Buy Commodities at Today’s Lower Prices, Consume at Tomorrow’s Higher Prices

Tess Pennington | Comments (0) | Reader Views (6732)

This article has been contributed by Mac Slavo of SHTF Plan.

Financial adviser Howard Ruff discusses wealth preservation during hard times in an interview with The Gold Report. Ruff, like Marc Faber, Jim Rogers and Howard Katz, has staked his reputation on the economic crisis eventually leading to inflation of the US Dollar. The money being printed for bailouts, stimulus and government programs will eventually be reflected on main street, and when this happens, your dollar will simply not buy as many goods as it did before. For a recent example, take a look at what happened in Venezuela when they devalued their currency by 50% – people flocked to stores almost immediately to convert their paper currency into physical, tangible goods like electronics and food. Here are some recommendations from Howard Ruff about Reprising (and Preparing for) Rough Times.

On what the average American can and should be doing:

“Whether they buy gold or silver or oil or oil service companies, I think one of the most important things the average American household can do with its money is prepare for the day when inflation will be generalized. If the store sells any commodity that you buy on a regular basis, and you find it on sale, buy a case and store it. Stock up on commodities that you use and get a storage unit or make sure you have a storage room for important commodities.

I’d like to have about six months worth of whatever I need, and I am not just talking about food. I’m talking about diapers or soap or whatever, and do everything you can to be self-sufficient. I think one day one of my prized possessions will be the garden in my backyard. That way you can buy at today’s relatively lower prices and consume at tomorrow’s higher prices. It’s not only a way to ensure you will have whatever commodity it is that you know you’re going to need, but it’s also a form of investment. So, that’s one of the first things to do.”

Self sufficiency is a phrase we have been hearing quite often in the last year. Trend forecaster Gerald Celente is an advocate of self sufficiency and the survival mentality. Marc Faber and Jim Rogers have suggested that buying farmland and learning to work that land will not only make you rich in the future, but help you to provide for yourself.

These economists, forecasters and financial advisors are not just blowing smoke and arbitrarely recommending you learn to be more self sufficient. They see a trend, globally, and that trend suggests an inflationary environment that will not only cause increased prices for essential goods, but the possibility that those essential goods you are used to acquiring with little effort today will be much more difficult to come by in the future.

In this interview, Mr. Ruff mentions an experience he had in Russia when it was still behind the Berlin Wall, and any time a store received any merchandise, the people rushed their to acquire any goods they could. Most of the time, people did not even know what goods the store had, but they went there anyway, hoping they could trade in their near worthless Rubles for something tangible they could trade later. Could this be our future as well in America?

A Different Way to Invest

Investing in the traditional sense involved purchasing stocks or bonds for your IRA or 401k.  While we don’t have anything against this type of investing, we’d suggest you look at some of the alternative investment strategies discussed by Mr. Ruff and others.

If you are a prepper, for example, who is already stocking essentials foods and goods, you’re way ahead of the game. As commodity prices continue to rise for a variety of reasons, your “investment” is paying off in real terms. Buy 10 pounds of rice today for $10, and when that same bag of rice goes to $20 a year or two from now, you can say you earned a 100% return on your investment! And the great thing about your investment, is you don’t have any counter party risk, for the most part, meaning that you own the physical good and it is in your possession — you take delivery at any time!

We’re not saying that you should go out and sell all the stocks in your 401k, pay the withdrawal penalties, and then spend that money on rice, pinto beans, corn and wheat, but diversifying a little bit might be in order.

As an investor, what would you trust more: Holding Citibank stock while the CEO is telling you that his bank is well capitalized, or the 50 pound bucket of rice sitting in your pantry?

Howard Ruff on Gold and Silver:

TGR: You recommend buying gold bullion and coins. How about silver?

HR: I like silver a lot better than gold. I think you will make two or three times more money in silver than gold.

TGR: Is that because of the price today or is it a general phenomenon?

HR: It’s general. The first time I recommended gold and silver was back in the ’70s, and we made twice or three times more money in silver than in gold. I want people to buy silver for several reasons. When people start trying to beat inflation by investing in precious metals, it’s a lot easier to buy silver because it’s a lot cheaper. The average investor can buy some of that rather than buying gold. Also, because gold is so much more expensive, it doesn’t have a lot of utility. It’s like buying $1,000 bills. So as a hedge against inflation, I think people are a lot better off in silver.

TGR: Do you follow the gold/silver ratio?

HR: I follow it as it’s an important measurement of relative money, but I am basing my decisions on history, and history tells me that silver will outperform gold. That may not be the case from day to day or over a particular short time period, but that’s where the money will be made over the long haul.

SHTF Plan strongly supports Mr. Ruff’s conclusions about investing in gold and silver. If you have a retirement account, CD’s or long-term US Treasuries, perhaps it’s time you consider diversifying some of your assets into gold, silver and other precious metals. Depending on your current wealth and portfolio, Mr. Ruff recommends bullion, numismatic coins, and precious metals producers in the form of stocks.

Our view is that gold and silver are not necessarily a hedge against inflation, as evidenced by rising inflation in the US Dollar in the late 80’s and throughout the 90’s, all the while gold stagnated. Gold, silver and other precious metals generally rise in value as a result of the private sector losing confidence in the public sector’s (government’s) ability to mitigate a crisis, enforce the rule of law (as in property rights), and to maintain general economic and political stability. Inflationary expansion of money supply is basically an effect, a symptom, of the disease of government mismangement and malfeasance.

It seems to us, that this exactly why the price of gold and silver are rising right now and will continue to do so in the future, along with most other commodities, especially essential and scarce goods.

For more details and thoughts from Howard Ruff, Read the Full Interview…

This article was published at Ready Nutrition on Jan 16, 2010

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