Buy Gold Now: How a Real Estate Bust, Our Bulging National Debt and a Languishing Dollar Will Push Gold to Record Highs
By Shayne McGuire
John Wiley & Sons, 2008
224 pages. $34.95
Ancient Egyptians believed that gold was the flesh of the gods. To the Aztecs, gold was “the excrescence of God.” Hindus believed gold was a form of the gods. In Chinese alchemy, gold was the essence of the heavens. Christianity was ambivalent toward gold. On the one hand, gold represented spiritual treasure and incorruptibility. On the other hand, gold stood for idolatry – the Golden Calf – and worldly wealth.
The idolatry of gold continues in today’s world. Those who idolize gold are sometimes called “gold bugs” by way of disparagement. Gold bugs are people who believe the end of the world is just around the corner. Therefore they advise selling everything you own and buying gold and canned food. In other words, in a world gone crazy, owning gold is the only refuge.
Naturally, then, lots of gold bugs write books about investing in gold. Likewise, lots of gold bugs read such books. Buy Gold Now was not – negative – written by a gold bug. It was written by Shayne McGuire, the Director of Global Research at Teacher Retirement System of Texas, which is one of the nation’s largest pension funds. McGuire is a mainstream investment advisor. In fact, he is so mainstream that one could call him “old guard.”
Not only is Buy Gold Now an excellent read, but it’s a surprising one. Why is it surprising? Because McGuire advocates gold – along with silver – as an attractive investment. And he’s the same guy who – back in the bull market of the 1980s and 1990s – advised against gold as an investment.
Why did he change his mind? That’s what Buy Gold Now is all about. In it, McGuire carefully examines today’s global economic situation from the viewpoint of historical trends. Translation: he did a ton of research. Then he analyzed the results of his research and came to some unique conclusions. Those conclusions – and the process by which they were attained – are presented in Buy Gold Now.
Buy Gold Now is divided into five parts.
Part One focuses on the colossal and ever-growing U.S. national debt. In essence, the problem is this: the U.S. national debt is about $65 trillion. American household debt continues to climb, while savings are nonexistent. This means America’s economy runs by borrowing money from foreign lenders. If king dollar loses its luster “all currencies” may crumble as they chase “the dollar down.” At that point, the only way to prop up the dollar would be for America to assume even more debt. Not a pretty picture.
Remember that Buy Gold Now was written in 2007 and published in 2008. So it appears the ugly picture is – right now – hanging in America’s rumpus room.
Part Two discusses the recent implosion of the real estate market. One more time, Buy Gold Now was written just before the bottom dropped out of real estate. Yet McGuire saw it coming. In chapter 5, he says “Like other observers, I believed this real estate boom was a bubble with a delayed pop, one that will take years to recover from and which is likely to lead the United States into a recession.” The prophet Isaiah couldn’t have been more accurate.
According to McGuire, real estate would implode because of negative amortization loans and mortgage equity withdrawal. As McGuire points out, negative amortization loans sound great in theory, but in practice they turn out to be “money-sucking financial instruments that reduce home equity.” Debt goes up, while equity goes down. Exacerbating the problem is the fact that “in recent years Americans mainly have been using refis to raise cash by increasing their debts.” In other words, one problem opens the door to another problem, causing a snowball effect. The result? Most new home buyers – in 2006 – now have negative home equity. Put simply, they “are upside down on their mortgage loans.”
Proceeding to Part Three, McGuire takes a look at the end of the economic boom. The boom is coming to an end because “Americans have been in a cash flow deficit for several years.” There’s more money going out than there is money coming in. Under the right circumstances, this results in deflation. Asset values decline, yet debt stays the same. Which means debt “becomes a larger burden on the balance sheet and individuals’ net wealth falls.” McGuire calls this living in “affluent poverty.”
Then McGuire poses a startling question: “But what if … the Fed is forced to cut interest rates deeply to reactivate our debt-reliant economy?” It’s as if he was looking into a crystal ball as he asked the question, because that’s exactly what has happened. In such a scenario, McGuire predicted the eventual collapse of the dollar. To counteract the impending collapse, he recommended gold. “The strong possibility of a dollar collapse is the most important reason to buy gold.”
Now that he has set the stage, McGuire opens the curtain to Part Four, wherein he presents ‘The Case For Gold.’ His presentation begins in 1970 and advances year by year up to 2007. During that period, gold has steadily gone up as the Dow Jones Industrial Average remains flat. And as McGuire explains, there are two catalysts for gold’s continued rise: “The first is a decline in the value of paper currencies led by the dollar.” Which is happening right now. The second catalyst “is the growing lack of attractive opportunities” for investors. In other words, in the global financial beauty contest now occurring, gold is looking prettier than ever. And McGuire provides a cogent, detailed and persuasive analysis as to why gold will win out over its lackluster contestants – stocks and bonds.
Part Five is entitled ‘How To Buy Gold.’ And that’s exactly what it does. McGuire tells investors how much gold they should own, what they should own, and how to buy it without getting ripped off. He points out the advantages and disadvantages “of owning gold indirectly via mining stocks, ETFs, and through digital gold.” He cites the rare coin market as “a very aggressive way to profit from rising gold prices.” And he explains the correct way to approach investing in rare coins. There’s also a section about silver investing, about which McGuire is bullish.
Buy Gold Now concludes with a short section worth its weight in gold: ‘Don’t Be A Gold Bug: Sell When It Is Time To Sell.’ In other words, be smart. There’s an old adage that advises, buy low, sell high. Or as McGuire so eloquently puts it, “Once monetary balance is restored, gold and silver will stop being investments promising strong returns…”
Altogether, this is an excellent book.
Written in a direct and comfortable style, Buy Gold Now should be on every investor’s bookshelf.
On the Read-O-Meter, which ranges from 1 star (horrible) to 5 stars (marvelous), Buy Gold Now commands 5 gold-plated stars.