Monday, April 21, 2008

Investing: Go for Gold and Silver, Not Green

Investing: Go for Gold and Silver, Not Green

I'm very bearish on the U.S. dollar and have been for years. That's why I have so many of them. This sounds like a contradiction, but let me explain. The reason I have so many dollars, even though I think they're worth less and less, is because I don't hang on to them. In my mind, cash is trash.
One of the reasons why we have this enormous gap between the world's haves and have-nots is because the have-nots value money -- they work for it, save it, cling to it, and lose it.
A friend just bought a new SUV. It's a beautiful vehicle. The problem is, the vehicle lost nearly 20% of its value the day he drove it off the lot. He's now in debt, paying off a vehicle that's dropping in value with a dollar dropping in value. He's a double loser.
Cash on the Move
Warren Buffett often says, "The best way to get rich is to not lose money." When people purchase consumer items such as a new car, use debt to finance things that shrink in value, or save U.S. dollars, they're losing money. Some people call it inflation, I call it devaluation.
Psychologically, the more Americans' cash -- and the things they buy with it -- decline in value, the more they worry about money. Many begin to work harder or, even worse, go deeper in debt purchasing more consumer items with sliding value. Unfortunately, many wind up with fewer and fewer dollars that continue to sink in value.
The reason I have more and more dollars is simply because I don't hold on to them. Instead, I do my best to keep my dollars moving into assets that are going up in value, not down.
In the late 1990s, when people were pouring money into the tech and dot-com stocks, my dollars moved into oil, gold, silver, and real estate, when prices were low. Today, because the dollar continues to drop in value, I keep moving my money into those same asset classes, although much more cautiously.
Impending Financial Disaster
The primary reason why I keep my dollars moving is because I'm bearish on the greenback. We have all heard the saying, "The U.S. dollar is backed by the full faith and confidence of the U.S. government." It is unfortunate that faith and confidence in the U.S. government is eroding. I don't believe Americans have the stomach to make the changes that are required to run a fiscally responsible government and save the dollar.
When President George W. Bush attempted to reform Social Security, that proposal was more unpopular with Americans than the Iraq war. People love their entitlements. When Bush pushed the Prescription Drug Benefit plan through, I decided the U.S. dollar is toast. To me, all hope of avoiding financial disaster was gone. The American people have voted.
My concern is that very soon, citizens of the world will tire of America's gross fiscal mismanagement and hesitate to take U.S. dollars. In order to keep the world interested in the greenback, interest rates must rise. When that happens, U.S. assets, especially paper assets such as U.S. stocks, bonds, mutual funds, and savings will drop in value. Some real estate prices will increase because replacement costs are high, but overvalued real estate will drop.
At the risk of sounding like a politician who flip-flops, there will still be paper assets and real estate that will rise in value. The secret to surviving in paper assets and real estate is to be very careful and very selective. People who diversify will lose. People who focus will win.
Americans Are Still Asleep
The secret to surviving the next few years is keeping your wealth in real money, not in the U.S. dollar. Buy things that hold their value and are exchangeable all over the world. Commodities such as gold and silver have a world market that transcends national borders, politics, religions, and race. A person may not like someone else's religion, but he'll accept his gold.
One of the reasons why I'm bullish on gold and silver is because the American public is still sound asleep to this asset class. Most Americans have no idea how or where to buy physical gold and silver. The outlets that sell gold and silver I have visited are already low on inventory.
If and when the American public wakes up to the reality that their dollars are not money, but a currency, the panic and stampede will begin. Should that happen, today's prices for gold and silver will look like bargains.
Today, very few people realize that Warren Buffett reportedly holds one of the largest caches of physical silver in America. He purchased silver in the late 1990s, when it was cheap -- and while others were criticizing him for not investing in tech stocks.
The Rewards of Detachment
As I write, hundreds of millions of dollars are searching for a safe home, a shelter that will protect the dollar's value from the crash. It's unfortunate that during this period, the rich will once again become richer, and the financially naïve will again worker harder for U.S. dollars, doing their best to save as many as they can, only to wind up with fewer and fewer dollars.
So the reason I have more and more dollars is simply because I don't hang on to them. During this volatile era, it's best to keep your wealth moving up as the dollar continues to head down.

7 comments:

Leah TM said...

wow! im overwhelmed to receive a post from you! actually, it is my father who introduced me to read your books. he is a big fan of yours too. i am glad that you started this blog. i will be one of the regular visitors and look forward to learn more from you.

adrianjr said...

Thanks a lot for inviting me to read your blog, all of the things you say about money and its behavior are true, I didn't finish my school and work for a big auto parts company as supervisor.

As for now I will like to say I am in the process of becoming rich, by changing to a job that's related to real estate, that's where the money really is.

calflash said...

Robert, Received your comment on my site and was grateful that you took the time to leave a one. I really enjoyed RICH DAD, bought the game, shared with my kids and started a corporation. We now have multiple streams of income and grasped the concept of "owning" a corporation instead of working for one. We will leave the rat race soon... www.usedwinebarrels.com LLC. Thanks again. Chris

小孔雀 said...

Thanks for inviting me to visit your blog. And I would introduce all of my friends to come here.

You already did a good job in sharing your wisdom. Hope this blog benefit to more people.

Anonymous said...

Thanks Robert for taking the time to comment on my blog. I also enjoyed several of your books, have registered a corporation and have started a subscription based online service to help businesses in the Philippines to maintain their books of accounts.

I also have many other business ideas into which I can invest the profits too.

The most important thing I learnt from your books is the difference between assets and liabilities. I thought I already new the answer to that before I read your books, but now I look at things in a whole new way. I would recommend the books to anyone who seriously wants to achieve financial security.

Before I go I would like to ask if you could expand on what you said in your post (the bit in bold) please?

The secret to surviving in paper assets and real estate is to be very careful and very selective. People who diversify will lose. People who focus will win.

I always thought that diversity of income was a good thing? Please could you clarify or correct me regarding this.

Thanks again. I've added your blog to my regular reading :)

Peter Snow

Simon P. Chan said...

Thanks for your message, which surprised me this morning, when I read it. I really agree what you said about the importance of financial education for everyone. And I'll come by your blogger regularly. Be blessed, Robert!

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