by Craig R. Smith
Chairman, Swiss America
Groundhog Day Investment Wisdom
2.2.11 - Today Americans looked to a town in Pennsylvania, whose fabled groundhog is said to have the power to forecast weather for the next six weeks of winter. This reflects a longstanding historical belief and tradition in Western culture.
Others put their faith in the same stock marketers who claimed two years ago to see "green shoots" in America's economy and now say economic springtime is returning – and you should again trust them with your surviving seed money.
These days of winter often bring a deceptive few days of thaw known as "false spring." But even Federal Reserve Chair Ben Bernanke now says full economic recovery is at least “4 to 5 years” away. Unemployment has been stuck at or above 9.4 percent for 20 months, and when combined with underemployment remains close to a 20 percent Depression level.
Arrival of the Golden Rabbit
Tonight brings a better opportunity for wise investors, the start of Chinese New Year in this venerable ancient culture. The new Moon ends the Year of the Tiger and ushers in the Year of the Golden Rabbit, which happens only once every 60 years.
More than a billion people will celebrate this auspicious year with prospects of good fortune, diplomacy, negotiation and peace – a year, some say, in which “money can be made without too much effort.”
This is your opportunity to celebrate, too, even if you are not Chinese and do not believe in ancient Chinese legends or beliefs. What you need to know is that more than a billion people during this year will be buying and giving family members gold bars stamped with rabbit images.
The Chinese have wisely bought and saved gold since before the start of their calendar 4,709 years ago. This bedrock spirit of thrift, family and enterprise kept Chinese culture intact as emperors and dynasties rose and fell. It is behind today's economic revival in China, inspired in part by America's past success through innovations, thrift and hard work. It will outlive Communism. We have much to learn from the Chinese focus on enduring value such as gold.
During the Year of the Golden Rabbit more than a billion Chinese around the world will think it both prudent and lucky to buy gold.
This added demand is likely to push gold prices up dramatically worldwide for the next 12 months, a wave that wise investors can ride by buying gold now.
This added demand could push gold prices up worldwide dramatically in 2011, and could mean solid gains for those who buy gold now. Think of it as the safest, easiest and quickest way to “invest” in and profit from what is happening in China.
Think of it as the safest, easiest, and smartest way to “invest” in, and profit from, China's rapidly-growing prosperity – without enriching the atheist Communist Chinese government.
Paper “Wind Money” Will Soon Blow Away
The ancient Chinese invented not only money but also paper money, which they called 'wind money' because it could so easily be blown away, as I explain in my new book Crashing the Dollar: How to Survive a Global Currency Collapse.
The Chinese have known for many centuries that paper money never lasts. That is why they prefer money that rulers cannot print or debase – the solid and enduring value of gold. Through such prudence and thrift, as well as hard work, they have become America's largest foreign creditor.
Our Federal Reserve's response to our economic crisis is to print trillions of new paper dollars, expecting to repay our debts to China with devalued money.
By doing this, the Fed has guaranteed the steep devaluing of every dollar earned and saved by Americans – and put us at risk of a crazy hyperinflation like that of post-World War I Germany's Weimar Republic.
Those who had gold in Weimar, or had gold-backed foreign currencies (including, ironically, the 1920s U.S. Dollar), not only survived but also prospered. They could buy what others were forced to sell for the equivalent of pennies on the dollar. The same could be true in a future Weimerica.
The once-mighty paper dollar is turning into a paper tiger, losing its purchasing power to new waves of inflation and debt, and at risk of losing its status as the world's reserve currency. Gold in 2010 surged above $1,425 an ounce. Despite all political efforts since then to prop up stocks, bonds, the Euro and the U.S. Dollar, gold has stayed above $1,300 an ounce.
The Year of the Golden Rabbit is an opportune time to convert paper dollars into the enduring, secure value of gold before the yellow metal's upward climb resumes.
Today's negative fundamentals are a clear warning signal, more trustworthy than any groundhog seeing its shadow, that economic springtime has not arrived. You need more than paper to shelter your family and surviving seed money. As Chinese culture teaches, you need the security of gold, not “wind money,” against the cold and storms yet to come.
When spring someday returns, the gold that hedges your savings will have proven to be a solid investment that kept your nest egg safe from the ravages of inflation and political paper money manipulation. Come winter or spring, you win either way by investing in gold.
The key is to understand the times and then take action.
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