Financial Lessons from an African Dictator
by Rich Checkan, Investment U Contributor
Friday, June 24, 2011: Issue #1542
[Editor's Note: Richard Checkan is one of the smartest investment minds I know. The Vice President of Asset Strategies International, Rich has often contributed unique moneymaking insights to Investment U. His specialty: building wealth using gold, silver and other hard assets. Today's piece is one of his most provocative... and potentially valuable. ~ Garrett Baldwin]
These represent your emergency finances. Your ace in the hole - the gold and silver (and maybe some platinum) that you hope you never have to use, but thank the heavens you have if you do. They are your bridge across social, political and economic chaos. And the world is full of chaos.
With Libya now looking like America's third war in little more than a decade, it's hard to imagine what the people of Tripoli are doing in order to make ends meet with the country burning around them. I was reminded of the importance of core holdings recently when I saw a Financial Times article about Libya's beleaguered dictator, Col. Moammar Gadhafi.
The article explained that Gadhafi had only one hope of financing his war against the insurgents who were threatening to topple his regime. He couldn't borrow the money. He couldn't even access funds Libya had moved abroad. His accounts were frozen worldwide...
Gadhafi Saved By Libya's Core Holdings in Gold
His only source of funds was his "core holdings" - the gold that he had stored at the Libyan Central Bank. While most central banks store their gold in London, Switzerland, or New York City, this is not the case with Libya. Gadhafi had always insisted that Libya's gold be stored at the Libyan Central Bank in Tripoli.
We're not talking about some coins or bars tucked away in a safe-deposit box, by the way. Libya's gold holdings rank in the top 25 in the world. It is estimated that the bank is sitting on roughly 144 tons of the world's oldest and best form of money. At today's prices, that is $6.5 billion worth of the yellow metal. That may only represent a few minutes worth of government spending in this country; but in Libya, it's enough to finance a war.
So while no legitimate business or government will loan Gadhafi money now, or even trade with him, his hoard of gold may be the answer to his financial needs. He can use it to acquire currency, arms, food and other supplies for his military.
Wealth Insurance: Core Holdings of Gold and Silver
As I read the article, I was struck by this real-world example of the message we have preached so many times: When markets are volatile, you need some "core holdings" of gold and silver. There is simply no better "wealth insurance" than having precious metals as part of your portfolio.
- We saw the value of gold as emergency money when the Vietnamese refugees fled South Vietnam in the 1970s.
- We saw it repeated when South Korea emerged from the Asian currency crisis several years ago. Gold helped them rebound faster than most other countries from the Asian flu.
- We saw it in this country when the stock market tumbled. In many cases, margin calls could only be met by the liquidation of gold and other precious-metals holdings (which, by the way, maintained their value while paper assets were crumbling).
Time and time again, we have seen the value of gold as wealth insurance. Granted, almost every cause is nobler than that of Libya's dictator. In good times and bad (and for good guys and bad), throughout history the role gold can play in solving a financial emergency is well-documented.
A Liquid Store of Value for Financial Emergencies
Simply put, gold is a store of value, in a liquid form, for a financial emergency that you pray you never have. You buy it and you hold onto it regardless of price fluctuations. If you have a financial emergency, you sell the gold to meet those obligations. That's what it is there for.
And successful investing begins by conceding that - to a degree - uncertainty will always be your companion. That's why it's critical that you have a sound strategy that does more than just "diversify."
The Investment U Asset Allocation Model provides a sound philosophy that helps you invest in an array of domestic and foreign stocks, bonds and precious metals. Doing this has allowed us to survive, prosper and build our wealth during the longest bear market since the Great Depression.
And precious metals are an important part of your portfolio. You don't need an African dictator to remind you of that...
Editor's Note: For more information about core holdings, email Rich Checkan at firstname.lastname@example.org or call 800.831.0007. When you write or call, be sure to ask for a free subscription to ASI's weekly alerts and monthly newsletter, Information Line. They won't cost you a penny.