Guest post: Kerry Lutz of KerryLutz.com
For those of you who have listened to me, the past two and a half years have been very profitable, if you bought silver. Not to brag, but I started buying in November of 2009 at $9 an ounce. It is now trading at
$44.93 $46.55 (went up as I was writing this) at this exact moment. But there is a more important issue than returns. Precious metals, mostly silver and gold, have been accepted as stores of value since ancient times. Their relative scarcity makes them well suited for this purpose. The sole exception to this rule has been the past 40 years. During this time, all of the world currencies have been unbacked by any commodity. This is a first in recorded history.
Most of us living today, have little memory of the gold standard. A few us, myself included, remember pre-1965, when coins were actually made of 90 percent silver. The important thing to understand is that the price of silver is sending us an important message. And it isn’t about investing or making spectacular returns, although if you listen to it you will.
Silver and to a lesser extent gold are telling us that the entire unbacked fiat monetary system is nearing a complete and total collapse. It can’t tell us when this event will occur, only that it will. Most times you look at a market that goes parabolic and you say it’s a bubble. Certainly there are those who make similar claims with silver and gold. And these are the same people that have missed the entire precious metals bull market and who couldn’t believe that real estate did anything but go up. Since 2000 gold has gone from $250 per ounce to over $1500! Silver likewise has gone from around 5 bucks to almost $45 now.
Recently John Williams, who runs a site name shadowstats.com, stated that inflation is running at a 10 percent clip. He calculates the rate using the same methods that the government used in 1980. In addition he says that unemployment is running at better than 22 percent. The government is printing out money at rates that are completely unsustainable and must lead to hyper-inflation. There are about 25 people I regularly follow concerning metals prices and the economy. Everyone of them predicted the real estate bubble and predicted the explosion in precious metals prices. Some are household names, like Peter Schiff, Dr. Marc Faber and Jimmy Rogers. Most of the others are lesser known. But the one thing they are all predicting is rapidly increasing inflation and a global depression, with gold and silver being the only refuge.
You don’t have to look too far to know that we are in a depression. Even successful malls in our area have vacancies coming out of their ears. Bankruptcies are way up. Gas is over 4 bucks at the pump and will break $5 very shortly. And without getting into politics, every effort that the government has made to address this crisis hasn’t worked and it cannot work. For these policies are the very same policies that have gotten us into this financial armageddon. It’s as if you attempted to fix your car’s poor alignment by driving it into oncoming traffic. Not very effective.
The point is the country and the world are heading for some imminent catastrophic economic events. What’s going in Japan has only quickened the pace and made the outcome all the more obvious. You must take plans to protect your wealth and your family’s well-being. My friends out there know me to be a pretty optimistic person. While I always look at the downside when making a deal, that doesn’t blind me to the upside. We as a world, a country, a state, a community and as friends and neighbors are facing an unprecedented challenge. Perhaps I am somewhat more attuned to it as a result of my love of history and my family’s personal history.
Periods of currency debasement and eventual hyperinflation are actually quite common. In our own lives we have seen them take place over and over again. Brazil, Israel, Argentina and many others. The Bible makes reference to money failing. Pre-revolutionary France and China (numerous times). In the US we experienced hyperinflation during colonial times and the Civil War.
My grandfather became extremely wealthy during the early 1900’s. He was the first person to understand that you could bury an oil tank and pump gasoline using an electric pump. This cleared the way for service stations to take up much less space and helped spurred the growth of the automobile. However, his fortunes were wiped out during the “Great” Depression. My father’s family went from being wealthy to being broke almost overnight! My mother’s family on the other hand, were doing okay during the 1920’s and my grandfather briefly went unemployed during the depression. However, his reputation for hard work and integrity landed him many government work contracts and he acquired substantial wealth during this time. My mother and grandmother were wearing fur coats during the depression and Pop (as we called him) was buying diamonds. Pop had a saying that is extremely appropriate now, “If you’re paying interest on interest, you have a real problem.” And that’s exactly what the US government and many others are doing now.
We are now heading for the Greater or Greatest Depression, depending upon whom you speak with. Either way, this is probably going to be the last opportunity that many of us have to protect ourselves. And we should examine the downside to what I suggest. In October of 2008, Gold crashed to around $750 from close to $1,000. Silver really took it in the chin going from $21 to just under $9. However, both metals quickly recovered. This could happen again. It may be wise to split your investments, putting half into the physical metals and the other half into silver and gold mining stocks. I Break them into 3rds and invest over three months. You’ll either be averaging up or average down, but the important thing is you will have metal.
I wish everyone out there the best. I hope you take these words seriously, because yes this time is different. I’m not saying, give up your job and buy a farm in upstate NY, although a vegetable garden might be a good idea. We all have to hope for the best, but plan for the worst.
You can hear an interview Kerry did with me a few weeks ago here. Click Here.