LIVING OFF DIVIDENDS & PASSIVE INCOME

Gold hit another record today and is currently trading over $1,100 as I write this. However, it hasn’t prevented several news stories coming out about how gold is a lousy investment. Investment stalwarts from Warren Buffet to Monish Pabrai have all denounced gold as an investment.

And despite the decent performance of gold over the past 10 years, they’re correct. Gold is a lousy investment. It creates no income and just barely keeps up with inflation.

But do you know what the best performing asset class was during the past 10 years? No, it wasn’t your stock portfolio or your real estate. It was gold, and it returned a decent 270% over that period.

Despite its out-performance of all major asset classes, gold still gets no respect from the investment community. That’s because it is only a store of value and typically only does well in periods of currency crisis, or times of poor monetary policy.  Read more... (823 words, 9 images, estimated 3:18 mins reading time)

Last week, gold prices briefly touched $1,100/oz before settling just under that number.  Apparently the Indian government decided to sell US dollars and make a 200 ton gold purchase from the IMF, which created the spike in gold prices. Right now, the spot price for the yellow metal is $1,106.

The IMF still has another 203 tons of gold to sell and the hot favorite to make the purchase has been China.  However, according to a report by Reuters, its a lot cheaper for China to buy domestically mined gold than purchase bullion from the IMF at the current spot price. According to Li Yang, a former adviser to the People’s Bank, “China’s gold is much cheaper than that.”  Read more... (451 words, 10 images, estimated 1:48 mins reading time)

According to a quote in the Telegraph, HSBC has issued a new report stating that the Federal Reserve’s ultra-loose monetary policy is forcing China and other emerging countries to create a new global currency “order”. According to David Bloom, HSBC’s currency chief, the dollar looks like the sterling did after World War I.

For those a little dusty on their history, the British pound sterling (so called because it’s value was backed by sterling silver) was the world reserve currency until the 1930’s. After that, the sun set on the British Empire and the sterling was replaced by the US dollar. Now it seems the dollars time in the sun has come to end as well. The Telegraph article states:

Crucially, China and rising Asia have reached the point where they can no longer keep holding down their currencies to boost exports because this is causing mayhem to their own economies, stoking asset bubbles. Asia’s “mercantilist mindset” of recent decades is about to be broken by the spectre of an inflation spiral.  Read more... (636 words, 9 images, estimated 2:33 mins reading time)

Almost a year after the historic collapse of Lehman Brother, Fed Chairman Dr. Ben Bernanke announced that the worst recession since 1930 is finally over!

However, this is only from a “technical perspective”, and unemployment for 15 million Americans (officially 9.7%) will continue, if not get worse. In fact, it may stay this way for nearly 4 more years according to other economists.

So what does this mean? The operation was a success but the patient still died!

Apparently pumping a trillion dollars in to the economy will create a technical expansion even if the net benefit to society is negative. What happens when the government pulls the plug on throwing money at the ecnomy? Won’t the GDP decline again, pushing us back in to a double dip recession?  Read more... (239 words, 9 images, estimated 57 secs reading time)

Here are some must-read articles I’ve read this week. None of them talk about gold breaking a $1000, dividend stocks or things you’ve probably read in the news.

• Living In Beverly Hills A fascinating economic look at our consumption-based society
• 10 weird businesses that make money
• Hyper-inflation in the US: Is it a possibility? Features an awesome video made by the National Inflation Association
• True Story of SmashMyViper.com Trying to figure out how to raise $1 million to open a bar? Check out this story.

In the last post we saw that China was slowly diversifying away from it’s usual investments in US Treasury Bonds and investing in hard assets, natural resources and maybe other currencies.

There probably a very good reason why the world’s second largest holder of US Dollars is weaning itself away from bonds issued by the world’s largest debtor nation.  If you believe the Chinese know what they are doing, it might make sense to imitate their investment strategy.

While you don’t need to buy $80 Billion worth of gold, you might do well buying gold equal to at least 5% of your net worth. Gold is not an investment in itself but a historic store of value. Regardless what anyone tells you, the US Dollar is not a store of value. During times when governments print money hand-over-fist, gold typically does well. In fact, over the past 10 years, gold has appreciated against every single currency.  Read more... (714 words, 8 images, estimated 2:51 mins reading time)