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Steve's note: As you've seen in our special series this week, my friend and colleague Porter Stansberry is deeply concerned about the problems developing in our country and around the world. And today, he's showing readers how to prepare for the crisis he sees happening. Read on for the final installment of our "End of America" series...
Friday, December 17, 2010
The International Monetary Fund estimates the 20 largest industrial nations (known as the G20) are on course to see their combined government debt exceed 100% of their combined GDP within three years.
Debts of this size simply cannot be financed, let alone repaid. The first step in this great unraveling is underway – the collapse of the euro.
In March 2010, I wrote:
Like dominoes, the highly indebted economies of Europe are going to topple. Greece was first. But plenty more problems are coming. Italy has no way to meet its obligations. Nor do Portugal or Spain...
Events over the past two weeks in Greece should give you plenty of warning governments all over the world have too much debt.
What will the U.S. do when a major European financial institution fails? If the resulting contagion causes one of America's major banks to fail, what will the U.S. government do?
The answer, my friends, is simple: It will print, print, print, and print. Here's the important fact to remember...
The United States is the only government in the world that can actually afford to underwrite the world's banking system. That's not because we have any real savings, but because we control the world's reserve currency. It's a paper standard, which means we can always print more of it.
The U.S. announced exactly that last month, setting up an enormous $1 trillion bailout fund for the euro via the IMF and beginning a new round of quantative easing – this time $600 billion of new dollar reserves will be injected into the U.S. Treasury market.
Despite the enormous buying of Treasurys by the Fed, long-term Treasury bond rates have soared on these announcements. Investors have begun to flee the U.S. dollar into all other forms of savings:
* Coal and oil are trading at two-year highs.
* Corn, soybeans, wheat, cotton, and sugar are trading at multiyear highs.
* Gold and copper are trading at record highs.
* Silver is trading at a 30-year high.
* Even long-depressed natural gas is now rallying.
This list sums up the arguments and warnings we've been giving for years. We are not going to have a crisis. We are in a crisis right now.
What's the best way to protect yourself?
Well, if you had done nothing this year but buy real money (gold) and short U.S. Treasury bonds, you would be sitting on a significant profit.
Take a look at the chart below. Gold (the blue line) is up about 23% in the last year. The Treasury bond fund (the black line) is flat.
The credit of the U.S., which backs every bankrupt government in the western world, must soon collapse. Our ongoing debts and deficits are too big to be financed in sound money. Thus, the Fed is turning on the printing presses, and they will be running for a long time.
The time to act is now.
It's critical you orient your investments so you're long real money and real assets and short bad credits – starting with the U.S. government. Buy the things people need – food, energy, and money. Sell things that are vastly encumbered – especially the stocks of corporations that are deeply in debt.
As you look through your portfolio, the first thing you ought to consider adding is silver. Silver is the best hedge against paper money for one simple reason: When it's not used as money, there's very little demand for it. When it is used as money, there's a tremendous demand for it.
I expect gold will continue to move higher, too... much higher. If you wanted to put the U.S. dollar on a 10% gold-reserve standard, the price of gold would have to reach nearly $10,000 an ounce to back all the outstanding money of zero maturity. Assuming gold reaches this price, the price of silver at its full monetary value (at a 15:1 ratio to gold) would be around $650 an ounce.
I know these prices seem ludicrous today... but those numbers are real.
Remember, we're a long way from the end of this crisis. Most people don't even own any gold or silver yet. So now is the best time to hedge your portfolio... before the rest of the world realizes a massive inflation is underway.
DailyWealth readers have been ahead of the crowd in the precious metals trade. But, as Brian Hunt recently pointed out, "Now that folks are watching whole countries go bankrupt on the nightly news and reading how U.S. government spending is exploding, they are waking up to the idea of owning gold and silver as a 'real money' way to protect themselves from these disasters."
BIOTECH'S BIG BREAKOUT
It's not just vital commodities and big tech breaking out to new highs... One of our favorite speculative asset classes is breaking out as well. That asset class is biotech stocks...
The biotech sector is a lot like the resource-exploration sector. Both attract dreamers and promoters. Both carry plenty of risk. Both can generate incredible gains when a small company finds the "next big thing." In the resource space, it's gold strikes and oil deposits. In the biotech space, it's cancer cures and miracle drugs. And when the public gets interested in them, both sectors can shoot hundreds of percent higher.
We gauge which way the biotech wind is blowing with the S&P Biotech Fund (XBI). It's one of the largest and most liquid ways to take a diversified position in small- and mid-cap biotech stocks.
End of America Series
Our friend and colleague Porter Stansberry is at the center of a big controversy right now. It's a controversy he's nicknamed the "End of America."
So we invited him and his colleague Braden Copeland to put together a special DailyWealth series to explain the ideas behind the controversy... and how he reached them.
Part III: How America Became a Communist Nation
Part IV: How to Protect Your Family and Wealth from the End of America
In The Daily Crux