JAMES TURK | JOHN RUBINO
1 Reality catches up
The world is today awash with liquidity. Thanks to the extravagant living backed by paper currency, America is today the world's largest debtor nation. Though debt by itself is not bad, it is dangerous both to the borrower and the lender if it is not backed by productive assets. This book is about the origin and consequences of such a situation and the currency that has helped inflate the global monetary bubble on a scale that is threatening to burst on our faces.
First the book gives a good definition of money as a standard of value, store of value and a medium of exchange. Going by this definition, over the centuries mankind has experimented with several monetary equivalents including cattle, sea shells, metals and the like. Whatever the medium, there was a definite asset equivalent attempted to be stored in money. This system got refined over the years and ultimately gold emerged as the undisputed monetary standard in the nineteenth century. Under this system, governments and central banks had to maintain gold equivalent in their vaults for the paper currency issued by them. Excessive government spending was thus effectively curtailed and exchange rates were automatically balanced. It is the gradual deviation and debasement and later the outright abandonment of this system in 1971 that seems to have led to today's situation where the dollar has just over 1% of its value as gold reserves with the Fed.
In an imminent possibility of a virtual run on the dollar by creditor nations and oil exporting countries, the dollar is bound to plunge. Gold expressed in dollar equivalent will surge. This logic does not need any further explanation. But what is more interesting is the discussion on alternate investment strategies that can outperform gold in real terms. Silver emerges as a surprising and sure alternative. Unlike gold, silver gets consumed in large quantities in industrial use and not reclaimed. Hence the quantity of silver available above the ground is actually reducing. When there is a rush to convert paper currency into precious metals, the authors expect silver to rise faster than gold due to these fundamentals. If gold is a Boeing 747, silver will be an F-16 is a good analogy.
The book discusses some facts on mining of gold and different categories of companies involved in this industry. Depending on factors like asset base, quality of mines, financial and operational leverage, quality of management and country risk, each of these are analyzed for their risks and potential returns.
Numismatics also gets a fair share of the coverage.
The book is however bound to come under severe criticism on the following grounds.
- Gold is not the only possible store of value
- The fundamental principles on which monetary expansion kick starts economic expansion is completely ignored
- In a global economy where currencies are tightly linked and freely traded, only the dollar is isolated for criticism
- Unbridled monetary expansion is bad, but return to gold standard is ridiculous in a modern knowledge based economy
- Large transaction and holding costs in buying gold is not the efficient way to deal with investments.
Despite these shortcomings, gold will continue to retain its excellent qualities and reading this book will only add glitter to this noble metal whenever you see it.
2 timely and thought provoking
I like the book. Bottom line for me is that trouble is coming and we all need to be prepared. Recently, on the 5 year anniversary of Nasdaq's high , I was reading in our local paper about the dramatic downturn and thinking about the many people I know who are in the tech industry and lost much of the value of their 401K's not to mention their jobs and are still desperately today looking for work. Many of these guys have taken huge paycuts just to keep working. WE are still feeling the effects of that bubble. The weird thing is that I also recall briefly reading a review of John Rubino's book about the tech bubble before the burst and feeling that he was probably wrong.
I think its wise to consider their advice as there are many things to take from this book that will help provoke thinking ( and then compare to the daily news). Inflation is rising, people are strapped for cash, with huge credit card debt, plus their mortgage rates are rising. I personally know people here in the Bay Area who have put no money down on a half million dollar 2 bedroom condomiums and are barely making ends meet now. If there is an accompanying recession, it will be doubly painful as most have no savings or fall back plan. For me, it is a chance to take a good look at what I am doing with my money and my investing so I appreciate the research they have done.
I do not consider myself an investment guru or pretend to be, just trying to look out for myself when I sense things are terribly wrong.
I recommend this book !
3 Good Background Info...Wrongheaded Portfolio Advice
It is the authors' contention that gold will rise to a thousand dollars an ounce. Properly viewed gold's value as a medium of exchange for essential commodities will not actually rise. It will likely still buy the same amount of food or oil absent transient shifts in supply and demand that it has for decades. It will hold its value because gold is money. It will be the U.S. greenback that will lose its purchasing power because it is a money "substitute" a fiat currency subject to government mishandling (viz. inflation).
History provides ample evidence of governments expanding and diluting their money supply to satisfy their various constituencies. Expensive social programs buy stability and growth. At the same time printing more currency to fund these programs avoids having to tax society with the bill. But the question a reader must ask is whether the authors have made a persuasive case for this happening in the immediate future. Investors believing the latter might follow this book's recommendation to build a portfolio consisting mostly of gold and precious metal assets and their mining company stocks. The decline of the dollar and our mushrooming trade deficit's impact on the dollar is a cause of legitimate concern. Richard Duncan's THE DOLLAR CRISIS [2003]covers this topic in forceful detail. But while post World War I Germany defined hyperinflation in just a few years Rome lasted for centuries before its economy imploded. Does the investor divert their resources to build a shelter today gambling that the dollar's end is near, or is it better to continue to address the multiple risks of today by diversifying and gradually weighting their recommendations as evidence mounts.
Proponents of gold have always had a survivalist gene in their thinking. It is helpful to their case to remind us skeptics that in 1933 FDR prohibited the "hoarding" of gold and a year later devalued our currency relative to it by almost seventy percent! But opening foreign bank accounts as the authors suggest has legal and logistical impediments and ignoring currently beneficial investment opportunities outside their metallic frame of reference may be like building a shelter for that inevitably approaching but ultimately uncertain asteroid.
The value of this book is not in adopting its too aggressive and too narrowly focussed portfolio recommendations. Readers will profit by recognizing the value of including precious metals in their holdings, and even more so if they decide to diversify their portfolio to include commodities and natural resource assets in addition to stocks, bonds, and real estate. If you should subscribe to the authors' thesis exchange traded funds (ETFs) that track underlying gold indices may be an efficient and more prudent way of adjusting an investor's allocation than storing gold and evaluating individual mining stocks.
4 Good Advice...If Things Go Their Way
The authors are convinced that the dollar will collapse, but their book is far from convincing. Even if the dollar does collapse, it might not do so for years or even decades. They offer up historical and theoretical reasons why the dollar should collapse, and they sound persuasive, but they never show exactly WHY the dollar MUST collapse.
That said, if the dollar does collapse, then following their advice should prove fruitful. They present a number of different ways for both relatively conservative and aggressive investors to profit. But, embarrasingly, one of the contra-dollar mutual funds they recommend (PIMCO Foreign Bond) is actually a dollar-hedged bond fund, meaning it's not designed to benefit from a dollar decline. I guess they didn't bother to read the prospectus.
Their model portfolios would have even "conservative" investors basically place all their bets on a falling dollar. This is arrogant and irresponsible. Unless you're a speculator who can afford to lose big, you need some diversification (cash, short- term U.S. bonds, dividend stocks, etc.) so that a dollar rally won't lead to huge losses. I'm about 1/3 gold/contra-dollar, 1/3 cash/short-term bonds, and 1/3 dividend stocks. (I am avoiding long-term bonds completely until we see at least 7% yields to compensate for the risk.) When I become bearish on stocks, which I expect to do by 2006, then I may go up to 49% contra-dollar and 51% cash, but I'd never bet more than half my dough on a single investment strategy and no responsible advisor would suggest that you do.
Strangely, the publisher touts praise of the book from ultra-bear Robert Prechter, whose predictions have been pretty lousy of late. Prechter is a deflationist who has been a long-term bear on gold for quite some time. Did Prechter bother to read this gold bug tome before he lavished praise on it?
Gold is money, yes, and everyone should have some. But that doesn't mean "money" is or will be the most profitable asset to hold. We just don't know. If this book can convince some of those people who have been taught by Wall Street and CNBC that all they need is S&P 500 index funds -- and maybe some bonds -- to diversify into hard assets like gold, it will serve a useful prupose. If it turns sane people into raging gold bugs who mortgage their house to stockpile gold coins and go on margin to buy shares in mining companies (something the authors actually suggest since they're so sure gold is going up), then this book is just another vehicle for creating more gold bug losers who get caught up in a mania and ride it down to the inevitable crash (the irrationally euphoric gold bugs of the late 70s are STILL trying to recoup their losses).
5 More than a little extreme .......
The authors do a good job of explaining how to invest in gold and how to put a portfolio together (from coins to mining stock).
Following the advice and investing all your funds into gold and a limited number of stocks could be self destructive though.
However, as the authors point out, the Government has confiscated gold before - and could again. If things get as bad as they suggest Governments could nationalize mines ........
If the authors are on target with their predictions, investing now in an assault rifle, a cabin in the woods and alot of tinned food would make a better investment than gold.
Gold could very well make a great investment given a sliding dollar; the argument that the dollar will collapse completely is taken to an absolute extreme (the Dollar Crisis, Causes Consequence Cures, covers the same ground more convincingly).
Useful book - worth considering as part of your personal investment strategy. However, I wouldn't plan my portfolio around the authors advice alone - having too great a dependance on any one asset class can be bad. Advice on how to invest in gold (practicalities)is very good though.
6 Some acceptable basic information and very poor advice
This book has some good introductory information, and is probably of some use to anyone considering gold or silver as an investment.
With that in mind, these guys are gold bugs, or hucksters putting the hard sell on for gold. Period. Their portfolio "diversification" strategies are basically between holding actual gold and mining stocks. I mean...thats it! NOTHING else. That is just plain loopy, and frankly irresponsible to recommend. We are to conclude that NO other commodity would be worthy of investment? We are to conclude the entire world will only want to hold gold, and no other asset? Yes, in an absolute financial melt-down, gold and silver would offer some big benefits, but folks owning other basic materials would not do so badly either. Maybe better. That bears discussion, but gets very little.
They are either lazy in their writing, or are deliberately overlooking certain facts in conveying their advice. For instance, in their chapter on direct investment in gold, they make it sound like holding physical gold basically has no advantages to investing in digital gold. I found that curious, since there are obvously some advantages to holding the actual gold, versus the representational forms. Then, later in the book, they finally fessed up and said that James Turk is one of the main backers of "digital gold". After putting a figleaf on how it is a conflict to recommend this means of owning gold, they devote a whole chapter to how this will be the NEW currency, and the only way to hold "cash."
Their advice is poorly considered in at least a few places, so it makes me wonder how much thought they put into anything else. Their discussion of aggressive strategies very briefly discusses buying mining stocks on margin. They show the gross profits from margin trading, but do not even mention the cost of borrowing the funds to do so. Yet, in other chapters they rant about how its VERY dangerous to have variable rate loans, since these rates will go through the roof! So guys, wouldn't it be worth understanding how a soaring rate scenario would affect your margin holdings? Nah! Just throw out a few numbers and move on to the digital gold thing.
I have just read "Hot Commodities" by Jim Rogers, and it is a clearly superior book. No obvious hype, a lot more facts and logical thinking. By the way, he makes a pretty good argument why gold is likely not such a good investment compared to other commodities. Now...he too is selling his RICI index of commodities, so he is not fully objective. But at least he makes a reasonable attempt at proving out his thesis.
As for some of the above reviews, they smell a lot like shills. They are so over the top in praise of this mediocre book, I would discount them considerably.
7 Rational thesis in an irrational world!
I like this book. The documentation is solid and the logical exposition is nearly flawless. The authors build a compelling case for restructuring one's portfolio to include a large gold component. If one scans the charts, COMEX gold has made a huge, rounding turn from 1996 to 2004. The high price of this formation is 420 and the low price 260. A measuring implication on this formation suggests an upside target price of 580, which is a potential 32% gain. [420-260=160+420=580.] Gold has completed this formation with a bullish, upside breakout. In order for gold to reach this target price, the dollar has to continue its slide to oblivion. However, there are signs that the dollar index is stabilizing and trying to climb to 90 from its current price of 83.
What makes me suspicious about the fruition of the authors' thesis is that there is too much company from other writers such as Richard Duncan, Ferdinand Lips, Jim Rogers, Peter Warburton, etc. It is arguable that this book presently represents the view of the crowd rather than expressing a contrarian worldview. In my experience, real, damaging crises arrive both quickly and unannounced. Seldom do we have the luxury of time for discussing the onset and progression of a crisis through the mass media in a calm, rational manner and have the year or more it takes to write and publish books about how to survive and prosper from the crisis. As a matter of fact, there is much evidence that when books about impending crises become available to the mass markets, the danger is substantially past. Irrationality - not rationality - is the ding an sich of financial markets!
Financial markets are discounting mechanisms that make the best use of forecasts, from all information which is known, to augur the likely level and trend of profits from nine to eighteen months in advance. What we read on the front page of the Wall Street Journal, Investor's Business Daily, or the Financial Times hardly qualifies as being news which can move the markets because the markets have already anticipated the impact of the events before the stories appeared in print.
To make matters worse, if the authors' thesis is correct and comes to pass, it is not likely that the average investor would have the prescience, ability, or resources necessary for weathering the financial storm - even armed with this book! A financial panic of this magnitude would have the most dire geopolitical consequences. Playing with numbers would be futile. The only safe harbor would be a move of one's person and possessions to some island of stability, such as Switzerland.
I personally believe that the severe decree can (and will) be averted. I feel that there is still resiliance in the western tradition. Most of the ills besetting the US today can be traced to a recent history of an overstrong dollar which gave rise to the Japanese and Chinese economic miracles, a highly-promoted culture of rampant consumerism, and the misguided, suicidal "free" trade agreements of the past twenty years. I think that the changing demographics in the US will encourage saving and investment over consumption, a rationalization of the current and capital account imbalances, and a total discrediting of and revulsion from the New World Order paradigm.
Don't worry - be happy!
8 The First Practical Guide To Investing In Precious Metals
The title and subtitle of this book really should be swapped. However, the choice is understandable - gold has a stigma unmatched by any other investment. Gold has been a money pit for longer than most people can remember. If you want a definition of a bear market, look at the price of gold over the last 25 years. As such, there has not been one single good book on investing in gold. Until now.
The book is in two parts. The first part makes the case for a weaker US dollar. Although Mr. Turk and Mr. Rubino hit all the important points, it is far from thorough. Those who do not know that the US dollar has been declining for four years will be in for quite a shock in these chapters as this information has been glossed over by every major financial publication in the US. Those who do know and understand why will want to skip forward or read Richard Duncan's "The Dollar Crisis" which is much more thorough but also much more dry.
The natural hedge against a declining US dollar is gold. This leads to the second part which is far more valuable. They thoroughly discuss all possible ways to invest in gold and its cousins. This is not a theoretical treatise. For example, the authors describe how to buy gold and even name places where you can go to buy gold. They cover gold stocks, both big and small, naming specific companies. They even cover a new breed of options for gold stocks. Model portfolios are provided. Websites for gold related news are cited. Gold related newsletters are listed. No other book that I know of provides this type of specificity and thoroughness.
Controversially, Mr. Turk and Mr. Rubino see no problem in putting 100% of your assets in gold and gold related investments. In fact, they make the argument that anything other than gold is imprudent. It should be noted that even those who agree with their premise will dispute this assertion. But as I mentioned, the subtitle of the book is the more appropriate title - this is a book about gold, plain and simple. One may not agree with the authors' narrow recommendation, but this book still provides an excellent guide to the portion of your assets that you do choose to invest in gold.
This is a timely and unique book.
9 Good book with a few flaws
Don't let the title fool you, this is largely a book about why you should buy gold. The first part of the book makes the case for a collapse in the dollar. In the second part the authors tell why they think that the best way to profit from this is to avoid stocks, bonds, and real estate and invest in gold instead. The authors also make a case for a bull market in gold independent of the dollar's collapse. They write a little about silver, palladium, and platinum, but the lion's share of the investment advice is about gold.
An impending dollar collapse is not startling or even very original, since many others have said the same thing. Even former Fed chief Paul Volcker has made comments to that effect. But this is the first book I've read in a long time that is bullish on gold. Even commodities bulls like Jim Rogers, who devotes a chapter in his new book to gold, seem at best lukewarm about precious metals. The authors make some sound arguments for a strong bull market in gold.
This is an informative and well-written book, and I recommend it. But I have a few caveats, which is why I'm only giving it four stars.
1. The title is misleading. The subtitle "Make a Fortune by Investing in Gold and Other Hard Assets" is much more apt.
2. One of the authors, James Turk, is in the business of helping investors buy gold, so the reader is not getting a totally objective viewpoint.
3. In one of the chapters, the authors make the kooky claim that central banks have conspired to keep the price of gold artificially low.
4. The authors give no recommendations on profiting from the dollar's collapse by placing money in foreign-denominated bank accounts and CDs or by investing in natural resources. The "Other Hard Assets" in the subtitle is largely limited to precious metals other than gold.
10 Interesting take, good background, so-so advice
In perhaps one of the better written books on investing in gold and gold related securities, the authors make a plausible case against the dollar. The first part of the book is the best written component of the book and provides a good summary of the various times when currencies have collapsed, using a wide-ranging examples. These examples are then used to abstract a few hypotheses on why the dollar could fail. The impact of government spending, budget deficit, trade deficit are all well explained. The first part of the book ends with a bold claim - invest in gold only since dollar (hence typical stocks) are doomed to fail. The rationale for that claim is presented in the second part....though well-written, it is not entirely convincing. The third part addresses some investment ideas and other resources worth referring to for additional information. It is surprising that the authors advice a portfolio (in fact three different types - conservative, moderate and aggressive), 100% invested in gold/gold-related stocks. While the general investment community recommends an exposure for gold and other precious metals not to exceed 5-10% of a portfolio, the authors' suggested portfolios are an interesting exception. It would have been nice to see how their portfolio performed using historical data to compare with SP500 or other benchmark. No meaningful comparison is provided, though.
Overall, a well-written book with easy reading style, plenty of charts to represent data, fairly well-organized arguments, but not necessarily the best investment strategy (literally putting all money in one basket)....but certainly a reccomended read, and might give you a different perspective on investing in precious metals and commodities (may be a better bet than real estate, long term).
