Customer Service 1 (888) 261-2693
Please enter Search keyword. Advanced Search

This New "Savings Account" Will Save You from Financial Disaster

By Dan Ferris, editor, The 12% Letter
Thursday, May 19, 2011

"You're crazy to own cash. Don't you know the U.S. dollar is worthless... and headed for disaster?"
Three weeks ago, I told folks to hold off buying stocks, bonds, and commodities and hold cash instead. I received a lot of angry feedback. It can all be summarized by the comment above.
The emotional reaction I received from many readers reinforced my preference for keeping the bulk of my cash in the world's most hated asset right now: U.S. dollars.
But the bigger point is the meaning of "cash" is different to me than to most people. And if you start thinking about cash the same way I do, you're going to save yourself a lot of trouble over the coming years...
You see, the way I use it, a better term for "cash" might be "liquid savings." And these days, my idea of "liquid savings" is much more important than it was 15 years ago.
My idea of liquid savings is strange to most because I recognize that gold is money and, therefore, an appropriate vehicle in which to amass your savings.
Most folks don't own gold and don't understand that it's money. The status quo is to live beyond one's means, buy investment manias at the top and sell at the bottom, and generally fritter money away on trinkets.
I know I can't go to the grocery store and buy food with a half-ounce of gold. And I don't want my liquid savings in just one form of money. That's why, when I balance my liquid savings, I count U.S. dollars, gold bullion, silver bullion, and small amounts of foreign currency.
Right now, my gold and silver bullion position – my "real money" position – is equal to about 36% of my paper money + bullion total. I know this might sound like an extremely high level, but most folks are oblivious to the fact that the U.S. dollar has lost more than 30% of its purchasing power over the past 10 years.
This loss of purchasing power is why I say my idea of liquid savings is more important than it was 15 years ago. Back then, the U.S. government's balance sheet wasn't in the sorry shape it is in now. Back then, our government wasn't in debt to the tune of more than $14.3 trillion (95% of GDP), and we weren't staring in the face of a record $1.5 trillion budget deficit.
Over the long term, I expect these problems to further weaken the dollar... Let's say over the next 10 years, my U.S. dollar cash position loses half its current value. Then, let's say the overall dollar price of gold and silver doubles during that time. From current levels, that'll preserve my purchasing power.
To the dollar-hating critics out there: Yes, I agree. It's hard to argue that you wouldn't be better off in the so-called "New CASSH currencies": New Zealand dollars, Canadian dollars, Australian dollars, Swiss francs, Singapore dollars, or Hong Kong dollars. These countries are in better financial shape than the U.S. By all means, if you don't like the U.S. dollar, go ahead and hold some alternative currency.
My primary point is not what currency you end up in when you're in cash... It's that many alternatives to cash – stocks, bonds, and commodities, for example – are expensive and risky right now. So you should be raising and accumulating a good-sized cash (aka "liquid savings") position for the day when they're cheap again.
If you really want to get technical about the unattractiveness of the greenback, where do you stop? After all, all paper currency's intrinsic value is identical to the U.S. dollar: zero.
The world is a flawed place. Hold your savings in whatever form you must. But make sure a portion of it is held in gold.
Good investing,
Dan Ferris

Further Reading:

Last month, Dan laid out his four-step plan for how to survive the end of quantitative easing in June. Holding cash was No 1...
"A weak stock market," he says, "is a value investor's dream, because weak stock markets create bargains. So the first thing you should do to prepare for the expiration of QE2 is to have plenty of cash handy."
If you follow Dan's four steps, you'll be prepared regardless of what happens this summer. Read his full plan here: Four Ways to Prepare for and Profit from "Financial D-Day."

Market Notes


Today's chart is a "cosmopolitan view" of stocks that will shock most Americans...
As longtime readers know, there are always two sides to a price. On one side, you have the asset being measured. On the other side, you have the measuring unit... which is often the U.S. dollar. But we take a multi-faceted "cosmopolitan view" of things. We know when a measuring unit like the dollar sinks in value, prices get distorted. We gauge assets in a variety of measuring units for a picture of what's going on in the world.
For example, ask your average U.S. investor what stocks have done in the past two years, and he'll say, "Stocks have ripped higher! I'm up big!"
A "citizen of the world" sees things differently. He can gauge the performance of U.S. stocks in terms of gold or, as we do below, in terms of the Swiss franc. We know by now that gold is "real money." And the Swiss have a long history of managing sovereign finances so their currency doesn't plunge in value like the U.S. dollar has since 2001.
For a picture of this idea at work, note the performance of the benchmark S&P 500 index priced in withering U.S. dollars (black line) versus the performance of the S&P 500 priced in strong Swiss francs (blue line). As you can see, in dollar terms, the S&P has gained nearly 50% in the past two years. In terms of the Swiss franc, it's a modest 16% gain. "Up big" in U.S. stocks? This view says, "not so much."

Anno: In terms of Swiss francs, the stock boom look much more modest

In The Daily Crux

Recent Articles