Crash Proof 2.0: How to Profit From the Economic Collapse
by Peter D. Schiff
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Book Summary Information
Author: Peter D. SchiffContributor: John Downes
Edition: Hardcover
Audio: English (Unknown); English (Original Language); English (Published)
Published: 2009-09-22
ISBN: 047047453X
Number of pages: 364
Publisher: Wiley
Book Reviews of Crash Proof 2.0: How to Profit From the Economic Collapse
Book Review: Cash/Bonds, Foreign Investments/bonds, Gold, and commodities
Summary: 5 Stars
Is it smart to be investing in Foreign Stock and bonds?
1. Stocks outperform real estate long-term.
As the dollar devalues, dollar devaluation chases investors into more risky investments. Stock prices and Bond prices rise, due to speculation. The stock prices percentage increase deviates from earnings, warning of overvaluation errors. The stock prices is climbing from the affects of inflation, not earnings. As inflation increases the prices of the stocks overvalue and investors realize the risk has become unbearable; correction is due. The market will appear bullish as investors begin buying stock, but price will be inflation adjusted investment, not value investing. Central banks around the world will complain when their holdings of dollars have devalued. Central banks may decide to hold commodities instead of dollars over time. Growth stocks will be perceived as being a safe haven.
Greenspan tried too absolved himself of the financial crisis of 2008 saying the real estate failure was caused from not enough government regulation and not letting the fed do its job. When it is more likely, the fed's low interest rates caused the housing bubble. Greenspan blamed the long and short term spreads saying long-term interest and short term spread did not rising to historical spreads - It was the markets falt. Hedge funds were realizing the deviation in interest rates and started betting against real estate. Short-term interest rates had caused the housing bubble. T the arms were tied to short-term interest treasuries and fuel price speculation the caused price to climb forming bubble. Cheap credit in the form of ARMs were creating the housing bubble, sub prime loans were connected to the 10 year treasuries.
Real Estate values will drop as unemployment rises. We are entering a period of extreme distress with an increasing number of loans due and loans past due greater than 90 days. The credit deterioration trend is climbing. The foreclosure rate as a percent of total loans is approaching 4%. ARMs have twice the delinquency rate as fixed rate loans.
Mark to Mark accounting has not caused the real estate bubble to burst. The Real Estate bubble burst because the prices were to expensive. Reducing price will have more of an impact than reducing mortgage rates.
During deflation real-estate prices return to the long mean average in price.
2. Real-estate seems to outperform stocks, short-term. SF is an example of short term gains in real-estate.
3. Possible scenario, US Stock Prices will fall, bond yields will rise, bond prices will fall, gold prices will rise, as the dollar falls. Gold moves inversely with Dollar devaluation. Bond prices move inversely with yields. A weaker dollar means higher bond yields. If the economy slows, gold prices will fall, bond yields will fall, bond price will increase, the dollar will remain weak, and stock prices will fall.
In Oct 2010, the dollar index was 77.383, gold was $1,333.90, silver dropped to $22.56, last week price was $24.92
In Oct 2010, 10 year bonds yields were 2.625.
4. If you own your home, Schiff believes borrowing against equity and investing in stable foreign stocks with yields of 8% make sense. You borrow at 6% and earn 8%, a difference of 2% profit. This assumes you don't need the mortgage. This is called Arbitrage. It does not work forever, because as more people identify the profit potential, more money buys the opportunity for profit, and the yield drops, as demand increases, and more buyers consume the stock.
Schiff perceives the dollar devaluation and home depreciation as the greater evil, however, I don't believe in making money from other peoples money. You may say that home equity money is your money, but that is equivalent to saying you can earn industrial productivity money from nonindustrial sources, financial derivatives instrument, a risk oriented money proposal with a winner and loser, a margin call you will have to pay. Suppose, you borrow on equity from your home and invest the money into a Canadian commodity company that yields 8%. At first, the plan seems to work and the commodity demand remains strong and earnings payouts look good. Suppose, a catastrophic event disrupts production of the commodity; the company faces large losses; the yield value drops and the stock price collapses; your risk exposure is hammering. You now have a mortgage payment plus defaulting home equity loan payment. Your risk has caused a liability crisis in the pursuit to capture a small earnings cash flow. The risk may not be worth the reward.
5. Dollar devaluation causes larger investment of money into foreign assets
In Oct 2010, the dollar index was 77.383, gold was $1,333.90, silver dropped to $22.56, last week price was $24.92
6. Exchange rates do matter
In Oct 2010, the dollar index was 77.383, gold was $1,333.90, silver dropped to $22.56, last week price was $24.92
7. Falling dollar boost gains if you already have foreign stocks and investments.
In Oct 2010, the dollar index was 77.383, gold was $1,333.90, silver dropped to $22.56, last week price was $24.92
8. Buying gold or other commodities is a hedge against exchange rate risks.
Stocks, silver, and gold are way overbought
The US bullion depository holds 4,603 tons of gold bullion. The Federal Reserve Bank of New York holds 5,000 to 7,000 metric tons of gold for many foreign nations. The fed does not own any of the Gold.
Central banks in developing countries are under-reserved in gold. Brazil, China, India, and Russia show just 5% gold on average in their official reserves. Countries that use the euro hold 58% of their official reserves in gold. Portugal has 80% of its reserves in gold. As gold prices rise countries will be tempted to sell their gold
9. Gold has not proven to be a long-term holding
The IMF sold 200 tonnes of gold to the India Central Bank for $6.7 billion. The sale of gold increased available funds for the IMF. The sale of gold was from one central bank to another, the gold did not go out on the open market
10. Investing in foreign stocks and bonds may be a way to dampen effects of currency swings.
11. Indexes to watch: Vanguard Total International Stock Index Fund, International Equity Index Fund, and the Spartan International Equity Index Fund.
Hedge Funds use Gold as a defensive asset
1. Gold price rises as a value for safe haven. Platinum and Palladium prices rise as a function of increased demand in industrial applications. Gold is considered a defensive asset. Investment accounts for 90% of the demand for gold. Demand for gold holdings increased to 30 million ounces. Central banks own large reserves of Gold. Hedge funds hold large amounts of Gold.
2. Low US interest rates, US dollar weakness, and long-term inflationary pressures make gold acquisition favorable.
3. The dollar's strength depends on Chinese and Japanese foreign investment US dollar denominated currencies. Massive fiscal and monetary policy has weakened the dollar. Gold price rise with inflationary pressures.
4. Debt deflation occurs when the money supply starts to shrink
5. Hyperinflation results in a dramatic increase in the velocity of money due to loss of confidence, not changes in the money supply.
6. Increases in the velocity of money have the same affect as increases in money supply
7. Hyperinflation can be preceded by periods of deflation.
8. High levels of government debt, severe cases of deflation can cause loss of confidence in the nation's currency, shrinking economy, make government debt seem unsustainable. Deflation slows the speed of money. The public hoards cash or short-term securities. The slowing speed of money causes the fed to create huge quantities of cash to prevent prices and economy from collapsing. Most of the money does not reach the real economy. Deflation leads to a loss of confidence.
9. In 2008, behind the scenes, banks forced Hedge Funds to sale gold to cover their margin calls, moving gold from $1,000 an ounce to $700
10. Gold was used as a defensive asset to protect against risk. Hedge funds pulled back on gold commodity trades and unwinded their positions further depressing gold prices in 2008.
11. In 2008, rising dollar prices and lowering oil prices helped reassure investors that inflation and currency devaluation were not a big risk.
12. Gold acts in the exact opposite position of the dollar values.
Should I invest in land?
1. I like land because it is an asset that protect value
2. Land has utility and can be resold and other commodities bought
3. Land improvement and tax costs are not unreasonable, if the land has not been heavily marketed.
What foreign investments are interesting?
Look for foreign stocks in Australia, New Zealand, South Africa, Scandinavia, Hong Kong, Singapore, and Japan. A smaller portion of stock in South Korea and Taiwan.
You can purchase foreign currency cds; no load foreign money markets; (short term) government debt in foreign currency; or put your money in a private bank account in Switzerland, Cayman Islands, Liechtenstein, Panama, Austria, or Luxembourg.
What are the fears?
1. People, who stay in cash, and think they have done the right thing, may have stayed to long.
2. Buying by US investors will drive the price of foreign stock up. Look for stock with liquidity that can be retained for dollar devaluation emergencies.
3. In 2008, when foreign stocks were dropping, everyone was running away from assets and from risk and getting into the safety of cash and US treasuries. Debt reduction was big and companies were raising cash to refund redemption and meet margin calls. People were focused on numerical value of stocks. People stampeded out of depreciating currency and equivalent and into dividend yielding assets.
4. Schiff does not see a global depression. Instead, he sees more foreign countries decoupling themselves from US debt and trade imbalance entanglement.
What I would like?
1. I would like to discuss with Peter Schiff his book on a blog.
2. I would like a free apple iPad
3. I would like to receive the answers to my 16 questions.
Is Canada a good place to look for foreign investment?
1. Canada is the world largest zinc (744,037 tons) producer and second largest nickel and lead (77,140 tons) producer.
2. Companies like Noranda, Inco, Falconbridge, Teck Cominco, Boliden, and Hudson Bay Mining and Smelting dominate the nickel, inc, lead, and gold production in Canada.
3. Noranda is the world leading zinc and nickel producer
Questions I have:
1. How do the following gold coins compare: Kurggerand, Maple leaf, American Eagle, Australian Nugget/Kangeroo? Should I have a mix of coins in my profolio?
2. What role does the IMF play in its $39 billion line of credit in Europe?
3. We were told by media that Greeces debt problems would hurt large banks. Did banks bet positive on Greeces debt?
4. Why is lead an important industrial commodity?
5. Is a global economic depression unlikely? Will the dollar continue to weaken?
6. Is China consuming more Steele in the form of refrigerators, cars, and stoves?
7. What zinc companies pay a dividend? Is zinc produced mostly in Canada?
8. What Canadian nickel stocks produce a dividend?
9. How can I invest in a property trust? How do I select a good property trust? What are the dividend yields on Canadian property trusts?
10. What are Canadian oil and gas stocks that pay a dividend? How can these stocks be purchased?
11. What are coal stocks that pay a dividend?
12. How will JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley be impacted by their investments in the Euro?
13. How will the fed stop hedge funds from betting short on the Euro?
14. How much damage with Greece, Spain, and Portugal defaults have on the derivatives and CDS markets?
15. Why is the $1,140 Trillion derivatives market nontransparent and nonregulated?
16. Who is becoming richer?
Why are we so clueless about the bond market?
Summary of Crash Proof 2.0: How to Profit From the Economic Collapse
A fully updated follow-up to Peter Schiff's bestselling financial survival guide-Crash Proof, which described the economy as a house of cards on the verge of collapse, with over 80 pages of new materialThe economic and monetary disaster which seasoned prognosticator Peter Schiff predicted is no longer hypothetical-it is here today. And nobody understands what to do in this situation better than the man who saw it coming. For more than a decade, Schiff has not only observed the economy, but also helped his clients restructure their portfolios to reflect his outlook. What he sees today is a nation facing an economic storm brought on by growing federal, personal, and corporate debt; too little savings; and a declining dollar. Crash Proof 2.0 picks up right where the first edition-a bestselling book that predicted the current market mayhem-left off. This timely guide takes into account the dramatic economic shifts that are reshaping the world and provides you with the insights and information to navigate the dangerous terrain. Throughout the book, Schiff explains the factors that will affect your future financial stability and offers a specific three step plan to battle the current economic downturn.
- Discusses the measures you can take to protect yourself-as well as profit-during these difficult times
- Offers an insightful examination of the structural weaknesses underlying the economic meltdown
- Outlines a plan that will allow you to preserve wealth and protect the purchasing power of your savings
- Filled with in-depth insights and expert advice, Crash Proof 2.0 will help you survive and thrive during the coming years of economic uncertainty.
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