145 of 151 people found the following review helpful
Excellent macroeconomics refresher, solid advice for pessimists,
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This review is from: Crash Proof: How to Profit From the Coming Economic Collapse (Hardcover)
I read this book around early summer after hearing about it on a financial webcast I stumbled accross. Thank heavens I did. I read the author's explanations of what has happened and what will and I have to say that it makes sense to me. I had macroeconomics 25 years ago and barely paid attention but after reading this it all came back to me. Schiff doesn't just preach gloom and doom. He lays out a good case for his predictions. I didn't just trust this book. I read two others that basically say the same things. What I liked was that it validated thoughts and questions I'd had for years.
"how can we all be so wealthy yet save nothing?" "How can we have had such a run up in home prices even though we haven't added that many people to the nation?" "How can inflation be officially low even though so many things have gone way up in price (food, fuel, insurance, education, health care, and even home prices till recently)". "How can we manufacture relatively little and sell each other services and still become more wealthy?" If that was possible I'd stay home and cook my wife meals while she mowed the lawn for me and we'd just get rich that way.
Maybe I just like how Schiff shares my natural pessimism and distrust of politicians being put in charge of our national statistics. But I used a simplified form of his advice, bought gold via ETFs, an international bond fund, with the balance in a treasury money market fund, and in just a few short months I've made quite a bit more than I did in any single year since I've been investing. And unlike in past years, I feel very confident that the trend in my investments is going to be up. The underlying economic picture simply demands that these products will do well. I realize that 3 months of good results (up 20%) does not prove anything, but I read this book way before I heard anything in the news about the dollar decline or housing bubble. Now that I've read the book, I tune in daily and the news just confirms the book's premise.
We have had a debt based too-good-to-be-true affluence. Like a drunken college kid on a spending spree, it will end eventually. The housing bubble alone might not sink us. The consumer credit crunch alone might be something we could work with. But add in the astronomical federal govn't obligations ($50 trillion unfunded?) and it's just a matter of time before the ride gets wild.
I would like to thank Mr Schiff for writing this book. I honestly feel that it has saved my financial future. I am in a business where one cannot work into old age, and instead of seeing my traditional stock investments knocked back down in value, I may actually be able to make a nice profit that will help us get through the hard times ahead.
I'm no expert, just a small business owner, but I looked hard to find an honest rebuttal to this book before investing my money in gold (I dont' want to lose money!) , but all I have been able to find were cheerleading tomes to the stock market that were short on logic and long on boasts and how great things were and still are. I find those to be total BS and so I can't trust their theories. Post a comment here if you know of one who actually makes a good argument for staying in the US stock market.
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Showing 1-3 of 3 posts in this discussion
Initial post: Jun 12, 2009 1:50:48 PM PDT
Texas Techie says:
I am an ordinary person with a few ideas you may find useful. In response to your question about gold, here is my musings. I will say alot about other things to set the stage for my discussion of gold.
Naive people (a vast number) think that you invest in appreciating things. They buy stocks, real estate, and collectibles in hopes they will appreciate in value. This is the origin of investment bubbles--it depends upon building a ponzi scheme and collapses when you cannot find a greater fool to buy in. Price appreciation investors lose everything in the end.
The real reason you should invest in something is the revenue it produces. You should buy stocks based upon dividends, real estate based upon rents, and collectibles based upon the prestige and happiness they bring you (since they do not generate revenue and are exceedingly stupid financial investments).
Price appreciation in a sane market (which may not exist anymore) would come from an increase in the revenue potential of the asset. If a company has a breakthrough product, they stand to make more money, pay more dividends, and the stock price would go up for that reason. If your rental property is in an area that becomes more desirable (perhaps through new development or changes in demographics), then the rental value would increase and the value of the property increases for that reason. But you still would not sell if the investment was doing better; the reason you sell is because you need the money for something else (retirement, college expenses, emergencies, or to invest in a better revenue generating asset).
Investing for price appreciation fails partly because it depends upon the pyramid of greater fools, which eventually collapses taking you with it as a foolish participant. But there is also the problem of how you realize a profit. If you make your money by selling after a run up in price, you have to put your money into something else. The problem is that the something else has also been going up in value, too, so you wind up simply jumping around to ever increasing sell/buy transactions. In effect you are climbing different sides of the pyramid scam, but unless you get out altogether, you will lose. Once you get out, you no longer make money. The solution is to buy revenue generating assets and hold them as mentioned above.
So where does gold fit in an investment strategy?
First, does it generate revenue? Try buying and actually taking delivery of some amount of gold. Put it in a safe deposit box or under your mattress. Check back in a few years and see when it has generated any revenue. It won't have, I promise. Gold does not qualify as a revenue generating investment if you hold on to it in your portfolio.
Second, does it appreciate in value? Yes, and it is yet another vehicle for price appreciation speculation. Due to its glamor, gold prices can rise dramatically based upon nothing more than emotion and psychology. And of course, it can fall dramatically in price the same way. Investing in for price appreciation profits is at least as foolish, and perhaps even more, as investing in stocks, real estate, and collectibles. In fact, as appreciation vehicles go, gold probably should be categorized as a collectible since it does not generate any more revenue than comic books or baseball cards.
So where does gold fit in investment? Under what circumstances would people say you were really smart to have put your money in gold? Ah, there is one it turns out. If the economy failed completely and we had hyperinflation, then gold would be king. Paper money would be worthless, but gold coins would have fantastic purchasing power. Note a very important point--gold would be incredibly valuable if you have it in hand. If your gold is stored somewhere far away and all you really have is a receipt, you should not be surprised if the gold never materializes in the event of economic collapse.
So buy gold if you believe hyperinflation and currency collapse is imminent. Otherwise, gold is not going to make you any richer than any other price appreciation scheme. It certainly won't generate any revenue. And if you truly believe you might need to do business using gold, you might want to buy some weapons because other people may want your gold. The biggest flaw in the gold investment strategy is the belief that having it when you need it will do any good. In that scenario, gold may be the least of your worries.
In reply to an earlier post on Aug 8, 2009 12:50:38 PM PDT
The value of gold might fluctuate day-to-day, but since the US citizens were allowed to own and trade in it again in 1970s it's been rising vs. depreciating federal reserve notes. Real gold is not a revenue generator but it's one of the best ways to keep your wealth, or at least not to lose all of it. Is it a coincidence that gold and other precious metals have been used as money for ages. Gold has never lost the trust of people, but many a paper currency has become worthless. Look at Zimbabwe or read about Weimar Republic. Those who cannot learn from history are doomed to repeat it.
In reply to an earlier post on Jan 11, 2010 10:09:23 AM PST
Rather poor advice, David. Precious metals (the kind you hold in your hand, not the paper kind) have outperformed just about any other investment, and there's no reason to believe they won't continue to.
Anyone who's optimistic about the economy at this point needs to get his head examined.
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