How a Real Estate Bust, Our Bulging National Debt, and the Languishing Dollar Will Push Gold to Record Highs

Buy Gold Now How a Real Estate Bust, Our Bulging National Debt, and the Languishing Dollar Will Push Gold to Record Highs Shayne McGuire John Wiley & Sons, Inc. ffirs.indd iii 1/14/08 5:43:37 PM ffirs.indd ii 1/14/08 5:43:37 PM Buy Gold Now ffirs.indd i 1/14/08 5:43:36 PM ffirs.indd ii 1/14/08 5:43:37 PM Buy Gold Now How a Real Estate Bust, Our Bulging National Debt, and the Languishing Dollar Will Push Gold to Record Highs Shayne McGuire John Wiley & Sons, Inc. ffirs.indd iii 1/14/08 5:43:37 PM Copyright © 2008 by Shayne McGuire. 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Library of Congress Cataloging-in-Publication Data: McGuire, Shayne, 1966- Buy gold now: how a real estate bust, our bulging national debt, and the languishing dollar will push gold to record highs / Shayne McGuire. p. cm. Includes bibliographical references and index. ISBN 978-0-470-18588-9 (cloth) 1. Gold. 2. Investments—United States. 3. Monetary policy—United States. 4. Balance of payments—United States. 5. United States—Economic conditions—2001- I. Title. HG289.M375 2008 332.63'28—dc22 2007038102 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 ffirs.indd iv 1/14/08 5:43:38 PM For my wife, Winnie, and our children, Anna and Alan, three wonderful people at the center of my life ffirs.indd v 1/14/08 5:43:38 PM ffirs.indd vi 1/14/08 5:43:38 PM Contents Acknowledgments ix About the Author xi Introduction 1 Part One Our Debt: American Financial Risk Has Never Been Higher Chapter 1: The $65 Trillion Wind Blowing from Our Future 11 Chapter 2: How Can Families Really Be Getting Richer by Borrowing More? 15 Chapter 3: Why the World Continues Lending (Most of Its Savings) to Us 23 Chapter 4: Relying on Foreigners: Our Economic Future May Be Out of Our Hands 35 Part Two Our Homes: The Epicenter of American Economic Risk Chapter 5: Real Estate, this Decade’s Economic Driver, Could Drive Us into Recession 45 vii ftoc.indd vii 1/12/08 2:32:06 PM viii contents Chapter 6: The Negative Amortization Mortgage Loan Is Born 53 Chapter 7: Tighter Lending Standards and the Fed Can’t Help 57 Chapter 8: The Great American Equity Cash-Out Is Coming to an End 63 Chapter 9: Financial Culture Shock: Real Estate Can Have a Negative Return 67 Part Three Our Economy: The Longest Economic Boom Ever Is Probably Ending Chapter 10: Balance Sheet Recession: We Could Be Heading in a Japanese Direction 75 Chapter 11: Smiling on the Lawnmower: Affl uent Poverty 87 Chapter 12: As the Fed Cuts Rates This Time, Could the Dollar Finally Collapse? 95 Part Four The Case For Gold Chapter 13: Why the Time Is Right for Gold to Skyrocket 109 Chapter 14: Stocks and Bonds Offer Little Compensation for Risk Today 127 Chapter 15: Gold’s Scarcity: New Sources of Demand and Falling Supply 137 Part Five How To Buy Gold Chapter 16: When You Simply Want Financial Insurance 149 Chapter 17: Mining Stocks, ETFs, and GoldMoney 159 Chapter 18: Rare Coins: A Bet on the Highest Possible Gains in Gold 169 Chapter 19: Why Silver Might Rise More Than Gold 187 Conclusion Don’t Be A Gold Bug: Sell When It Is Time To Sell 191 Notes 199 Index 217 ftoc.indd viii 1/12/08 2:32:06 PM Acknowledgments any people helped me write this book, some without knowing it. First and foremost, I need to give special thanks to my loving Mwife, Alejandra (known to most as Winnie), whose constant encouragement and many efforts helped me complete it. My mother, Quinta Roberts, mostly through her endless love and care for our children, Anna and Alan, was indispensable. My father, Stryker McGuire, and his wife, Julith Jedamus, were of great help at vital points in the writing process, and Dad carefully read through the manuscript and provided editorial advice. I would also like to thank my brilliant and ever - dependable niece, Gabriela Alcal á , who took time away from her college studies to assist in formatting. The book was helped tremendously by long conversations with my good friend Patrick Cosgrove, a stellar fund manager at Teacher Retire- ment System of Texas. And a great many Bloombergs and chats with my pal Marc Fleischman, a derivatives and fi xed income specialist at Bear Stearns in London, were deep challenges to my convictions. At TRS, I am also grateful to Tom Cammack, who years ago fi rst suggested I take a closer look at gold, and to Chi Chai, KJ VanAckeren, and Jim Hille, my mentor in fund management, who is no longer at the fi rm. Along with Patrick, the fi ve stimulated many of the thoughts that went into the text through the many lengthy discussions about global fi nance we have had. ix flast.indd ix 1/12/08 3:22:38 PM x acknowledgments I would also like to thank Britt Harris, the Chief Investment Offi cer at TRS, for his interest and encouragement. Much of what I know about precious metals investing and the arcane world of rare coins I owe to the experts at Austin Rare Coins. During the many hours I have spent there, Jay Bowerman, Ross Busler, Roxanne Byrd, Gabe Elton, Mike Gonzalez, Robert Kiser, and Mike Swingler provided hours of patient instruction about Saint Gaudens gold and Morgan Silver Dollars and the difference between business strike and proof, but I owe special thanks to Michael Byrd and Ryan Denby for permanently opening the fi rm ’ s doors and friendship to me. Jeff Garrett, one of the premier authorities on rare coins, went out of his way to instuct me regarding sev- eral classic American rarities and George Cooper, a specialist at USA Gold, provided me with useful information on the history of gold confi scation. I would also like to give my warm thanks to James Turk, one of the world ’s gold experts, for his observations and for revising my manuscript. Philip Newman, a senior metals analyst at GFMS, helped answer important questions about the global gold market and I would like to thank him for his help. A great number of conversations, conference calls and emails with sev- eral brilliant economists and investment strategists over the years have been of great help in managing TRS investments and, indirectly, in writing this book. Richard Bernstein, David Malpass, Stephen Roach, and most recently Donald Luskin in the United States, Albert Edwards and David Owen in Europe, and Gerard Minack and Christopher Wood in Asia were minds to which I am fortunate to have had access. But I would like to give special thanks to Gerard, who kindly revised the manuscript and offered important suggestions. I owe special thanks to my old friend Joe Harmes and to a new friend, Jim Moore, without whom Buy Gold Now might have remained on the drawing board. It fi nally left it with the help of David Pugh, my editor at John Wiley & Sons, whom I thank along with Stacey Small, Kelly O ’ Connor, and Michael Lisk for their patience and kind assistance in bringing my book to life.

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