. Pugsley, author of the 1980 book, "The Alpha Strategy-the Ultimate Plan of Financial Self Defense", regarded gold and silver as political metals and very subject to the central bank manipulation to consider them as honest inflation hedges. Mr. Pugsley died several months ago but before he did, he had taken a completely different attitude about precious metals and had become quite bullish on acquiring gold and silver. (But, keep in mind the period the book was written because silver and gold had taken a swan dive from all time historical highs to ultimate lows.)
The Alpha Strategy is actually a great book on preparing for the various economic cycles that will always be reoccurring over time especially inflation which is the weapon of choice by the Federal Reserve and politicians the world over.
Crash Proof provides excellent advice on how and when to invest in gold and silver and real estate. Peter Schiff and his brother have added a precious metals business to their core investment business and can be a trusted source for purchasing metals.
All of the above mentioned personalities, with the exception of Nouriel Roubini, have monitored precious metals for decades. They are all very cautious and very conservative in investment strategies. They have a public reputation to maintain and they are not about to squander it by offering poor and inaccurate advise.
A Case History: Y2K--A Preparation Drill for Today's Economy
Our family prepared for the Year 2000 event by following the advice primarily of Dr. Gary North through his newsletter, The Remnant Review. Having been a global IT expert for many years, I knew what was imbedded in millions of lines of computer code in the computer systems of the world. (We helped design and code quite a bit of it ourselves!) So, I was convinced of the dangers to these computer systems and to the businesses and
governments that depended upon them. With this understanding, coupled with all of the cross-business relationships weaved throughout each country's economy, it was easy to see the potential ramifications for a global economic disaster. I persuaded my wife that we needed to prepare for this outcome.
The consulting company I was employed with at the time, was a Big 5 consulting firm that serviced IT systems of many companies on a global scale and helped them design disaster planning scenarios with laborious remediation steps based on "what-if" scenarios. This work occurred over a span of two
In hindsight, the world "dodged a bullet" with regard to the Y2K event and no major devastations occurred--just minor irritations of duplicate billings and the like but nothing life threatening or serious. Even microchips seemed to perform reasonably well and this was the big unknown.
But, personally, my family was prepared to the hilt ! We relocated to a safer town away from a major city, acquired a year's supply of food, put in a generator/inverter, and invested some of our IRA retirement funds in gold, silver, and platinum after we paid off our new home and all of our car loans.
Some folks reading this are probably chuckling about all of the effort our family expended and nothing serious happened. (My wife found little humor in all of the effort either and continued to remind me often over the years). That's okay. If I had to do it over again, I wouldn't have a second thought!
Now, a decade later, we have many more new things facing the world's population that, separately, could be just asdevastating as the worst case scenario of Y2K. Guess what? It took very little effort and expense to become even better prepared and ready for this next chapter of potential disasters. Even better, we are much more informed.
Our "silly" investments we left alone and they have continued to grow over the years by over 500% heading towards 1,000%! We simply couldn't find anything better to invest in even though we were tempted buy some hot, appreciating real estate like everyone else back in 2006. My experts stressed don't buy real estate now for some time to come. So, we didn't. Many of our friends and relatives who said, "don't worry about it" leverage your home like an ATM, buy some toys with your appreciating equity. Invest in real estate and "flip" some houses and make some big money.
Well, many of these same friends have appointments with their lawyers regarding their debts and foreclosures. Some have lost over 50% of their retirement "kitty" in their 401Ks because they stuck with the equities game. Y2K has proven to be an excellent "dry run" for our family. We sleep well at night!
Over the years, we have observed gold and silver trying to determine what factors make them rise and fall in price on a daily basis but still continue to rise over the long-term in a strong and consistent fashion. In 1998, gold bullion could be acquired for around $300/oz. It has climbed to over $1,500/oz in 2011 with numerous investment houses and experts suggesting that it will be at $2,000/oz by end of 2011 and could reach $5,000/oz in the next five years, if not before. (Bank of America and Goldman Sachs recent analysis)
In the past, gold and the U.S. dollar acted as opposites in terms of changing valuation. If the dollar got stronger against other currencies, then gold would drop in price and vice-versa. Today, this doesn't always map out in the same fashion. Now it seems that gold is more closely tied to the price of crude oil which is linked to the dollar value. If the dollar drops, crude goes up and so does gold. Then the are many times when the dollar goes up and so does gold.
When the currencies of other countries look weak because of financial conditions, these nations' investors and savers purchase either the dollar or gold. The dollar in the eyes of some foreign buyers seems to be responding more as a hedge against the loss of their currency's purchasing power.
However, the fiat currencies all seem to be in a race to the bottom in terms of valuation with the exception of the Swiss Franc, Canadian, and Australian dollar. Recently, the Swiss Central Bank has moved to devalue its Franc to keep it from outracing the Euro and other currencies so as not to hurt its export business. Other investors simply have a greater fear and longer memories and don't see another fiat currency meeting their hedge needs and choose to invest in gold or silver.
Also, we have tried to determine what affect on the price of gold that various types of economic cycles have. Historically, gold and silver don't do well in recessions, depressions, deflations, or mild inflations according to Dr. Gary North.
These two metals generally soar during periods of mass inflation and hyperinflation. During the last couple of years, gold in particular, has been rising consistently against all currencies after dipping strongly during the Great Recession. It continued its rise, coming out of this late recession even though we are currently in a phase of modest inflation. (By the Federal Government's definition-Consumer Price Index--CPI).
But, in conclusion, history may not be the best judge today of what gold will do in terms of a given economic scenario. There exists today the FUD factor--Fear, Uncertainty, and Dread!
With few good options to run to today in terms of protecting the purchasing power of your money only precious metals remain as the best hedge although those that don't understand gold prefer U.S.treasury notes. But, we would predict given the Federal Reserves balance sheet, this could be a very risky place to park your money and the returns on extremely low especially when compared to gold and silver.
In summary, we have come to believe that gold and silver are responding more to a "global fear factor" internationally and this is a unique scenario for this generation. This global fear has kept the pressure on for rising gold and silver prices regardless of the efforts of governments to reduce prices.
What is even more interesting is that more people in Europe and the Far East prefer acquiring precious metals when times are tough or uncertain. Whereas in the U.S., the general public and typical investors are quite ignorant or adverse about precious metals.
In China, where inflation is ramping up, there is a keen interest on the part of their citizens to acquire gold to preserve their purchasing power. (Think of the headcount of gold buyers this area represents!) The Chinese have always believed in the value of gold for centuries because they don't
trust their governments. They have an absolute affinity for gold as do the people of India.
The Chinese citizen is no longer prevented from owning gold legally and they are being encouraged by their governments to own gold privately. Today, the Chinese are most enthusiastic about acquiring gold just as the Indian fathers have been to provide gold for the wedding dowries of their daughters for centuries.
These two countries are now acquiring gold faster than all other countries in the world. In fact, the Gold Council's annual report stated that China now has replaced India as the number one gold buyer in 2010 and the pace continues into 2011. (Keep in mind that the largest producer of gold today is China. They purchase much of their gold within their own country so it's uncertain how much gold they really have public and private.)
In these financial global situations developing now, central banks of the world have stopped selling their gold reserves and have become net buyers. That hasn't happened in many years. For example, not too long ago, the IMF decided to sell 400 tons of its gold to raise money. Other central banks jumped on it quickly and purchased all of it. The big buyers were India and Sri Lanka. The investment community was quite shocked by the rapid purchases from the Far East.
This year, the international central banks have continued to buy gold. They have acquired about 150 tons to date. Instead of the Far East countries buying like they did last year, Russia and Mexico have decided to buy this year. Nothing like this has occurred since 1971.
Additionally, the World Gold Council reports that the managers of the central banks believe that gold will be the best performing asset class over 2012 because of the fear of coming sovereign defaults which could accelerate major risks to the gobal economy. It has already risen 20% this year over last
The real negative about gold and silver is that they are a political metals. They always has been and probably always will be. (Silver retains and industrial use also). As such, a rising price in gold and silver is a vote against central banks and governments.
Dr. Marc Faber has recently said, "Not to own gold is to trust the value of paper money and the government's integrity. No one in his right mind should trust the U.S. Government any more. The government's economic statistics are distorted and there is no consensus on to solve the budget crisis. So, yes, people should own some gold. It can correct by $100 or $200 a ounce but you own it as an insurance policy" (Against a financial disaster or wealth destruction through mass inflation).
Politicians and central bankers despise gold for these reasons One would think that if the price of gold went way up that a nation's gold reserves would increase enormously in value and thus the wealth of the nation.
But, bankers and politicians don't see it that way. They view the increased price valuations of gold as a vote against their respective fiat currency and their fiscal government policies. Gold's increasing value quietly speaks to a loss of confidence in the financial affairs of state.
If futures manipulation fails to lower the prices of gold and silver then central banks will dump tons of gold onto the marketplace to deliver a hammer blow to prices. Fortunately, dumping by central banks has had limitations placed on these acts by mutual agreement. Banks have agreed to only dump a
defined tonnage of gold per year with the intentions being announced well in advance of the sales. Strangely, as of late, this selling has turned to buying on the part of central banks. Something seems to be troubling them. Wonder what it might be?
Purchasers of Precious Metals Today Are of Several Types and for Various Reasons:
- Central banks of various countries-national security,
- Large hedge fund investors hoping to make a high return in uncertain times,
- Short term speculators that don't understand gold or silver but desire to make a fast buck,(Flies around the picnic potato salad)
- General public for purposes of-
- A hedge against degrees of inflation,
- A hedge against a fiat currency and its declining value,
- A fear hedge against uncertainty of the future,
- An investment insurance (no other investments can match the return today although that hasn't always been true from 1980-1998.)
How Do You Invest in Precious Metals for Security?
There are numerous ways of investing in precious metals today. The amount of investment and the types of investments depends on your available funds for this particular purpose, the nature of your source funding, and the desired location of your investments.
Primary Investment Types:
- Exchange Traded Funds (ETFs) for gold, silver, or commodities at large.
- Senior mining company stock-large to mid caps
- Junior mining company stock-small to micro caps
- Bulk bullion (bars)
- Bullion coins (rounds)
- Minted bullion coins of various nations
- Numismatic coins. (Collector coins)
How you go about acquiring these metals depends on the freedom you have in your source investment funds. If you have cash, all options are available.
If your source funds are in a 401K you may not be able to invest in anything other than a domestic ETF, if you're lucky.
If you have a self-directed IRA with a special custodian that allows metal investments, you can acquire just about everything in the list except numismatic coins.
For bullion coins and bulk bullion, you would need to check your IRS information for limitations which is reflected by the limitations of your IRA custodian. But, for certain, national minted bullion coins, all are fair game with only several exceptions. (So verify before buying if your custodian will allow a certain national bullion coin.
Some Special Notes:
- A Roth IRA gives you the advantage of having all of the investment increases remaining non-taxable for life.
- Not all ETFs are equal. Some are audited to ensure that your investment has one and only one owner for the metal stored in your name. There are only two ETFs that do this that we are aware of and they are both Canadian.
- IRAs and Roth IRAs require a storage custodian to vault your metals for you either reserved in your name as allocated or pooled generically or unallocated. (Best to have it reserved to ensure your single right to metal at any time. Pooling offers cheaper storage but opens the case for multiple ownership claims if audits are lacking.)
- There is a rising concern in the U.S., that the government may try to force owners of IRA's and 401K's to invest in treasury notes and bonds--for your investment safety of course! At least 5 countries in Europe have already done something like this in one form or another. Argentina has done
this several times in the last two decades. There is just talk at the moment! Be alert. Better not to use these types of investment methods for metals if it can be avoided. (In the U.S., there are some legal methods to confound this maneuver if the government make the attempt.)
- Silver is predicted to produce a better return in the next several years and it is much cheaper to acquire than gold for most people.
- However, gold is much more stable in price than silver. When you buy silver for the higher returns in the future, be prepared for a wild ride. It sometimes requires a strong stomach to hold onto your investment and not sell.
- Know why you want to buy precious metals.
- Know in advance when and how you plan to sell it at some point in the future and under what conditions.
The Best Approach for Buying Your First Purchase of Precious Metals
If you have unencumbered, tax free money with which to invest in gold or silver, this is best.
- Buy gold first in the form of your national mint's, 1 ounce bullion coin. (i.e. American Gold Eagles, Canadian Maples, Krugerrands, etc). The reason for this is, that if you need to use them in a broken economy, national coins will be more acceptable than those coins that come from another
(Believe it or not, 99% of most citizens do not know the value of a 1 ounce gold bullion coin. We have witnessed a person attempting sell a one once Gold Eagle for $25 on the street of a California beach town and he could get no takers!!) But, the day is coming soon when gold's coinage value will be recognized.)
- Then, buy some "fractionals" such as 0.1oz coins for possible smaller transactions in the future. Unfortunately, the premium is higher on these than the larger coins.
- Finally, take delivery of your purchases as anonymously as possible. Good metal brokers do everything legally possible to ensure this.
- Store your metals securely. (Another discussion).
The Best Approach for Buying Your Second Purchase of Precious Metals
Once you've experienced your first purchase of precious metals and if you have even more funds to buy metals take a slightly different approach on this next acquisition:
- On your next purchases of precious metals, consider buying some 1 ounce silver coins that are created by your national mint.
- But, maintain a ratio between gold and silver investments at 75% to 25%, respectively. We'll discuss the best brokers later on.
- Do the same steps as above for your first purchase but only for silver.
If you are fortunate to have even more available funds, you might consider buying bars of gold and silver. 100 ounce bars of silver are a good choice because "you get more silver for your money", as Jason Hommel suggests. But, they are heavy and take up more storage room than gold.
Gold and silver Perth Mint Certificates (1 and 10 once bars) are a good choices for and they can be placed in IRAs. Other bars can be accepted if stamped as coming from a refiner of a certain specified purity level. These refiners either have ISO 9001:2008 certification or are named on an industry-standard "Good Delivery" list. (Make sure you obtain written communication from your broker and from your custodian and depository before purchasing.)
If you have even more money to invest and you have enough physical metals in your control, you could do one of several things:
- Audited Metal ETFs-Investing in metals here is as easy as buying/selling stock on an exchange. But, do ensure that it has Big 5 Audits executed several times a year for peace of mind.
One of the better operated and trusted ETFs is in Canada:
Central Fund of Canada: http://www.centralfund.com/
- Stock--Subscribe to a highly regarded, gold stock newsletter with proven success and purchase a selection of stocks of several major producers. (Make sure that this is an internet based newsletter capable of sending out immediate advisories.) Stocks of gold and silver producers can provide an
even greater gain than bullion. The reverse is also true so you need to stay very alert to buy and sell signals from your investment newsletter.
- Unless you are VERY knowledgeable about junior producers or are working with a well know expert with a great track record, stay away from these kinds of investments since many of them go bust.
An Interesting Alternative
Dr. Faber has recently suggested that the way the economic situations around the world are trending, he would recommend storing some of your gold outside of your country in a vault or safety deposit box. This next business we would highly recommend, fills this need very well and has enormous safety, security, diversification, and flexibility. It is a most unique precious metals business.
James Turk and his son of GoldMoney have an interesting investment concept for new investors in precious metals that you might like to consider if this is your situation.
His business is on Jersey Island, one of the British Channel Islands in the English Channel nearest to France. They use vaults in the UK, Switzerland, and Hong Kong which is excellent global diversification both geographically and politically. They presently have over $2 billion in customer metals and 20,000 global customers.
All investments are ensured by Lloyd's of London and all vaulted metals are audited frequently. This is a very important point for investor protection-audit transparency.
You purchase precious metal bullion as a direct investment or within an IRA or other similar investment shelter dependent your nation.
Your account is called a "holding". The contents are represented as grams of metal or a GoldGram. Each gram equals real gold, silver, or platinum in one of their three vaults and allows investors to purchase goods and services electronically just like writing a check backed by fiat money in a bank account but your check is backed by a precious metal instead! This type of business truly has a number of governments concerned since this is the modern way of deploying a "gold standard".
Important--this is an allocated account holding which means only one claim against a gram of gold or silver exists and that is yours.
This places your precious metals outside of your government's direct control and legal jurisdiction making it more difficult for governments to confiscate and for litigation mad lawyers to get easy access.
Storage fees are about equal with other similar alternatives and commissions for mintage are a non-issue. This approach is so much faster than the typical IRA custodian that moves at a snail's pace when it comes to executing a directive to say nothing of the need to "babysit" a directive transaction from end to end.
We utilize this firm ourselves and recommend it highly as does Dr. Gary North and Peter Schiff.
Other Alternatives for Acquiring Precious Metals
If you have a tax sheltering, retirement savings plan like a 401K, with funds accrued from employment savings and you leave the employment of the sponsoring company, you can "roll it over" into a personal IRA-either a Roth, simple, or self-directed. (These may be RSP's for Canadians.)
To create an IRA with the greatest investment flexibility create a self-directed IRA (SDIRA). This requires locating a IRS approved trust custodian the will manage your account and investments at your direction. If this is a SDIRA metals
account, then coupled with the custodian is a vaulting function which is handled by another company known as a depository.
Next you establish your SDIRA with your selected trust firm as a "self-directed (metals) IRA". These types of IRA arrangements allow you to acquire precious metals and other investments within it. (We personally use Sterling Trust out of Texas and prior to that American Church Trust before they
sold to Sterling Trust. They have reasonably low fees compared to most but their performance, when carrying out a sell/buy directive, leaves room for improvement.)
For a list of possible Trust businesses that service IRAs and RSPs for metals check out the list at www.kitco.com at---
Kitco Metal IRA Custodian List: http://www.kitco.com/
(second item from the bottom of the list)
Notice that The Entrust Group has the most offices and they service the GoldMoney firm on Jersey Island that we mentioned above. The nice thing about them is that they allow you to select your choice of depository so you can select one nearer to where you live should you need to travel there as a last resort.
Once you have your account set up, you can fund it with your existing IRA or 401K doing a tax free "rollover". Then seek out a quality metals dealer/broker and have your broker approved for your account. Make your purchases through your selected dealer and have your broker and the trust company handle the details of delivery to an approved vault depository. (Warning--monitor the directive to ensure everything is executed properly until completed.)
If you are over the age of 59 ½, an alternative would be to pay the tax on your 401K and establish a Roth IRA before placing metals in it. (If you are under this age you will have to pay a withdrawal tax of 10% unless you just roll it over into a simple IRA). Using the Roth IRA will, all increases from the initial "basis" value of the metals will be tax free. And, if gold and silver increase in value as much as many experts are
predicting, this will save you a lot of money in the future through tax avoidance!
However, as mentioned earlier, because of the talk going around that the Obama Administration, has been toying with the idea of forcing private and public pension funds to purchase government paper with low returns to protect citizens from possible investment losses, we would think twice about using any kind of tax shelter even a Roth IRA is a sitting government target.
Today, we would probably give a lot of consideration to paying the tax and making metal purchases with the balance privately. We are sure that this flies in the face of most financial advisors, but they scorn gold and silver anyway.
Seeking A Dealer/Broker in Precious Metals
The world is going crazy with so many precious metal businesses these past 5 years. And, the gold and silver advertisers on business TV are rampant.
Most of them I've never heard of.
Many of the older brokers are still around, but if you are a new buyer you probably wouldn't know about them because they have remained rather quite preferring to deal with their old customers instead and keeping their marketing and commission costs low . So with so much "noise" about gold/silver ompanies on TV, who do you trust?
The National Inflation Association (NIA) has quite a list of the largest dealers in the business-or at least the most vocal! The NIA assessment evaluations from their clients measure the following important attributes:
- Customer Experience
Two dealers that we've used in the past, especially for silver purchases, are JHMINT and The Camino Company.
Jason Hommel is a relatively new owner but he is making big splashes in the silver bullion world. His team executes well in terms of price, product selection, ethics, and speed.
The Camino Company has been around 50 years or more and comes highly recommended by Dr. Gary North. They tend to be low tech although they do have a website. However, they do offer low prices for the basic bullion products. (We had one order that was delayed for a week because of a supply lag that many dealers were experiencing but their price quote was solid and fixed as agreed over the phone). They kept us informed at all times as to the process, and they shipped promptly without cost, once the order was filled from the mint.
Other Purchase Considerations
Here are some considerations you should take into account when purchasing gold and silver products for the first time--
Price isn't everything. You need to run the numbers on each order scenario comparing price, volume pricing, credit card cost, shipping and insurance costs. Various dealers do different things on order pricing so you need to bring in all of the costs after you structure your order conceptually. That is why it is best to do your research privately rather than over the phone. Once you've laid out the various pricings and
volumes, then begin the communication process.
You might be surprised in the differences within and across dealers. For example, if you buy a certain minimum, the price per item can be lower and the company may offer to ship and insure for free. Others offer a lower price but you pay shipping and/or insurance.
Some dealers will not accept credit or debit cards but want a certified check wired or mailed to them. These dealers are attempting to keep the cost to you as low as possible. If they do accept a credit card, see what the differences are in price between cash and credit card.
This isn't such a factor if you are focused on one ounce bullion coins of gold or silver and their smaller coins. You don't want to let them talk you into buying collector coins as some dealers try to do because that is where they make their big money. Offering the minted coins of other nations may be important to you depending on what country you live in but you should stay with your nations bullion coins. In the U.S. that would be the Gold Eagles and the Buffalo coins (when the mint is producing them). In Canada it would primarily be their Maple Leafs.)
Shipping, Processing, and Insurance-
Whether your purchases are going to your custodian's depository or to you, you will want to know the costs, if any. Several years ago, the demand for bullion coins, especially silver, exceeded supply. The mints couldn't keep brokers supplied and the mints sometimes just stopped minting certain sizes and types. Some mints in Europe were working three shifts a day, seven days a week just to keep up with demand.
During these extreme shortages, the dealers would take your order and money, but wouldn't deliver sometimes for up to three months even though they banked your funds! If there is a supply situation, they should advise you of the duration and the fact that they will not cash your check or cut a receipt of charge (ROC) until they ship it to you. They should also guarantee the price to you on the date they receive their money from you. Good dealers are fair and ethical and you need to deal with reputable firms.
And, finally, you need to be informed of who they use to ship and insure your order. Hopefully, they use a service like FedEx or UPS that allows you to monitor shipping progress and location.
whatever method you use to execute an order, you want the best customer experience you can get. Inquiries on follow-up calls or emails should be accurate, prompt, and professional.
We can still remember the lady broker we dealt with on our first purchases twelve years ago. She was that good and as a result we did follow-up business with several times until the company moved on.
Buy-Back Conditions and Liquidation-
At some point, you may want to sell your gold or silver coins or bars. You need to find out if the dealer has a buy-back policy and if so, how does it work and what are the differences between buy and sell prices.
Not to worry though, there are other ways to sell you precious metals. How you do it and by what means depends on whether it is an SDIRA involving a vault/trust arrangement or if you hold it privately. For the latter, you can use Ebay, Craigslist, or local brokers in larger cities as useful channels even though you could suffer some discount in value depending on the buyer and the direction of market pricing.
Sterling Trust, for example, has a relationship with a large volume broker that will liquidate as much of your metals as you like and place the funds in your SDIRA for future use. This is a handy relationship especially for large amounts of metals.
Additionally, with a SDIRA or similar tax shelter, retirement vehicle, if you are 59 ½ years old, you can take distributions either in cash after you've liquidated the metal by selling to a dealer or you can take the distribution "in-kind" which gives you the metal for you to sell on your own. You'll be required to pay taxes on this distribution at the liquidation price either up front when executed or later at tax time. You have the option. We always choose the latter.
Some Final Thoughts for You to Consider
Only about 1-2% of Americans own physical precious metal bullion of any kind ! During the recent rush to acquire precious metals these last several years, the mints fell far short of meeting demand even for these limited customers. Word on the internet suggests that demand will continue and in fact will increase greatly in the next several years.
One of the reasons is China. Right now, there is mounting civil unrest and high inflation occurring in China and it has a certain group of people highly motivated to purchase gold.
This group of people are the 500,000 millionaires in China today that have become very alarmed about losing their wealth should civil disruptions increase greatly. The global press is ignoring the story. The Chinese government has been meeting these uprisings with an iron fist for the moment but how long that will last is uncertain at best.
Then if the European Common Market countries like Greece, Ireland, and Portugal begin to slip one by one into default and these markets for Chinese goods dries up, unemployment in China will ramp up by many millions. Things will get very interesting worldwide and especially for gold!
China has now replaced India as the number one purchaser of gold and they have doubled their purchases in the first quarter over last year! Give this some deep thought readers.
If the great masses of China start sucking up the gold supply globally, two things will happen quickly:
- Extreme shortages will occur and it will be next to impossible to acquire gold for you and your family.
- The global shortages will drive up prices to stellar heights with some suggesting $2,500 this year (Chase Bank) and $5,000/ounce in several years which will price many people out of the market! Don't let that be you....
So, please don't delay.
Some Useful and Interesting References for Further Study
The Gold Wars:
by Dr. Gary North (www.garynorth.com)
A free, extensive study on gold by Dr. Gary North who has been involved with gold since the 1960's. He uses his training in Austrian economics, years of personal experience, and his knowledge of monetary history to explain what gold is all about. It's available here on his website or here in PDF format for free:
Click here to read the PDF in your browser, or right-click to download it.
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