I’ve been writing articles on the economy and precious metals since the late 1980s. The common thread in my writings can be summed up with the following statement: “I is usually right and always early.”
In 1989 I teamed up with the Swiss firm of BFI to spread the word to my readers that the dollar would lose value to the Swiss franc. At the time, the dollar bought 1.64 francs. In the fall of 2003, with the franc at 1.35 we advised all of our clients who owned Swiss annuities denominated in the Swiss franc to sell the annuities and invest the proceeds into gold. Our reasoning was simple – going forward, we were convinced that gold would outperform the franc. Over the past 12 months, the franc has been bouncing around from roughly 1.30 to 1.00 and as of today it is currently sitting at 1.0774. While the franc gained 20% in dollar terms since 2003, gold has shot up from $400 to $1770, sporting an outstanding gain of 343%! We were right to advocate the franc in the early 90s and we were right to move from the franc into gold by 2003. So why am I telling you this? I am trying to prove a point. Our advice is well reasoned, and we are almost always on the very early side of a trend.
Which brings me to an article that I read on Tuesday morning, titled Be a Debtor, Get Rich with Gold, written by Christian A. DeHaemer. Here is the part I would like you to read…
Debt is Good: Buy Gold Miners
Why Now is a Great Time to Be a Debtor
By Christian DeHaemer
Tuesday, September 18th, 2012
I bought a new car the other day.
As I was signing papers in the blue fabric cubicle adorned with sales victories and determination posters, I got into an economic discussion with the sales manager…
“Inflation is coming,” he said with the certainty of Edward Stark’s premonition about winter.
I had already decided to take the 1.9% interest loan on the car and, furthermore, to run it out for six years.
Conventional wisdom says that you should pay cash for a car. It couldn’t be more wrong.
Conventional Wisdom is Wrong
Now, don’t misunderstand me; I could pay cash. It would only be a matter of selling a few gold coins.
But gold is going up, and inflation will be here soon enough.
This means borrowed money will soon be cheaper than cash-money, if it isn’t already.
The current Consumer Price Index shows inflation is running at a lowly 1.68% for August 2012 (excluding food and energy). In 2011, the CPI averaged 3.16%.
A 1.9% loan is near the core rate of inflation today — and will be well below it by 2014.
And as we all know, the price of gasoline is at $3.82 on a national level for regular. Food prices have also been moving up as the price of corn doubled.
The dominate narrative of the past four years in the market was deflation now, inflation later.
Recent action by the Fed would suggest the future is closer than we think.
Read the full article at WealthDaily.com
Is this article good advice? Absolutely! But if you’ve been following my daily for the last seven years you know that I was writing about this topic a long time ago.
I not only wrote about it, I acted on what I wrote. I never tell you to do anything that I am not doing myself.
In 2005 we built a new house. After a significant down payment, there was still a balance due of one million dollars. Gold was $500 an ounce then and I had a choice to make – should I sell 2,000 ounces of gold, which I could have done, to pay cash for the house, or should I finance the house with a mortgage? It was a simple choice for me. Gold was in a long-term bull market and I would be better off taking out a mortgage and holding onto the gold, which I knew would be worth far more down the road. I opted for a 10-year interest-only, fixed rate mortgage. In hindsight, it was the perfect choice. By early next year, I expect gold to hit $2000 and that means if I choose to, I can pay up the mortgage by selling only 500 ounces of gold, not 2000 ounces that it would have taken in 2005. Meanwhile, I was able to deduct a majority of the interest on my Federal tax bill. In essence, I am renting our lovely home from the bank, claiming most of the monthly payment as a tax deduction, while my gold is rising and rising. In the next two or three years I will pay up the mortgage with a very small pile of coins or re-finance. It’s too early to know which choice will make more sense then, but as the time approaches, it will be clear what the most logical thing to do is – refinance and keep paying the interest or sell a little gold at a huge profit.
The sage advice, offered up by Mr. DeHaemer, is the same advice I gave my readers, seven years earlier. There we go again – right, but early!
Since 1990, when I formed Miles Franklin I have focused on the big picture and the primary trends. That philosophy has served me and our clients very well. Since 2002 I have placed over 90% of my investments in gold, silver, platinum and mining shares. In retrospect, there was nothing I can think of that would have served me better. But that’s looking in the rearview mirror. Looking ahead for the next three or four years, I see real trouble for any dollar-denominated investment. I see real trouble for America. I see the Mother of all Bull Markets in precious metals. I have NO doubt whatsoever.
Last night, I had a discussion with a friend of mine. He has a lot of money tied up in GLD. He, like so many people I run into, does not want to bother with the inconvenience of owning physical gold and silver. For me, there is no inconvenience – I store my gold and silver with our International Precious Metal Storage Program. It is safe, easily accessible instantly liquid. Most important, I can always retrieve the exact same coins that I store there and have them shipped to my doorstep by UPS. If I would rather have “dollars” instead of the metals, they will liquidate the coins and wire me the funds – within 24 hour of receipt at our warehouse.
My friend is a “paper” guy and assumes that owning GLD is as good as owning Gold Eagles and Gold Maple Leafs. That assumption will get a lot of people in trouble. I asked him if he had watched the Greg Hunter/John Williams interview I featured last Friday. In that interview, Williams said that he expects hyperinflation will have hollowed out the value in the dollar by 2016. I, for one, happen to give John Williams a lot of credibility and if I am to error, it will be on the side of caution. Let’s “assume” he will be correct one way or another. Without mentioning “hyperinflation,” Jim Sinclair’s timetable for gold to hit $5,000 or even $10,000 an ounce is around 2015 or 2016 – the same timeframe that Williams uses for the demise of the dollar. Gold could not reach those lofty levels without a major collapse in the dollar, so his views dovetail nicely with Williams.
What does hyperinflation portend for GLD and SLV – and all paper gold and silver investments? It’s very simple. If you don’t own physical gold and silver, you don’t own gold and silver, period! In the environment that Williams and Sinclair discuss, there will be a rush for the exit to unload dollars and trust me, no one in their right mind will be selling their gold and silver for the pariah US dollar then. What good, I asked my friend, will all of your profit dollars in the ETFs do you when at the very time you NEED the safety of physical gold and silver you won’t be able to use your profits to buy them?
It all comes down to this – if you believe in gold and silver, buy gold and silver. Buy the real stuff, not the derivatives, the paper substitutes. Paper gold and silver are fine if you are looking only at the “profit” potential and not the safety features that they have to offer. Go ahead, buy your mining shares and buy your ETFs – but my advice is to do it only AFTER you have already set aside a sizeable “core” position that you hold onto for dear life. With this advice to you, I am once again being absolutely right, and a bit early. But you dare not be one day late in this game of financial life and death.