Mike Maloney is the author of the world’s best selling book on precious metals investing. Since 2003 he has been advocating gold and silver as the ultimate means of protecting wealth from the games played by our governments and banking sector. In this 90 minute presentation he lays down his ‘most likely’ scenario for the global economy over the next deacde…short term deflation, followed by big or even hyperinflation. Here you will learn the true definitions of inflation/deflation, the difference between currency and money, price vs value, ‘Wealth Cycles’, gold and silver accounting for the expansion of fiat currency, gold and silver supply and demand, the differences between the today’s bull market and that of the 1970s, The Debt Collapse, and more.
If you would like to know more check out Mike’s website http://www.GoldSilver.com
Mike sends out a free weekly newsletter from each of the above sites each with valuable information on the economy and gold & silver, see you there.
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Investing in Gold & Silver During Inflation, Stagflation and Deflation?
By: Julian D. W. Phillips, Gold/Silver Forecaster – Global Watch
In this piece we are looking at some critical fundamental features of precious metals that are rarely considered or accepted in the developed world markets. Expert investors like Warren Buffet look at inactive, buried gold with amazement, because he is focused on companies that produce things and earn money. And most of us wish we had his skill and money behind us.
George Soros and the like invested in gold as an anti-deflationary measure. Most analysts appreciate the anti-inflationary value of gold and silver. The protection of gold and silver in stagflationary environments are a combination of both abilities.
But why are gold and silver capable of giving such protection in bad times as well as good times?
They have certain qualities that shine forward at times when other investments fail.
The Limitations of Cash
In times of monetary stability and soundness, safely-stored cash never fails. Most consider cash in the bank to be the safest conservative investment, and in the distant past, the days of our grandfathers, this was largely true.
But that horrible word, inflation, came into being where prices kept on rising and cash saved would buy less-and-less. Interest rates compensated for this inflation, but then interest rates stopped rising. When interest rates did rise, it was at a slower pace than inflation. Cash lost its buying power as time went by. Bank charges would eat away any gains that might be made. At first inflation would occur one country at a time, and the exchange rate on those currencies fell, hurting international buying power even more. Today inflation is a global phenomenon.
Investors would have to move out of cash and into businesses or other investments that offset the cost of inflation. This was not easy unless inflation happened while growth was vibrant. And this benefitted those middle classes that enjoyed such growth. The poor, whose income rises slower than inflation, feel the pinch.
Suddenly, booms turn into busts and businesses don’t do well. The value of businesses and its shares fall, losing investors money. Even self-managed businesses fall in value, putting rich people into bankruptcy. This is deflation, a monetary mood that causes values to shrink. In deflation the value of cash grows as prices fall.
Those who believe they are skilled investors answer, sell, then cheaply buy back. We look at that timeless story of an investor who did that just before the Wall Street Crash. His friend did not do so well selling only when the fall was half way down. But our hero who sold at the top, overwhelmed by his own skill bought back in, when the fall was half way down. His friend did not buy back in, but stayed in cash. It’s not so easy!
Then you get a situation when the bust happened and all of the markets plummet because forced selling drives investors out. Interest rates fall to negative levels. If cycles are consistent, there should have followed a boom period. But growth was so anemic that stagnation set in. Businesses and the economy struggle to find small amounts of growth and some cut back, turning over at survival level.
Suddenly, something that shouldn’t happen in a downturn happened. It was inflation, driven by factors no government can control. It came from energy and food and became uncontrollable. This type of inflation is deflationary. Businesses covering expenses suddenly found their costs ate away at profits much the same as deflation and inflation would have done. This is ‘stagflation’, a climate where stress levels steadily eat away at sanity.
Surely bills and bonds are a way out of the hole, as they pay an interest rate, while being almost like cash?
The trouble with this thinking is that interest rates have fallen so low that the bill and bond markets are so high as to be heading for a fall, far worse than any Wall Street Crash.
Next interest rates rise to stop negative interest rates from rising higher. Then the prices of fixed interest securities have to fall, while their yield rises. Investors rush to exit those markets the moment that happens.
Surely there is no escape from these three economic ailments?
Well, there is….
For a long time, our Asian friends have suffered through poverty, hard times, government corruption and mismanagement. They have found refuge in good times and bad times. They want financial security and their investments to last for more than one generation. Correctly invested, their savings provide financial security for many generations.
You would have thought that Europe in particular would have learned the same lessons with their history of currency collapses and wars.
Why Precious Metals?
Gold (and to a lesser extent, silver) is more than a barbarous relic from yesteryear. Its rising price is telling us that it is a very modern investment preference because
It is both cash and an asset.
In the long term, it outperforms cash because of these qualities…
v It has all the features that makes cash valuable, even capable of earning an income(when lent out).
v It is an enhanced version of cash, in that it is not subject to the vagaries of interest rates solely dictated by central banks and banks.
v It carries no national obligations. It does not rely on nations to supply collateral to honor payment. If you ask the Fed to honor the value of your dollar, they will simply exchange it for another.
v It is not dependant on the creditworthiness of the nation issuing money.
v It has the same value in Mongolia as it has in the U.S. or Europe.
v It is collateral in any transaction and of greater value than the price it can be exchanged at.
v It cannot be issued at will, with the intention of being withdrawn from the system later.
v It does not decline when an individual currency declines (and does not rise when that currency rises in value). It is a ‘counter to currencies’.
v This century it has moved away from the control of the U.S. and Europe to global control. In the years to come, rising Asian demand will dwarf demand from the developed world, making it a fully internationally-valued asset again.
v In a deflating global economy (just as cash is a national protection) gold is better than cash even when local currencies are not deflating.
v In an inflating global economy, gold acts as an asset, when currencies are cheapening. There are no other currencies that are deemed as assets, like gold.
v In a stagflationary economic environment, gold acts both as cash and an asset.
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- Image by hto2008 via Flickr
Buy or Sell Gold?
The latest Wall Street Journal is filled with stories about financial planners advising clients to either sell their gold or not buy anymore.
Naturally, you’re probably asking, “Should I buy or sell gold?”
My answer is that it depends.
My gold buying career began in 1972 while I was a pilot in Vietnam, when gold was about $85 an ounce. When it passed $750 an ounce from 1979 to 1980, I was forced to sell, not because I wanted to, but because I needed to pay off some bills.
In the 1980’s, when Kim and I were flat broke, we bought a little gold and a little silver on a regular basis. When gold dropped below $400 on its way down from $850, I bought gold at $400, thinking it was a good price. Then it dropped to $375. I felt stupid, saying to myself, “I should have waited.” So, I bought at $375 and it dropped again. Still feeling stupid, I bought more gold. When gold went below $300 around the year 2000, I bought as much as I could afford.
In 1996, with gold and silver so low in price, a group of investors and me purchased a silver mine in South America and a gold mine in China. We nearly went broke bringing both mines to market in Canada. The silver mine was sold to another silver company and the Chinese gold mind went public through an IPO on the Canadian Exchange.
I regret selling that silver mine. I should’ve held on to it but the cash was tight and the offer too good to refuse.
In 2000, Rich Dad Poor Dad was still a self-published, obscure book. We had no income from the book or our games. Oprah hadn’t called yet to get me on her program. Our primary investments at the time were larger apartment houses and one commercial property. Cash was tight in 2000, but with gold and silver at such low prices, we cut corners on food and luxuries and bought as many gold and silver coins we could afford.
In 2001, after Rich Dad Poor Dad took off, Ron Insana interviewed me on the financial TV channel, CNBC. He asked me what I was investing in and I told him gold. He thought gold was a strange investment but listened to my arguments politely.
Generally, paper asset investors like Ron Insana, don’t invest in gold, silver, or real estate. If they do invest in hard assets, they invest via paper assets through gold mining shares, ETFs (Exchange Traded Funds), and REITs (Real Estate Investment Trusts).
Today, gold is on everyone’s mind. Many say gold is in a bubble. Some say it’s time to sell, not to buy. Personally, I’m not buying much more gold and silver because I have enough. But you might want to know why I’m not selling.
Why I’m not selling
The primary reason I’m not selling my gold and silver is that the US government is in big trouble and the problems are getting bigger, not better. In the October 25th edition of The Wall Street Journal, a number of articles validate my concerns.
One article points out that TIPS (Treasury Inflation Protection Securities), are gaining in popularity. This means investors are now betting on inflation. For a number of years, TIPS and traditional US Treasury Bonds were running at about the same price. Which gave no indication of inflation or deflation. Bonds are good investments during deflation. TIPS are good investments in inflation.
I knew such a neutral position between bonds and TIPS couldn’t last long. Today, TIPS are so hot that they’re selling for a negative yield. In other words, the fear of inflation is so high that TIPS investors will do anything to get their money into something that won’t lose value. TIPS investors are paying money in order to not loose as much money as they could otherwise, if that makes any sense.
Now, with TIPS becoming hot, it means bond market investors are betting on inflation, not deflation. This is good for gold and silver. Rather than invest in TIPS, I prefer gold and silver. Rather than trust my government, I trust gold and silver. And if traditional bonds became hot, it still wouldn’t change my preference for gold or silver.
The article on TIPS in The Wall Street Journal was only the tip of the iceberg. On the same page were articles with headlines such as:
Dollar is poised to slide further: This means the currency wars are on. A lower dollar means a loss of purchasing power and inflation for people who use dollars. That’s bad news for savers of dollars and good news for gold and silver investors.
JP Morgan to Launch Copper ETF: Copper is an essential metal for construction. Copper is now the darling of the investment community. Good news for investors in copper and those betting on a recovery.
Advisors Try To Tame Appetite for Gold: Claiming gold is in a bubble, financial planners are advising investors against gold—typical advice from financial planners. Why didn’t they advise their clients to buy gold from 1996 to 2006? The reason is because they make more money selling riskier investments.
So, from just one page of The Wall Street Journal, there are four articles indicating inflation, when the article on TIPS is included, and only one article about financial planners advising against gold.
I’m betting gold and not the advisors. What you do is up to you.
The primary reason I hold on to gold and silver is because the US has massive problems still ahead. We have a massive budget deficit, debt that won’t stop, and a dysfunctional political system. On top of that, there are approximately 75 million baby-boomers about to start collecting Social Security and Medicare. Medicare is slated to go broke in 2019, and to make matters worse, President Obama passed Obama care, adding to the costs. This is nuts.
I’m not blaming President Obama. He’s accurate when he says that he inherited the problem. For those of you who’ve read Conspiracy of the Rich: The 8 New Rules of Money, you know that today’s problems started a long time ago and have only grown worse.
I doubt the US can solve our financial problems. We’ll never be able to produce enough to pay our bills. Our budget problems are now too big. Since the US cannot produce more than we spend, the way the US will attempt to solve the government’s financial problems is by printing more money.
And as long as the US is going to print money, I’ll stick with gold and silver. If the government stops printing money, I may start selling.
But if the US stops printing money, you’ll definitely want to buy a gun and enough ammunition to last a while. It may take sometime for the rioting and looting to subside.
Rich Dad’s Advisors: Guide to Investing In Gold and Silver: Protect Your Financial Future
YOUnique Wealth – Gold & Silver
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Robert Kiyosaki, explains why silver is the biggest opportunity of them all (bigger than real estate) and why everyone should buy silver bullions.
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Related stories –
The Chinese Government Advises Citizens To Buy Gold & Silver
By Bob Tonachio
Story Published: Mar 1, 2010 at 9:23 AM CST
In fact, China just introduced silver bars for investment.And the state-run China Central Television (CCTV) is running a campaign encouraging the population to invest in gold & silver.
Real gold and silver investing has just begun in China.
China’s largest bank, the Industrial and Commercial Bank of China, created a new department to serve investors seeking gold and silver.
The bank told Reuters the Chinese have a custom of holding gold as a form of personal wealth and its gold market could soar as people get wealthier.
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