The Danger of Gold, Silver, Death Futures, Annuities, and Cons

Calculated Risk: Silver, Gold, and the Hunt Brothers

I don't follow gold, but back in the late '70s I was long the silver market. I closed my positions when housewives started selling the family silver - and eventually shorted the market. Of course that market was being manipulated by the Hunt brothers, but this story reminded of early 1980.

I was given three silver dollars as a graduation gift in 1982. There was an ad in the local paper offering me $18 each. I sold them at a hotel room in Spokane, Washington. They spent a moment looking at the coins, then they tossed them into one of the very large white buckets along with everyone else's coins. At the time I felt that maybe I was being fleeced. In hindsight, I actually made out like a bandit. I'm reminded of this each and every time I see a television commercial asking to buy gold from me. It's kind of creepy.

You've got to have nerves of steel to bet against this and this over the long-term. I could only muster a short-term bet. I owned gold and silver from 2004 to 2006. Using hindsight, I made out like a bandit again. Those I sold the metals to would also make out like bandits if they sold today. At some point, we'll need serious hyperinflation for the bandit machine to continue though. What if it doesn't come? What if we slide into a long-term deflationary mess instead? Don't think it is possible? Yeah, well that's exactly the same thought process that was used to justify buying overpriced real estate. It only goes up. That being said, I'm a believer in the long-term stagflation story, but only to a point. I do not think it is a sure thing. Worse, from an investment standpoint, gold and silver may have already fully priced it in.

All I wanted was some inflation protection and I managed to earn more than 50% (even after transaction costs to buy and sell it). A friend reminded me that I told him that I would take gold and silver to my grave if necessary. He wanted to know why I changed my mind. I didn't change my mind. It simply paid off sooner than that. That brings me to the bulls make money, bears make money, but pigs get slaughtered rule of thumb. Don't be greedy, especially in an environment that has been punishing greed in a major way, such as this one.

Gold and silver have been in a bull market for nearly a decade. I certainly can't tell you where the price of gold and silver are headed next. However, I can say that if I had to choose between converting my life savings into gold and silver or converting it into toilet paper, I'd choose toilet paper hands down. It has not risen in price parabolically AND if the you know what really does hit the fan I am quite confident that I will be glad to have it. The things that Mad Max would look for (toilet paper and canned goods) are still relatively cheap. I'd much rather hoard the cheap stuff. In fact, I actually do. That's not being greedy. That's just buying insurance.

Steer clear: 4 'hot opportunities' to avoid

And his recommendation would be brilliant if it were 2001. Over the past eight years, gold has soared from about $271 an ounce to its recent closing price above $900, an all-time high. If you had bought then and sold today, you would have earned a 230% return -- better than virtually any other investment.

That's kind of how I see it. We're well beyond the Suze Orman's of the world investing in precious metals. Gold and silver are pricing in hyperinflation but if that's the case why isn't oil pricing it in too? Risky!

So-called life settlements are the latest twist in a 30-year-old market in "death futures." They involve buying a person's life insurance policy for a fraction of the policy's face value. The investor gets paid when the policyholder dies.

I had NO idea you could even do this. Good grief.

Like all annuities, equity-indexed ones are complex contracts that come with pounds of legal documents. That's where you find the "gotchas," which vary from contract to contract.

I really don't like annuities and for so many reasons. First and foremost, I am not going to pay someone else whopping fees to manage my risk for me, especially when I realize that they'd prefer to simply be spending my money on some beach in the Caribbean. Who wouldn't!

Second, a few decades ago I had two salesmen show up at my apartment. They told me that I could earn a fixed 9.5% in an annuity and asked me if I wanted to know more. Of course I did! I kept asking two questions over and over again. What's the catch? It is really 9.5%? No catch and yes were the answers. I spent time looking through the paperwork. I couldn't spot the problem. I bought in. Later that night, I reverse engineered the payout data. It didn't come up anywhere near 9.5%. I called them up and cancelled. Fortunately, I had three days to back out and I knew it. They were really, really mad. They invested several hours time with me. They weren't the only ones who were upset though. Where did that 9.5% go? Fees! That's what they told me once I'd actually done the math. Most people wouldn't do the math of course. That really ticked me off. How many people had they fleeced?

And lastly, I cringe every time I hear that annuities are guaranteed. Guaranteed by what? I'm having a really hard time trusting the U.S. government to stay solvent long-term. What are the odds I'm going to trust an insurance company to actually do the same? Insurance companies don't have monetary printing presses last I checked, nor do they have a captive audience that they can tax.

Con artists know you're desperate. They know you think the people on Wall Street are all crooks who lie to you and keep the best deals for themselves.

Don't even get me started. They sure do seem to know me. Hahaha! You know what they say about something looking to good to be true though. There are no sure things. I feel that I'm already in a hand basket asking where we are going. The last thing I need is a brochure of "hot opportunities". That's just cruel!