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I used to wonder why Richard Russell re-packages the same basic arguments over and over and over again.  Jim Sinclair does the same as well.  Now that I am writing a “daily” newsletter and have encouraged comments from my readers, I have concluded that the only way “the message gets through” is by repetition.  I don’t mind, since I will do whatever it takes to keep my readers on the right path.  If I have to be repetitious, so be it.  If I have to hold hands, so be it.  The stand that I take on the economy, the dollar and gold is not exactly Main Street or Wall Street.  They have fancier titles, and work in more impressive offices, but I stand proudly on my record since 2000.  I haven’t always been right and my biggest mistakes in the past were being too early.  But I have always been faithful to hard assets and sound money and loathed the build-up of debt and the insane increase in the money supply.  Greenspan and Bernanke’s policies, encouraged by Clinton and Bush led to two devastating bubbles in less than 10 years.  Obama is outdoing all of his predecessors and more bubbles are on the way, including the bond market and the Dollar.  Maybe even gold, SOME DAY, but certainly, not now.

Yesterday, I wrote the following:  My favorite is the “doesn’t pay any interest” argument. One could say that CDs and T-Bills don’t pay any interest either, but that’s another matter.  If you have an asset, like gold, that goes up on average (the last 10 years) nearly 20% a year, then you sell off an ounce here and an ounce there for the dollars that you need.  You can sell up to 20% of your coins each year and the remaining ounces of gold will still be worth what you paid for them.  Like a bond – the principal or value remains the same and you get to spend the interest.  The difference is that the bond paid 1% or 3% and gold rose by nearly 20%.  You keep the “interest,” but I’ll take the gold.

When someone uses one of these arguments with you to knock gold, just walk away.  They know NOTHING about gold and you are wasting your time to listen to what they have to say.

Then, late Wednesday afternoon, I received an email from one of our readers and clients.  Her questions were addressed, above, but my comments didn’t get through to her, or to many more of you either.  You can’t just skim this kind of information – you have to read it carefully and think about it or it flies right on by.

Here is the email that she sent to me and my comments, which are bolded. Normally, I would address this in the “Mail Bag” section, at the end of this newsletter, but the questions and answers are important enough to merit front page status.
Dear David
Yesterday a financial manager, recommended by my tax man, (he recommended two,  since he worries so about my finances since I am only invested in silver and gold) told me that I was living off of my principal, which is true, since I have sold gold to pay bills…. instead of (living off of) stock dividends etc.

Jeni, this is the same advice nearly every money manager or financial advisor gives to their clients.  I hear the same arguments all the time.

Dividends are great and many people own utility stocks primarily for the dividends they pay.  Today, most stocks do NOT pay dividends and of those that do, they are usually very meager.

He said I needed to be invested in stocks, bonds, and annuities, to keep from touching principal.

As the late and great Dr. Franz Pick used to say – “a bond is a certificate of guaranteed confiscation.” What good is it to get a few percent interest from an investment only to find out that the principal is worth a fraction of what you invested when you cash it out, due to our old friend, INFLATION?  According to Dr. John Williams (www.shadowstats.com) the REAL honest, unaltered inflation number is currently running about six or seven percent.  If you pay your bills with  the interest thrown off by a bond, CD or annuity, paying you one, two or even five percent (before taxes), you are still LOSING at least two percent per year, or more, per year, to inflation.  His recommendation to move into the stock market at this time is extremely risk-laden.  Have you been reading Richard Russell’s warnings to get out of the stock market, in my daily letters?  I quote him and his warnings frequently, including in yesterday’s daily.  He is pleading with all of his subscribers to sell ALL stocks except precious metals stocks.  The DOW is selling for the same amount today that it did 10 years ago.  Stocks have not been a great investment for a decade.  In that same time frame, gold has increased four-fold.  Gold has increased two and one half times in the last five years.  Gold has increased, on average, nearly 20 percent per year.  Silver has been strangled by JPMorgan for the past couple of years but it will come back  later this year or early next year and expect a new high, above $21 an ounce.  This is not a guaranty, but I am comfortable with the number and the time frame.

Here is a hypothetical example which will allow you to see the flaws in his argument – that you are better off with his recommendation of dividend paying stocks or  most likely an annuity, paying you five percent, while maintaining the full principal.  His advice sounds good until you take a closer look.

Let’s use $100,000 for this example and you can vary it to fit your needs based on your net worth.

If you invested $100,000 in gold five years ago you would have purchased 200 ounces of gold.

If you invested $100,000 in gold one year ago, you would have purchased 104 ounces of gold.

If we went back 10 years, when $100,000 would have purchased 400 ounces of gold, the result is just plain ridiculously, in favor of gold.  The 10 year result:  $100,000 invested in gold is now worth $500,000.  $100,000 invested in a bond or annuity, paying five percent is now worth $150,000.

Let’s examine the one year and six year periods, to show you how this would have worked out.

This is the example that I want you to read carefully – and think about —

$100,000 in an annuity pays you $5,000 a year.  Today, you can sell four ounces of gold to us, or to a local coin shop for the same $5,000.

Let’s play this out for the last six years, from December, 2005 through December, 2010.  Dec. ’05 gold was $500. Dec. ’06  gold was $700.  Dec.’07 gold was $700.  Dec ’08 gold was $900.  Dec ’09 gold was $1000.  July 2010 gold is $1235.

In order for you to get the $5,000 per year that the annuity would pay you, you would have had to sell the following:  ten ounces of gold in ’05; seven ounces in ’06; seven ounces in ’07; five and one half ounces in ’08’ five ounces in ’09;  And lets be kind to your financial advisor and keep gold at the current price of $1230 by year’s end, so you will sell another four and a half ounces in Dec 2010.

Let’s add it up – You would have sold 38.5 ounces of gold from 2005 through 2010.  You would still have 161.5 ounces of gold left from your original 2005 purchase, of 200 ounces.  At today’s price, your 161.5 ounces of gold is worth $209,950.
Let’s look at the past 12 months too.  You would have to sell four ounces of gold to get your $5000 today.  But if you purchased $5000 worth of gold twelve months ago, you would have received five and one ounces.  Your pile INCREASED by one and a half ounces, even after selling four ounces.  In the last 12 months, you MADE 33 percent!  With the annuity, you made five percent!

I have heard this argument from many financial experts. He said the gold info is all just hype…..and I was crazy to be so heavily invested in both silver and gold.

Don’t mix gold and silver.  So far, gold is acting as the world’s preferred currency and silver is acting like an industrial metal in a soft global economy.  That will change.  Silver is a late comer to the party.  Give it a year.  I am convinced that when you look back on your portfolio, two or three years from now, you will understand that the only people who were crazy were those who stayed invested in dollars, stocks, bonds and annuities – or recommended that you should do the same.  You are not crazy and your gains in gold have been fantastic all along the road.

If you combine the results of both the gold and silver in your portfolio, you are most likely still well ahead of the five percent per year gain that your dividend or interest payment would have paid you.

I am thinking of selling all my silver and buying gold stocks, and  gold mining stocks or whatever is recommended by these investment groups and living off the dividends. What do you think?

Put 25 percent into gold stocks, big healthy companies like Newmont, Gold Corp, Royal Gold, Silver Standard, Pan American Silver, etc.  That makes sense.  When gold doubles, by the end of 2011, the gold and silver stocks will be a go-to investment.

We recommend that you call Global Resources for your mining shares.  They can be reached at (800)-477-7853.  We do not receive any compensation for this recommendation. Ask for Eric Angeli.

The physical gold and silver that you own are your financial “insurance” and should not be confused with other investments.  Gold is money, not an investment.  They want you to sell your “money,” your “insurance” and move the proceeds into what could prove to be “risky” investments.

Inflation, rising interest rates and a faltering economy are on the horizon and this combination will not be kind to blue chip stocks or dollar denominated investments.  That is why Richard Russell says “get out of stocks now and hold only cash and gold.”  Silver and mining shares are acceptable too.

He guaranteed me 5% on my money invested per year, no matter which way my investment went.

Think about what he just said.  The only “safe” investments are government bonds and some would say utility stocks.  They pay less than 4 percent, so he is recommending something that is less “safe” than a bond.  There is risk here that he is not telling you about and further, if hyperinflation is around the corner, and I am afraid it is, the dollars you get back will be hollowed out.

The “no matter which way my investment went” is the give-away.  Do you want an investment that returns five percent per year, only to find out that you lost more than the interest you received, when you cashed out of the investment?  If it is an annuity, you will have a 7 year holding period with large early surrender charges.  If it is a bond and interest rates increase by 25% then when you sell it before maturity you will lose 25% of the principal.  Or, you could hold it to maturity, for ten years, and find that after adjusting the amount you get back to inflation, the dollars you get back are only worth .30 cents on the dollar.  That is what will happen if inflation stays the same that it is now (www.shadowstats.com) – seven percent (7 times 10 equals 70).  If I had to guess, I would expect inflation to be much higher over the next decade than it is now.
There will be a time, in the future, when having a majority of your wealth in gold and silver will not be prudent – and when buying stocks will be a wise thing to do.  But that time is NOT NOW.

Which I was impressed with, since I have lost money and time waiting for silver to rally.
I own silver too and I am not pleased either, but I am not selling any.  You will see silver at $25 and $35 and much higher.  You have waited this long – hold on a bit longer.

He turned purple when I told him I have been for the last 4 years in silver, since my broker, not from Miles Franklin, sold me it when it was at its high, it was …so I have had no income there at all.

It is common for most people to buy high and sell low.  Selling your silver now, is the equivalent of selling low.

Let me make a suggestion to you – one that I have no financial interest in at all – unlike your advisor who does have a financial interest in his recommendations.  Wait one year, just one year and see where gold and silver are next June.  Mark down the price of gold $1230 and silver $18.25 and see if my advice was correct.  Watch the DOW at 9940 and see where it is one year from today.  You have to put your “faith” in either my arguments or in the recommendations of your financial advisor.   I say you should hold off making the change for one more year.

Gold is up 33 percent in the past year and silver is up $2.96 an ounce, or 19.95 percent.  Sell off a few ounces, the equivalent of the 5% that you would get from his annuity, for just one year.  Then re-visit both of our recommendations and see which one served you best.  You will have all the information that you need.

Here are the year to date numbers – look at them carefully and then ask yourself why your financial advisor is telling you to bail out now?  He can’t possibly be aware of how well your assets are holding up for you.  And the impressive numbers, below, are for only the first five months of 2010.

Metals Scoreboard – % Year to Date
Gold (oz)……………+10.3
Silver (oz)……………+6.5