It's Time For Financial Preparedness
by Joseph C. Battaglia
Host of
The American Advisor Radio Program
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Destabilizing forces — financial and military,
domestic and international — are growing in strength.
Despite the immense power and influence at their command,
the people and institutions that direct our nation are confronted
with menacing trends.
During the past two decades it has become popular to declare
war on any number of social and political issues. As examples,
consider the war on poverty, the war on drugs, etc. Each
of these so-called wars has been enormously expensive and
wholly unsuccessful. Now we’re engaged in a war on
terrorism. I think there is a high probability that this
will turn into another enormously costly undertaking with
little prospect of short-term success.
The October 2002 issue of the Cleveland Federal Reserve’s
Economic Trends publication said: “Everyone recognizes
that future economic growth would be compromised by a war
with Iraq, renewed terrorist attacks or both.” It
seems that this is a Catch-22 situation. If we go to war
with Iraq, the terrorists will retaliate. If we do not,
the terrorists will see this as a sign of weakness. This
will embolden them to attack to expand their power and seek
their evil ends. Either course of action could deal a crippling
blow to the stock market and the economy.
Our newest war has helped turn our national budget from
a modest surplus to a huge deficit. Financial leaders from
Wall Street and Washington, D.C. advise foreign nations
to eliminate their deficit spending or face the risk of
ruining their currency. Still our country spends hundreds
of billions more than it takes in. These deficits are causing
the national debt to grow at a frightening rate. Based on
my research, I’m sure we’re headed for a falling
dollar.
I’m not the only person who sees trouble ahead for
our currency. George Soros, the successful investor and
commodities trader, expects the dollar to lose between 30%
and 40% of its value in the years ahead. And establishment
analyst Stephen Roach of Wall Street’s Morgan Stanley
also expects the dollar’s value to tumble by 15% to
20%.
When the dollar last tumbled, a trend that lasted from
the 1960s into the 1980s, everything made overseas became
more expensive. Prices for imported goods like cars, gasoline,
lumber and clothing jumped higher across the board. Interest
rates rose as our government was forced to borrow huge sums
of money. We called this event stagflation at times and
inflation at times. also distinctly remember one more important
fact.
The last time the dollar tumbled in value gold and desirable
gold assets like historic rare coins rose sharply and repeatedly
as wave after wave of new investors entered the marketplace.
Investors who knew how to protect themselves from the dollar’s
ongoing tumble bought gold and silver and benefited from
skyrocketing prices. Many analysts believe we are headed
for a replay of that experience. We have seen analysts forecasts
of $1,000 per ounce gold reported on CBS Market Watch and
in several financial publications.
The dollar is already showing signs of weakness, stocks
have been shaky and gold has been rising. This could be
the earliest stage of a decade-long fall of the dollar and
a rising market cycle for all gold coins – especially
those that have a proven track record of rising during similar
economic periods.
Alan Greenspan & The Fed
Alan Greenspan and the Federal Reserve engineered the Roaring
Nineties with the rapid creation of unbacked paper dollars
along with falling interest rates. Now they’re worried that
our nation’s economy will follow Japan’s lead. Here’s what
I mean…
Japan is the world’s second largest economy. Their stock
market topped-out at 39,000 in 1989 and has been falling
ever since. It has lost more than 75% of its value during
a 13-year bear market. The once sky-high values of commercial
real estate and housing have plummeted. The Japanese government
has pushed interest rates down to almost zero and pumped-up
the money supply. Despite these efforts, the Japanese economy
has been mired in a series of serious recessions with no
recovery in sight.
During this 13-year period Japanese investors have lost
confidence in stocks and real estate. They’ve lost confidence
in brokerage firms and banks. And they’re losing confidence
in their government’s ability to end their most serious
financial crisis in 50 years. (Does this sound similar to
what is currently happening in the U.S.?
Most importantly, the Japanese now know that they are in
a battle for economic survival. China is out-producing nearly
every country in the world – they’re the new low cost, high
quality manufacturing giant. China’s progress and growth
may keep Japan in the doldrums for years. That is another
reason why demand for gold assets skyrocketed in Japan.
People want the safety of a proven asset, not another empty
promise from a politician. I was shocked to learn that factory
employment in the U.S. has plunged to the lowest level since
1961. This is strong evidence that we may soon face the
same problems as Japan.
Alan Greenspan and the Federal Reserve are keenly aware
of exactly what has happened in our economy and in Japan.
They don’t want the Japanese economic virus to spread
to the United States. That’s why the Fed has been
stimulating our economy for the last few years. They’ve
pushed interest rates to the lowest level since the Eisenhower
era. And they’ve added billions of dollars to our
nation’s money supply. In fact, in the 12 months between
Dec. 2001 and Dec. 2002, the Fed has created and added $472
billion to the U.S. economy.
The Fed created this new money out of thin air… pieces
of paper that have value only because people here and overseas
have confidence in our government, our economy and our currency.
But history proves that all paper currencies “revert to
their intrinsic value.” That’s a fancy way of saying: in
time all paper currencies become worthless!
Unlike paper currencies, gold has withstood every test
of time for 5,000 years!
The Fed does not want to see our stock market fall. A falling
stock market makes investors lose confidence in our nation’s
financial marketplace. A falling stock market creates doubt
among investors and money managers about the future of our
economy. And a falling stock market prevents young companies
from raising new capital and growing into successful, job-creating
firms. With a rosy future looking more doubtful, the public’s
confidence in Wall Street, the Federal Reserve and our paper
currency becomes even shakier.
Despite the Fed’s public and behind-the-scenes manipulations,
the stock market remains dangerous, banks are wobbling,
high-paying factory jobs are hard to find and the economy
is shaky at best. Despite the lowest interest rates in decades.
Despite the billions of dollars added to our nation’s
money supply. Despite every financial manipulation at its
disposal, the Fed hasn’t been able to restore the
public’s confidence in common stocks, mutual funds
or the nation’s banks.
As part of its program to stimulate the economy, the Fed
has pushed interest rates to record low levels. This series
of actions has made the market value of existing government
and corporate bonds rise. Because banks own significant
numbers of bonds, rising bond values quickly get translated
into more loans.
If – and perhaps I should say when — interest
rates start rising, the market value of bonds will start
falling. Rising interest rates and falling bond values will
produce massive problems for our nation’s banks. Banks
will suffer two ways: first, their holdings of bonds will
fall in value. Second, falling bond portfolios mean the
banks can’t loan as much money. The outlook is worsening
for banks and for the economy.
Now imagine what our future might be like with a falling
stock market AND rising interest rates. Wall Street and
the nation’s banking industry will see the value of their
investment holdings drop sharply in value. No wonder the
common stocks of big name national banks have fallen precipitously.
Forward-looking stock market analysts are suggesting
the worst is yet to come for the nation’s banks and
stocks in general. And that’s without calculating
what will happen if depositors start withdrawing their savings
due to fears of bank runs or bankruptcies.One thing becomes
clear when
I look at our huge national debt and budget deficits, the
terrible shape of Japan and numerous other world economies
and the inability of our leaders to turn around our nation
and our markets…
A financial earthquake has started
Confidence in our nation’s already shaking financial
system has the potential to crumble. History has taught
us that as confidence in a nation’s monetary system
falls, institutions and individuals turn to tangible assets
like real gold. Gold coins provide a higher level of stability
and help protect savings from further financial problems.
Raising Demand For Gold
I’ve learned a great deal from personal experience
and from my ongoing research. History shows that when the
rising cycle for financial assets (stocks, mutual funds
and bonds) ends, investors often turn their attention to
tangible assets like gold and silver. That’s exactly
what’s happening now, both here and abroad.
Demand for gold has risen sharply in the United States
during the last few years. Before and after the stock market
began falling, some investors diversified their holdings
with undervalued gold and silver assets. With the stock
market’s recent gyrations, a growing number of investors
have already benefited from their diversification into gold.
Most gold investors agree that it’s still a good time
to diversify into gold and silver. The upside potential
is strong.
Looking overseas, China represents two major new sources
of demand for gold. The government is buying an extraordinary
amount of gold to expand its official holdings. There is
some talk that they envision a day when their money is backed
by gold and becomes a major international currency.
The Chinese government is now allowing its private citizens
to legally own gold for the first time since 1949. It is
unheard of for a communist dictatorship to encourage and
facilitate gold ownership because gold buys freedom! The
removal of their 50+ year-old gold-owning prohibition will
release the pent-up demand of 1.3 billion people with a
lengthy history of owning gold.
As China’s economy expands, the amount of gold purchased
by their government and their people could send the gold
market sharply higher. And there are other international
sources of growing demand worth mentioning at this time…
Demand from the Middle East has always been powerful. Now
the problems in and around the Holy Land, coupled with America’s
war on terrorism have stimulated aggressive demand. The
region’s long-held distrust of paper money has been
powerfully reinforced as the Turkish currency crumbled.
Demand for gold has also expanded from an unusual source:
gold mining companies. Many of them have been covering their
forward sales by purchasing gold in the open markets. The
process that sent gold down in the 1990’s is being
reversed and the result is higher demand, which should lead
to higher prices.
Those are five significant reasons that demand for gold
is rising. Now let me say two important words about supplies
of the yellow metal: they’re falling. Supplies of
newly-mined gold are actually shrinking. During the past
20 years there have been very few new mines opened due to
low gold prices. And it takes a long time and millions of
dollars to bring a new gold discovery to production.
When the price of gold is low – as it has been during
the last two decades – the entire process grinds to
a halt. In fact, worldwide gold production is falling because
mines with high costs stop producing. Numerous gold mines
around the world have been closed and it takes quite an
effort to revive production.
Million Dollar Evidence
Here’s the most powerful piece of evidence that informed
investors are moving a portion of their portfolios into
scarce and desirable gold assets: On July 30, 2002, a last
year of issue 1933 Saint-Gaudens $20 gold coin was sold
at auction. This beautiful coin, featuring a design created
by Augustus Saint-Gaudens, President Teddy Roosevelt’s
personal friend, contains nearly one ounce of pure gold.
But its real value is based on its great rarity and desirability…
… it’s the one and only 1933 $20 gold coin
available to today’s millions of active collectors
and investors! Although more than 445,000 1933-dated $20
gold coins were struck, nearly all were officially melted
in the 1930s.
Bidding the 1933 Double Eagle quickly rose through $2 million,
then $3 million. Numerous participants anxious to own this
rarity sent the auctioneer’s call past $4 million
and $5 million. When the auctioneer finally said “sold!”
the ultra-rare and highly-desirable Double Eagle cost its
new owner $7.59 million – nearly twice the previous
all-time record for any coin!
I wasn’t surprised that the 1933 Double Eagle set
a new all-time record high for a coin. Gold coins are always
desirable and in demand, and that goes triple for great
rarities in the most prestigious series of coins ever issued
by our government. But I must admit that I was impressed
with the sizeable number of bidders who really wanted this
supreme rarity. With paper assets performing so poorly and
demand for gold coins at Goldline rising at virtually all
levels, it seems that history is again repeating. Paper
assets like stocks and bonds are headed lower, while the
rising cycle for historic gold coins has a long way to go.
Conclusion
Despite the government’s reports that inflation is only
1% to 2%, I know it’s really much higher for daily consumer
necessities. Higher inflation is most obvious when my wife
or I shop for food or gasoline, or pay for our home insurance
and health care. My radio listeners also reinforce reports
in The Wall Street Journal and other major publications
that the cost of insurance, food, housing and personal services
of all kinds are moving sharply higher.
On the other hand, there is a growing whiff of deflation
in our economy. Falling prices are most obvious in common
stocks, mutual funds and the cost of new computing power.
Now some analysts suggest real estate may be the next candidate
for falling prices. Although it seems contradictory to have
both inflation and deflation, our nation has previously
experienced these opposite forces at the same time, notably
during the 1920s, 1960s and 1970s.
I don’t know whether the Federal Reserve’s
public and private actions will result in inflation, deflation
or some middle path. But I do know that a rising tide of
investors is adding real gold coins to their holdings. Some
are afraid of falling stock or bond values, others want
to diversify their portfolios. Some are worried about the
banking system, others want to take advantage of potentially
profitable historic trends. Some investors just want to
own a time-tested asset that is insulated from today’s
corporate scandals, accounting nightmares and banking miscues.
I do know this for sure: the future is uncertain and any
one of the negative trends I’ve mentioned could lead
to a serious financial disaster. That’s an important
reason why I own gold coins and I recommend them to you.
Owning gold coins helps me sleep better at night.
If you recognize the importance of these growing threats
and are interested in diversifying your family’s holdings,
call your Goldline Account Executive toll free at 1-800-827-4653.
Call today and join the millions of investors who sleep
better knowing they own some real gold.
Three Quick Asides About Our Nation's
Big Bank
One of my pet peeves relates to today's low interest rates
on savings accounts and Certificates of Deposit. Banks are
currently paying between 1% and 2% per year on our passbook
accounts and CD's. Yet they're charging 18% to 24% on our
credit card balances. Do they really think that's fair?
Are they ripping off consumers to pay for bad loans they
made to giant energy and telecom firms?
Second, our savings continue to lose purchasing power through
inflation -- even at the unrealistically low inflation rate
the government keeps reporting.
Third, despite the big banks' massive credit card profits,
they're losing tons of money. Why? Bad loans to now-bankrupt
dotcoms and telecoms. They made big loans to newly-created
companies that expected the good times of the Roaring Nineties
to last forever. And they made big loans to foreign governments
with long records of defaults. The once all-powerful banks
are starting to get what they deserve.
A First Class Proof of Inflation
A First Class postage stamp cost three cents from the Depression
of the 1930s until 1960, when Goldline was founded. The
following list shows how the cost of a First Class stamp
has risen by over 800%. It’s real-world proof that
the value of the U.S. dollar has fallen decade after decade!
| Year |
Cost |
| 1960 |
4¢ |
| 1963 |
5¢ |
| 1968 |
6¢ |
| 1971 |
8¢ |
| 1974 |
10¢ |
| 1975 |
13¢ |
| 1978 |
15¢ |
| 1981 |
18¢ |
| 1985 |
22¢ |
| 1988 |
25¢ |
| 1995 |
32¢ |
| 2002 |
37¢ |
