CHISWICK, WEST LONDON – Greetings from my mother’s house in London…
It’s time for our weekly mailbag edition, where I answer the latest questions you’ve sent in.
This week, we continue the breakfast conversation about global money-printing, and what it really means for fiat currencies…
We discuss the best ways to own gold, including a book from my friend E.B. Tucker that I recommend to anyone buying gold – whether you’re a first-time buyer or a pro…
And we talk about “Income for Life” – which, as longtime readers know, is a whole-life insurance policy that can pay 55 times more interest than banks.
(It’s one of the world’s most generous retirement secrets. If you’re a paid-up Tom’s Portfolio subscriber, you can access my full course on these Income for Life policies here.)
All this and more below, so let’s dive in…
Reader question: I have made the same argument as your reader’s breakfast companion, that competitive global money-printing tends to have a neutral effect.
You say it would lead to a global collapse. But isn’t that unlikely as no one stands to gain (and thus the House of Cards keeps standing)? I am 80 years old and recall hand-wringing about this since my childhood.
I call it a “synchronized global currency devaluation.” Governments around the world have taken on too much debt. And now, they can’t service their debt loads.
Instead, world governments have to collectively debase their currencies to reduce the burden of their debts… just as Britain did after WWI and the U.S. did after WWII.
As this great, 50-year financial experiment of government intervention, central bank activism, and unbacked paper currency unravels, I expect all paper currencies to lose value. Not against each other… but against goods, commodities, hard assets, and especially gold.
Another way of saying this is we’re in the early stages of a big bull market in precious metals and commodities, in terms of all paper currencies.
Reader question: I’m looking for information on the gold mining stocks. I wanted to ask, which stocks did you buy? Or were there more than one? Were they mines?
Gold stocks are confusing to me. How does one pick a gold stock to invest into with a collective savings account? How do I educate myself on which are the most stable gold mining companies?
In my Tom’s Portfolio advisory, I’ve recommended a portfolio of gold and silver investments. They range from physical metal to royalty streaming companies to gold optionality plays.
Here’s what I mean by royalty streaming companies and gold optionality plays…
First, royalty streaming companies are less like gold mining stocks and more like banks. They offer gold miners cash up front, in return for a small percentage of the gold they mine each year.
Even if the gold price falls or the miners have operational difficulties, the royalty company still gets a set percentage of the gold the miners dig out of the ground.
Besides royalty companies, we also have gold optionality plays in our model portfolio.
These are companies that own a nice deposit of gold in the ground… But at current gold prices, it’s not economic to dig it up, so the companies’ stock prices are cheap.
Gold optionality plays are a bit like out-of-the-money call options. Not only because of how cheap they are compared to other gold miners… But also because they provide great leverage to the underlying gold price.
That means if the price of gold moves, the price of these stocks tends to move much higher.
We saw this from 2008 to 2011, for example. Gold went up 161%, but gold optionality plays went up as much as 1,033%… 1,086%… and 2,132%.
Now, as I mentioned, I’ve recommended several optionality plays and royalty companies in my Tom’s Portfolio advisory. But out of respect for my paying subscribers, I can’t give you the specific names.
And anyway, as Tom’s Portfolio subscribers know, gold mining is not the central focus of my strategy… more like something we keep at the fringes of our model portfolio. Because even though gold stocks can spike much higher than physical gold prices, they can also come down harder.
But if you’re looking to supercharge your gold gains with gold stocks, perhaps start with E.B. Tucker’s book, Why Gold? Why Now? The War Against Your Wealth and How to Win It.
E.B. is a longtime friend of mine, and he has a very good grasp of how to properly invest in gold mining.
His book is broken up into three parts, and it covers everything from why gold is important as a store of value against currency devaluations… to his favorite ways to own gold.
And if you’re interested in getting the names of the 11 gold stocks I recommended to my Tom’s Portfolio subscribers – along with my favorite ways to buy and store physical gold – watch this to learn more.
Reader question: Given the global economy as you see it, what type of work or business would you be doing in the years to come? Just asking for those of us who are not retired, etc., and need to pay the bills OR just enjoy working.
We would love to find a business our whole family could work together on. We haven’t found that yet… but ideally, it would be online so we could live anywhere.
One idea I really like is local business marketing. You help brick-and-mortar businesses establish a presence online and attract new customers.
This is a saturated market in the USA and Europe. But in many countries in Africa, Asia, and South America, there are many businesses that don’t even have websites or Google Maps listings.
We could build this marketing agency as a family…
Reader question: I agree that whole-life insurance products, properly structured and funded, can be an amazing retirement plan, compounding our savings tax-free “year after year.” However, that is when interest rates are in a “normal” range.
What the Federal Reserve has done with interest rates and monetary policies over the last 10 years is anything but normal, and they promise (actually, have no choice, with our Federal debt and Washington now full-fledged Modern Monetary Theory disciples) to continue keeping rates low for as long as it takes.
Does it not cause you concern that insurance companies’ business models are not designed to function over an extended period of extremely low (if not negative) interest rates?
The day may be fast approaching where the “year after year” assumption is no longer a given – especially when you’re contractually obligated to pay policyholders 5%, but you’re now only earning a “healthy” 3%.
This is a very good point. I think a well-run mutual life insurance company is designed to run over the very long term, including big swings in interest rates.
The two companies that hold our policies have been in business for 170 years and 143 years.
And remember, the compounding effect of a whole-life insurance policy isn’t primarily a function of market interest rates…
But a function of the fact that every day that passes is one day I get closer to dying… and one day closer to the death benefit being realized instead of unrealized.
And that’s all we have time for this week! As always, please keep writing us at [email protected].
I can’t give personalized investment advice, but I’ll answer as many of your questions as possible in future Friday mailbag editions.
– Tom Dyson
Like what you’re reading? Send your thoughts to [email protected].