Since 1917, the U.S. government has had a "triple-A" credit rating. Up until last week, its bonds were considered "risk free."
But the U.S. government's massive spending program will cause the U.S. to lose that credit rating, according to legendary investor Bill Gross.
Bill knows as much as anyone on the planet about government credit. He's one of the world's biggest investors, controlling three-quarters of a trillion dollars, much of which is invested in government debts. In short, he knows what he's talking about.
And the math is simple. The enormous government deficits in the next few years will cause the U.S. government debt to reach 100% of GDP. With debts that big, you don't deserve to be called risk free.
If you've never invested some of your cash outside of the U.S. dollar before, now may be the time...
Think about this, please...
Which country would you rather have your money in, the United States paying you 0% interest or Country X paying you more than 10% interest?
Don't answer yet...
Instead, take a look at the table here, and tell me which country looks like a safer place for you to earn a decent rate of interest on your money over the next two years:
Country X
U.S.A.
Govt. Debt as a % of GDP
38%
80%
External Debt as a % of GDP
15%
97%
Reserves and Gold
$201 billion
$76 billion
Budget
Surplus
Deficit
Creditor or Debtor Nation?
Net Creditor
Net Debtor
Short-Term Interest Rates
10%+
Near Zero
Country X's financial status looks pretty good, doesn't it? Or said another way, U.S. finances look pretty bad, don't they? And these numbers are about to really move in favor of Country X... Its debt is expected to fall to 20% of GDP, while U.S. debts are expected to rise to 100% of GDP.
Yet, for some reason, we Americans have nearly all our money in the U.S.
I suggest you put at least some money into Country X for the next few years.
What is Country X? Is it Switzerland? No, interest rates aren't that high there. Just wait. I'll let you know what it is after I tell the story...
Country X is an incredible opportunity right now...
In the big U.S. crash in late 2008, interest rates in Country X soared. That's because big U.S. investors had to sell investments in Country X to pay off their U.S. debts, as their U.S. creditors called in their loans.
That stampede drove interest rates way up in Country X. It also drove the value of the currency way down. Country X's currency fell by an extraordinary 40% peak-to-trough when this happened... real carnage in a place that by many measures looks safer than the U.S.
Country X's Currency Versus the Dollar
Now the opposite is happening... The big leverage-based crashes are likely behind us. The bonds AND the currency of Country X are in a strong uptrend.
Government bonds in Country X now pay about 12% interest – and bond prices are rising. So in addition to 12% interest, you're getting big capital gains, too. Meanwhile, the currency is rising as well – dramatically.
So you can make double-digit returns in three separate ways here: interest, capital gains, and the currency.
Add up 12% interest, plus double-digit gains in the bonds, and the currency... and you're looking at the potential for 40% gains here annually. In boring government bonds!
Country X, you'll be surprised to learn, is Brazil. I know, I know, the old joke about Brazil among investors is: "Brazil is the next great country... and always will be." Brazil has incredible wealth – arable land, fresh water, timber, and oil. But for a long time, the government got in the way of its own success. Today, though, it's done some things right...
In the last few years, Brazil has done the opposite of the U.S. It's stockpiled cash for a rainy day. It transformed itself into a net creditor nation. And for the first time ever, it has an "investment grade" credit rating.
It also held interest rates high to prevent the economy from overheating in the commodity boom. Now that the world economy is slowing, those interest rates will be coming down fast. That's great news for anyone who buys bonds today.
Think about our investment alternatives now... We could put our money into stocks. But they sure have run up.
We could put our money into high-yielding corporate bonds ("junk" bonds). But why would we take on company risk, when we can make even more money buying boring government debt?
You could leave money in cash at the bank... But that "cash" is really held in U.S. Treasuries, earning next-to-no interest.
Brazil looks like a safer bet than the U.S. in the coming years. As an American, I'm sorry to have to say that. But it's true.
So check out Brazil... You could see 40% gains in boring government bonds over the next year.
Good investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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