Posts Tagged ‘investments’

There seems to be a lot of pressure today to invest in gold and silver for the coming times. Ostensibly, this investment will tide you through the rough times a comin’ down the road. But the question begs to be asked, will gold and silver really help me survive the coming times? The answer to that question is unfortunately a two edged sword. A sword that can not only lop off an arm on the for-swing, but take your head off on the back-swing as well. We have become too accustomed to taking wealth for granted here in the United States, and the rest of the world is following suite, unfortunately.

We base all of our transactions on a dollar bill, and as long as that dollar bills value holds true, we can survive. Or so we believe. I’ve made mention time and again that the value of any currency is based upon an arbitrary figure, set by governing officials. Currency traders further drive the value of that currency being traded by creating demand for it, while the governing officials create the supply. The old adage of supply and demand exists only so long as the two entities exist. What happens when the governing officials no longer create a supply of currencies for the traders to trade in? Simply put, your currency is worthless.

Most people are aware of that fact, and preppers and survivalists are acutely aware of that fact. And because of that many are now stocking up on gold and silver bullion and coinage, or what many consider to be the currency of the future. It’s a nice picture, but it isn’t necessarily the picture that tells the truth. Precious metals dealers want you to believe that their products will indemnify you from the coming collapse of society, the coming depression, the rising tide of inflation, and on and on, ad nauseum. But will gold and silver really save you in the future?

That all depend upon what you want it to be used for.

Generally, most buyers of precious metals invest for one of two purposes. In the first case, gold and silver, or other precious metals are purchased simply as an investment tool. Buy low and sell high. Profit is the name of the game, and today, those who have purchased in the past, are raking in the cash by selling today. But once you’ve sold your investment, what then? You no longer have the gold and silver jingling in your pockets, so to speak. Used wisely, precious metals can be an excellent investment tool, and I encourage you to look into the market as part of your portfolio. It can pay off really well in the long run. However, just like any investment, you can lose your shirt, pants and even your undies should the market collapse.

The price of everything can go up, or it can go down.

The second common reason to invest in precious metals is for the investment to be used as a hedge, or buffer against the rising cost of living in the coming times. We buy gold and silver because we can use it when currency as we know it today no longer exists. We hold onto the thought of buying a loaf of bread with gold or silver just like we hold onto a fistful of dollars at the store. We want to buy, we have the cash, but we hate to part with it. You know the feeling.

Inflation is already here, and we feel the effects of it every time we look at the receipt for this week’s groceries. Prices are going up, but our paycheck isn’t keeping up with the rising costs. If you think things are bad now, wait until hyperinflation sets in, or worse, suppose the ultimate calamity does occur and the government has vanished, eliminating currency as we know it today.

Then we have a few problems with our scheme to survive the coming times based upon our stockpile of gold and silver bullion and coinage.

For one, what value does an ounce of gold have when there is no currency to value it against? Secondly, what mechanism will be in place to assure that this standard will be adhered to by all parties? Just because we say an ounce of gold has a value of $1400.00 today, who’s to say what it will be worth tomorrow? Nobody knows, and in fact, value will be set purely between the buyer and the seller of these commodities. And I can guarantee that the results won’t be truly satisfactory for all parties involved.

When the crap hits the fan, all bets are off, and the value of any precious metal will be set by the seller of what you wish to buy with that gold or silver coin. There will, if the crap really hits the fan, come a time when there will be things of much greater value than coin and bullion. There will come a time when a pound of silver may buy you an ounce of coffee.

As an example we can look back into the annals of history and look at an ancient time when exactly what I am suggesting occurred.

We read in 2 Kings 6:24 that; Later,
Ben-Hadad king of Aram gathered his whole army and surrounded and attacked Samaria. Samaria was surrounded, besieged, put into a place of ultimate hardship where economy had no place. The crap hit the fan, and as can be expected what happened? Verse 25 tells us that; There was a shortage of food in Samaria. Aha! That’s exactly why we need to stockpile gold and silver. We can use that to buy provisions when society as we know it collapses. This is all well and true, but the other end of 2 Kings 6:25 says that; It was so bad that a donkey’s head sold for about two pounds of silver, and half of a pint of dove’s dung sold for about two ounces of silver.

And that’s the truth of investing for the future. Those who had much wealth in gold and silver paid through the nose to barely survive with food that wasn’t fit for the hogs. We always exist in a state where the haves and have-nots battle betwixt and between each other, and the haves always win out in the end. The problem here is that we need to determine what we want to have in the future as preppers an survivalists.

History tells us one thing about wealth; those who have land always come out ahead of those who do not.

Those who can provide commodities, such as food, implements etc, to those who cannot, but have the wealth to buy those commodities, can make a huge killing by setting their own prices.

Therefore, if you wish to invest in gold and silver as an investment tool for today, go right to town with the idea. Just remember that when, and if, the crap really hits the fan, the value of that gold and silver may well plummet to near zero in value. Your better investment will be in long term storage foods, land, seeds and equipment on which to grow more food, and other skills, supplies and investments that you can trade and barter with those who haven’t the sense to prepare for the coming times today.

Value of anything is purely an arbitrary term, don’t place your future on the altar of today’s wealth and expect it to be a bed of roses in the coming times.

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One of the aspects of preparedness and survival revolves around the monetary world, but unfortunately for too many of us neglect to keep tabs on what is happening in the money arena. This article from Money and Markets explains some of the issues the latest European tragedy to occur, the falling Euro. Claus Vogt makes some good points, and as far as application towards preparedness, I would suggest if you have been waiting for the right time to begin preparing, you’ve waited too long. While I do not advocate relying upon gold as a survival plan, it does make for a good, relatively reliable investment tool.

Nothing but food and water, tools, seeds and other supplies and equipment will help you get through the coming times, but having a good investment can help you to afford the things you will need to get through the coming times when the cashless world comes to reign. If you like the article and want to learn more about this aspect of preparedness, please follow the Money and Markets link at the bottom and sign up for their free email newsletter.

The Euro Is Washed Up — But the Dollar Is No Better

by Claus Vogt   06-02-10

Greece has made it obvious: The euro is doomed. This fact had been obvious to all the euro critics from the very beginning. All the arguments against the possibility of a common currency for very disparate countries had been raised, but brushed away by overzealous politicians.

They’ll learn their monetary lesson the hard way in the coming years.

Unfortunately the current discussion about Greece, Spain and all the other PIIGS countries is very superficial … Greece is everywhere!

In fact, the whole western world and Japan are over indebted …

You’ve likely read in the press about debt to GDP figures like 200 percent for Japan, 115 percent for Italy, 113 percent for Greece, 85 percent for the U.S., 76 percent for France, 73 percent for Germany, or 70 percent for the UK.

These are dangerous levels, although not outrageous ones. But government officials don’t tell the whole story; they sugarcoat the real dimension of the over indebtedness.

That’s why you need to understand …

Explicit Versus Implicit Debt Levels

Explicit debt leaves out important obligations like pensions and social security. If you add these in, you get what economists call the implicit government debt.

And if you use the implicit government debt to GDP ratio, the picture is much bleaker. Look for yourself:

Germany: 255 percent

France: 255 percent

UK: 530 percent

U.S.: 570 percent

This is frightening, indeed. These obligations are unbearable. Which means governments all over the world will have to break many of the promises their predecessors have made to get elected.

There are ways to get out of too much debt. The first is by …

Default

When you default, you sit down with your creditors, and restructure the debt. Creditors have to take the losses, and rightly so. They consciously took on this risk to earn a profit. Yes, they made bad decisions. But that’s the way capital markets function.

Governments around the world will inflate their way out of debt.

And tinkering with this process leads to bad capital allocation, an inefficient economy and less growth.

Another way out is to …

Crank Up the Printing Press!

Most modern governments have a trump card many ancient governments would have died for. They reign over fiat currencies, which can be created by the stroke of a computer key. As Ben Bernanke once said so famously:

“But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Therefore, modern governments with a printing press can bail themselves out of all debt problems. And I believe they can and probably will inflate their way out of today’s debt problem. They’ll pay back their debts nominally, with money that’s worth less. But they will not have to default.

Unfortunately, at the end of this road, the bond market and the currency will be destroyed. I don’t know how far our politicians will go in the coming years. Although I fear they will go this bitter way to its very end.

They Will Inflate in Lockstep

What I am nearly sure of is that the U.S. with its Fed and the EU with its ECB will inflate more or less in lockstep — like they have in the past.

Now euro bashing is all the rage. A short six months ago dollar bashing was en vogue. Have a look at a long-term dollar/euro chart below.


Source:www.decisionpoint.com

If you take this perspective, it really looks like not much has happened during the last few months. Yes, the euro is down to levels seen in 2004-2006 or 1995-1997 (when the euro was not yet an official currency). But at the same time the euro is much higher than it was in 1999-2003. So it has a long way to fall.

Sure, the euro is doomed. But so is the dollar! Both fiat currencies have lost massively against gold in the last few years. And as long as the bad fiscal and monetary policies prevail, gold will keep rising.

Best wishes,

Claus

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

I don’t know how many of you actually look at the so called “survival” advertising out there today, but I find it getting pretty mundane and self defeating towards the aspects of emergency and disaster preparedness planning. In particular, I find the advertising and promises of the metals trading companies rather hard to swallow. Don’t get me wrong, investing in precious metals can be very financially rewarding, but I wouldn’t want to bet my chances of surviving the coming times on a single ounce of gold.

In spite of the history of its wealth properties there will indeed come a time where gold will not be all that valuable. Not in the immediate future, mind you, but sometime in the future the wealth value of gold will diminish and another commodity will take its place. There was a time in history that aluminum was more valuable than gold, remember? Wealth value of any commodity has more to do with the issues of supply and demand than its other properties. Oil is a commodity that has high value and it has no other real use besides providing fuel at a reasonable cost. If the market were to be flooded with oil, the cost would go down. In a supply contraction period the cost is driven upwards by the demand. Gold works the same way, so doesn’t silver and any other precious commodity.

As I stated, investing in precious metals can be financially rewarding and it is for many people. But to stack your odds of surviving the coming times on a pile of bullion may be a catastrophe in and of itself should the ultimate meltdown occur. Why? Think of it in the long term planning aspects. The world buys and sells based upon the medium of currency. Different countries have different values to their own currencies, but the all deal in money in its cash form and terms. For example, when you go down to the grocer and get a loaf of bread and a gallon of milk, what do you give the cashier in exchange for that bread and milk? You don’t shave off a piece of bullion, you give them cash. It matters little as to the form of cash or currency you give to the cashier. Cash, check and credit are all imaginary currency. And that currency is based in large part upon a promise of the issuing government to make good on that currency. It’s called a fiat currency, or promissory notes. There is no gold involved in the backing of those notes today. In a sense, one could say we live in a world dominated by fake, or monopoly, money.

You are merely trading that promise for some article you need, such as food for your family or a roof over your head. We tend to look upon the term ‘barter’ as an archaic word that really has no place in a modern economy, but the fact is that you are still bartering. You are bartering a promise that the government made concerning that little piece of currency you gave to the cashier. It isn’t viable wealth in any sense, it’s a vague promise. So what happens to a currency when that government made promise vanishes, and the government cannot make good on the promissory note? The economy collapses and you are out of luck. That wad of hundred dollar bills you have stashed away is good as tinder and nothing more. Well, actually it has another use, but that one won’t get you that gallon of milk for the kids either.

Trade is based upon need and desire, and the desire aspect more generally controls the value and tender amount of that trade, not some piece of paper that says a dollar is a dollar.

To give you an idea of what I mean by value and dollars, let’s take a look at whiskey. I don’t know whether you approve of whiskey or not, and it really doesn’t matter for this discussion because it makes foe an excellent demonstration product. I prefer Scotch Whiskey, so we’ll use that as our example.

Say I was to go down to the local liquor emporium and buy a 5th of Dewar’s White Label. The usual size is a 750 ml bottle when you buy whiskey, but it is available in other sizes. That costs me about $22.00 for the bottle. Now, we are in the US so we need to change that volume into ounces, and we have 25.3 oz, US. Using the volume to find the dollar value gives us an actual price in today’s dollar of $1.15 per ounce. That’s pretty expensive for a drink that does you no good, so why spend the money? Because we have a desire for the drink, which in turn gives it value.

Now, let’s go down to the pub and get a Scotch on the rocks, and we specify Dewar’s instead of a well Scotch. They rook me out of five dollars, not including tip, for the drink. Two ounces was the measure of Scotch in the glass, or so I’m told, which means that the same product costs me not $1.15 per ounce, but $2.50 per ounce. The Scotch was the same, but there was a higher dollar price tagged to the value of the drink. The reason for that is clear; when we buy at a bar we are paying for the business’ operations and stock for resale. But still, we place a higher value on an ounce of Scotch at a pub, than we do for that same ounce at home.

The moral of the story is the same no matter what item you use for establishing a value. Would I have paid $10.00 for that Scotch on the rocks? Not in any way shape or form. If I didn’t like the stuff I wouldn’t have bought it in the first place, so in that case the Scotch would have zero value for me. Value is an arbitrary figure that we place upon something, and that figure varies depending upon the desire to obtain that product, balanced against its availability.

We pay more for a Scotch on the rocks in a pub because we can’t walk over to the kitchen and make our own. Precious metals work the same way, and so doesn’t any other investment. For the price of something to be high, there must be a high demand coupled with low availability. Gold and silver are commodities that are limited to supply on hand, and while that supply keeps growing at less than the demand for these metals, the price will continue to climb. So, it makes for a good investment medium. But like all other investments, don’t do it unless you can afford to lose the money you put into it.

The reasoning for that is because no investment is an assured investment. The bottom line is that if in fact the bottom falls out from under society, and the economy collapses rapidly, and the infrastructure comes to a screeching halt, where will that investment be, and how much will it be worth?

If nobody has any money to buy gold, where will the demand be? The demand will be lower, which will drive the value lower. If you bought high, you lose. The next factor is what kind of investment is it? Many firms only transmit a paper to you that says you have purchased so many ounces of gold. If the ultimate collapse occurs, what good will that paper be to you? If you have physical bullion, how will you spend it? Suppose you want to get a bottle of Scotch and new of someone that had one for trade. How big of a slice of that bullion will it take? No one really knows as the value of that bullion is up for grabs.

The bottom line I am getting at here is that while precious metals may well be a good investment tool, they make a lousy survival tool. There are too many variables, too many ifs involved with the medium. If you believe currency by way of gold and silver metals will still be useful in the coming times, then I suggest you buy as much junk silver coins that you can accumulate. The value of these may be high, or they may be low, nobody knows, but I do know that when the crap hits the fan, the rules will immediately change. And I believe those rules will change in ways that most people will not be able to fathom in the coming times.

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