Irish whores
It might be time to put on those euro shorts again... Ireland says it will cost 34 billion euros to bail out just one of its banks (Anglo Irish). That amount of money ($44 billion) equals 32% of Ireland's GDP. My old friend Thom Hickling had a real fondness for Irish whores (as friends...). He knew a few in Paris, and he liked to tell me tales about their wild lives. Alas, the real whores in Ireland were the bankers...
Where will the money come from? Not from Ireland's taxpayers. They don't have it. Not from Germany's taxpayers, either. They're still angry about the Greek bailout. The money will come from the European Central Bank (ECB), which will buy enough Irish bonds to finance the gap. And where will the ECB get the money to buy these bonds? It will create the money out of thin air. Ireland, the bankers will say, is too big to fail. What, we wonder, will they say about Unicredit in Italy, whose failure could trigger $500 billion in losses?
It's not hard to imagine what will happen to stock, bond, commodity, or real estate prices once the ECB turns up its presses. Just about every kind of financial asset has gone up since quantative easing resumed in the U.S. in late July. The CRB index (which measures a broad basket of commodities prices) had its best September since its 1956 creation. The Dow Jones Industrial average of stock prices posted its best September since 1939. For the S&P 500, September is the best month since April 2009 – this was just after the Fed began its first round of quantative easing. See? More money makes everything better!
How long can this go on? Well, who would oppose printing more money? Doofus Americanus will almost surely support increasing the rate of quantitative easing if it seems to make our problems go away. And if quantitative easing gets (or keeps) you elected, the politicians will demand more and more of it. That's the beauty of paper money: You can print as much as you want and all of the world's problems seem to go away.
There's only one small glitch... Printing money steals from everyone who holds the currency. It's a secret tax that no one votes to approve... or keeps track of. It destroys the purchasing power of dollar holders. While it's no wonder that stocks went up in September, guess what went down by the same amount? The dollar fell by 8.4%, almost the exact same amount that stocks and commodities went up. A falling dollar makes U.S. assets cheaper for foreign investors to buy. So while we might feel good about stock prices rising, the reality is, the middle class is being wiped out because it held more of its savings in dollars instead of things like stocks and gold. And we're allowing foreign investors to buy our best assets for far less than they're really worth.
Since the banking crisis began with the collapse of Lehman in September 2008, the price of gold has gone from around $700 an ounce to more than $1,300. You could view this as an 85% increase in the price of gold... or nearly a 50% decrease in the purchasing power of the U.S. dollar. It's your choice. If we keep this up (and I'm sure we will), sooner or later, nobody will want dollars at all. They will all want gold...
Back in December 2008, I warned my subscribers this would happen – the government would "paper over" all of the enormous losses and this process would lead to a massive inflation. I wrote by the end of OBAMA!'s first term in office, gold would trade for $2,500 an ounce and new currency controls would make it impossible for most people to get out of U.S. dollars. Nothing has happened since to change my mind. And if you don't see the writing on the wall by now, there's just no hope for you...
What should you do? Lots of things. But the simplest is to merely buy and hold gold bullion. But many more things are possible, too. One thing I believe everyone with a liquid net worth more than $1 million (that's your net worth not including the value of your primary residence) ought to do is explore a foreign life insurance wrapper. You have lots of good financial reasons to do so – it's just about the only legal way to avoid taxes in the U.S., for example. One of the world's leading experts in foreign life insurance will speak to our Alliance members in Switzerland at our meeting in November.
My goal is for every attendee to leave our meeting with the knowledge required to build a secure nest egg offshore in a safe jurisdiction, like Switzerland or Liechtenstein. Whether or not you decide to act doesn't really matter to me. Nor does it matter whether or not you ever feel threatened by living in America. What does matter is that by the time you realize you need this information, it will almost surely be too late for you to act.
One other note about the decline of the U.S. dollar: Watch Hong Kong. When the U.S. starts printing money, a lot of those dollars end up in Hong Kong. The stock exchange is a great barometer for how much the U.S. dollar is being devalued. Since the end of July, Hong Kong is up more than 20%. It will keep rising as long as the Fed keeps printing. (You can track Hong Kong via EWH, which is a fairly liquid Hong Kong index fund.)
We are not the only analysts in the world who can do basic math and track the value of the dollar. Hedge-fund billionaire David Tepper says the Fed's promise to backstop the economy with quantative easing will send stocks – and likely all asset classes besides bonds – soaring. Another hedge-fund heavyweight, John Paulson, agrees. At a lecture for New York's University Club, Paulson recommended replacing low-yielding bonds with higher-yielding stocks... A theme we've been covering in these pages.
He said his favorite stocks are blue chips with healthy dividends, like Johnson & Johnson and Coca-Cola (just as our own Dan Ferris has been saying). He's also still hot on financials. But one of his biggest new bets was on the Las Vegas gambling concern, MGM. That's an interesting stock for Paulson to buy because its heavy debt load almost sent it into bankruptcy in 2009.
What does Paulson see in the stock? My guess is he knows very well gambling flourishes in societies where money printing gets out of control. And he also knows that the coming inflation will wipe out the company's debts while sending the value of its Las Vegas real estate higher.
Paulson also thinks this is the best time to buy a home in 50 years, saying, "If you don't own a home, buy one. If you own one home, buy another one. And if you own two homes, buy a third and lend your relatives the money to buy a home." We'd agree with his assessment... as long as the property is outside the U.S.
New highs: Atlantic Power (AT), Imperial Metals (III.TO), Keyera Facilities Income Trust (KEY-UN.TO), MFA Financial (MFA-PA), Realty Income (O), Silver Wheaton (SLW), Anheuser-Busch InBev (BUD), DirecTV (DTV), WD-40 (WDFC), HMS Holdings (HMSY), iShares Silver (SLV), Enterprise Products (EPD), Altria (MO), Philip Morris (PM).
In today's mailbag... more reader's share their success stories. Send your e-mail to feedback@stansberryresearch.com.
"I bought Hatteras for $25.50 a few months ago. Recent price over $ 29 plus very generous dividend payments. Thanks for the advice. Thanks to my Alliance membership I've figured out what kind of an investor I am. I'm a value investor who likes companies that pay a dividend. My husband and I invest a set amount of money each month and reinvest all of the dividends. We average about 10% dividends and we've made additional money because the stock prices are rising. Thanks for your excellent research." – Paid-up subscriber J.F.
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Porter comment: I'm 100% certain that our Alliance subscription will pay for itself and would benefit 90% of our audience. The difficulty lies only in getting people to try it because the upfront cost seems so high. The reality is, you ought to consider the purchase price as an investment, not an expense, because a membership will improve your investing results. Our current offer expires at midnight. We will never again offer the Alliance for less. So... it's buy now, or pay more later. That's what we promised seven years ago when we started the program. Eventually, some people realized we meant it...
Regards,
Porter Stansberry
Baltimore, Maryland
September 30, 2010