Gold & Obamanomics ~ 5-Year Investment Scorecard

Gold & Obamanomics
2-27-09: Craig Smith "Money Moment", Harvest TV (4:00 video)
Investment Scorecard
2-20-09: Craig Smith "Money Moment", Harvest TV (4:00 video)

Swiss America CEO Craig R. Smith is now a weekly guest on Harvest TV every Friday via satellite for a new "Money Moment" segment. Mr. Smith comments on the state of the economy and answers your questions about safe investing.

HARVEST: "Gold coin shortage as demand soars, reports London Financial Times. Canadian Maple Leaf gold coins, should I buy, sell, or hold?

CRS: Today owning gold coins should be viewed much as an insurance policy against an uncertain economic future. Most Americans have car insurance, health insurance, life insurance, etc., and hope they'll never need them, but they offer peace of mind in case of a crisis. Gold is the ultimate wealth insurance.

Given the new trillion dollar Obama budget it is clear that the age of BIG government is here. Owning some gold is one of the best ways to protect yourself. So, I would recommend holding gold right now. Buying stocks right now is like catching a falling knife. I'm recommending investors stay on the sidelines in these dangerous markets with gold and cash.

HARVEST: If individuals or small businesses buy gold bullion is it taxable or non-taxable?

CRS: The tax rates on gold bullion capital gains are higher than many paper investments like stocks and bonds, however there are other types of gold, like numismatic $20 gold coins, which offer better treatment on taxes.

Regarding small businesses. Congress just passed a $787 billion stimulus package to help create jobs, yet by raising taxes on small businesses they are killing the biggest job creator. WSJ recently did a great story entitled "The 2% Illusion" which pointed out that even if you tax 100% of the incomes over $75,000 a year we will still not have enough money to pay for Obama's plan.

So, we are going to run deficits as far as the eye can see which will put downward pressure on the U.S. dollar. That is why we must prepare for a higher cost of living by owning some gold. Not all you money, but 5, 10, or 15% should be in gold right now.

Before jumping into any investment today it is critical to assess the damage to your financial house -- not just in 2008 -- but over the last 5 to 10 years. Warning: dramatic changes may be needed in your investment strategy.

Investor portfolios typically include; stocks, bonds, real estate, commodities and cash. Let’s compare a $10,000 investment into each of these five asset classes over the LAST 5 years for some direction on trends over the NEXT five years.

1) Stocks
The Dow Jones Industrial Average is a composite of the biggest and brightest corporations in America. Over the last 5 years Dow has traded as high as 14,000 before plunging to 7,500 in 2008. Today equities are testing 6-year lows as the recession deepens. So far Obamanomics have failed to inspire investor confidence. $10,000 invested in 2004 would be worth about $7,500 today.

2) Bonds
3-Month T-Bills are considered a bellwether for short-term yields with safety. Interest rates are perceived to help offset inflation. In 2004 rates began at 1% following a series of Fed rate cuts, then zoomed to 6% in 2007 as inflation ticked up, then fell to zero by the end of 2008. The 2009 outlook is for a negative real rate of return adjusted for inflation. $10,000 invested in 2004 still be worth $10,000, but much less after inflation.

3) Real Estate
The U.S. housing market hit a government-induced crescendo in 2007 as the average home price soared from $250,000 to nearly $350,000. Today home prices are near 2004 levels, with some predicting another 20-30% drop in 2009 before reaching a final bottom. Lesson: Your home should never be considered an ATM machine for personal consumption. $10,000 invested in 2004 would be worth roughly the same today.

4) Commodities
The CRB Commodity Index, driven largely by rising oil prices, experienced a major bull market cycle over the last 5 years. Oil prices rose from $20 a barrel in 2001 to nearly $150 in 2008, then slid back down below $40 in 2009. Prices for other commodities have fallen an average of 50% from last year’s peak. $10,000 invested in CRB would today still be worth $14,000, a 40% increase. Note: historically commodity bull markets lasts 15-23 years.

5) The Dollar
Since 1915 the U.S. dollar has been gradually losing buying power thanks to inflation. The dollar’s most recent rapid descent began in 2001, taking the index from 120 to a low of 70 in 2008. Since then the dollar has been strengthening as the global credit crisis has sent investors fleeing to the perceived safety of the dollar compared to other paper currencies. In 2009 this trend will reverse as the trillions of new dollars the government is printing devalues the currency further.

6) Gold
Gold has been the financial light of the world since 2001. Starting below $300 gold has steadily grown in value every year since. Gold is the ultimate currency without counterparty risk, which offers safety, liquidity and excellent growth potential even as it approaches $1,000 an ounce. Savvy investors know that $2,000 an ounce gold is now not a matter of if, but when. $10,000 invested in gold in 2004 would have bought 25 ounces of gold at $400 an ounce, today 25 ounces are worth $25,000! Some historic U.S. gold coins have grown even more.

Compare the Charts: Rediscover gold in 2009!

1) Stocks: Gold prices can rise with or without a bull market in stocks...

2) Bonds: Gold offers the safety of bonds plus 100% liquidity and growth potential...

3) Real Estate: Gold appreciates like housing on inflation, but is not bubble-prone...

4) Commodities: Gold is both a commodity and a currency, i.e. the king of commodities...

5) The Dollar: Gold is a dollar hedge, usually moving opposite to the buck, but since fall of 2008 gold has begun to break this trend, rising together with the dollar.

Conclusion
Four-digit gold signals investors are losing confidence in paper currencies, the U.S. government and Wall Street. Gold's secular bull market has already swept prices up nearly fourfold since 2001 as the ultimate safe haven.

Although past performance is no guarantee of future performance, the last 5 years illustrate the wisdom of asset diversification, a concept first mentioned in the Bible (Eccl. 11:1-2). True wealth was first defined in the Bible as silver, gold, land and livestock. As our nation faces very challenging economic times --- may we all learn from history how critical it is to own a golden life preserver to protect our future.

Further Study:
SPECIAL REPORT: Surviving & Thriving the Coming Storm